3.37 p.m.

Photo of Mr Denis Healey

Mr Denis Healey (Leeds East)

With permission, Mr. Speaker, I shall make a statement about measures which the Government have decided to take to secure our social and economic objectives.

Our overrriding priority is to restore the prosperity of the British economy through the regeneration of our industry and to provide the essential conditions to bring down, and to keep down, the intolerable level of unemployment. To do this we must ensure that manufacturing industry has sufficient resources available to take advantage of the exceptional opportunities now open to us in the export field; we have got to get our rate of inflation down to the level of our competitors and hold it there; and we have got to do both in a way which will protect the poorest and weakest of our people and retain the social consensus on which the success of all our policies depends.

In my Budget Speech last April I said that I expected our gross domestic product, which fell during 1975, to grow by about 4 per cent. and manufacturing output to grow by about 8 per cent. in the year to mid-1977. The increase in demand would come largely from exports and stock-building: little from consumption.

In fact the recovery has proceeded faster than I then expected, led by a vigorous growth in exports. On present policies I would now expect GDP to increase over the next 18 months from the first half of 1976 at an annual rate of 5 per cent. and exports of goods and services by 11 per cent. This could imply a very rapid rate of increase in manufacturing production, perhaps as much as 9 per cent. We must, as usual, expect a lag before these developments affect the present unacceptable figures of unemployment; but on current prospects I would expect unemployment to start falling before the end of the year. I shall have more to say about this later. Money supply (M3) has grown well within the guidelines I set at the time of the Budget.

The balance of payments on current account, however, remains in substantial deficit. The 12 per cent depreciation of sterling since March will inevitably worsen the balance of payments in the short term, and make it more necessary than ever for us to maintain the confidence of those from whom we may have to borrow to finance our external deficit. On the other hand, the increase in our exports and in import substitution deriving from our increased competitiveness will later bring a massive improvement. In fact, we now have a unique opportunity for export-led growth—something we have sought in vain ever since the Second World War.

There are two possible threats to our success. In the previous cycle an excessive rate of growth in manufacturing production led quickly to supply constraints and bottlenecks in many sectors of industry. We also suffered from an excessive growth of the money supply. We saw a price explosion and an unacceptable deficit on our balance of payments. We shall not let this happen again.

In tackling these problems the Government benefit greatly from the cooperation which has been established with both sides of industry. This has made possible an agreement on prices and incomes between the Government, the trade unions and industrial management, which in one year has halved the rate of price increases. It has also produced a dramatic improvement in industrial relations which has greatly reduced the amount of disruption in the flow of industrial supplies. The days lost through strikes so far this year have been less than half last year's figure, which was itself only a third of the figure for 1974 and one quarter of that of 1972. The same consensus has successfully launched the industrial strategy which is an essential element in this country's economic regeneration.

My right hon. Friend the Prime Minister and I have said many times that the Government stand ready to take whatever action may be necessary to make room for the growth in exports and productive investment on which this country's future depends. It remains my considered judgment that there is no call for major action in the current financial year. We have already taken firm action to break into the tendency for public expenditure to exceed planned levels. In particular, our new techniques of control, notably cash limits, will ensure that expenditure in 1976–77 is strictly contained within the limits which the Government have published. But there is no economic or financial case for further reduction in public expenditure or the PSBR this year. I now estimate the PSBR this year to be about 11 billion, about billion less than the Budget estimate.

It has been right for us, like other countries, to run a large fiscal deficit in the depths of the recession so as to keep unemployment lower than it would otherwise have been. It would, however, be wrong to do this through the period of recovery which is now beginning. Unless the deficit falls steadily over the next three years as expansion proceeds, the financing of the public sector will pre-empt private savings which productive industry is likely to require on a substantial scale to finance stockbuilding and investment; or it will lead to an excessive growth of the money supply, which would refuel inflation.

Given the economic prospect as we now see it, I intend that the PSBR for 1977–78 shall be reduced to 9 billion or less.

Next year the recovery of the economy is likely by itself to reduce the PSBR only by something like 1 billion to about 10 billion. This alone will not be enough. Fiscal action is needed in addition to achieve the objective which the Government set themselves.

I believe that it would be wrong in present conditions to load on to taxation anything approaching the whole burden of adjustment. In particular, a major increase in the burden of personal taxation would have unacceptable consequences for take-home pay. It could wreck our counter-inflation policy in the coming year.

I must therefore look to public expenditure for a major contribution and I am announcing now, in advance of the usual White Paper, public expenditure reductions of 1 billion at 1976 Survey prices for 1977–78, which will be the crucial year for recovery.

Since the February White Paper—Cmnd. 6393—was published, the Government have approved a number of proposals which add to expenditure programmes in 1977–78. The main items are the various measures the Government have taken to relieve unemployment, the uprating of social security benefits from next November, and the net cost to the Exchequer of the introduction of child benefits. These were announced as claims against the contingency reserve provided in the White Paper and have not therefore added to total planned expenditure.

In deciding where the reductions of 1 billion should fall the Government have avoided mechanical cuts across the board. We have deliberately decided to maintain the main social security benefits like pensions so as to provide the maximum support to those in need here at home. We have also decided to maintain, untouched, our aid programme to the Third World. I shall later be referring to further measures which the Government intend to take to assist employment among young people.

The main purpose of our measures is to allow manufacturing industry to take the maximum advantage of the opportunities now presented to it. Because of the priority which the Government are giving to the industrial strategy, we have been concerned to avoid damaging the trade, industry and employment programmes.

We intend to move towards putting emphasis on selective, as against general, assistance to industry. We plan therefore to increase significantly the resources available for selective assistance to industry through the NEB and the Scottish and Welsh Development Agencies, as well as from the Government direct, so as to support the work on the industrial strategy now under way in NEDC. Our experience shows that this is the most cost-effective way of helping to achieve the reversal of our post-war industrial decline.

As part of this policy of selective support for industry, the Government will also watch vigilantly the need for any extension of their existing selective import restraints to provide temporary protection to viable industries when faced with unfair foreign competition. We have already taken action and we are anxious to discuss with both sides of industry the need for further action of this kind.

In some areas we have already increased provision for public expenditure, especially for the Department of Employment's programme, including funds pro- vided to the Manpower Services Commission for training. In addition, we are prepared to make provision, within the revised programme, for a possible Government contribution in 1977–78 to the collective funding of any scheme of apprentice training which may emerge from the public discussion of our recent consultative document on that subject We shall be announcing before the recess further measures to help with the serious problem of unemployment among young people.

This shift of emphasis towards selective assistance to industry will require savings in expenditure of three kinds. First, Regional Employment Premium is at present 3 for men and 150 for women: in future it will be at a single rate of 2 for both. Second, we shall introduce legislation to reduce the employer's rebate from the Redundancy Fund from 50 per cent. to 40 per cent. Third, savings will be obtained on regional development grants by imposing a delay of some three months in payment of approved claims. We also propose to concentrate these grants in future on manufacturing investment by withdrawing elegibility from the construction and mining industries, the location of which for the most part is not determined by any incentive.

Apart from further selective action still to be decided, the net effect of all these measures will be to reduce the trade, industry and employment programmes in 1977–78 by 105 million.

Net savings of 157 million will be made on the capital investment programmes of the nationalised industries other than British National Oil Corporation. These savings are spread between the industries and should not affect the main industrial objectives of any of them.

We believe the time has now come to review the treatment of the nationalised industry programmes generally in our public expenditure figures so as to bring our practice more closely into line with that of other countries. The Expenditure Committee will, of course, be consulted on this review. No general change will be made until it is completed. Meanwhile, we are treating BNOC as a special case.

There will be net savings of 87 million on roads and related expenditure.

Net savings of 25 million will be obtained on existing agricultural and forestry programmes, largely by deferring the payment of capital grants and ending the lime subsidy.

Our existing plans envisaged that food subsidies would be largely phased out by 1978–79. This process will be accelerated, to save 80 million in 1977–78. The effect of this acceleration on the Index of Retail Prices will be only about 01 per cent.

The Government have decided to save 5 million on overseas services other than aid in 1977–78.

The planned defence budget for 1977–78 will be cut by 100 million. This will be achieved by rephasing the works programme and some deferrals.

Approvals for new housebuilding by local authorities are running at a substantially higher level than allowed for in the estimates in the last Public Expenditure White Paper. It is therefore necessary to reintroduce control over this programme and to limit the rate of approvals so that over-spending is avoided. Reductions will not be imposed in areas where housing needs are greatest. In addition, net savings of 146 million will be achieved, principally by reductions in local authority mortgage lending. My right hon. Friend has consulted the building societies, which have expressed their willingness to help fill this gap in mortgage lending, and I understand that a Press statement will be made later today by my right hon. Friend and the Chairman of the Building Societies Association.

Net savings of 81 million will be obtained on existing programmes for other environmental services.

For 1976–77 we have agreed to postpone the 5p increase in the charge for school meals that was due this September, but if the charge were kept at 15p in 1977–78, that would add 43 million to net expenditure on school meals in that year. We propose, therefore, to limit this addition to 15 million by raising the charge by 10p in the autumn of 1977. We shall save 45 million on the rest of the education programme, mainly by curtailing capital expenditure on the universities and other educational building and reducing the budgets for science and the arts. The total net saving on this programme will, therefore, be 30 million.

We have given high priority to the poorer members of our society and particularly to old-age pensioners. We shall continue to honour our commitments to uprate the main social security benefits regularly and we shall maintain general social security expenditure in 1977–78. Furthermore, we propose to increase the rate of the new mobility allowance in November 1977. But we shall be introducing legislation to restrict the unemployment benefit entitlement of those with substantial occupational pensions; and non-contributory invalidity benefit for housewives will now be introduced in November 1977. Taking into account the increase in mobility allowance, these measures will save about 21 million net in 1977–78.

Reductions of 70 million will be made in 1977–78 in the health and personal social services programme as a whole but there will be no cuts in services for patients in the National Health Service. The cuts will consist of 20 million on capital expenditure on the National Health Service and on local authority personal social services; 20 million by way of extra receipts from increases in dental and ophthalmic charges; and 10 million from savings on overheads and measures to curb the drugs bill; and it is proposed to save a further 20 million in l977–78—40 million in a full year—by legislation to recoup mainly from insurance companies the full cost to the National Health Service of treating road accident cases. The Government will hold immediate consultations with the insurance companies and other interests concerned.

A reduction of 10 million will be made mainly in expenditure on Government accommodation.

A reduction of 35 million will be made in Northern Ireland. Some 3 million of this is the result of the new equalised rate of regional employment premium. The remainder of the cuts will be spread widely over the different Northern Ireland programmes.

In those cases where the reductions I have announced fall on the spending of authorities other than central Government, the necessary consultations about the form of the savings will be initiated at once. Where parliamentary authority is required, the necessary Bills or Orders will be introduced in due course.

These savings do not include any reduction in local authority current expenditure below the provision in the public expenditure White Paper published in February—Cmnd. 6393. But it is essential that stringent economy should be exercised to avoid exceeding this provision. We shall be discussing this matter, and also the implications of the reduction in capital expenditure of the local authorities, with the Consultative Council on Local Government Finance and with the Convention of Scottish Local Authorities.

I shall circulate in the Official Report figures showing the effect of these measures on the main public expenditure programmes. Together with the saving of 60 million on debt interest which results in 1977–78 from the measures I am announcing this afternoon, the total public expenditure saving will be 1,012 million. This will reduce the PSBR in 1977–78 by about 800 million.

I turn next to taxation. I shall, of course, have to make my usual Budget judgment in nine months' time, next spring, when the course of the economy in the following year can be predicted more surely. However, in addition to the public expenditure measures which I have just announced, further action in the tax field is needed to reduce the PSBR to 9 billion. A massive increase in income tax or indirect taxation would be disastrous for our counter-inflation policy, particularly since the effects would be felt immediately in the middle of the next pay round. The Government have therefore decided instead to make an addition of 2 percentage points to the employers' national insurance contribution. This will accrue to the Exchequer.

The Government will be introducing legislation early in the new Session, so that the addition can take effect from 6th April 1977. It will yield about 910 million in 1977–78 and about 1,030 million in a full year. Well under half of this will come from manufacturing industry. This sum will further reduce the PSBR in 1977–78 by about 700 million.

The addition, like the existing contributions, will be an allowable cost for purposes of the Price Code and corporation tax. My right hon. Friend the Secretary of State for Prices and Consumer Protection will be announcing today the Government's decisions on the Price Code to come into effect on 1st August. These will include a rate of 50 per cent. for investment relief instead of 35 per cent. proposed in the consultative document and an adjustment factor of 14 for depreciation instead of the earlier proposal of 13. These further changes should contribute to industrial expansion and in themselves make little difference to prices.

The total estimated effect of the public expenditure and tax measures I have announced is to increase the price level by about 1 per cent. by March 1978, nearly two years from now.

On current forecasts these measures will suffice to achieve the Government's objective of getting PSBR down to 9 billion in 1977–78. That 9 billion would be about 6 per cent. of GDP at current market prices, compared with about 9 per cent. which we now forecast for this year, and nearly 10 per cent. last year. It thus represents a reduction of one-third in the PSBR in the first full year of recovery. The General Government Financial Deficit, which excludes on-lending to public corporations and the private sector, is the concept used by some other countries and is often quoted in international comparisons. The measures I have announced will reduce the General Government Deficit from just under 6 per cent. of GDP this year to 3 per cent. of GDP next year—a reduction of nearly half.

The Government's plans for the reduction of the PSBR will of course make it easier to finance the borrowing requirement without excessive growth of the money supply. It will also mean less pressure on interest rates, to the benefit of industry, of mortgage holders and of Government and local authority borrowing.

In the current year 1976–77 money supply has so far been growing at an annual rate of about 10 per cent. Because borrowing needs and gilt sales inevitably vary from quarter to quarter we must expect rates higher than this for some periods, especially towards the end of the financial year. It is a mistake to attach too much significance to such fluctuations. For the financial year as a whole money supply growth should amount to about 12 per cent. Such an outcome would be fully consistent with our objectives for reducing inflation. I repeat the assurances I have given that I do not intend to allow the growth of the money supply to fuel inflation either this year or next. If inflation and output move as now forecast I would expect the growth in money supply to be lower next year than this.

There remains a risk that, even after the reduction in the PSBR, the necessary restraint in the growth of the money supply might result in industry being denied essential finance. I intend to ensure that that does not happen. It is essential that any increase in bank lending should be directed to priority borrowing, in particular for exports, import-saving, and investment and working capital for productive industry. This means that both lending and commitments for the future to customers in all non-priority categories must now be strictly limited and we shall monitor carefully what happens in these categories. The Governor are issuing a notice to the banks emphasising the necessity of applying restraint in this extended form, in reinforcement of existing requirements.

As a result of the measures which I have announced this afternoon I now expect GDP to increase over the 18 months from the first half of 1976 at an annual rate of about 4 per cent. and manufacturing production at a rate of about 8 per cent. These are still better figures than I was expecting at the time of the Budget. Unemployment in early 1978 will still be lower than expected then, even though the measures may by then have reduced the fall in unemployment by about 60,000. With the help of a much better balance in the public sector's finances, we can look forward to the economy recovering over the next 18 months at a pace which is both vigorous and sustainable and which will not refuel inflation.

The measures I have announced this afternoon have one overriding purpose—to make certain that this recovery can be sustained until full employment is achieved. This means that sufficient resources must be made available for manufacturing industry to take full advantage of the export opportunities which now present themselves. The modernisation and expansion of our manufacturing industry must remain our first priority. My right hon. Friend the Prime Minister again emphasised the Government's commitment to it when he chaired the important meeting of NEDC earlier this month. I believe that these measures will enable both sides of industry to work closely together with the Government to achieve our common aim with full confidence that the remaining obstacles to our success are now removed.

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Mr Geoffrey Howe (East Surrey)

The Chancellor of the Exchequer has made a long and important statement which we shall need to study with care. I hope that he can confirm that we shall have an opportunity to debate it, and that he may be able to give us some details of the figures he has announced in a form comparable with the public expenditure White Paper, so that we may see exactly what the implications are for some years ahead.

We on this side of the House welcome the fact that the Chancellor and the Prime Minister have taken a significant step in the right direction and begun to grapple with the real problems that have been affecting our economy for the past few years. Even so, there are some matters about which we shall need to know more. For example, we shall need to study the proposed cuts in defence expenditure. We shall also need to study very closely those proposals for cuts that are expressed in terms of rephasing, deferring and postponing, in order to ensure that true reductions are being made in spending programmes in the years ahead.

Can the right hon. Gentleman tell us a little more about the proposed increase in employers' national insurance contributions? Does he accept that it amounts to an increase in indirect taxation and will be one of the significant factors contributing to the price increase of 1 per cent. that he suggests?

The Chancellor has told the House that he expects these measures to reduce the fall in unemployment—which I understand to mean that they will increase unemployment—in early 1978 by about 60,000. How far does he expect the increase in employers' contributions to represent an increase in unemployment?

We regard the Chancellor's announcement today, important as it is, as simply the first step along the long, hard and stony road that will have to be followed to restore the balance and health of our economy.

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Mr Denis Healey (Leeds East)

There will no doubt be consultation between the usual channels about a debate. I shall be publishing more information about the details of the cuts in written form in Hansard tomorrow. The detailed figure for the five years will be published in the normal public expenditure White Paper later in the year. [HON. MEMBERS: "Next week?"] Of course not, because the public expenditure review has by no means yet concluded its course, but if questions are asked in the debate—for example, about the impact of the reductions next year or the following years—they will be answered.

I turn to the question of the employers' contribution. It is open to employers who can afford to do so in their competitive situation to pass on this increase in wage costs in the form of prices. The possible increase of 1 per cent. in the price level by the spring of 1978 will be almost entirely due to that. As I pointed out, the increase in the phasing down of food subsidies will account for only a 01 per cent. increase in the RPI.

It is important to point out that from that point of view, the employers' contribution increase is very different from an increase in direct taxation. For example, an increase in the value added tax takes immediate effect and is felt fully by the domestic consumer. Any price increases resulting from the national insurance increase will also be felt by exports, which is not the case with VAT. With the present level of competitiveness, such a price increase can well be afforded by British industry. So far as the unemployment effect of the new surcharge on the employers' contribution is concerned it is likely to account for about 10,000 of the 60,000 unemployment effect which I mentioned in my statement.

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Mr Geoffrey De Freitas (Kettering)

Can my right hon. Friend say how far the defence reductions in the future of 100 million will affect the percentage of our gross national produce devoted to our defence in the NATO area?

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Mr Denis Healey (Leeds East)

I am afraid that I cannot absolutely distinguish between the per- centage of our defence in the NATO area and that in other parts of the world, but total British defence expenditure, which will run at 56 per cent. of gross domestic product next year, will fall to 55 per cent.

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Mr David Steel (Roxburgh Selkirk and Peebles)

Can the Chancellor be more forthcoming about the question of a debate? We have all known that this statement was coming and, therefore, we ought to have a definite announcement about debating this complex matter next week. Since the earlier part of his statement seemed a little complacent, would he accept that what he calls the unique opportunity for export-led growth is in part due to the unique devaluation of our currency under his Chancellorship?

Will he undertake in his talks with the local authorities that those local authorities which have kept within their budgets will not be penalised at the expense of those which have not? Will he accept that once we get beyond the current restrictions on pay and profits he will have to accompany his investment measures with real incentives for individual efforts? Will he explain his proposals for the delay in the payment of the regional investment grant as that appeared to run counter to his general policies, which are not, at present, characterised by speed in any case?

Lastly, will he explain whether he has extracted any promise from the building societies that they will alter some of their policies to replace the local authority mortgage lending to offer help to properties and individuals which hitherto they have not been prepared to help?

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Mr Denis Healey (Leeds East)

I understand that the Leader of the House has given an undertaking to consult about a debate and I do not think the House can expect more from me on that matter.

In respect of the penalisation of local authorities which have observed the guidelines, the House will recognise that the present structure of local authority finance prohibits discrimination by the Government between one authority and another. That is, no doubt, something that the House as a whole will wish to consider in the context of the Layfield Report but it raises the most far-reaching problems of the whole nature, indeed meaning, of the phrase "local government". I do not think that anybody would say that there is a simple answer to this problem which would not require absolutely major changes in the way in which this country has so far dealt with local authority finance.

On the question of deferral of regional development grant, I know that there is some delay in making those payments but I believe that business has not found substantial difficulty in coping with this delay. There will now be a further delay of three months over what is common, for administrative reasons, at the present time.

On the question of the building societies, I pointed out in my statement that the Secretary of State for the Environment and the Chairman of the Building Societies Association will be making a joint statement on this matter this afternoon.

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Mr Enoch Powell (South Down)

After the experience of the last few weeks, does the right hon. Gentleman now understand the force of the argument that the publication of figures on public expenditure years ahead is destructive of Treasury control and of a rational planning for public expenditure? It results in a parade, in the months of July, of chips from the Treasury workshop such as we have had this afternoon, many of which are merely effects produced by mirrors. Will the right hon. Gentleman reconsider the entire policy of the publication of projections on public spending years ahead which are merely misleading and inhibiting the Government's action?

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Mr Denis Healey (Leeds East)

I would regard the right hon. Gentleman as possibly the champion illusionist in the House. When he talks about mirrors he knows what he is talking about. In respect of supplementary projections on public expenditure, I would agree with him, and that is why we are making these changes after many years in which Governments of both parties did not think fit to make these changes. It is better to concentrate and focus attention on the year immediately ahead than on a year three or four years ahead, which has been the practice of successive Governments. That is one reason why I am making this firm statement now about next year's programme, because I think that it is more important to get that right than to plan for three, four or five years ahead. I think that, on reflection, the right hon. Gentleman would also agree with that.

I must confess that in my last post as Secretary of State for Defence I learned—anybody concerned with defence matters in Government will recognise it—that it is vital, when planning the next year's expenditure policy, to consider the implications of that expenditure for expenditure in future years. In short, I think that it is more important to focus on the immediate future than has hitherto been recognised, but the value of planning five years ahead remains indisputable.

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Mr Norman Atkinson (Haringey Tottenham)

Would the Chancellor agree that the statement made for the right hon. and learned Member for Surrey, East (Sir G. Howe) means that the Conservative Party are now demanding unemployment to the tune of some 2 million people? Would the Chancellor also accept that his statement means that in the future some 60,000–70,000 men and women will be reduced from the total non-manufacturing public sector work force by next year? If that is the case, he may have won the confidence of international creditors but he has certainly lost the confidence of the Labour movement.

Hon. Members:

No.

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Mr Denis Healey (Leeds East)

I agree with the first part of my hon. Friend's question, but, obviously, not with the second part. There is no doubt that if the Opposition went forward with the immediate cuts in public expenditure of 3 billion, which they are now reported to favour, that would have an absolutely catastrophic effect on employment on the scale which my hon. Friend has mentioned.

I regret as much as he does the fact that it has been necessary to take measures which will affect employment by the end of next year but what I hope he will come to recognise is that failure to take this measure would have consequences for sterling and the balance of payments and would have led to a paralysis of our economy which would have produced a much higher level of unemployment than this. It would have completely excluded the chances of a steady and sustained return to full employment which I know that my hon. Friend and I agree ought to be regarded as the first objective of a Labour Government.

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Mr Donald Stewart (Na h-Eileanan an Iar)

Is the right hon. Gentleman aware that his statement will be deeply resented in Scotland where people will contrast its bankruptcy with their knowledge of the vast resources accruing from the Scottish oilfields? Is he aware that the Scottish TUC declared its total opposition to cuts and said they would involve the loss of 10,000 jobs? Can the Chancellor specify what he means by housing for areas in greatest need"?

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Mr Denis Healey (Leeds East)

Views differ in various parts of the United Kingdom, such as England, Scotland or the Shetlands, as to the precise importance and ownership of North Sea oil. I do not believe that it would be possible for anybody to make an estimate of the effects on employment of the measures the Government have taken without actually hearing what they were. I have given the best estimate that I can this afternoon.

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Mr Dafydd Elis Thomas (Merioneth)

Is the Chancellor aware of the impact of the proposed cuts on housing, both in the inner city areas in England and in areas such as Wales which already has one house in seven unfit? Is he aware also of the impact of the reduction in local authority mortgage-lending on areas which have a high level of owner-occupation? Will he confirm that his announcement today will not prejudice the results of the current housing finance review which should bring reductions in tax relief at the so-called top of the housing market and should direct resources to the bottom end, which is what we need?

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Mr Denis Healey (Leeds East)

I appreciate the hon. Gentleman's feeling about the housing situation in Wales and I take it that he will be as proud as I am of the fact that under this Government housebuilding in Wales has doubled. I think that he will recognise also that this Government have agreed to a substantial increase in housing expenditure in Wales to be taken from the Contingency Fund this year.

In answer to the hon. Member and to the hon. Member for Western Isles (Mr. Stewart), of course we recognise that certain parts of the country have exceptionally difficult housing problems— that goes for the Strathclyde area of Scotland for example—and it is such areas of which I was thinking when I talked about the areas of greatest need. As for local authority mortgage-lending, as I said there will be a common statement made by my right hon. Friend and the building societies on this matter this afternoon. But the building societies have indicated their willingness to attempt to fill any gap which is left by the reduction in local authority mortgage lending.

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Mrs Barbara Castle (Blackburn)

Is my right hon. Friend aware that the further 20 million cut in the capital programmes of the health and personal social services will mean practically a total mortorium on all new hospital building, including many long overdue developments of high priority, and will make it impossible for local authorities to provide residential accommodation for the growing numbers of the elderly and children in care? Does he consider that that is the way to protect the needy and those who need help most?

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Mr Denis Healey (Leeds East)

I think that my right hon. Friend, who has held responsibility in this field, knows as well as anyone that the needs of the people of this country are almost inexhaustible in health, housing and many other fields. It is necessary for any Government and for any head of any Department to determine priorities among those needs in the light of the economic situation at any particular time. I hope that she will agree with me that in this situation it is far better that savings should be sought from capital programmes than by a reduction in service to patients in the National Health Service. I know that this is a difficult question always, determining priorities, but I do not believe that any responsible Government or Minister can avoid it.

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Mr Nigel Lawson (Blaby)

Is the Chancellor aware that in his 1975 Budget he announced public expenditure cuts of precisely the same magnitude for 1976–77 and in the event they are not happening at all? Can he give the House an assurance that on this occasion the cuts will stick, that there will be no slippage? Can he further tell the House what is the new proposed level for public expenditure in 1977–78 in White Paper terms?

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Mr Denis Healey (Leeds East)

On the first question, yes, there was some slippage between last year and this year and I announced that in the last public expenditure White Paper—and so there was in every year since the war, under Governments of one sort or another. But I can assure the House that this will be the first year since the war that any British Government have succeeded in keeping expenditure within the limits set. The hon. Member is as well aware as I am of the new techniques and institutions and machinery which have been adopted to secure that result. I hope that some time he will have the grace to congratulate the Government at least on getting public expenditure under control in a way in which Governments of his own party successively failed to do. As for the level of public expenditure, I know that it is a difficult piece of arithmetic to work out, but it is exactly 1,020 million less than the figures in the last White Paper.

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Mr Donald Anderson (Swansea East)

My right hon. Friend shoulders an awful burden, and most of us will believe that he has acted responsibly, selectively and humanely in these cuts. Can he say on past experience how he expects the building societies to honour their undertakings, when clearly in the past they have not filled the gap left from local authority mortgages? Also, how does he expect us to justify these cuts to our supporters when, apart from overseas aid, which all of us accept, there is yet one remaining sacred cow—devolution, which is costly and has nothing whatever to do with national efficiency?

Hon. Members:

No.

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Mr Denis Healey (Leeds East)

I thank my hon. Friend for his opening remarks. I am afraid that it is clear from the reaction to his closing remarks that on both sides of the House there are disagreements whether it is possible to be selective and humane by including or excluding expenditure on devolution. However, I hope that my hon. Friends will agree that in a difficult situation this Government have attempted to maintain the priorities which the broad mass of the movement regard as the most important.

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Mr Maurice Macmillan (Farnham)

Does the right hon. Gentleman recognise that we give a modified welcome to what might be called Treasury tinkering? May I ask three questions? First, on the health service and other services to individuals, has he made any attempt to cut the administrative costs as opposed to the capital costs? There are now, I think, twice as many clerks and administrators per occupied bed as there were 10 years ago. Secondly, what effects will his cuts have on increasing the proportion of effort from the present 40 per cent. which goes into producing marketable goods and services, whether in the public or in the private sector? At the moment, it is 40 per cent. only of our total effort. Thirdly, when he refers—[HON. MEMBERS: "Reading."]—to manufacturing industry, would he give an assurance that he is not discriminating against the type of service industry which earns abroad about $9,000 million a year?

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Mr Denis Healey (Leeds East)

I sometimes find it a little odd that a person who was a member of the last Administration should criticise this Government for administrative waste in the National Health Service, which arises from the reorganisation carried out by his right hon. Friend the Member for Leeds, North-East (Sir K. Joseph). I find that a little difficult to take. There is no question that there, as in the field of local authority administration, we face serious problems imposed on us by unwise administrative decisions of the previous Administration. But we shall do our best to cope with them.

Of course the reductions which I have announced will mean a fall in the percentage of GDP which is taken by public expenditure and an increase in the percentage taken by the sector producing marketable goods and services. [HON. MEMBERS: "How much?"] Roughly 1 per cent. Of course, the last White Paper gave details of the profile as it would move over the next five years on the policies in that White Paper.

On the last point which the right hon. Gentleman was reading out, perhaps the House might remind me what it was. Oh, yes—it was some obscure remark directed to some area which was producing savings on the balance of payments. Of course any area of the economy which is contributing to a reduction of our balance of payments deficit is welcome, but the future of this country depends on improving and extending the performance of our manufacturing industry. It is on that above everything that our economic performance depends.

Photo of Mrs Judith Hart

Mrs Judith Hart (Lanark)

May one express appreciation of the wisdom of my right hon. Friend's Cabinet colleagues in sustaining the aid programme and rejecting cuts there? Is my right hon. Friend aware that, apart from the detail of the cuts which he has announced, there is a growing and considerably expanding body of economic opinion in this country which genuinely does not accept the Treasury strategy upon which his proposals are based? Will he give an undertaking that he will thoroughly explore and discuss within Parliament the merits and demerits of his strategy—that is to say, the Treasury strategy—against the alternative strategy which others are putting forward?

Photo of Mr Denis Healey

Mr Denis Healey (Leeds East)

First let me assure my right hon. Friend that I will take pleasure in passing on her congratulations to my Cabinet colleagues while keeping to myself that small quantum which I deserve.

On the second question, of course I recognise that there are people who hold different views about the strategy that the Government should be following. So far as those views include a case for large-scale import controls, they are often supported by arguments drawn by an important and reputable body of Cambridge economists. But I must remind my right hon. Friend that one Cambridge economist who favoured the strategy she favours announced in a study last March that it would require an increase in taxation next year of 3 billion. I feel that it is necessary for those who take the view that we can solve our problems by widespread import controls to face and to publish the consequences as against restraint in public expenditure and personal living standards.

Photo of Mr Christopher Tugendhat

Mr Christopher Tugendhat (City of London and Westminster South)

Is the Chancellor of the Exchequer aware that while I can echo my hon. Friend's qualified welcome for his statement, I believe that had he acted earlier, sterling would not have fallen so far and his anti-inflation policy therefore would not have run into such difficulties? The right hon. Gentleman asks for congratulations, and I congratulate him on the extent to which he has moved towards the policies which we advocate, and away from the nonsense of some hon. Gentlemen below the Gangway, but, finally, is he aware that we are now paying the price for the profligacy of the first year of this Government in power after an election victory which he contrived?

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Mr Denis Healey (Leeds East)

I am so rarely congratulated that I hardly like to turn any congratulations away whatever their sour source, but I am slightly embarrassed this afternoon by some of the praise coming from the Benches opposite, particularly when it is allied with most ridiculous remarks about what should or should not have been done in the past.

Several Hon. Members:

Several Hon. Members rose

Photo of Mr Eric Heffer

Mr Eric Heffer (Liverpool, Walton)

Is my right hon. Friend aware that he has a right to be embarrassed by the support coming from the Opposition in this matter? Is he also aware that whilst there are a number of sweeteners—and obviously my right hon. Friend has listened to some of the things that have been said to him by hon. Members on this side and by the Trades Union Congress—there is no sweetener for the construction industry which now has over 200,000 unemployed, and with this package will have a lot more unemployed? Is he aware that this proposal will be judged on the basis of how it affects unemployment and that therefore my hon. Friend the Member for Tottenham (Mr. Atkinson) was absolutely right to say that certainly not all parts of the Labour movement will be enamoured of this package?

Photo of Mr Denis Healey

Mr Denis Healey (Leeds East)

I know that not all parts of the Labour movement will be enamoured of these proposals. I doubt whether any part is. I am not enamoured of them myself. I regard them as painful but necessary action taken to protect the steady movement of this country back to full employment. But the fact that it is necessary does not make it any less painful.

I am grateful for what my hon. Friend said about the response which the Government have made as a result of the consultations which have been carried out with all sections of the Labour movement in the last few weeks. I hope that at least he would agree that there has never been a fiscal package of this nature which has been preceded by so much careful consultation with so many people and which has borne such fruit in the result.

Photo of Mr Norman Lamont

Mr Norman Lamont (Kingston upon Thames)

Is the Chancellor of the Exchequer aware that his claim that the public sector borrowing requirement, or financial deficit, is substantialy due to the recession may be treated with scepticism in view of the Bank of England's figures showing that our deficit could be double that of other countries? If he wishes to substantiate the claim that our deficit is no bigger than that of other countries, will he tell us what it is on a full-employment basis?

Photo of Mr Denis Healey

Mr Denis Healey (Leeds East)

The hon. Gentleman knows better than most hon. Members, and certainly better than myself, how many ways there are of defining a full-employment deficit. This is one of the most hotly disputed technical matters between economists. But on the main thrust of his question—and I am glad that he asked it—it has been said from the Front Bench opposite that the recession in this country has not been as deep as in many other countries. The reason is the measures taken by this Government last year. But on the question of the size of the fiscal deficit, the General Government Financial Deficit, as I am sure the hon. Gentleman knows, is the only classification where comparison is easy, and the British deficit is 58 per cent. against 7 per cent. this year in the Federal Republic of Germany, against slightly less in the United States of America and against 4 per cent. in France. In fact, our deficit during the recession has been very much in line with that of other industrial countries.

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Mr Tam Dalyell (West Lothian)

The Chancellor has talked in terms of priorities. Which is the priority—the cutting of local authority personal services of expensive Assemblies in Edinburgh and Cardiff?

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Mr Denis Healey (Leeds East)

I must confess that over many years I am never surprised by my hon. Friend's supplementary questions. I know that he disagrees with many hon. Members on the importance of devolution but lie knows that I do not share his view.

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Mr David Crouch (Canterbury)

May I also offer the Chancellor my welcome to his step in this direction? May I also ask him whether he will take this opportunity of emphasising that the cuts he has read out are for real and whether he can assure the House, and all who are listening outside this House, at home and abroad, that the Treasury has sufficient control to ensure that the cuts he has proposed are implemented down the line in all Departments? It simply will not do to pull the wool over anyone's eyes these days.

Photo of Mr Denis Healey

Mr Denis Healey (Leeds East)

The hon. Gentleman should recognise from the many actions taken by this Government in recent months and, particularly, in relation to local authority plans for current expenditure that a more sustained and effective effort is being made by this Government than by any post-war predecessor to ensure that their public expenditure limits are not exceeded by anyone concerned.

Several Hon. Members:

Several Hon. Members rose

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Mrs Elaine Kellett (Lancaster)

On a point of order, Mr. Speaker. Are you aware that sex discrimination has been total on this side of the House? You have not called a single woman on this side to speak on these cuts.

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Mr Frank Allaun (Salford East)

On a point of order, Mr. Speaker. The Chancellor has just told the House that there is to be a statement on mortgages in relation to replacing the very serious cut of 146 million in local authority mortgages which cover the poorer section of the population. Is this announcement to be made in the House so that we can question it, or is it to be made outside where we cannot question it?

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Mr George Thomas (Cardiff West)

That is pursuing questions to the Chancellor after I had brought them to a close.

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Mr George Thomas (Cardiff West)

Order. The hon. Gentleman should show a little more courtesy to the Speaker of the House.

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Mr Arthur Lewis (Newham North West)

A point of order, Mr. Speaker. Would you advise me, having been outside them for just 32 years, how to get in on one of these regular six-monthly Exchequer announcements, which are then corrected and altered six months later, when it is admitted that mistakes have been made and that people have got their sums wrong and it is stated that mistakes made six months earlier must be put right? Can you advise me how one can occasionally—in my case just once—get called to put such a question to the Chancellor?

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Mr George Thomas (Cardiff West)

Order. That was the most effective point of order I have heard for a long time, because I shall remember it.

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Sir Peter Tapsell (Horncastle)

On a point of order, Mr. Speaker. I feel that it was not compatible with the maintenance of the dignity of the Chair that the last two observations by the hon. Member for Bolsover (Mr. Skinner) should be allowed to pass unreproved.

Hon. Members:

Hear, hear.

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Mr George Thomas (Cardiff West)

I thought that the best way to deal with the hon. Gentleman was

Following are the figures:

Table A below indicates the effect on the main public expenditure programmes of the measures announced today and other changes since publication of Cmnd. 6393, including the allocation of expenditure to programmes from the contingency reserve. Fuller details of the revised programmes, including any further policy or estimating changes made subsequently, will be included in the public expenditure White Paper to be published later in the year.
TABLE A
1977–78; PUBLIC EXPENDITURE PROGRAMMES
£. at 1976 Survey price
Cmnd. 6393 revaluedChanges before Chancellor's statementTotal (1) plus (2)Changes announced on 22nd July 1976Total (3) plus (4)
(1)(2)(3)(4)(5)
1. Defence5,6445,644-1005,544
2. Overseas aid and other overseas services1,126+149*1,275-51,270
3. Agriculture, fisheries, food and forestry967-116*851-105746
4. Trade, industry and employment2,469+1322,601-1052,496
5. Nationalised industries capital expenditure†3,3103,310-1573,153
6. Roads and transport2,500-132,487-872,400
7. Housing4,4354,435-1464,289
8. Other environmental services2,481-142,467-812,386
9. Law, order and protective services1,822+111,8331,833
10. Education and libraries, science and arts7,386-247,362-307,332
11. Health and personal social services6,611-36,608-706,538

to give him the consideration he deserved—which was silence.

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Mr Arthur Latham (Cities of London and Westminster Paddington)

On a point of order, Mr. Speaker. Without wishing to be discourteous to the Chair, and wishing at all times to maintain the dignity of the Chair, may I put it to you, Mr. Speaker, that we have heard an extremely important statement, and, furthermore, that we shall all be here very late tonight. I appreciate your difficulties, but may I put it to you that not only were there still many Members on their feet when you felt it appropriate to close the discussion, but there was one fundamental matter that had not emerged. I urge you to give an opportunity to the Chancellor to make clear how much of the cuts he announced will be achieved by executive action and how much will be within the authority of this House to determine.

Photo of Mr George Thomas

Mr George Thomas (Cardiff West)

Quite clearly, there were many hon. Members on both sides of the House who wished to pursue the matter, but I understand that, following a request, there will be a discussion whether there should be a debate. Therefore, we cannot debate the matter now. No doubt many matters will emerge in the debate.

£m. at 1976 Survey prices
Cmnd. 6393 revaluedChanges before Chancellor's statementTotal (1) plus (2)Changes announced on 22nd July 1976Total (3) plus (4)
(1)(2)(3)(4)(5)
12. Social Security11,359+20011,559-2111,538
13. Other public services867-32835835
14. Common services813-6807-10797
15. Northern Ireland1,599-21,597-351,562
Total programmed expenditure53,389+28253,671-95252,719
Civil Service staff costs-62
Total programmes53,32753,67152,719
Contingency reserve1,050706706
54,37754,37753,425
* See Note (2)(b) below.
† Excluding BNOC.

NOTES TO TABLE A:

Column (1) of the above table gives the main programme totals in the February 1976 White Paper (Cmnd. 6393), revalued to 1976 Survey prices.
Column(2) indicates the changes due to—
(a) announced policy changes up to 21st July 1976 (details of these changes are given in Table B);
(b) some estimating changes on certain programmes, already identified during the course of the public expenditure Survey, including a revised estimate of EEC contributions in Programme 2, which is partly offset by a revised estimate of the cost of agricultural support in Programme 3;
(c) reductions in civil service staff costs (paragraph 32 of Cmnd. 6393).
Column (3) gives the sum of columns (1) and (2).
Column (4) indicates the net effect of the measures announced by the Chancellor of the Exchequer on 22nd July 1976.
Column (5) gives the sum of columns (3) and (4).

TABLE B
ANNOUNCED CHANGES UP TO 21ST JULY 1976
SubjectProgrammes affected£ million at 1976 Survey PricesNature of Announcement
Employment measures4,1556By Chancellor of the Exchequer (OR 12th February, Cols. 634–638)
Agricultural price review312By Minister of Agriculture, Fisheries and Food (OR 8th March, Col. 28)
Extension of the Coal Industry Act 1973416By Under-Secretary of State for Energy (OR 25th March, Cols. 717–722)
Assistance to the film industry44By Prime Minister (OR 29th March. Written Answers, Cols. 333–334)
Temporary employment subsidy, community industry and industrial schemes4,1543In Budget statement on 6th April
Social security benefits10, 12, 15125By Secretary of State for Social Services (OR 7th April, Cols. 425–440)
Accommodation for Scottish and Welsh Assemblies133By Lord President of the Council (OR 14th April, Col. 1382)
Pay policy: Employment measures410By Chancellor of the Exchequer (OR 5th May, Col. 1304)
Child benefit scheme12,1584*By Secretary of State for Social Services (OR 25th May, Col. 284)
Additional capital for the Radio-chemical Centre Ltd. (TRC)43Secretary of State for Energy (OR 2nd July, Written Answers, Cols. 318–319)
Total356
* Net Exchequer cost.