Public Investment and Expenditure

– in the House of Commons at 12:00 am on 8th February 1966.

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Photo of Mr James Callaghan Mr James Callaghan The Chancellor of the Exchequer, Member, Labour Party National Executive Committee 12:00 am, 8th February 1966

With your permission, Mr. Speaker, and that of the House, I should like to make a statement.

On 27th July last, I announced the deferment of certain programmes affecting public investment and expenditure. These measures have achieved their purpose. In particular, the rate of expenditure on capital projects has been appreciably reduced. I estimate that, in the six months since the arrangements were announced, about £200 million worth of capital projects have been deferred for six months. I am grateful to all those who have made the result possible. There can be no doubt that this deferment has reduced the pressure of demand below the excessively high level which it would otherwise have reached, has reduced the load on the building industry, and has contributed to the improvement in our balance of payments.

The Government now propose to replace the deferment of individual projects by the more normal system of control by expenditure limits. Under the new arrangements, revised annual expenditure limits are being fixed in such a way that they will in general be no greater than they would have been under the deferment arrangements. But Departments will now be free to reprogramme their investment. The limits within which Government Departments will work will apply both to their own spending and in their control of capital expenditure programmes by local authorities. As before, housing, schools, hospitals, and projects in development districts will be unaffected. Estimates for 1966–67 are being prepared on this basis.

Circulars will be sent to local authorities, as necessary, notifying them of the new arrangements. Loan sanction and grants for miscellaneous local authority projects outside the main programmes will continue to be given only for projects which are urgently required.

Photo of Mr Iain Macleod Mr Iain Macleod , Enfield West

The Chancellor will realise that this is a grave statement. Perhaps I may now give notice to the Leader of the House that we shall wish, through the usual channels, to discuss a mutually convenient time for a general economic debate.

The Chancellor will recognise that this is, in effect, his fourth Budget. It is beyond argument that it arises out of the failure of the incomes policy, and my first question is to ask whether we are to see—or whether it has been dropped—the Bill in relation to the early warning system.

Secondly,—I could pick many examples, but I take the single one of roads, because I hope that the House understands that we are now to continue indefinitely at the lower level—will the Chancellor tell us how he can square this defiance of both pre- and post-election promises with curtailment of the vital investment in roads?

The third point is one of definition but of great importance. The right hon. Gentleman has told us that housing, schools, hospitals, and projects in development districts will be unaffected. When he speaks of development districts, does the right hon. Gentleman use that term in the sense of those development districts as existed on 27th July, or is he contemplating the much larger development areas which have recently been introduced?

Finally, the right hon. Gentleman justifies this and his other three Budgets on the effect on the balance of payments. He has had the terms of trade very much in his favour. He will now know the figures for 1965. Has he achieved his target of halving the 1964 deficit?

Photo of Mr James Callaghan Mr James Callaghan The Chancellor of the Exchequer, Member, Labour Party National Executive Committee

If I may take those questions in reverse order, I do not yet know the final figures for 1965; but it looks as though we shall be pretty well on target to clear off the deficit by the end of 1966, as we are determined to do. [Laughter.] I am sure that the whole House will welcome this; and I am sure, also, that, if hon. Members opposite have any alternative proposals for getting rid of the deficit, they will develop them in the economic debate.

No doubt, we shall hear what part, in their view, the "failure" of the incomes policy, as they constantly call it, would play in their calculations. No doubt, we shall hear what measures they would propose to take and whether they would follow an incomes policy or not.

Speaking for myself—[HON. MEMBERS: "Answer."] I am answering questions—I hope very much that we shall get a clear statement of policy from the Opposition on where they stand on the problem of how the country is to overcome its balance of payments deficit.

The development districts referred to are those in existence on 27th July. There are no new development areas yet in existence. They have to be put on the Statute Book.

On roads, my right hon. Friend the Minister of Transport will make a statement in answer to a Question within the next day or two, I think, and detailed questions can be put to her. I hope that we shall have a clear indication from the Opposition where—[HON. MEMBERS: "Oh."] Perhaps I am hoping for too much; I am ready to admit that. I hope that we shall have from them a clear statement of where they stand in relation to these problems. Or do they intend to go on being in favour of everything in general and nothing in particular?

Photo of Mr John Mendelson Mr John Mendelson , Penistone

Everyone will agree that the development districts should receive special treatment, but will my right hon. Friend bear in mind that there are many other districts in which essential building, for instance, in the provision of libraries and similar services, is necessary but has been delayed? As he is succeeding in solving the balance of payments problem, to our great satisfaction, will my right hon. Friend as quickly as possible encourage local authorities in these other areas to go ahead with their public building?

Photo of Mr James Callaghan Mr James Callaghan The Chancellor of the Exchequer, Member, Labour Party National Executive Committee

Yes, Sir. I think that we must regard this as a very unwelcome deferment, but I believe that the country is behind the Government in wanting to be solvent again. Certainly, the ratepayers do not want unnecessary expenditure. What we are doing through these programmes is relating the demands which are being made on our resources to our capacity to meet them; and this is why the Government continue to get the support of the people.

Photo of Mr William Clark Mr William Clark , Nottingham South

The right hon. Gentleman says that, in six months, £200 million worth have been put off and that deferment will be continued more or less indefinitely. Does this mean that the Government have cut back the capital investment programme by £400 million? In view of the statement on 27th July, is it not incumbent on the Government either to renew the deferment or postpone it or cancel it? Was there any reason for not making this statement on 27th January, which happened to be the date of the Hull by-election? Would not the right hon. Gentleman agree that this is the longest and severest cut-back in capital expenditure since the war?

Photo of Mr James Callaghan Mr James Callaghan The Chancellor of the Exchequer, Member, Labour Party National Executive Committee

I am glad the hon. Gentleman asked me that because, perhaps, he did not hear what I said. I told the House that £200 million worth of capital projects had been deferred. Capital projects do not necessarily all get completed in one financial year. Therefore, the total effect of the deferment is to defer, for a period of six months, total projects worth £200 million. But that is not to say that £200 million worth of work would have been done in 1966. I am sure that the hon. Gentleman understands that. It is worth about £40 million in the current year, 1965–66, and about £60 million in the next financial year.

I realise the anxiety of right hon. and hon. Members opposite about by-elections. I can only tell them that this replacement of the old system of deferment by individual projects by an overall limitation on the level of expenditure is a matter of mechanics. If this statement had been ready before the Hull by-election, it would have been made. [HON. MEMBERS: "Oh."] I dare say that right hon. and hon. Gentlemen have not forgotten that there will soon be another by-election, at Falmouth and Camborne, when we shall beat them again.

Photo of Mr Gordon Bagier Mr Gordon Bagier , Sunderland South

Is my right hon. Friend aware that we on this side of the House at least are interested in solving the balance of payments crisis? Will he recall that, in his efforts six months ago, he specifically exempted the development districts? That exemption was appreciated and it is further appreciated that he is exempting them once again. He has done this in a vastly different context—

Photo of Dr Horace King Dr Horace King , Southampton, Itchen

Order. The hon. Gentleman cannot make a speech at this stage.

Photo of Mr James Callaghan Mr James Callaghan The Chancellor of the Exchequer, Member, Labour Party National Executive Committee

The controls that are being applied are more selective than have been applied on previous occasions. That is why they are being felt in a more gentle way throughout the country. Surely this is something that the House as a whole would welcome. I feel, so far from its being a source of reproach—although, no doubt, it may be made a party point in the country that these statements constitute a continuous series of Budgets—in fact this continuous control of the economy by means of certain regular moves is a far better way of dealing with our economic affairs than one annual Budget in which one lurches violently from one direction to another.

Photo of Mr Iain Macleod Mr Iain Macleod , Enfield West

Does the right hon. Gentleman realise that he has not answered any of the questions I put? Is he aware that, with the exception of what he has said about development districts, his statement is much worse than at first appeared? May I have a definite answer to my questions? Does he know, and, if so, will he tell us, when we may expect to see the Bill relating to the early warning system for the incomes policy?

Photo of Mr James Callaghan Mr James Callaghan The Chancellor of the Exchequer, Member, Labour Party National Executive Committee

I do not think that the right hon. Gentleman could have listened to his own questions. I answered all of them. He knows as well as I do that the question of the introduction of Bills is a matter for answer on Thursdays by my right hon. Friend the Lord President of the Council. As yet, I am not Leader of the House, but perhaps there will come an occasion when my right hon. Friend will be Chancellor and he will be put in a similar position.

Photo of Mr Julian Snow Mr Julian Snow , Lichfield and Tamworth

Will my right hon. Friend carefully read the proceedings on the Adjournment Motion last night, when the right hon. Member for Enfield, West (Mr. Iain Macleod) received a trouncing at the hands—

Photo of Dr Horace King Dr Horace King , Southampton, Itchen

Order. It is not in order to refer to proceedings in the current Session of Parliament in questions.

Photo of Mr Eric Lubbock Mr Eric Lubbock , Orpington

How does the Chancellor reconcile his statement that the capital expenditure restrictions have achieved their purpose with the later passage that the revised expenditure limits are no greater than they would have been under the deferment arrangements? Will he bear in mind that it is not only the development districts themselves but the communications with them that are important?

Is the right hon. Gentleman further aware that many people will be extremely anxious about the continued restrictions on the road programme? Can he say whether the local authority home loans scheme can now be reintroduced and from what date these changes will become effective?

Photo of Mr James Callaghan Mr James Callaghan The Chancellor of the Exchequer, Member, Labour Party National Executive Committee

My measures of last July have achieved their effect because they have reduced the load on the economy. They have been successful to that extent. What I am now saying is that the continuing load on the economy is such that it is desirable to carry it on at that level, instead of letting the steam build up again. Hence the measures I have just announced and those announced yesterday by my right hon. Friend the President of the Board of Trade.

The hon. Gentleman must make up his mind. Does he want us to go through the same experience as the country had in 1963–64, or does he want the economy to remain on an even keel? The Government believe that that is the better way of doing it.

The position regarding home loans is unchanged. What I said on 27th July continues in force. Local authorities will be asked to maintain their home loans at an average rate of £130 million per annum. My right hon. Friend the Minister of Housing and Local Government is now working out with them the best means and the right basis on which loans shall be made, for example, in relation to building society efforts as well. The hon. Gentleman will, therefore, see that there will be a very substantial home loans effort by local authorities, to a total of £130 million.

Photo of Dr Horace King Dr Horace King , Southampton, Itchen

Order. I called Mr. Wainwright.

Photo of Mr Edwin Wainwright Mr Edwin Wainwright , Dearne Valley

When my right hon. Friend was preparing his statement, did he take note of the undue shortage of teachers throughout the country? Will he bear in mind that there is also a shortage of the larger type of day teachers' training colleges? Will he consider replacing Swinton Day Teacher Training College with a new one, so that the building can return to the purpose for which it was built—as a comprehensive school?

Photo of Mr James Callaghan Mr James Callaghan The Chancellor of the Exchequer, Member, Labour Party National Executive Committee

I make it clear that the annual growth of public expenditure of 4¼per cent. at constant prices is a heavy load on the economy. Priorities have been decided for education, housing, hospitals and roads. We have at least an orderly programme. I am sure that my hon. Friend can put down detailed Questions to my right hon. Friend the Secretary of State for Education and Science, who will no doubt be able to deal with individual cases. This is a question of sorting out the priorities and the Government have done it in a proper way. I am confident that this is the best way to tackle the problem.

Photo of Mr Edward Heath Mr Edward Heath , Bexley

When the right hon. Gentleman looks back over the last 14 months of continuing measures of restriction, many of which are damaging to roads, technical education, universities, and so on, and so many of which have been imposed because, as the leader in today's issue of The Times rightly says, he and the Government always fail to carry conviction, does he ever look back to the Government's White Paper of 26th October, 1964, when they surveyed the whole situation on coming into office? If he does, he will recall that paragraph 7 said, of the domestic situation, that …there is no undue pressure on resources calling for action. Is he aware that many of these measures would not have been necessary if the Government had not succeeded in creating a boom together with stagnant production?

Photo of Mr James Callaghan Mr James Callaghan The Chancellor of the Exchequer, Member, Labour Party National Executive Committee

Yes, I often look back on those early days; and I often reflect how different things would have been if we had not had a balance of payments deficit of the size left us. I would say that the statement in the White Paper to which the right hon. Gentleman referred was made within 10 days of our coming into office and that we probably underestimated at that time the degree of pressure on the economy—I wish that you would keep quiet.

Hon. Members:

Withdraw.

Photo of Mr James Callaghan Mr James Callaghan The Chancellor of the Exchequer, Member, Labour Party National Executive Committee

Of course I withdraw, but I do not think that Mr. Speaker was under any misapprehension, or that he believed that my remark was intended for him.

I also wonder how the right hon. Gentleman would both control the economy and, at the same time, add to our financial burdens by a substantial transfer of rates to the Exchequer and cut in taxation.

Several Hon. Members:

Several Hon. Members rose

Photo of Dr Horace King Dr Horace King , Southampton, Itchen

Order. We have a very important debate ahead and I must protect the business of the House.