§ 4.24 p.m.
§ The Minister of State, Department of Trade and Industry (Lord Hesketh)
My Lords, with the leave of the House I shall now repeat a Statement being made 36 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 therefore now able to inform the House of the public expenditure outturn for this year; the plans for the next three years; our proposals for national insurance contributions in 1991–92; and the forecast of economic prospects for 1991 required by the 1975 Industry Act.
"As usual, the main public expenditure figures, 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 Tuesday.
"In this survey we have had to take some tough decisions in the interests of the economy and the new plans represent a very tight settlement. But it is a settlement which is fully consistent with the Government's commitments and channels extra resources to the areas where the need is greatest. For this, and other reasons, I would like to pay tribute to my right honourable friend the Chief Secretary for the skill and persistence with which he has brought the survey to a successful conclusion.
"Since 1984–85, while the economy has grown by nearly 20 per cent., total public spending has risen scarcely at all in real terms. As a result, the ratio of public spending to national income has fallen by more than 7 percentage points, the largest sustained fall for over 40 years. Moreover, in the past three years large budget surpluses have enabled us to repay debt totalling £26 billion.
"The main objective of economic policy at present must be to bring inflation down. But as we do so, the short-term prospect is bound to be one of weak activity. In the past, during similar periods the ratio of public spending to national income has risen strongly. On this occasion it will not.
"Planned public expenditure in the current fiscal year is now expected to be £180.6 billion, rather less than 1 per cent. above the planning total set a year ago. A large part of this extra spending is due to an increase in the financing requirements of the nationalised industries; to a surge of CAP spending on agricultural market support; and to expenditure on the Gulf crisis.
"Notwithstanding this cash overrun, public expenditure remains under tight control. Inflation has been higher than forecast but it has not been allowed to feed through fully into expenditure. As a result, the ratio of spending to national income in the current year is likely to be slightly lower than projected at the time of the Budget—virtually unchanged from the 1989–90 level.
"The decisions on public expenditure for the next three years have been taken against a more difficult world and domestic economic background than for some time. Activity at home and abroad has begun to weaken and some countries such as 37 Canada and the US are expected to grow very slowly indeed over the coming year. The outlook has also been complicated by events in the Gulf with the rise in oil prices and the uncertainty they have produced. Against that background our new plans are designed to protect the most vulnerable groups in society against the effects of higher inflation and to maintain longer-term policies to improve the working of the economy.
"But, beyond that, this is not the year for making substantial additions to plans in other areas. The priority must be to honour existing commitments, within a total for public spending which is affordable and fiscally prudent.
"For 1991–92, the new planning total has been set at £200 billion, a little under £8 billion more than the previously published figure. The planning totals in the following two years are £215 billion and E226 billion respectively.
"In recognition of the economic uncertainties and the risks arising from the Gulf crisis, these totals include higher reserves than last year's plans: £31 billion in the first year; £7 billion in the second year: and £101 billion in the third. I think these increases are prudent. Our plans also incorporate an estimate of privatisation proceeds at £51 billion a year. That is in line with the average outturn in recent years.
"After taking account of inflation, the level of spending next year will be rather less than implied by last year's plans; that is, the cash additions to the planning total do not fully compensate for the higher level of prices now expected for 1991–92. This restraint is necessary but it means that many of my colleagues have had to drop or postpone proposals they would otherwise have regarded as desirable.
"Nevertheless, within this total there are substantial extra resources in three main areas: health, social security and central government support for local authority services. These additions to plans total some £7½ billion in 1991–92. It has also been possible to make improvements to other key areas including education, public transport, and the environment.
"We have also been able to make savings elsewhere, including defence. I can assure the House categorically that financial constraints will not hinder in any way the UK's military contribution to resolving the Gulf crisis. However, the options for change announced by my right honourable friend the Secretary of State for Defence on 25th July will produce increasing savings in the defence budget. Over the next three years the new plans provide for a real reduction in defence spending of about 6 per cent. and further reductions should be achieved in later years as my right honourable friend's proposals are fully implemented. For the first time in the period since World War II we are now able safely to plan on a 38 defence budget that is significantly less than one-tenth of all government expenditure and falling.
"In certain other areas we have been able to accommodate increases in expenditure by finding offsetting savings. For example, on the trade and industry and employment programmes we have made selective increases while keeping broadly to existing cash plans overall. Within the Home Office programme, lower prison population forecasts have enabled us to reduce the prison building programme, while considerable resources have been made available for the refurbishment of existing prisons, including Strangeways.
"In July the Government announced extra support for local authority current spending which will add around £2½ billion to previous plans.
"Current spending by local authorities has substantially outstripped central government spending over recent years. This year local authorities in England budgeted for increases of over 5 per cent. in real terms before capping. This has led to community charges which in many authorities are far higher than expected, or justified.
"The additional support we are providing for next year should enable local authorities to finance local services without sharp increases in their charges. My right honourable friend the Secretary of State for the Environment has already announced that if required the Government will make vigorous use of their powers to cap high spending authorities. I re-emphasise that.
"Nearly £3 billion has been added to the social security plans for next year. This mainly reflects the upratings already announced by my right honourable friend the Secretary of State for Social Security which maintain in full the real value of benefits paid to 10 million pensioners and 11 million people on income-related benefits. The additions also reflect the substantial extra cost of community charge benefit which will help about one in four charge payers. My right honourable friend was also able to announce selective improvements for poorer pensioners, people in residential and nursing homes and families. These improvements will be financed within the social security programme by savings from restructuring the statutory sick pay scheme, as announced by my right honourable friend on 24th October.
"As in previous years, the Government have also made very substantial extra provision for health. Between this year and next, spending on the National Health Service in the United Kingdom will rise by £3 billion, so that the real resources over and above inflation that are available for spending on health will increase by over 5 per cent. The total real increase in health service spending since 1979 will be nearly 50 per cent. This has enabled the NHS to employ some 8,000 more hospital doctors and dentists and over 50,000 more nurses and of course to provide for more sophisticated health care than ever before. As a result, over 1¼ million 39 more in-patient and day cases are now treated every year. In the largest sustained programme of hospital building ever seen, nearly 500 major capital schemes have been completed since 1979. Our plans ensure that the next three years will see further improvements in services.
"Extra finance is also being provided for public transport. Both London Transport and British Rail have large long-term investment programmes which will enable them to extend and upgrade the London Underground and to prepare for the opening of the Channel Tunnel. Between them, they will spend some £¾ billion on safety alone over the next three years. The new plans also consolidate the substantial extra provision for roads announced last year and include measures to relieve congestion in London. Investment in public transport in the next three years will be double the level of the last three.
"Central government spending on education will be increased by over £500 million next year, largely to finance the record number of students in higher education. One in five of the 18 to 19 age group will be in higher education compared with one in eight only a decade ago. The number of higher education qualifications gained as a proportion of the relevant age group is higher in the UK than in Germany, France, Italy and almost every other European country.
"Following the publication of the White Paper on the Environment, the new plans provide significant extra resources for environmental research and in support of environmental bodies such as the National Rivers Authority and the Countryside Commission. There is extra provision also for the Government's programme of action on rooflessness.
"Throughout the last decade we have sustained a high level of capital spending in the public sector. In total it will approach £30 billion in the current year. Leaving aside defence, our new plans include an extra £1½ billion a year for investment by central government and nationalised industries. There is also extra support for local authorities' capital spending on schools, housing and local transport.
"Taking capital and current together, real growth in total public spending over the three survey years will be less than 2 per cent. a year, well within the trend growth in the economy. As I have indicated, this is a tight settlement and it means that the ratio of public spending to national income should remain stable at its present level for the next two years. Thereafter, as activity strengthens and inflation remains in check, the downward trend will be resumed.
"I now turn to national insurance contributions. As usual the review this autumn has taken account of advice from the Government Actuary on the income and expenditure of the National Insurance Fund and of the statement on benefits made by my right honourable friend the Secretary of State for 40 Social Security on 24th October. The lower earnings limit at which contributions begin will go up next April to £52 a week, in line with the single person's basic pension, while the upper earnings limit will rise to £390 a week. The upper limits for the reduced employers' rates will also be increased.
"In addition to these changes, there will be reductions in the contribution rates paid by employers. As my right honourable friend explained in the House on 24th October, the restructuring of statutory sick pay will add modestly to employers' costs from next April. It is right that the Exchequer should share these costs. Therefore, the main employers' contribution rate will fall next April from 10.45 per cent. to 10.4 per cent. and each of the lower rates will be cut by 0.4 per cent. This relief through contributions will limit the impact of the SSP adjustments on employers of lower paid workers in particular. The necessary legislation will be laid before the House. The contribution rates paid by employees and the class 4 rates paid by the self-employed will remain unchanged.
"I am also publishing today the economic forecast required by the 1975 Industry Act, the first since we have joined the ERM.
"I must emphasise at the outset that the Gulf crisis and its effects on world oil markets make the future unusually difficult to predict. The UK, along with other countries, has already seen some of the adverse impact on consumer price inflation. The oil price rise is likely also to contribute to the general slowdown in the world economy that was already under way before the Gulf crisis. For the Industry Act forecast I am following the practice of international institutions such as the IMF and assuming some fall in oil prices from recent levels to around 25 dollars a barrel by the end of 1991. But I must reiterate that the situation in the oil market remains very volatile.
"Despite these uncertainties, however, it is now clear that the tight UK policy stance of the past two years is bringing about an easing of domestic inflationary pressures. This will make possible both a sharp fall in RPI inflation next year and a strengthening of output.
"So far this year the public sector debt repayment has been running below both last year's outturn and our expectations at Budget time. Local authority borrowing was particularly high earlier this year as some authorities experienced delays in collecting non-domestic rates and the community charge. Public corporations' finances have been adversely affected by the slowdown in economic activity and central government spending has also been higher. Nevertheless, despite this I still expect a significant debt repayment in the year as a whole of £3 billion. This amounts to ½ per cent. of GDP and represents a strong fiscal stance at this stage of the economic cycle. Indeed we have a stronger fiscal position than Germany, France, the US and the other members of the Group of Seven industrial countries with the solitary exception of Japan.
41 "Thus our public finances are strong. Given our membership of the ERM and the counter-inflationary strategy we are pursuing, it is essential that they remain so. As I made clear to the House last month, the Government remain committed to the medium-term objective of a balanced budget. That is why we have continued our firm restraint of public expenditure.
"Turning to demand and output, it is clear that growth has now slowed down sharply. GDP is forecast to grow by 1 per cent. this year. This figure is the same as the forecast I made at the time of the Budget but the path has been slightly different and I expect output in the second half of the year to be down on the higher than expected level in the first half.
"This period of weak activity should last until early next year, after which I expect growth to resume. GDP is expected to grow by over 2 per cent. in the course of 1991, though year on year growth is forecast to be only ½ per cent.
"Unemployment has been rising since the spring and may continue to rise in the months immediately ahead. But job prospects will improve with a resumption of growth, the more so if employers keep tight control of costs, including pay rises.
"Within domestic demand growth of consumer spending has now slowed markedly from over 7 per cent. two years ago to under 3 per cent. in the first half of this year. The signs are that it will fall further over the year ahead as consumers continue to adjust to lower growth of real incomes, following the high borrowing of recent years.
"Business investment rose by an unprecedented 45 per cent. in the three years to 1989 taking investment to an historically high level as a share of GDP. It has fallen slightly in 1990 and is expected to fall a little further next year. A modest downturn from such a high level is not surprising; indeed it would be extraordinary if it did not occur at this stage in the cycle. It will still leave investment over 50 per cent. higher than in 1979.
"The current account has now begun to improve markedly. With low growth of domestic demand, import volumes have shown virtually no growth over the past year and import prices have been falling in recent months as a result of the firm exchange rate. Export growth on the other hand has remained strong over the past year so that the UK's share of world trade in manufactures has risen for the second year running. The deficit on visible trade has followed a welcome trend and virtually halved since the middle of 1989. This progress has been partly offset by poor figures for invisibles in recent quarters, though in the past these have more often than not been revised up later, at times substantially.
"I now expect that the current account deficit in 1990 will remain close to the forecast I made at the time of the Budget, at just over £15 billion; and with domestic demand and import growth likely to stay low, I expect a considerably improved 42 performance next year, with the deficit falling to £11 billion despite some slowdown in export growth as world trade decelerates. As a proportion of GDP the deficit is expected to fall from 3¾ per cent. last year to l¾ per cent. in 1991.
"I am now confident that inflationary pressures have been brought firmly under control. The monetary indicators show this clearly: the growth of MO has fallen every month since April and is now comfortably within its target range, while growth of the wider measure, M4, and lending have fallen sharply to 14½ per cent. and 15½ per cent. respectively. With demand and output slowing markedly over the past two years, it is clear that inflation will come down next year. The fall in the headline figure will be very sharp as the effects of past mortgage rate rises, the high initial level of the community charge and recent petrol price increases cease to influence the inflation rate by the end of next year. From a peak at the current level of about 11 per cent. I expect RPI inflation to fall to around 5½ per cent. in the fourth quarter of next year.
"In summary, the plans I have announced today honour our existing commitments and provide additional resources for key areas, notably for the health service, for pensioners, and for investment. However, they are within an overall total we can afford and they avoid the sharp upturn in the share of expenditure in national output which has occurred at similar stages in previous economic cycles. They are therefore consistent with the tight fiscal and monetary policies which will lead to a falling trade deficit and a sharp reduction in inflation. These are the right policies for building on the economic achievements of the past decade and I commend them to the House".
My Lords, that ends the Statement.
§ 4.45 p.m.
§ Lord Peston
My Lords, I thank the noble Lord for repeating the Autumn Statement. It is extremely difficult to comment on it as one has it in one's hands only an hour before doing so. I was always amazed at how well my noble friend Lord Bruce of Donington coped in such circumstances. Now that I have to comment on the Statement, I am even more appreciative of his achievement.
We are rather unfortunately interrupting a debate on the gracious Speech. Therefore there are many aspects of the Statement that I shall have to ignore. However, we shall be debating the economy next week and I hope that I can cover the points then that I shall have to miss today. I for one have found it hard to follow a Statement of this length. I must confess that I did not understand large parts of it and I shall need to reflect on them at greater length. That is particularly true of many of the details of public expenditure. However, my general impression of the Statement, especially viewed as an economics document, is that it is the most complacent Statement that the Government could possibly have put out. I do not believe that it addresses the real problems that confront our country and our economy today.
43 The most preposterous statement of all was contained in the very last sentence:These are the right policies for building on the economic achievements of the past decade and I commend them to the House".The economic achievements of the past decade have been a vastly high rate of inflation, a reduction in the rate of growth of the economy well below its underlying rate, rising unemployment, the largest balance of payments deficit in British history and other matters of that kind. If those are the policies for building on the economic achievements of the past decade, the mind boggles at what the Government would do in any other circumstances. I have to ask myself whether I read about the results of a survey last week that was conducted by the CBI on what was happening in British business. I wonder whether the Chancellor of the Exchequer or his officials read the newspapers any longer as there was certainly nothing in this Statement which bore any resemblance to the description of the economy given by the CBI.
A further problem we have is that the Government clearly cannot make up their mind whether they think public expenditure is a good thing or a bad thing. In one part of the Statement the Government tell us that the ratio of public expenditure is lower than it was at some other point in time but in another part they tell us how excellent all the public expenditure measures they have engaged in are. In order that no doubt can exist about the views of my noble friends and myself, I should say that we broadly regard public expenditure in the areas referred to in the Statement as a good thing. We say that with no sense of shame whatsoever. I hasten to add that in the present circumstances it is not at all obvious to me that the Government's claim that public expenditure will be lower in real terms is the right policy for our country.
I wish to refer to one or two of the details of the statement, partly to seek clarification. I wish to draw the attention of noble Lords first of all to the remarks on defence. I was somewhat taken aback by the sentence which states:We have also been able to make savings elsewhere, including defence".I was also taken aback by the sentence which states that the Government can assure the House categorically that nothing that will happen in the Gulf will be held back by these cuts. I hope that the Minister can give me a rather stronger assurance on defence expenditure. I hope he can say that at this time none of the traditional desire of the Treasury—in other circumstances I would support such a course of action—to cut defence expenditure would remotely influence any decision that we may regretfully have to take on the Gulf in the near future. I hope the Minister can produce a rather stronger statement on defence than the one he offered to us. Are we to take seriously the noble Lord's statement about the financing of local services and the poll tax? Listening to his remark that the poll tax will not rise, my immediate reaction was to recall the words of his right honourable friend the Prime Minister: I assume that the Government are 44 living in cloud-cuckoo-land in their approach to the poll tax. Is it seriously to be believed that poll tax bills will not rise strongly next year?
On the question of public expenditure, I ask the noble Lord to reflect a little on his remarks about expenditure on safety in London transport. Is that not a very good example of the fact that the failure to spend in the past has led to the need to spend disproportionately now, whereas a more serious and rational approach to that and other matters would have been much more economical in the long run?
Noble Lords know that education is an interest of mine. I draw your Lordships' attention to the fact that we are told that the increase in spending on education —which is an increase in nominal terms and given the current rate of inflation it is not by any means obvious that there will be an increase in real terms—is almost all to finance the record number of students in higher education. I favour students in higher education, but I was under the impression that most of us felt that the main problems in our education system lay in the schools. If this Statement is to be taken seriously, does it not follow that there will be no extra resources for schools, and is that not a worrying matter?
In that connection will the Minister clarify the sentence:the number of higher education qualifications gained, as a proportion of the relevant age group"?That is not a calculation that I have come across before. What is meant by the number of higher education qualifications gained? I should like to hear much more about what the noble Lord has in mind. The point he has tried to make would not convince anybody who knows anything about education in this country compared with the rest of Europe. It is a very strange expression.
There are many other aspects of the Statement which are of interest; but, as I promised noble Lords, I shall not follow them up now. One advantage of having the Statement now is that there is still plenty of time in the debate on the gracious Speech to ask about detailed aspects of the Statement in connection with other topics. I hope that noble Lords will do so. However, I should like to ask a few questions about macro-economic policy.
I am surprised that the Government have forecast oil prices at the low level of 25 dollars a barrel. Almost all of the advice that I have received suggests that it would be prudent to plan for a rather higher oil price. Can the noble Lord tell us more about that?
I had difficulty following his remarks about the Government budget and debt repayment. Will the Government budget be in surplus this year and next year? I am not an expert in the field and that is the easiest way that I can put the question. Is the budget currently running in surplus? I ask that question because there is a little in the Statement about debt repayment but there is another set of weasel words to the effect that the Government remain committed to the medium term objective of a balanced budget. The 45 medium term objective of a balanced budget means that it is averaged over a few years, implying that it may go into deficit quite soon.
I should also like to draw noble Lords' attention to the remarks made on unemployment. There was a great deal of reference to the fact that this or that will definitely happen. On unemployment there is another preposterous remark to the effect that unemployment has been rising since the spring and "may" continue to rise in the months immediately ahead. I do not know whether noble Lords are familiar with the expression "racing certainty", but if I were asked which of the predictions was most likely to be correct, it would be that unemployment will, rather than may, rise in the coming months. Why are the Government so restrained in their view as to what is likely to happen to unemployment?
That leads me to two final questions on macro-economic matters. First, I should like to believe that the out-turn for the balance of payments on current account in 1990 will be as low as £15 billion. Even more should I like to believe that it will fall to £11 billion next year. However, most forecasters —including me, with my puny efforts—are rather staggered by a figure of £15 billion for the coming year. No work that I have seen suggests that the current account deficit could be as low as £11 billion. The best measure of the catastrophe that this Government have produced in this country is that I refer to a deficit of £11 billion as low. That is an indication of what is wrong with our current economic policy. I do not believe that the deficit will be as low as £11 billion.
Secondly, my final question could apply to the document as a whole. I wrote down as an aide-mémoire the sentence "how seriously are we to take the figures?". I did so because by sheer chance I kept last year's Autumn Statement and the Financial Statement for March. They were buried under all the papers on my desk. Fighting my way through the papers I found those dust covered objects. What did I find for the fourth quarter prediction for inflation, which, as we are always reminded, is the judge and jury of government policy? The Autumn Statement of a year ago said that for the fourth quarter of 1990 the inflation rate would be 5.75 per cent. per annum. In the Financial Statement in March, the forecast had risen to 7.5 per cent. per annum. I believe that this Statement shows that the out-turn is 11 per cent. per annum. That must be a contender for the world record for the worst forecast ever made, certainly in my lifetime.
What then happens? The Government have lost that game so they have started a new one. They now predict t gat the inflation rate for the fourth quarter of 1991 will be 5.5 per cent. per annum. One wonders therefore whether any of this is worthwhile and whether the Government are in the serious business of forecasting or are simply pulling numbers out of a hat in order to lull the country at large into a false sense of security.
I have gone on for as long as I dare for the moment without trying your Lordships' patience too much. I 46 simply repeat the warning that we shall all have a second chance next week when I hope to raise even more esoteric matters with the House.
§ Lord Ezra
My Lords, I, too, should like to thank the noble Lord for reading us the Statement. Like the noble Lord, Lord Peston, I am fully conscious of the fact that next week we shall have an opportunity to dwell in much greater depth on these economic matters. Therefore I shall limit myself to asking four questions relating to the economic forecasts, because it is on the basis of the economic forecasts that other policy decisions, particularly in relation to expenditure, have to be taken.
My first question relates to growth. The Statement accepts that growth is running at a very low level at the present time—1 per cent. But there is an expectation that growth will resume after the early part f next year. That is a little surprising in view of' the fact that it is stated further on in the Statement that consumer demand will continue to run at a very low level. Right at the start of the Statement it is indicated that the view is that there will continue to be a fall in growth in the world as a whole, and in particular in the developed world, during the whole of next year. I should like to ask the noble Lord, how robust is the estimate that there will be a resumption of growth in the UK, as an oasis in the whole world, whereas the rest of the countries in the world will show a continued fall in growth?
My second question relates to business investment. The noble Lord, Lord Peston, touched on that matter. The Statement emphasises the unprecedented growth in business investment in the three years to 1989 and states that it is not surprising that from time to time there should be some slight fall but that growth is expected to resume before very long. That is in total contradiction to the views expressed in the CBI survey, to which the noble Lord, Lord Peston, referred. The CBI uses such terms as "technical if not actual recession" and makes its worst forecast of business intentions for many years. Are the Government being realistic when they say that business growth is only momentarily slightly down and will quickly resume? How do they reconcile that view with what many of us feel are the more realistic views of the CBI?
Thirdly, I come to the balance of payments. The Government have repeatedly said to us when we have had a bad month in terms of balance of payments that we should not take that as an indication of the trend. We happened to have one month when the figures added up for various reasons to a rather better result than expected and they seemed to be taking that as a trend. But one has to go beneath these balance of payments figures. We are going through a period of very low growth, whether one calls it recession or not. That is bound to restrict imports. It is also admitted that the slow down in world trade will eventually restrict exports as well. Even though we may show some improvement in the ultimate balance of payments figure, the underlying reasons could in fact be negative. If and when growth resumes we could see 47 the same awkward trend as we have had before. I should like to have the noble Lord's views on that matter.
Finally, I turn to the question of inflation, the beating of which is the main object of Government policy. We are told that, whereas inflation now is running at about 11 per cent., in a year's time it will be cut in half. This needs to be queried somewhat. Bearing in mind the point about which the noble Lord, Lord Peston, reminded us, of earlier forecasts only a year ago, it is difficult to visualise how in effective terms such a massive improvement can take place. The Government properly refer to the statistical changes which will naturally occur because of the lapse of time in relation to the impact of the poll tax and the impact of mortgage costs. But even allowing for those, it is difficult to see, against the background of increasing costs for a whole variety of reasons and of recession throughout many parts of the world, how the inflationary pressures in Britain can be reduced to that extent, and particularly how the underlying rate of inflation can come down to that level.
I summarise my questions by saying that there is something a little surprising about the economic forecasts made by the Government in the Statement. They do not seem to bear a precise relationship to what is being said elsewhere in this country and to what is happening elsewhere in the world.
§ Lord Hesketh
My Lords, I begin by taking this opportunity at the Dispatch Box to welcome the arrival of the noble Lord, Lord Peston, as my interrogator on a regular basis for the foreseeable future.
The noble Lord, Lord Peston, having closely observed the Statement which I repeated to your Lordships this afternoon, then proceeded to smile as he referred to the economic achievements of the last decade. In fact it would be fair to say that his countenance acquired a quizzical nature. I refute his suggestion by saying that the income of an average family has risen by 34 per cent. in real terms since the Government took office and that the health service has received 50 per cent. more investment in real terms since the Government took office. That makes a decade of which the Government can be reasonably proud.
The noble Lord wishes me to clarify the Government's position with regard to defence expenditure and the Gulf. I remind him that the phrase used in the Statement is "categorically". I cannot add a great deal to that. I also draw his attention to an item later in the Statement which points to the increase in the reserves for the three years ahead in the event of further expenditure being required.
The noble Lord referred, again with a quizzical look, to investment in public transport. The record there is one of which the Government can be proud. Investment in British Rail in real terms in this decade has risen by 40 per cent. There is an even more important figure because we now have private sector 48 money as well as public money in the infrastructure and that is shown by the £8.5 billion being invested in the Channel Tunnel. That is a public infrastructure project if ever there was one.
The noble Lord referred to higher education and said that he found the figures that I quoted from my right honourable friend's Statement unusual. I was not entirely surprised by that. The figures showing success in education may not be quite what the noble Lord would like to see, but that is what they do. I hope that he will see it as a chance for his industry to profit from that investment in higher education.
§ Lord Peston
My Lords, I did not for one moment wish to underestimate the achievements of my colleagues and I in academic life. I just wanted the expression "higher education qualifications" to be defined for me. I did not want to underestimate the achievements. I simply wanted to know the meaning of the expression.
§ Lord Hesketh
My Lords, I am always rather uncertain about higher education qualifications but I believe that the expression refers primarily to qualifications gained in universities and polytechnics.
The noble Lord, Lord Peston, referred to predictions and I know that the noble Lord, Lord Ezra, has a great interest in statistics, a matter which I have discussed with him at the Dispatch Box in the past. The noble Lord, Lord Peston, asked whether the figure of £15 billion would be achieved. Only a few months ago noble Lords on the Benches opposite were confidently predicting a trade deficit of £20 billion. The figures are now confirming what the Chancellor originally said. They are heading in that direction. If one combines that with the suspicion of the noble Lord, Lord Ezra, as regards imports and his view that having a tighter economy cuts them down temporarily, I would suggest that the evidence of our export performance is more certain for the future. The record there is good—two years of increased world share, not of retreat.
The noble Lord, Lord Ezra, said that a reduction in inflation from 11 per cent. to 5.5 per cent. would be difficult to achieve. The Government have gone to considerable lengths to improve their statistical evidence. The statistics show that there will be a fall, and a substantial fall, in inflation, which will come to that figure of 5.5 per cent. That will bring us alongside European inflation figures in 12 months' time. I hope that I have covered the basic points raised by the two noble Lords.
§ 5.10 p.m.
§ Lord Boyd-Carpenter
My Lords, I thank my noble friend most warmly for repeating this immensely important and, to those of us who have not been given copies of it, extremely complicated Statement. The Statement began with a reference to the maintenance of the same level of public expenditure as a percentage of national income. Can he indicate what the percentage figure is of public expenditure as a percentage of national income? The Government, rightly I think, regard that as important. It would be extremely interesting to have the figure.
49 Can my noble friend confirm whether or not that percentage figure includes or excludes local government expenditure? I am referring not to the grants made to local government but to the total expenditure of local government. As he made clear, in that context local government expenditure is rising very substantially. Can my noble friend indicate whether Her Majesty's Government are prepared to take firm measures to prevent that local government expenditure rising so fast and so far as to undermine the whole success of the central government's policy? I should be grateful if he would deal with that point.
I also congratulate him on the small but useful reduction in employers' national insurance contributions. However small, it will help with the difficult task of keeping down costs and making our industry more competitive. Will he accept that the Government's battle to maintain some serious control over public expenditure, in the face of all the agreeable invitations given to them to increase it, is absolutely crucial to the survival of our economy, its recovery and its ability to remain competitive? Will he emphasise that this is a major part of government policy?
Finally, perhaps I may join him in congratulating my successor as Member for Kingston upon Thames in another place—otherwise, the Chief Secretary—on the extremely effective work that he has done in the difficult circumstances of this year.
§ Lord Hesketh
My Lords, I shall certainly bring the last remarks of my noble friend Lord Boyd-Carpenter to the attention of the right honourable Member for Kingston upon Thames. The figure that my noble friend requires is 39½ per cent., which includes local authority expenditure. He drew out the crucial difference between the two sides facing each other across this Dispatch Box. We believe that the private sector is the engine of growth which pulls the train that delivers a better society. We do not believe that the better society should be the engine that destroys the engine behind.
Lord Bruce of Donington
My Lords, I have only one question to ask the noble Lord on this occasion. At paragraph 38 of the Statement, with reference to output, he was very coy. He made some soothing noises about output in general but did not refer to manufacturing output, which is of vital importance to the United Kingdom.
The noble Lord will recall that in the Financial Statement that accompanied the Budget earlier this year manufacturing output during 1990–1991 (I refer now to Table 3.9) was estimated to be roughly the same as last year with output for the first half of 1991 of some minus ¾ of 1 per cent. Those were the times when were still talking of the great economic miracle. In view of the latest report from the CBI, to which my noble friend Lord Peston and the noble Lord, Lord Ezra, referred, does he still think—as apparently he does in Table 1 in the Economic Prospects for 1991—that manufacturing output at the end of 1991 will remain at the figure predicted in March and that it will be exactly the same? Does he 50 believe that in the following year, 1991, it will be only 0.5 per cent. below what it is likely to be during the current year?
These matters appear very odd to me. There may be some statistical error. The Government's current Treasury bulletin, which I had the opportunity of perusing, refers to the unsatisfactory state of government statistics generally and gives specific reasons for that. However, I have a straight question for the noble Lord: does he believe that manufacturing output in the current year will run at the same level as in the previous year?
§ Lord Hesketh
My Lords, we return to statistics. No doubt the noble Lord, Lord Bruce, who I anticipated even from his new position would continue to harry me in my new position, would be surprised if at this Dispatch Box I decided to change the prediction in the Statement that was made by the Chancellor. I can draw to his attention the fact that export volumes achieved this year have risen. As I pointed out to him the other day, in vehicle production, which is an area that a decade ago many had given up as lost forever, they have been rising most encouragingly.
Lord Bruce of Donington
My Lords, the noble Lord has not answered the question, which related to output. There are sources open to him and to the Treasury, if they are on speaking terms with the CBI, which will enable them to arrive at some estimate of what manufacturing output is likely to be during the current year and a reasonable forecast within tolerable limits of error for the following year.
§ Lord Hesketh
My Lords, I shall not go beyond the position that we predicted. I shall have to stand my ground at that point.
§ Lord Jenkin of Roding
My Lords, is my noble friend aware that large numbers of people applaud the substantial capital investment programmes which are currently being made in such industries as telecommunications, water and pollution, gas, and a number of other comparable industries? Has he formed any view as to by how much greater the public expenditure totals would be if those sums, amounting in total to some tens of billions of pounds a year, had still to be found by the taxpayer instead of by the market?
§ Lord Hesketh
My Lords, as always, my noble friend Lord Jenkin of Roding makes an extremely fine point. I am certain that if those operations were still being run in the public sector there would be tens of billions of pounds above the tens of billions to which he has drawn attention.
§ Lord Stoddart of Swindon
My Lords, perhaps I may bring the noble Lord back to the Government rather than to the Opposition. I should like to ask him a short question. Bearing in mind that the Statement made many other forecasts, can he give any estimate of the trend of interest rates over the next months and the next year?
§ Lord Hesketh
My Lords, if I could and I did, I might be in rather serious trouble. In order to lower interest rates we have to destroy inflation. That is what this Government are engaged in.