Public Expenditure

– in the House of Commons at 12:00 am on 29 January 1974.

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3.43 p.m.

Photo of Mr Thomas Boardman Mr Thomas Boardman , Leicester South West

I beg to move, That this House takes note of the White Paper on Public Expenditure to 1977–78 (Command Paper No. 5519). This is the fifth White Paper in the annual series on public expenditure which was inaugurated by the Labour Government in 1969.

The Opposition's amendment to the motion that I have just moved condemns this year's White Paper, and I shall have something to say on this a little later. But I hope we shall all agree that the practice of having a White Paper in some form once a year which provides the opportunity to take a fresh look at the development of spending policies has proved valuable. Certainly the Select Committee on Expenditure appears to regard it as a useful document, judging from the careful attention that it devotes to it each year.

In this connection I should like to pay tribute to the work of the Committee as a whole under the distinguished Chairmanship of my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid). His widespread experience contributes much to this work, and for that I, and, I am sure, the whole House are grateful.

I also wish to pay tribute to the helpful and constructive suggestions which have been made by the General Sub-Committee, under its hard-working chairman, the hon. Member for Ashton-under-Lyne (Mr. Sheldon), for improving the content and form of these annual White Papers.

The numbers of suggestions which have been adopted on this occasion are too many to mention in detail, but there are three which I should mention because they affect the format and size of this year's White Paper and explain why it is 40 pages longer than that published in December 1972.

First, this White Paper includes, for the first time, tables for all programmes giving expenditure at constant prices over a period of 10 years. This follows an Expenditure Committee recommendation that we should build up a record of material which could provide a comparison over a period of five years past as well as five years forward. A start was made in the 1971 White Paper, and the current White Paper completes the process started then.

Secondly, in his speech last year my predecessor mentioned the Eighth Report of the Expenditure Committee, in which the Committee had suggested that the next White Paper should include tables showing the relationships between expenditure and output. Last year my right hon. Friend referred to the problem of finding figures which really illuminate these questions, but undertook to see what could be done to provide that sort of information for some of the programmes.

We have made a start this year covering a number of programmes, though not all and I hope that those who study these new tables will find that they are interesting and a valuable addition.

For example, the table on page 51 shows the increases in natural gas consumption that have resulted from the investment made over previous years. On the following page is the forecast of the future expansion of gas consumption in the main markets looking forward to 1977–78. I give that as an illustration. But it would be wrong to assume that the evidence of success or failure of particular policies can normally be as clearly illustrated.

The tables that have been added to the White Paper do not obviate the necessity for political judgments when difficult decisions have to be made about the choice of options for the future. But, subject to that cautionary note, it is our intention to continue to extend the provision of such non-financial information to other programmes wherever this is suitable.

The third set of changes for which we are indebted to the Expenditure Committee will, I think, be universally accepted and approved as improvements.

For the first time the White Paper includes a glossary—on pages 153 to 155—so that readers can find a ready and, I hope, readily comprehensible explanation of some of the technical terms used without having to turn to the more comprehensive Handbook on Methodology which was published in 1972—at the same time as the 1972 White Paper.

We have also taken account of the Committee's suggestion that more attention should be drawn to the changes in expenditure which have taken place since the previous White Paper by concentrating explanations of programme changes uniformly towards the end of each chapter of Part 2 and by expanding the analyses of changes provided in Part 3.

Table 3.11—on pages 147 and 148—gives in more detail the changes set out in summary form in Part 1, and Table 3.12—on pages 149 to 152—brings together the information about changes shown in the programme chapters.

I believe that the improvements which I have mentioned as stemming from the Government's willing acceptance of Expenditure Committee proposals will help to increase Parliament's, and indeed, the public's understanding of public expenditure matters. Coming new to this debate, I appreciate, perhaps as much as anyone, and probably more, the fruits of the labours of the Expenditure Committee.

There is one further major change in the format of the White Paper which my predecessor foreshadowed in his speech last year. He spoke about proposals for reforming the presentation of the Supply Estimates. These proposals were submitted to the Expenditure Committee and the Public Accounts Committee last year, and they generally endorsed them. The main change affecting the White Paper is in the functional classification, involving a reduction of the number of main programmes from 21 to 15. These programmes will in future be matched by 15 Classes of Supply Estimates.

The House will see the full significance for the Estimates when the main 1974–75 Estimates are presented in the next month or two; but the major benefit from this reform, which I should like to mention now, will be the greater ease with which it will be possible to relate provision in the Estimates to the relevant programme headings in the White Paper.

Before moving on to more controversial matters, I should comment on the status of the White Paper now before us. Hon. Members are familiar with the usual rôle that these White Papers play, setting out figures of expenditure at constant prices for a period of years ahead, reflecting the existing policies of the Government of the day. Command 5519 was prepared on this basis, and it represents the position as the Government saw it up to the late autumn.

At that point events—to which I shall refer in a moment—took place which led to the announcement by my right hon. Friend the Chancellor on 17th December. As he explained on that occasion, this White Paper does not take account of the 1974–75 reductions then announced, although it provides a baseline from which those reductions will be made.

Criticisms of reductions of this kind tend to fall into two mutually incompatible classifications—either they are bad and should not have been made, or they are bogus and will have no effect. Those are the criticisms normally made. We can debate the first proposition; the White Paper will provide the basis for refuting the second. But I must make it clear that the figures for 1975–76 and later years must also be regarded as subject to reconsideration.

As the White Paper itself stressed, our economic prospects and particularly our balance of payments are now subject to much uncertainty over the next few years from the effect of enormously increased oil prices and energy costs. This makes it essential to reassess the share of total available resources which we can devote to the public sector. This is not to say that the White Paper was not worth publishing. [Hon Members: "Oh."] I hope that the hon. Member for Heywood and Royton (Mr. Joel Barnett) will agree that it provides a considerable amount of detailed information on the content of individual programmes.

The White Paper provides essential material for those concerned with performance in the expenditure field, including the effects of the changes which the Government have found it necessary to make during the last year.

Photo of Mr Edmund Dell Mr Edmund Dell , Birkenhead

I thought it was the Government's policy not to attempt to balance the oil deficit. But from something that the hon. Gentleman has just said, it appeared that it was the policy to balance the oil deficit. I thought that the reason that the Government had to reallocate resources was to balance the non-oil deficit.

Photo of Mr Thomas Boardman Mr Thomas Boardman , Leicester South West

The right hon. Gentleman has read into what I have said something which is not there. I shall be coming to that point a little later.

The White Paper shows how the savings announced by my right hon. Friend on 21st May last were made. It sets out the effect of the phasing forward of construction contracts in the last quarter of 1973, which my right hon. Friend the Prime Minister announced on 8th October.

It demonstrates also that public expenditure as a whole was very much under control: planned expenditure in 1974–75, 1975–76 and 1976–77, in real terms and before the reductions made on 17th December, was not being allowed to rise at a faster rate than before, but was being held slightly below the levels for those years given in the 1972 White Paper.

In addition, the White Paper lays out for all to see and comment on the relative priorities between different programmes to which the Government's policies have so far been geared. It is not, therefore, without value, even if some hon. Members find unacceptable the particular mix of policies which it reflects.

Photo of Mr Reginald Freeson Mr Reginald Freeson , Willesden East

Are we to take it, from what the hon. Gentleman has just said about priorities and Government control being shown to have been affected by the information given in the White Paper, that it is Government policy to have a reduction of about £350 million over the next few years in housing investment, a reduction of 4·3 per cent., whereas elsewhere and on other occasions the Government are saying that they will step up priorities for housing and will put more money into housing investment? Will the hon. Gentleman explain the contradictions?

Photo of Mr Thomas Boardman Mr Thomas Boardman , Leicester South West

I shall not comment at this stage on particular programmes. What I said was that public expenditure was under control. I clearly said that the rate at which it was growing was under control. I made that comparison. The hon. Gentleman no doubt will wish to raise the question of individual programmes at a later stage.

I turn now to the economic events which led up to the Chancellor's statement on 17th December in which he announced the reductions of £1,200 million in 1974–75 expenditure which are condemned in the amendment standing in the name of the right hon. Gentleman the Leader of the Opposition.

The first point is that the Government did not create the difficulties which led to the Chancellor's action. In the later part of last year—but before the oil crisis and before the disastrous miners' dispute began—the Government's economic strategy was working out well. The independent National Institute of Economic and Social Research described it as an almost complete success.

The strategy was for aggregate output to level off to a sustainable growth and for the rise in consumer expenditure and public expenditure to slow down, thereby leaving room for private industrial investment and exports to continue growing rapidly. The facts show that this was working out as planned. The facts are there for all to see. The volume of manufacturing investment rose by nearly 12 per cent. between the second half of 1972 and the third quarter of 1973, and exports of goods and services rose by 10½ per cent. Domestic consumption, on the other hand, rose by only 2¾ per cent. I remind hon. Members that the TUC and the CBI were fully in support of the growth policies being applied, and said so on a number of occasions.

Photo of Mr Robert Brown Mr Robert Brown , Newcastle upon Tyne West

The hon. Gentleman is implying that up to last October the Government's strategy was working out very well and that everything in the garden was lovely. But how does he account for the fact that the Governor of the Bank of England seemed to let the cat out of the bag when he said a fortnight ago that before October last year the balance of payments was running at a deficit of £2,500 million? Either the hon. Gentleman is talking codswollop or it is time the Prime Minister sacked the Governor of the Bank of England for telling lies.

Photo of Mr Thomas Boardman Mr Thomas Boardman , Leicester South West

I suggest that the hon. Gentleman reads in full what the Governor of the Bank of England said. I ask the hon. Gentleman to look at the different time scales for the situation as I have described it in the late autumn of last year and the situation which resulted from the energy crisis, and the various factors that have arisen between then and the time of the Governor's speech.

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

But was the current account balance of payments deficit incurred in the year 1973 also exactly as planned by the Government?

Photo of Mr Thomas Boardman Mr Thomas Boardman , Leicester South West

The growth rate of imports and the slowness of the growth rate of exports gave rise to a larger adverse balance than one would have liked. But the Chancellor made clear what would happen, and the situation was working out in accordance with his plans.

Photo of Mr Dick Taverne Mr Dick Taverne , Lincoln

Is it not true that what happened was clearly foreseen. The evidence to the General Sub-Committee of the Expenditure Committee early in 1972 forecast that, if the Government's policies were maintained, by the end of 1973 there would be an imbalance in the balance of payments of over £2,000 million? Therefore, although the Chief Secretary says that the balance of payments deficit was larger than one would have liked, was not this exactly what was foreseeable in the light of forecasts made early in 1972, and was not it something that the Government should have avoided?

Photo of Mr Thomas Boardman Mr Thomas Boardman , Leicester South West

It was always accepted that there would be a large adverse balance during 1973. [Interruption.] If the hon. Member for West Ham, North (Mr. Arthur Lewis) had listened to what I said on the different time scales, he would perhaps have followed my point.

The current trade account, however, had been moving progressively into deficit. The prinicipal reason for this has been the deterioration in the terms of trade. As my right hon. Friend the Chancellor of the Exchequer said last week: without the increase in world prices since the middle of 1972 this country would not have been in deficit last year."—[OFFICIAL REPORT,. 22nd January 1974; Vol. 867, c. 1463–64] In the year to November last, import prices rose 38 per cent. and export prices 16½ per cent. Nevertheless, the prospects seemed good for recovery; the underlying volume movements were not unfavourable, and because of our exchange rate advantage, exports were highly competitive. On this basis the Government felt able at that time to support the deficit by borrowing over the period of recovery, without making any major policy adjustments at home.

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

There was a time early last year when the Government thought that commodity prices would turn down, which would clearly have justified borrowing to cover this period. Now that it is clear that commodity prices, far from turning down, seem to be rising, particularly the price of oil, is the strategy to be changed in relation to financing the deficit in the future?

Photo of Mr Thomas Boardman Mr Thomas Boardman , Leicester South West

My hon. Friend must separate the price of oil from other commodity prices. It was the commodity prices remaining at a higher level than had been expected that obviously was a feature in the other balance, as I have said. It would not be appropriate for me to speculate here today about the future of commodity prices. As my hon. Friend knows, there are signs which are more favourable than indications which have appeared in the past.

Commercial borrowings abroad to finance investment programmes in nationalised industries and local authorities were successfully undertaken on a large scale, and offset almost the whole of the 1973 deficit.

It is thus my contention that the Government had sound and effective demand management policies well suited to the particular conditions and problems which prevailed in the late summer and early autumn period.

Of course, there were some critics. To these my reply is this. Those who complained of general over-heating in the economy failed to realise that the shortages reported were not general and were to a considerable degree a reflection of the acceleration in output earlier in the year and to the very large build-up of order books. They were not a sign that in general the margin of spare capacity had disappeared.

The National Institute of Economic and Social Research, in a comprehensive study, could find no sound evidence of demand pressure at levels as great as in previous boom years. Nevertheless, my right hon. Friend had thought it necessary, and subsequent events have shown how prudent and, indeed, far-sighted he was, to take action in May to reduce public spending, affecting mainly 1974–75, while in October the moratorium on construction contracts was imposed to deal with a particular pressure on the supply position and prices in the building industry.

Those who complained of price inflation should take note of the Economist's calculations published in mid-November which showed the United Kingdom to be succeeding much better than other countries in controlling domestically generated inflation at home.

Photo of Mr Thomas Boardman Mr Thomas Boardman , Leicester South West

The right hon. Gentleman may say "Quite untrue," but the calculations by the Economist are conclusively in support of what I have said.

Stages 1 and 2 were proving remarkably successful, despite the huge pressure from world prices beyond the Government's power to control. How did it happen, then, that public expenditure cuts and other severe measures were needed by mid-December? There is no doubt that the Middle East war and its aftermath have worked a huge and spectacular change which will require a fundamental re-appraisal of our whole economic strategy.

Photo of Mr Robert Sheldon Mr Robert Sheldon , Ashton-under-Lyne

The Chief Secretary referred to the lack of supply constraints over the period in question. If there were no supply constraints, why is it that, particularly on matters concerning construction, there was a shortfall of expenditure amounting to several hundreds of millions of pounds between each of the reports of the General Sub-Committee?

Photo of Mr Thomas Boardman Mr Thomas Boardman , Leicester South West

I said in regard to supply constraints that the shortages were not general, that there were areas where, due to the accelerating demand and large order books, pressures were building up, but there was no general over-heating within the economy.

I was referring to the measures which became necessary in mid-December and to the fact that the Middle East war had required huge and spectacular changes to be made to our whole economic strategy. I was going on to say that this does not mean that our earlier policies were wrong. It means that there had to be new policies to adjust to the new situation. But we were not alone in this situation. It was one which was common to all oil-consuming nations and our position should be relatively better than most of our competitors.

We have large indigenous reserves of coal. I will perhaps have an opportunity to come to that point a little later. We have the good fortune of gas now coming from the North Sea in increasing quantities and oil will be arriving from there later in this decade. We have a nuclear generating capacity which now provides 10 per cent. of the electricity that we consume. We have reorganised the nuclear industry so that the great technical skills that we possess here can be most effectively used to provide the further energy we need from this source. Some of these projects will take time, but over all in the short, medium and longer term these reserves give us great economic strength.

Yet at the very time when our main indigenous fuel—coal—could come into its own and justify its advantages as a secure source of supply, the miners decide to remove that security and take the action that they have done in opposition to stage 3.

I need not catalogue the circumstances of this domestic dispute, nor indeed the history of oil developments on the worldwide scene. I am sure that hon. Members have them well in mind. It is the effects of these events on public expenditure in the United Kingdom which concern me now.

By December it was already clear that shortages of oil, greatly exacerbated by the industrial action then launched, and still unhappily continuing, could force a serious cut-back in national output, in contrast to the 3½ per cent. target previously aimed at. The effect of this would be excess demand, since aggregate incomes would not, in the short run, be affected as adversely as output.

Equally, it was certain, even then, before the news of the second huge price increase, that the price of oil, whatever happened to supply, would seriously aggravate the trade deficit, which was already large. Clearly, a substantial cut in domestic demand was urgently necessary if further inflationary pressure and further serious threat to our external position were to be averted.

Although it was apparent that the oil part of the deficit would require separate financing under international arrangements, there was a clear necessity to steer even more resources into exports and away from domestic expenditure.

My right hon. Friend the Chancellor decided that in such circumstances, with a widespread threat to employment and incomes, it would not be right to impose the added burdens of either direct or indirect taxation, except for the surcharge on surtax payers. A large reduction in public expenditure demand on resources coupled with restraints on consumer spending were a better and a fairer course.

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , South Angus

As to the effect of the cuts on the demand on resources, can my hon. Friend elaborate why it was that in his statement of 17th December the Chancellor insisted that the cuts must be so phased as not to affect public sector employment, given that the cuts were designed, apparently, to affect private sector employment? Why should not that have been shared evenly between the public and private sectors?

Photo of Mr Thomas Boardman Mr Thomas Boardman , Leicester South West

I shall be touching on that point, if my hon. Friend will bear with me for a moment. My right hon. Friend decided on a large reduction in public expenditure, coupled with restraints on consumer spending, because he felt that that would be a better and fairer course.

I would emphasise that it is not part of the intention in 1974–75 to add directly to unemployment by deliberately cutting public sector staffs, because that would benefit no one in the immediate crisis. Nor have any reductions been made in transfer payments to the private sector, which means, among other things, that the whole of our social security arrangements are left unchanged. With these exceptions, positive action is now being taken to modify programmes and policies in all the areas concerned.

The House had the opportunity yesterday to discuss the way in which the reductions in health and education expenditure would be made and the consequent effects on those programmes. A good deal of information has been provided on other programmes in replies to Questions tabled by my hon. Friends the Members for Oswestry (Mr. Biffen) and South Angus (Mr. Bruce-Gardyne) and by other hon. Members.

No one can seriously doubt the reality of the changes in our plans. The December cuts were made deliberately to bring about an adjustment of demand in the economy to match more closely the supply likely to be available.

No one should be in any doubt that real reductions in spending plans are having to be made—in central Government and local authority spending, and in the investment of the nationalised industries. Of course, given the shortages that we now face in the supply of basic materials, the planned public expenditure programmes would, in any case, have been frustrated to some extent. But without action to cut expenditure the results would have been unplanned and haphazard.

I understand that that point arose in discussion at yesterday afternoon's meeting of the General Sub-Committee of the Expenditure Committee and that its significance was recognised both by the Sub-Committee and by the official Treasury witnesses. Unfortunately, it was completely misunderstood by The Times reporter. His suggestion, in this morning's Times, that cuts would be cancelled out by the rephasing of programmes brought forward from 1973–74, is quite wrong.

The nationalised industries' capital investment programmes are, of course, part of public expenditure. They represent a major claim on scarce investment resources. Ministers are finally answerable for them. They cannot be totally insulated from economic forces that affect the rest of the nation. The size of their programmes must in the long run depend on the demand they have to meet. To this extent economic and commercial considerations set the level of investment.

But successive Governments have recognised the need to modify the scale and pace of these programmes in the short term, as a contribution to demand management, and the boards have cooperated in doing so in ways least damaging to longer-term plans. The argument is not over whether to cut, but by how much, and where. One of our priorities must be to make ourselves as independent as possible of imported oil. So we exempted the investment programmes of nationalised fuel industries from the reductions which we felt obliged to make elsewhere. The remaining nationalised industries have been asked to make the same general cuts in their programmes as we have imposed on all other big capital programmes.

Substantial shortages of investment, goods and materials are likely in 1974, which will affect all the big investment programmes. If these specific reductions had not been made, all the nationalised industries would have been competing for scare resources with other urgent needs for productive investment in the economy. By making the reductions in the way that we have, we hope to make it easier for the vital fuel industries to go ahead, as far as supply constraints allow, with their original proposals and programmes.

I refer now to fuel prices and the statement on 17th December when my right hon. Friend the Chancellor told the House that at a time of most acute energy shortage and financial stringency it made no sense to subsidise coal and electricity prices at a mounting rate. The Government have, therefore, begun talks with the nationalised fuel industries about increases in their prices within the limits of stage 3 where these apply. Price increases for these commodities will help stabilise and reduce the burden of public expenditure, in addition to promoting fuel economy. The talks are not yet complete.

I cannot add anything today to what the Minister of State, Treasury told the House last week—that we shall make a full statement at the earliest opportunity.

Turning again to the general position, hon. Members will have noted that the forward rates of growth in public expenditure as a whole—even before the present crisis—were modest. The average annual rate of growth over the period 1973–74 to 1977–78 was 2·5 per cent. The increase in 1974–75 had been planned at 1.8 per cent. But that position is now overtaken by the changes of 17th December, and, compared with 1973–74, there will be a fall. As I have already said, for later years the position will need to be reconsidered.

Although the figures in the published White Paper will need further consideration, it will remain the Government's aim to achieve as many of the policy objectives there set out as economic conditions will allow. I have already explained—my hon. Friend the Financial Secretary will no doubt have more to say on the point when he winds up—that the present crisis conditions were not of the Government's making. But given these conditions, the Government judged it necessary and right to take the action which they have done.

The variation of public expenditure in the short term is not inconsistent with the maintenance of medium-term aims, and hon. Members will remember that since we took office we have adjusted it up as well as down in response to changing economic conditions. But, while adjusting in this way, we shall continue to relate the longer-term trend to broader movements in the economy.

To be able to achieve all the policies we wish to achieve—including those for social services—the first prerequisite is sufficient resources. For this reason the resumption of economic growth and the safeguarding of the balance of payments position will continue to be the Government's first priorities.

I said that I would return to the amendment to the motion. I shall be brief, as my hon. Friend will no doubt have more stringent comments to make if he should catch your eye at the end of this debate, Mr. Deputy Speaker. But the amendment seeks to criticise the Government for failing to meet the needs of the serious economic crisis facing the nation.

I have referred to the way in which my right hon. Friend the Chancellor has adjusted our policies to meet those needs in the fairest and most effective way. It has meant painful decisions. No one regrets more than the Government the need to postpone the nation's getting the full benefits that were flowing from the policies that we have pursued. But we have, as the amendment acknowledges, a serious economic crisis.

In part, this is due to the world oil supply, over which we have little control. But the most immediate cause, and that which puts us at such a grave disadvantage against the rest of the developed nations, is the industrial action in this country. I hope that the Opposition will now speak out against the forces that seek to disrupt our economy. Whilst I welcome the statement of the right hon. Member for Cardiff, South-East (Mr. Callaghan), I hope that they will go further and add their voices to all who believe that the laws passed and the codes approved by Parliament should be upheld.

It is not a case of being against the miners. We on this side of the House are not against the miners—the support we have given the industry speaks for itself as clear evidence of our attitude. But it is a case of being for the great mass of the British public who will suffer by this industrial action and from increased inflation if stage 3 is breached.

Photo of Mr Thomas Boardman Mr Thomas Boardman , Leicester South West

No. I will not give way again.

It is a case of being for the millions of wage earners who have already accepted the offers put to them under stage 3. It is a case of being for a united national approach to tackle the world oil problem and its consequences, of maximising the benefits of our indigenous resources and of our traditional skills. Then we can again move forward and achieve those objectives that hon. Members on both sides of the House rightly seek.

4.31 p.m.

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

I beg to move, to leave out from "House" to the end of the Question and to add instead thereof, pays tribute to the work of the Expenditure Committee and its Sub-committees, but condemns the White Paper on Public Expenditure to 1977–78 (Command Paper No. 5519) in conjunction with the statement by the Chancellor of the Exchequer on 17th December 1973 for failing to meet the needs of the serious economic crisis facing the nation; and particularly deplores the concentration on cuts in public services whilst failing to reverse the taxation and industrial policies that have done so much to create the present emergency". I begin by congratulating the Chief Secretary to the Treasury on his new appointment. I am sure we shall await with interest to see whether he will make as many gaffes as his predecessor did.

That hon. Gentleman started well by telling us that the Chancellor of the Exchequer's economic strategy was going marvellously and was always planned. I doubt whether the hon. Gentleman can do much better than that by way of gaffe. He said, in effect, "If we do this and if we do that, everything will turn out wonderful." It reminds me of a saying we have in Lancashire—if my cat only had wings. That is virtually what the hon. Gentleman is saying—that everything would be marvellous again were it not for the fact that….

I want to pay my customary but none the less deserved tribute to the work of the members of the Expenditure Committee and of its chairman, the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) and of the chairman of the General Sub-Committee, my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon).

There was an interesting debate recently on the way in which the subcommittees are doing their job, and it would be wrong to repeat what was said then on a day when, I hope, we shall be debating what should be the Government's policy in the central part of economic strategy—expenditure. One cannot help feeling sorry that we do not have from the Select Committee a specific report which would help the House and the Government to make up their minds on the advantages or disadvantages of public as against private expenditure and, as the current in-phrase has it, the relativities or resource costs of one item of public expenditure against another, or the cost effectiveness of particular cuts.

As far as I can see, there is only one sub-committee which could do the job—the General Sub-Committee—unless we set up a sub-committee with a representative of each of the others. But one fears that that is not practicable in the present situation. Another course might be for the main Committee to consider doing the job itself.

The Chief Secretary mentioned presentation. It has become customary for us to discuss it in these debates. I hope the hon. Gentleman will not object if I say that I think that it is better left to debate in the main Committee, leaving those other hon. Members who are interested to read about it in the Committee's report. Indeed, if sufficient other Members were interested, a separate debate should be arranged. The fact that these debates have in the past dwelt to a considerable extent on technical jargon has been one of the reasons why other hon. Members have been driven away from the Chamber. The hon. Gentleman's predecessor put it very well last year, when he said: … there has been a tendency in the management and scrutiny of public expenditure to be regarded increasingly as an esoteric exercise understood and participated in by relatively few experts."—[OFFICIAL REPORT, 7th February 1973; Vol. 850, c. 463.] The last thing we want to do is to leave it to the experts. I hope that the experts will forgive me, therefore, if I do not get too involved in jargon and technical statistical arguments. There is one issue which might perhaps be called "semi-technical". It is under-spending the forecasts of public expenditure. This clearly is of some importance to us, especially when we debate at length the fine points of whether we can afford, for example, an extra £7 million for school milk and then rule it out on ground of economy, only to find that the forecasts of public expenditure, whose rigid limits are defended to the hilt by all Goverments, are underspent by hundreds of millions of pounds.

In this part of my speech at least I am not making a party point. We all know that the figures themselves are not extracted by Ministers, and certainly not by the Chief Secretary, but they, poor devils. have to make the best of them. For 1973–74 the specialist adviser to the General Sub-Committee in a memorandum has calculated that expenditure on goods and services will be some £1,400 million under-spent, £1,271 million of that due to estimating reasons. Although there may be some acceleration in the second half of the year, as we all accept, this makes no allowance for the fuel crisis.

Lest anyone thinks that there is a lot more to spare, I would point out that the under-spending, it appears, will be balanced by a very similar amount of debt interest and subsidies. The serious lesson to be learned is surely that politicians' policies must not be rigidly based on experts' estimates. If we can get it so wrong for the first year, we must surely have very big problems in calculating for five years. as we try to do in White Papers.

The Chief Secretary's predecessor last year, even before his more recent hard lessons on such matters as statistics, told us: In the Treasury we talk about ' the medium-term assessment '. What it is in fact, as I told the Expenditure Committee last year, is a statistical construction based on hypotheses."—[OFFICIAL REPORT, 7th February 1973; Vol. 850, c. 473.] What he meant was, "Guessing".

I am reminded of a story of a man working as a civil servant during the war in an outlying ministry. Every month he had to send figures to Whitehall. He wondered what happened to them. One month he decided to add a nought to the figures. Nothing happened. The following month he added two noughts. Indeed, he carried on adding noughts throughout the rest of the war and still nothing happened. I hope that no one is doing that to the figures at the moment, but one cannot help wondering.

The guessing, I imagine, will not prevent academics, financial journalists and other commentators from writing learned articles on which they will base firm conclusions. I envy them the degree of certainty they have in their conclusions. The rest of us, less dogmatic, I hope, in our assertions, will, I trust, recognise the wide margin of perfectly understandable error there is in this science and plan our policies with a sufficient amount of flexibility to take it into account.

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , South Angus

The hon. Gentleman says that politicians' policies should not be based on experts' estimates. But surely the lesson to be drawn from what he has been saying about our experience of the shortfall and the rest is that all fine tuning is a dubious proposition and that fine tuning in the public sector is more dubious than any other fine tuning.

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

I would go along with a great deal of what the hon. Gentleman said. I was saying, in effect, that one can make too much of the fine tuning, based, as it must be, on experts' estimates. We have nothing else to base it on, except hunches, which, for example, the former Governor of the Bank of England used when he was brought in to counter the present Governor.

I make no apologies for the fact that the amendment in effect turns the debate away from the sort we have had in the past, because we are today discussing something which is right at the centre of economic strategy followed by any Government. It is, indeed, one half of what the Government do—expenditure. In our amendment we condemn the White Paper in conjunction with the cuts of 17th December for failing to deal with the serious economic crisis facing the nation.

Let me first list some, if not all, of the serious economic problems facing the nation. We might at least all agree on the problems if we do not agree on the cure. On the balance of payments no one can doubt we are faced with a serious problem. Even if the Chief Secretary is right and it was all planned it is still a serious problem when in the last quarter of 1973 the visible trade deficit was running at an annual rate of £3,000 million with very little to do with the oil crisis. Maybe it was all planned. The Chief Secretary tried to tell us that it was planned, or at least partially planned, but that it was blown off course by the various factors he mentioned.

The second urgent problem is that inflation in 1974 will certainly be in double figures and very likely up to as high as 15 per cent. or more. We have seen totally inadequate industrial investment which is still not as high as it was in 1970. The pound is floating lower and lower against the dollar, even though it is doing slightly better against some of the other currencies. Nevertheless, few will deny the seriousness of the situation. I do not know whether the Chief Secretary is right that it proves the foresight of the Chancellor of the Exchequer, but I doubt whether many will agree with him even from his own side of the House.

These then are the serious problems. The Chancellor's answer was to rely almost entirely on public expenditure cuts and, as he put it last month there will be some automatic fall in private demand as incomes fall because of the short-time working and temporary unemployment".—[OFFICIAL REPORT, 17th December 1973; Vol. 866, c. 963.] We also know from what the Chief Secretary said today and from what had been said previously that one of the other measures the Chancellor has in mind is to increase the price of gas and electricity by reducing the size of the subsidies. The Chancellor therefore intends to make use of both inflation and short-time working.

First, let me deal with the three-day working week. The trouble with that of course is that while it will reduce private demand it will also reduce production at a time when we need a switch from personal consumption to exports. It is tragic that export demand exists because of the highly competitive position inadvertently created by the Chancellor's devaluation and yet our manufacturers cannot meet that demand substantially because their production is going to satisfy personal consumption at home.

No one can like cuts in personal consumption but the great advantage of them over cuts in public expenditure in current circumstances is that they make more room available for exports. More important, however, they reduce imports at a much faster rate, and rising imports are one of our main troubles, as the monthly trade figures indicate. According to the Central Statistical Office the import content of public expenditure is 11·6 per cent. while the import content of consumer expenditure is 15·9 per cent.—over 35 per cent. higher.

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

If the hon. Member for Heywood and Royton (Mr. Joel Barnett) believes we should reduce personal consumption—and I agree with him—does he agree that the correct way to do it is to increase the standard rate of income tax and is that what the Labour Party is publicly advocating?

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

That may be one of the ways but we shall be able to discuss how it should be done in dealing with the incomes side of the matter when we discuss the Budget. I would naturally prefer to reverse some of the more harshly unfair tax measures taken by the Chancellor over the last three and a half years, but maybe the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) will not necessarily agree with me in that.

There is clearly a much greater benefit to be derived by reducing the level of imports than by following the course set by the Chancellor. But the only other case made by many commentators at the moment is that, taken together with oil price increases, the Chancellor now needs to borrow until North Sea oil comes on flow. In other words the Conservative slogan will now presumably be "Conservatives will borrow bigger". Even if it were possible—and the cost would be very high and some borrowing will obviously be essential—it does not remove the need to switch from personal consumption to exports. Indeed, it makes that course all the more necessary. Oil will certainly remove the need to borrow after, say, 1980, but it will not of itself repay the debts we shall have to build up between now and 1980. So I hope we do not place too much reliance on this new golden era that will arrive with North Sea oil.

The cuts in public expenditure alone will certainly not stop the level of inflation rising to as much as perhaps 15 per cent. in 1974. Those cuts alone will not stop the pound sinking in 1974. Both these problems will require a reduction in personal consumption and demand at home. That will itself help in the fight against inflation and above all it will strengthen exports, the balance of payments and the economy. That way only shall we stop the pound sinking and because of the export demand it would not lead to such heavy unemployment as would otherwise be created. To pretend that the problem can be solved in another way, as the Chancellor seems to be doing, is to give people a false impression of the urgency of the problem. Our charge is that the Chancellor is simply putting off the evil day by concentrating all his cuts on public expenditure.

I should now like to turn to precisely that concentration and pose the question that forms the latter part of our amendment. Assuming, for the sake of argument, that £1,200 million was about the right amount to cut in public expenditure, should it have been taken wholly from public expenditure or should some have been derived from private consumption? If it were correct to take it all from public expenditure, was it right to spread the cuts in the way that the Chancellor has done?

Let me make it clear that we accept in the present economic circumstances that all options are off and that many of the vitally important increases in public expenditure that my hon. and right hon. Friends and I want to see will regrettably have to wait. That does not mean that existing levels in every field should be chosen for cuts rather than tampering with the Chancellor's sacred cow of tax reliefs, which he has boasted so frequently of handing out over the last three and a half years. If there is little room for expansion in public expenditure in the present crisis, across-the-board cuts could be both dangerous and costly. Sharing cuts between all spending Ministers is a practice which has grown up amongst successive Governments on both sides of the House. That may be fairer as between Ministers in Cabinet, but it often does the maximum harm to the country.

Perhaps I may give a few examples of what I mean. Capital expenditure on goods and services in law, order and protective services will be cut by £32 million. That saving could very well have been more than balanced by the cost of undetected crime and fires. Then there is to be a cut in the capital expenditure of the British Steel Corporation of £67 million. I should imagine that that will prove a very expensive cut if, as we hope in the not-too-distant future, we revert to economic growth. Yet I imagine that once again we shall probably find ourselves short of steel.

I wish to examine the arguments for cuts exclusively in public expenditure rather than in a mixture of public and private expenditure. First, there is the matter of fairness. It was audacious of the Chief Secretary to suggest that what the Chancellor of the Exchequer had ever done was fair. I doubt that even the Chancellor, in his fairer moments, would have claimed that. An increase in direct taxes would fall hardest, where it should at such a time of national crisis, on those most able to bear the burden. That is what the Chancellor should have done. Cuts in many areas of public expenditure will hardly affect the wealthier members of the community. Take, for example, community services. On page 85 of the White Paper we were told—before the most recent cuts—that increased expenditure: … reflects the Government's policy of providing additional help to areas of urban deprivation. One knows that the Department concerned will try to protect community services, yet they will inevitably be hit by the cuts. One can only assume that the cuts announced on 17th December reflect the fact that the Chancellor of the Exchequer's concern for higher-rate taxpayers in 1974–75 is greater than his concern for areas of urban deprivation. The policy will almost certainly be counter-productive, for it will increase admissions to hospitals, thus costing the State more than the amount of the cut announced on 17th December.

Regarding personal social services, it is stated in paragraph 8 of page 100 of the White Paper: Capital expenditure by local authorities is largely devoted to the provision of additional or replacement residential accommodation or day facilities for the elderly, the physically or mentally handicapped, the mentally ill and children in care, and to the improvement of existing facilities. I know that the Department involved will try to differentiate in favour of these areas, but some cuts will be unavoidable.

We are bound again to come to the conclusion that the Chancellor of the Exchequer appears to prefer cuts or delays in this type of expenditure to increasing taxes, and again this policy will be counter-productive.

I turn to one of the most urgent needs of today, council housing, a need with which we all constantly come into contact. Rented accommodation is becoming more and more difficult to find in all our constituencies because fewer and fewer people are moving from council houses into owner-occupied houses. It is possible for the Chancellor of the Exchequer to boast that there are no cuts in housing expenditure, yet his policy has led to the cuts which have been made in recent years.

There is an incredible statement in paragraph 8 on page 70 of the White Paper: The assessment of local needs for rented accommodation is a matter for the local authorities and no limit is currently placed on the numbers of houses they may build to meet those needs. As we all know, there is a considerable limit—a financial limit. Thus we find in Table 3.12, as my hon. Friend the Member for Willesden, East (Mr. Free-son) pointed out—the Chief Secretary promised to deal with the matter but did not—a forecast of a tragic net reduction of net investment of £190 million a year over four years in new building. That is a shocking cut at a time when the housing situation in local authority areas—particularly in heavily built-up industrial areas—is becoming explosive. Pressures on councils, especially in the north, regarding housing and other services is such that the councils need increased assistance—not a reduction. The councils are now faced with an appalling choice between cuts in vital services or increases in the worst tax of all, local rates.

Another cut which will have serious consequences—but again not for the wealthier people in the community—is that affecting public transport. We know from an Answer to a Question on 21st December that there will be a cut of £178 million in roads and transport on the Department of the Environment Vote and a cut of £6·7 million on the Department of Trade and Industry Vote. Roads are an obvious choice for cuts—I do not quibble about that—but cuts in public transport would not only fall most harshly on an already long-suffering travelling public, but would also prove to be very costly if they forced more and more people away from public transport and on to the roads, at a time when the reverse should be happening.

Among the worst cuts will be those in education, amounting to £150·7 million. These cuts will not affect those who do not use State schools. My hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) gave some examples of the effect of cuts in education during yesterday's debate. He spoke about cuts in the number of under fives who are to be admitted to schools. Such a move will not affect people who do not use State schools. In Essex there are to be capital and revenue cuts of £626,000 in nursery programmes. In addition, the education authority in that area, and almost certainly many other education authorities, will not now be able to improve the teacher-pupil ratio, an improvement which is needed if we are to make improvements in our education system.

The Secretary of State for Education and Science said in yesterday's debate: I recognise that the cuts are serious, but they are not disastrous."—[OFFICIAL REPORT, 28th January 1974; Vol. 868, c. 49.] Those cuts will not be disastrous for the section of the nation which the right hon. Lady and her hon. Friends have divided from the rest, but they will be disastrous for that section which uses State schools.

In parts of Lancashire, including my own area, there are still primary schools over 100 years old where in high winds pupils who have to go to disgraceful outdoor toilets have to carry a bucket weighed down with books to prevent them being lifted off their feet. That situation is likely to continue unless funds are found to deal with such matters. [Interruption.] It is not very funny. I invite the hon. Member for Brighouse and Spenborough (Mr. Proudfoot) to visit the areas where what I have mentioned is being experienced. The people there are not laughing.

Photo of Mr George Proudfoot Mr George Proudfoot , Brighouse and Spenborough

The hon. Gentleman missed out a couple of words. He surely meant that the wind would take the pupils off their feet as they walked across the open area.

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

If the hon. Gentleman finds it amusing because he thought that I had missed out a couple of words, it is typical of his attitude. I do not think that I made a mistake in describing that situation, but if I did, I apologise. It is surprising if it is found to be amusing.

The Chancellor of the Exchequer still prefers the sanctity of his tax cuts rather than to take action on the matters I have mentioned. We were told yesterday about more cuts in the National Health Service. Those cuts will not affect people who have had substantial tax relief and who do not use the Health Service. In yesterday's debate on health and welfare expenditure my right hon. Friend the Member for Deptford (Mr. John Silkin) quoted an article in the Nursing Times for 24th January, which stated: The hospital supply situation, which has been gradually deteriorating in the past few months, is now near crisis point. Surgical dressings, disposables, cotton and plastic items of all kinds are in increasingly short supply. It seems that the Chancellor of the Exchequer, rather than improve that situation, prefers to be able to leave his office—for the country's sake I hope it will be soon—able to boast that while the rest of his policies are in ruins his tax cuts are intact. Many other examples were given yesterday of how cuts will not only bring social hardship but are likely to end up costing the State more.

My hon. Friend the Member for Eccles (Mr. Carter-Jones) spoke in yesterday's debate about a development unit at the Royal Manchester Hospital where 300 young people are helping to play a part in community life rather than be a burden. Cuts to be made in that scheme will be a double disaster.

The more the Chancellor of the Exchequer's policy of almost total dependence on cuts in public expenditure is examined, the more it is exposed as being unfair to the less-well-off sections of the community, and as being inadequately costed in relation to its effectiveness. At a time when the country wanted to be told the truth, the Chancellor once again hid it from the public by choosing to make cuts in public expenditure which will take some time to be felt. When they are, he will no doubt be gone from his office, still seeking to claim credit for his tax cuts, which have done so much to create the present industrial climate. There can be no doubt that, as the amendment says, these policies have failed to meet the needs of the nation. I ask my right hon. and hon. Friends to support the amendment in the Lobby tonight.

5.1 p.m.

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

I first congratulate my hon. Friend the Chief Secretary on his new position. As one of the worst offenders in a previous incarnation in subsidising nationalised industries, he will, I hope, now that he has turned from poacher to gamekeeper, know all the possible ways of stopping those subsidies in the future. I hope that he will carry them out. I wish him all success in his important new position.

I also pay tribute to the speech of the hon. Member for Heywood and Royton (Mr. Joel Barnett). He came a long way towards realising the gravity of the economic situation and towards proposing measures which, though unpopular, are necessary. That has not been the case in all speeches from the Opposition side. If we can agree at least on the seriousness of our economic problem, we are making progress.

But I take the hon. Gentleman to task on one point. Opposition spokesmen say over and over again that the answer to the problem is to increase taxation of the rich. Whether or not one is an egalitarian—and I am not—that totally bemuses and befuddles those following the argument. The implication is that if the Government's so-called concessions were reversed that would in some way provide enough money to close the gap in the Government's finances. Everybody knows that that is not so, and to suggest that it is so is misleading.

I know that the hon. Gentleman suggests that in some way the climate will not be right for sacrifices unless that is done, but I think that he is aware that that has a misleading effect, because people believe that it is the reversal of those tax policies which will make the difference and bring in the money.

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

I did not say that increased taxation should be only at the higher end of the income scale, but that is essential if we are to provide the right sort of climate.

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

I pay tribute to the hon. Gentleman's honesty in that matter. I want only to make it clear that even if £100 million were raised from industry, commerce and the better off, which in my opinion would have a serious effect upon the invisible account, one of the main earners on overseas account, it would go nowhere to meet the gap in the Government's accounts which must be closed.

I welcome the cuts made in December by my right hon. Friend the Chancellor of the Exchequer. I believe that he had no alternative, for a very good reason. There was a less good reason which can now, I hope, be disposed of—that the Government clearly wanted to keep an election option. The reason which is impressive is that any increases in taxation, particularly direct taxation, could not have been made in one week before Christmas. They would have required a great deal of preparation and then legislation, and clearly would not be possible until a Budget. Therefore, I think that my right hon. Friend had little alternative but to make a fairly strong gesture towards reducing the Government's deficit without precluding tax increases, which I believe will certainly be necessary as soon as they can be prepared. Therefore, I do not think that the Government are to be blamed for making the cuts.

But we must acknowledge that postponing programmes and postponing the purchase of stores will in due course have to be put right, because those programmes will have to be completed and those stores will have to be purchased.

The amount of the cuts is probably inadequate, at £1,200 million. To do in simple terms the arithmetic of the trade balance, we know that we are running a £2,500 million non-oil trade deficit. When we add £2,000 million for oil, we have a figure of £4,500 million. Against that, though it is seldom done, we must set the profit on invisibles, which may be £1,500 million, giving us a net gap of about £3,000 million. Much of that can no doubt be covered by long-term or short-term capital, but it does not seem wise to cover the bulk of it by capital borrowings. I very much hope that that deficit can be as to two-thirds reduced by tightening up the domestic economic situation.

What has happened is that the terms of trade have turned against us dramatically and in an important way. Although the Government said that they were prepared to let the balance of trade go wrong last year, because they expected an improvement in the terms of trade, that improvement has not occurred. Indeed, the terms have become worse, owing to the oil crisis. That must force us to accept a major change in our domestic economic circumstances to improve the position.

In relation to the details of the White Paper and the programmes, the responsibility of the State remains, once it has accepted the responsibility to discharge a programme, whether in education, pensions or whatever. By making cuts one can only put off the day when one must spend the money.

Although I support what the Government did, and believe that it was the only thing they could do in the circumstances, I think that there are only two ways in which Government expenditure can truthfully be reduced. The first is by greater efficiency in the public sector, by less use of men and materials. The second is by taking programmes out of the public sector and putting them back into the private sector. I want to talk briefly about those two possibilities in relation to the White Paper.

My right hon. and hon. Friends on the Front Bench have been very careful and rigorous in looking at Estimates and cutting out waste, in so far as it is possible for Ministers to do that when the papers finally reach them. But before the papers reach them there are many opportunities for improving efficiency in many services that the Government provide. I should like to see a much more rigorous attitude to measuring the performance of output of whole areas of Government activity, comparing it with similar figures abroad and, where possible, with similar figures in the private sector, and appointing people whose sole task it is to manage certain pseudo-industrial and pseudo-administrative parts of the machine more efficiently.

I cannot believe it right that big public companies such as ICI or Shell should spend large sums of money and employ many people on management efficiency and bonus schemes, and make endless checks into the efficiency of their organisations, whereas in the public sector practically half of our gross national product goes unmonitored and unsupervised. I hope, without being critical of the Government, that they will press on with plans to ensure, as has been done successfully in America, that higher standards of public efficiency are achieved.

We have had striking tax cuts from the Government, which are essential if in future the economy is to thrive and prosper. A much lower rate of taxation than the present rate is required in the decades ahead. I do not believe that we can achieve even the present level of tax cuts, let alone more, without compensating real cuts in public sector expenditure. We must consider the services which we deem necessary to be performed by the State as opposed to those which we can leave to individuals to pay for themselves.

The figures have now become quite interesting. The total of public sector spending in the White Paper is £32,000 million. I take off £1·2 million, which is the amount of the reductions made on 17th December. I am talking about a rough figure of £31,000 million after cuts have been made. That works out at £622 per inhabitant per year or £1,711 per household. Although it can be seen that a great deal of public expenditure is justified in terms of the conditions of 30 years ago when few people had an income of £1,711, let alone being able to afford to give that amount of money to the State to spend on their behalf, we now have a society with a higher standard of living, a higher standard of education and a higher standard of responsibility. Could not the public now be trusted with some of that expenditure rather than for all control to be with the State?

I recognise that there are many social services which the individual cannot provide for himself. For instance, the individual cannot provide defence, overseas services, law and order or roads. However, I believe that the individual can be trusted more to provide for his own health and part of his own education. Greater parts of the social security system could be insured for rather than provided by the State.

In future, with the terms of trade swinging so heavily against us, no Government of either party can afford not to look at the possibility of giving back responsibility for at least some parts of the welfare services to the citizen. At present State expenditure on the nationalised industries is £175 million. That is not the capital but the subsidies which are given to those industries. The State provides £590 million for agriculture, £1,965 million for trade and industry and £2,169 million for housing. They are all areas where definitely more and more of the responsibility could be put back into the private sector.

I recognise that all the areas which I have mentioned are areas of Government expenditure which the Government intend to reduce.

Photo of Mr Robert Brown Mr Robert Brown , Newcastle upon Tyne West

When will the hon. Gentleman learn that if Governments interfere with the price mechanism of the nationalised industries, as they have done for years, they must accept that deficiency payments are created by their policies? They are not subsidies.

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

The hon. Gentleman fortifies my contention that the Government should not interfere with the pricing arrangements for the nationalised industries. There is no point in kicking out the bill when the goods have been ordered. Therefore, we must accept the £175 million. I am saying that in future the Government should not seek to subsidise the nationalised industries or food or agriculture.

I know that much has been said about subsidies since we joined the Common Market. Labour Members have been clamouring for food subsidies yet in next year's expenditure £590 million will be used for domestic food subsidies. That figure should be cut rather than increased. I do not see why people should not be asked to pay the true economic cost both of food and of housing with the present level of wages and social security payments. If that means that there must be increased pensions, increased supplementary pensions or increased benefits to provide a decent standard of living for the poorest people in the land, I shall vote happily for such increases. I do not see why the nation, threatened as it is by dire economic trouble, should continue to subsidise so many things, thereby distorting the price mechanism.

It is no coincidence that the total of the suggested cuts in the areas which I have suggested is about the same as the Government's deficit on revenue account last year or the year which we are now in. If the subsidies had not been paid during fiscal 1973–74 we would not have had inflation resulting from the money supply which that expenditure has generated. That is the order of the action which the Government must take.

In the first instance, the Government will probably have to increase taxation. To reduce expenditure along the lines which I have suggested must take time and must not be done too sharply. As a long-term objective, I welcome the declining share of public expenditure which is going to the four items which I have mentioned. I hope that the decline will be accelerated and that it will be major. Economic events have forced upon this country a major reappraisal of the economy. We can no longer continue with the old assumption of a rising standard of living with rising public expenditure. We must now choose from unpopular options. Although in the short term taxation must be increased, in the long term I should prefer to see subsidies reduced for goods and services which people can properly provide for themselves as a contribution to solving our problems.

5.19 p.m.

Photo of Mr Robert Sheldon Mr Robert Sheldon , Ashton-under-Lyne

Historically one of the most important matters to come before the House, and on which the House has been divided, has been public expenditure versus personal consumption. We all know that a great deal of that division was more apparent than real. What has been said by the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) suggests, as we know well for other reasons, that the division between the House might become once more more important than in the immediate past.

It is unfortunate that we were not able to have a report from the General Sub-Committee in time for the debate. As we know, the broad shape of the annual arrangements for the debate was that each November, and possibly December, a White Paper would be produced and that there would be a debate of a general character on the White Paper before Christmas. At that stage the General Sub-Committee of the Expenditure Committee would get down to work. The comments by the specialist adviser would be used in obtaining evidence from the Treasury and other witnesses. This would culminate in a report to be debated in the Budget debate.

Unfortunately the late arrival of the White Paper has thrown this timetable astray. It is important that we have a debate better than a number of disparate speeches forming something like a Consolidated Fund Bill debate. This is a problem which many others see. I do not think we will see this debate on the Public Expenditure White Paper settle down for some time.

I should like to see the sub-committees of the Expenditure Committee represented in the Chamber rather more in future. I have always felt that if we have a debate in which it is being said that more expenditure should be committed in one area as opposed to another, it will be taken as representing a serious commitment only if interests outside the House use those sub-committees in a way in which they have not so far been used.

It would be a sign of success, for example, if the road lobby—an active and vigorous lobby—tried to influence members of the sub-committee concerned with the environment even to the extent of offering them trips or taking them out to lunch at the Savoy. It would be a sign that it regarded that sub-committee as a body to which it would be making representations and trying to persuade. Unfortunately lobbying is all too infrequently made because it is not throught advantageous. The sub-committees are generally ignored because they are not sufficiently covering their job. They will do their job only when they find themselves the recipients of representations of a kind that have not so far been made to them.

I hope that, following our debates the Education Sub-Committee, for example, will investigate why education has been remarkably free from the ups and downs represented by cuts and by further expenditure. I hope that it will be seen that the roads programme has been going consistently down for a long time, that capital expenditure on the nationalised industries has been something of a switchback. There ought to be some comments by the sub-committees on these matters. This is a vital rôle of the Expenditure Committee which it is denying to itself.

I thank our specialist advisers on the sub-committee, Mr. Wynne Godley and Mr. Terry Ward, for their excellent work in producing memoranda for our subcommittee in such incredibly short periods of time. We are now becoming used to being able to obtain valuable information within a week or two. This helps us enormously. I thank the Treasury, too, for the help which it gives. I know that on many of these matters we tend to act in some ways as adversaries. Yet we know that as long as we are finding out useful information the Treasury respects the work of the General Sub-Committee. The greater frankness with which these matters are being discussed and investigated will be valuable not only to the sub-committee and to the House but ultimately to the Treasury.

I turn to the White Paper "Public Expenditure to 1977–78". We know that it is nothing of the sort. Because of the expenditure cuts of 21st December we know that this White Paper applies only to the period 1974–75. This cannot be a proper discussion of public expenditure beyond the year 1974–75. Also because nothing is known in detail about the £1,200 million cut we are dealing in detail only with public expenditure in the year 1973–74.

Whether the figure turns out to be £1,200 million or, as suggested £800 million, will be a matter for the General Sub-Committee, the Expenditure Committee and the House. What is quite remarkable is that two months after the publication of the December cut we do not know what type of cut this is.

It could be one of three things. It could be a moratorium, in which the cut would be imposed and expenditure which was to be undertaken for a certain period of time would be suspended but would continue unchanged after that period of time. It could mean that the cut is imposed but that subsequently there would be a catching-up process so that in future the position would be as if it had never taken place. The third method is that the expenditure could be spread out and afterwards could be phased in. In other words, the expenditure would be stretched out and brought back in.

We do not know which of these is to apply. It is nonsense to talk about expenditure after this year because we do not know what it is to represent. Even the Minister may not have made up his mind. These uncertainties lead to great problems for the Government and the Treasury in the management of the economy by means of public expenditure. Having earned his reputation as the Chancellor who cut taxation, the right hon. Gentleman is reluctant to bring in taxation. It is tempting to him, above all—although I suspect it is tempting to all Chancellors—to try to use the expenditure side to manage the economy. It is just as attractive to this side of the House and we must note all the dangers.

One of the main dangers is the lack of exactness in using expenditure to manage the economy. For example, in the Financial Statement to the 1970 Budget, taxation and miscellaneous receipts were estimated to be capable of producing in the following 12 months the sum of £15,008 million. A year later the provisional out-turn was £15,260 million. That is the kind of situation which occurs year after year—£16,100 million as against £15,800 million, £16,700 million as against £16,800 million, £16,800 million as against £17,100 million. That is the measure of accuracy obtained through taxation.

As a means of managing the economy it has the enormous merit of exactitude. Compared with that we have to look at the performance of public expenditure. Has public expenditure been able to provide the same precision in estimating? We can look at the estimates of public expenditure and compare them with the out-turn. It may come as a surprise to the House, but not to the General Sub-Committee, to know that until that sub-committee started work these figures were nowhere available. No one in the Treasury or outside was able to identify the out-turn of public expenditure as against the estimates of public expenditure. There was no discipline which said, "You are not accurate and therefore improvements need to be made" in the way that taxation discipline between estimate and outturn had existed for years. There was no impetus to produce the sort of accuracy on which fundamentally any use of public expenditure to manage the economy must depend. Only the recent somewhat laborious work of the General Sub-Committee made that possible.

Our earliest estimates cover the period 1972 to 1973. We are able to compare the estimate of public expenditure with the out-turn. Here we must exclude certain policy changes because the Government will make certain changes to increase expenditure here or to reduce it there to take account of the matters with which they are concerned. Excluding those, and taking only those estimates for the amount of goods, services or anything else for which they intended to provide, we find from Command Paper No. 4829 that we were dealing with the 1972–73 estimates in the White Paper. In the period from then until the final out-turn, the estimates were £1,150 million out. What is particularly significant is that by December 1973—within a few months of the end of the financial year—on the position as it was thought to be then compared with the position as it finally appeared three months later, the estimates were £900 million out.

The importance of that point is that the accuracy of public expenditure estimating is in no way comparable to the accuracy of revenue estimating. There are fundamental differences between the accuracy of the one and the accuracy of the other. There are many things which I would wish to do in using public expenditure as a tool for economic management. What is sad is that much information has only recently come to light despite the fact that the Government have tended to use it more and more. What is even more important is that what was almost a Budget statement on 21st December used public expenditure almost entirely as a demand management tool. It is very seductive, but difficult, to use it as such.

Paragraph 12 of the Fifth Report from the Expenditure Committee, which was the General Sub-Committee's Report, published on 15th February 1973, states: Our major conclusion is that the public expenditure decisions taken during the past year. unless they are now modified, will make it essential to constrain the growth of real personal disposable income and consumption to a rate significantly below that of total output … That was a comment on the economy which was based on the use of public expenditure as a demand management tool. A month later, the then Chief Secretary, now the Minister for Energy, said in col. 912 of HANSARD for 12th March about our conclusion, "It just is not true".

I do not wish to dwell on the fact that the General Sub-Committee got it right and the Treasury got it wrong. It is not that kind of argument. What we have sought to do, and what we must seek to do, is to have a dialogue. Our conclusion that unless there was a modification in Government planning real personal disposable income and consumption was proceeding at a rate significantly below that of total output was true, as was shown by the 21st May cuts, by the October cuts and by the 21st December cuts. It was abundantly true.

I do not wish to bring to an end the kind of outspokenness which was demonstrated on that occasion, because I do not see this as a contest, but a certain amount of humility in Ministers is desirable if we are to get a dialogue going. No one in the House knows the answers. What worries me is that all too rarely has the Treasury been able to conduct the kind of open discussion which is becoming accepted as more general and useful to the information which the public acquires.

One matter is clear in the present situation: a significant movement of resources into exports will be needed. Ever since the days of Empire—I suppose that we can say since 1960 when our preferential tariffs came to an end—we have bad to earn our way in the world. A shift of resources into exports to compensate for the markets which were irrevocably lost had to take place. Ten or 15 years later that shift has still not occurred.

How do we raise the level of exports and yet maintain a minimum increase in the standard of living? The answer to that question depends fundamentally on the growth of output. When the Chief Secretary referred to the 3 per cent. growth which we were enjoying in the autumn, he did not fail to take account of the 5 per cent. predicted at the time of the Budget. This was the time when the Prime Minister was saying that what Europe could do this country could do and that increases in growth obtainable there were also obtainable here. He was talking, not about a 3 per cent. growth, but a 5 per cent. growth which was modified during the year to 3 per cent. and which, because of supply constraints, might have been even less.

My answer on these matters, as it is on many others, is that the art of government must be, not to strive for the impossible, but to do that which is attainable. When Ministers go off to ski resorts to do oil deals, it is a thousand pities that they cannot make the much shorter journey to do coal deals. If coal had freshly been discovered, we would be treating it as one of the greatest bonanzas we had ever had. Money would be pouring into the miners' pockets so that we might be able to utilise that asset.

What frightens me most is that there may be something in the Government's incomes policy which I cannot see. Perhaps the Government have a wisdom which cannot permeate the minds of some of my hon. Friends. What is much more obvious to us is the bringing of this country industrially to its knees. That is certain; there is no possibility about that.

If we are to get our balance of payments into acceptable proportions output will have to grow faster. If we fail to achieve greater output we shall have to choose between borrowing excessive amounts and raising the level of unemployment. Any chance of removing the pressure on personal consumption will come only through growth, and after the experience of last year we cannot fail to be pessimistic about progress in the growth rate.

The General Sub-Committee took evidence from the Treasury yesterday and it will deal with possible ways of coping with some of the technical problems. The Treasury in future will need to justify more frequently than it has done the crucial actions it takes. Cabinet government is not wholly fitted for an examination of this kind. The personal position of the Prime Minister might make him suitably fitted to question some of these decisions, but there is no other organ apart from the sub-committee that does it effectively. Neither the Treasury nor anyone else can long continue to do the best for the country unless it is made to justify its actions more than it has in the past. I am not saying that the dialogue between the Treasury and the sub-committee is ideal or comprehensive, or that it does what we want. It is an attempt to get the process moving. It plays a useful rôle from which the House and the country can benefit.

5.42 p.m.

Photo of Sir Brandon Rhys Williams Sir Brandon Rhys Williams , Kensington South

The speeches we have heard have reflected much of the anxiety that is felt in the House about the direction of Government expenditure and its control. Each year we feel a sense of disappointment with these debates; we virtually empty the Press Gallery and our own benches. There are two reasons for that. One is the fundamental reason that the power to control Government expenditure is sliding out of the hands of the House of Commons. Senior Treasury officials make no secret of the fact that they find it tedious to listen to the opinions of back benchers. Consciously or unconciously we know that what we say carries little weight with them.

Secondly the document before us, although it contains small improvements each year, is intensely artificial. It starts from the premise that as things have been, they remain. If we are trying to gain an inkling of Government policy in big areas of expenditure of great importance to the nation, we do not find it here.

I sometimes have the feeling that trying to offer a fresh idea to the British Civil Service is like offering corn to a stuffed bird. Only a madman would persist in the attempt. But I recently came across a quotation from Disraeli which gave me heart. The great man once said: I have begun several things many times and have often succeeded at last. One of my maxims is that if one wants to achieve anything one has to be prepared to make the same speech 100 times; it is futile to stop at 90 or even 98. I trust that I shall be forgiven this afternoon if I say one or two things that I have said on previous occasions. I still think them valid—perhaps with the passage of time even more valid—and I hope that my colleagues may feel the same.

What I always look for in this document is some evidence of the trend of official thinking on social policy and, in particular, the way in which the Government intend to intervene in the distribution of income. Once again this year one learns little from the document. One might have hoped to learn something about the effect of Community membership on the evolution of British social policy, but I have not been successful in finding a reference to that.

I have often said that taxation has to be considered as being of two completely different kinds. One kind of taxation is required by the Government to raise funds for their own activities. The other kind of taxation is redistributive. The Government raise money, for instance, to pay back in the form of pensions, or they may raise money not to pay back to the population simultaneously in the form of cash but in the form of services which the population would have to provide for themselves by cash expenditure if the State did not make provision. Education and health are obvious examples of that. In one kind of taxation the Government are arrogating revenue from the public for their own purposes; in the other they are engaged simply in redistribution or recirculation. In the latter case the Government are not the consumers but are merely acting as the impeller.

The pattern I should like to see has already begun to establish itself. We have a spring Budget in which we look at the whole pattern of intervention by the Government in the nation's economy. Then in the autumn we consider the up-rating of national insurance benefits, how much the Government are to spend in higher benefits—in increasing their rôle in the redistribution of income; and what they will do to find the resources to make that possible. I should like to see the autumn Budget become much more important. Normally on these occasions the announcements are made to a virtually empty House. The House should be just as full as it is on Budget Day in March or April, because every man, woman and child in the country will eventually be affected by what the Government announce to give effect to their redistributive policy.

The redistribution of income is an essential index of Government policy, not only of their thinking about the relationship between young and old, the redistribution of resources between single people and families, between the fit and the sick, but also the male and female elements in the population, the North and South, the town and the country. What the Government do through intervention in the cash system is enormously important. It may be constructive or it may be wasteful or destructive. But it is increasingly difficult for Members of Parliament to discern exactly what is going on or what the Government are trying to do.

We are holding this debate in the context of intense industrial strife, social anxiety and unrest, some of which is due to the work of extremists or agitators no doubt. But if a large part of our industrial population is deeply discontented, there are real reasons for that. We should examine why tens of thousands—perhaps hundreds of thousands—of people are determined to achieve social change even by challenging the accepted democratic system. Partly they are right. The existing pattern of income, of family spending power in particular, is unsatisfactory and offends social justice. The Government must pay attention to that. One direct cause of discontent is the total lack of transparency in Government documents on this subject.

The questions may well be asked "Who is paying what, to whom and why?", but the answers are not available. Therefore, there is natural anxiety and discontent.

Surely everybody in the House would agree that pensions should be increased. It is unacceptable that this country, with a national wage of £40 a week or more, should provide a basic pension of little more than one-quarter of that amount. This relationship is not satisfactory. We all know this, but year after year nothing seems to happen. We have 3 million pensioners who are obliged to turn to means-tested assistance to maintain the minimum standard which our society regards as acceptable. The pensioner should be paying income tax; but he should not be subjected to means tests. The money must be found by society to rectify the balance. But we find no evidence of this sort of thinking in this policy document.

On the question of disability, the conscience of the House has been stirred partly by the activities of the Disablement Income Group, but perhaps even more by the publication of the figures illustrating the extent of the disability problem. The Government under pressure have promised to produce a Green Paper on this subject in October. I hope that that Green Paper will give us a firm promise of a national disability income. If it does, it will only follow the pattern of our democratic neighbours on the Continent. This will require redistribution of resources between the fit and the sick. Once again one finds in the document no indication whatever on these lines: yet we know that a statement from the Government has been promised this year. There is no indication in the figures of what it might mean. Apparently no account has been taken of it.

I have often made speeches about family allowances. I am delighted that the Government have committed themselves to introduce legislation in this Parliament on the tax credit scheme. The first stage of the implementation of such a scheme will, I hope, provide for extension of family allowances to the first child and payment to the mother of a tax-free figure of £2 per week per child. These were the estimates envisaged in the Government's Green Paper on the tax credit scheme. But when one looks at the public expenditure document to see what effects the scheme might have, one learns nothing. This is disappointing.

There is a reference to the tax credit scheme on page 106 of the public expenditure publication as follows: Although the Government has accepted the report of the Select Committee on Tax-Credit and has announced its intention to legislate to give effect to the tax credit scheme, the precise timing of its introduction and the levels of credit have still to be settled. It is not yet possible therefore to take the scheme into account in the projections of social security expenditure and the tables above do not reflect the important effects to be expected from the scheme in reducing the numbers relying on supplementary benefit and family income supplement. It is obvious why I say that this is an artificial document—it takes no account of decisions already announced by the Government. The pressure of public opinion will force changes in the published figures and I hope that it will happen very soon.

I personally believe that the case for an increase in family allowances, tax credits or no tax credits, is unanswerable. Inflation is the main reason why this is necessary.

I am afraid that the retail prices index is being obliged to bear much more weight than this fragile indicator can carry. It is neutral as to family size. When that index changes because of a rise in some personal essential such as bread or clothing, the index takes no notice of the fact that a large family may suffer more from a change in the price of those goods than a smaller family. If the price of bread goes up by 1p, a family which buys only one loaf in half a week will not feel very much difference from the price rise, but a family that buys two or three loaves a day will be very much worse off. The retail price index takes no account of such considerations.

If wage increases are allowed to compensate wage earners in accordance with the retail price index, we are achieving a redistribution of income from families to single people. Single people are over-compensated and the larger families do not get compensated enough. This effect is particularly marked in the type of family which has two earners in full-time work. They get their compensation twice over in terms of the index, yet by definition that almost certainly will be the type of family which will not contain large numbers of children to be looked after.

The case for looking outside wages to compensate the population for inflation seems to be unanswerable. The social services are thought by many people who have not given much study to the subject to be largely concerned to give help to people who for one reason or another are not able to earn because they are sick, too young or retired, or indeed unemployed. But this is a superficial analysis.

Large elements of our social services in the passage of time have been introduced to give support to the man who is in full-time work but who for various reasons cannot manage on his wage. This is why the redistribution of income is such an intensely important aspect of social policy and of wages and industrial policy too. What some Labour spokesmen refer to as the "social wage" is of the greatest possible significance. But this document tells us nothing about this important area.

Obviously family allowances are the most direct form of intervention in the spending power of a family which has a breadwinner in full-time work. The family income supplement is important also. But the amount of Government expenditure on housing is of greater value to the man with a great many people to house than it is to a single person. The same goes for education, health and food subsidies. And it has often been pointed out—this was well understood by the Select Committee on Tax Credit—that the structure of taxation also provides a form of negative subsidy to the family man in full-time work.

Continuing inflation, which I am afraid we are not going to be able to defeat in the coming months—indeed, we may suffer from its effects for longer than that—makes the question of family income support from sources other than wages of obsessive public interest. The document devotes six pages to this subject, yet what the Government do by way of redistribution of income constitutes about half of total Government expenditure, if "redistribution of income" can be called "expenditure". Parliament still has big decisions to make in this direction. The Treasury must listen to what Members of Parliament on both sides of the House are saying about the redistribution of income.

It might be said that net Government expenditure on the redistribution of income is nil because it is only taking money from one source and giving it back to the recipients, who may well be the same people as the subscribers. With the passage of time the average man puts nothing into the redistribution of income and draws nothing back. But we must achieve a better distribution. There must be plain speaking on where the money will come from to achieve this better distribution. Much of it could be found from the elimination of waste and over-coverage of objectives and misdirection of resources and also fiddling. I do not think anybody in the House would pretend that there is not a great deal of waste from all those causes.

But we have to find the money also from higher contributions. We cannot possibly raise family allowances and pensions and deal with the problem of disability unless we are prepared to bear the burden of higher contributions. But I repeat that, with a national average wage now running at £40 per week and perhaps more, the money is there from which people can make this contribution provided that the Government will give the lead. It must be explained why the Government are asking for a larger contribution from wages. If a man knows that when he comes to retire his resources will not fall to one-quarter of what they were while he was at work, he will know that the money is well spent.

If the Government encouraged people to insure their lives or to take out private pension endowments through insurance funds, it would not be thought that they were inducing people to bear higher taxation: it would be said that prudent provision was being made. Therefore, if the Government raise pensions by a compulsory contribution, they are simply asking our citizens to do what every one of us knows would be well advised if he did it for himself.

If we want to have redistribution of income systems on the scale and generosity of those of our Common Market partners such as Germany and France, the ultimate solution must come in the form of greater productivity. Until then we have to achieve a balance of forces between the contributions which people are expected to make, giving rise to the natural pressure of contributors not to have more money taken from them than is strictly necessary and, on the other hand, the pressure from the beneficiaries for more relief. If there was transparency in the Government's figures and they were handled in a way which made them universally comprehensible, those claims and attitudes would be more easily balanced and we should achieve a more democratic system for the redistribution of income.

In the meantime the pressure of public opinion will prove these estimates of Government intervention administratively obsolete, timid in conception and inadequate in scale. I hope that the Government will bear in mind the remarks I have offered and that they will not, as they have so often in the past, fall on empty ears.

6.1 p.m.

Photo of Mr Elystan Morgan Mr Elystan Morgan , Cardiganshire

I appreciate that considerable latitude is traditionally given to right hon. and hon. Members who take part in a debate such as this. I crave the indulgence of the House in exercising that latitude on this occasion. I intervene briefly to raise a specific matter, but one which I am sure the House will agree is of considerable public importance. I refer to the rapidly worsening situation affecting many hundreds of thousands of higher education students in Britain at this moment.

I speak as one who has two university colleges and other higher education colleges in his constituency. I speak also as a Welsh Member who revels in the high value that the Welsh people have for so long placed upon education and the part which education has played in forming the character of Wales and the comparatively classless society of which we are so proud.

I have also the honour to represent a constituency which has a unique record in higher education. Cardiganshire has the accolade of being the county which sends the highest number of its sons and daughters on to higher education. When one appreciates the scant resources of my community, such an achievement is all the more wonderful.

Like other right hon. and hon. Members who have higher education colleges in their constituencies, I have been receiving of late voluminous evidence of the considerable hardships suffered by students. Like other, I have made detailed investigations, and I am convinced of the accuracy and the genuineness of the claims which are made.

I am not talking about inconveniences, difficulties and inspired improvisations which students traditionally face cheerfully and which have been the experience of many of us in our own student days. I refer to something quite different—to the bitterness and the agonising frustration which is the lot of scores of thousands of students whose grants are pitiably inadequate to support even the basic necessities of life. I am referring to the cruel struggle to supplement an inadequate grant which places upon so many students a burden of worry and of misery which is of such dimensions as to jeopardise the prospects of academic success which otherwise would be the experience of so many of them.

Speaking in this House yesterday afternoon, the Secretary of State for Education and Science made a brief passing reference in her usual cold and detached way to the smaller number of students receiving higher education this year and the expected further decline in the number in years to come. She said: Meanwhile, it is clear that even by 1976 student numbers will be running appreciably below the levels, explicit and implicit, in the White Paper. Already in this present academic year, the number of university students is 6.500 short of the number assumed in the quinquennial settlement. In the polytechnics and other further education colleges, recruitment is less buoyant than we expected."—[OFFICIAL REPORT, 28th January 1974; Vol. 868, c. 47.] In the same debate, the Under-Secretary sought to argue what I regard as an impossible case, that there was no evidence of any causal connection between that phenomenon and the situation of hardship in relation to grants which I am seeking to place before the House.

It is clear to anyone of intelligence—the Under-Secretary is a person of high intelligence, and what he said yesterday was unworthy of his standards—that these facts speak eloquently for themselves and that there is the clearest, the most direct and intimate connection between the fall in the number of students and the grave hardship which so many scores of thousands of them suffer at present. I am sure that every hon. Member who has a higher education establishment in his constituency will corroborate that assertion.

The problem is four-fold. There is the level of mandatory grants. The triennial award made in 1971 was a modest one by any standards. The runaway inflation of the past three years, which seems to have been in direct proportion to the intensity of the Government's anti-inflation policy, has however brought about such a change in the situation as to make nonsense of that triennial award. The situation that we have reached is that the level of the mandatory award must be raised, otherwise many tens of thousands of students will be deprived of the basic human right of a college education.

This is a view which is supported by the Committee of Vice-Principals and Chancellors. The claim that is made by the National Union of Students for a radical raising of the level of the mandatory grant is such as only to bring the level of that grant back to where it was in 1968 and it should be conceded.

Then there are the parental means tests. One could say a great deal about these but I do not intend to belabour the point. I say merely that the philosophy of the test is completely untenable. There is no obligation in law upon a person to subsidise his son or daughter at the age of 18. There is such an obligation of financial responsibility up to the age of 16, but not beyond. It is completely unrealistic in the economic and social conditions of today, and it is a fact that in practice the level of parental subsidisation has been falling steadily over the past four or five years and will continue to do so with the worsening economic position of millions of workers. Clearly this is a factor which in itself is undoubtedly responsible for many thousands of persons who are completely adequate and otherwise properly qualified for a university or other higher education course failing to proceed with such a course.

The whole principle rests upon a central fallacy—namely, that a person who is an adult in law should be regarded as a minor for the purposes of the calculation of the education grant. The parental means test is wrong in principle and unreal in practice, and should be abolished forthwith.

Thirdly, there is the grave discrimination against married women students. The system seems to be designed to cause the maximum hardship. The grant to married women students—I am speaking of female students who are married to persons who are not students—was set at the unmunificent figure of £275 per annum as long ago as 1965. Since then there has been a reduction in the travelling allowance. Therefore, apart from the completely devouring effect of inflation, we have the situation that the nominal level of grant is actually lower than it was nine years ago.

Again, the female married student is means-tested not only on her husband's income but, in many circumstances—for example, if she has married and commenced her course before the age of 21 or has married during her course and under the age of 25—on the income of her father as well. Is it not perverse in this age of emancipation that a married woman should be regarded at one and the same time as being the property of her husband and also within the potestas and tutelage of her father? There is the musty smell of mediaevalism in such a principle and it must be removed.

The Secretary of State for Education and Science a few months ago said: Married women students in comparison with other students are generously treated If the right hon. Lady were here at this moment I am sure that the House would like to know with which group of students they were being compared.

This is not just an issue of justice. I believe it to be relevant to the whole question of teacher supply. The White Paper on Education, published a few months ago, envisaged the need for substantial increases to be made in the number of women teachers entering or retuning to the profession. But there can be no question of attracting such people in substantial numbers, necessary though they be, unless this discrimination is brought to an end.

Lastly there is the question of discretionary grants. The House will be aware that only courses designated by the Department of Education and Science—those being degree courses or broadly their equivalent—qualify for the mandatory award. Other higher education courses are entirely at the whim or caprice of an education authority whether any grant is paid or, if so, what its level should be.

It used to be said of the development of equity in the fourteenth century that it "varied from case to case as did the length of the Lord Chancellor's foot". One could say that many of these discretionary grants vary from case to case with the depth of the purse or of the compassion of the county treasurer. It is clear that a system which breeds so much bitterness and gives rise to such feelings of suspicion must be replaced immediately by a system of nationally agreed grant regulations which ensure an adequate standard of living for every student in higher education.

I submit that any compassionate and fair-minded person who has knowledge of the matters of which I speak and of the position generally would agree that it is an extremely grave situation that causes massive hardship, denies education to thousands of students, and makes the careers of others an abject misery.

The Robbins Report espoused a progressive and noble ideal. It sets its standards in this way: Courses of higher education should be available for all those who are qualified by ability and attainment to pursue them and wish to do so. That fine principle is now being spurned. Harsh conditions of poverty are responsible for depriving many thousands of the higher education which is their basic human right.

If we passed an Act of Parliament that specifically stated that persons who came from a certain background, who had already suffered general deprivation on account of poverty, and whose parents were of modest means were by law debarred from entering universities and other institutions of higher education in Britain, we would earn the ridicule, the scandal and the contempt of the whole world.

The law of poverty is as harsh in its operation and as certain in its sanctions as the law of the land. My plea is that the report compiled by the working party should be accelerated as far as is humanly possible. This afternoon the Under-Secretary of State said that major parts of it had already been completed. Time is of the essence if the injustices and anomalies which threaten to strangle the whole of our higher education system are to be removed.

6.18 p.m.

Photo of Mr John Loveridge Mr John Loveridge , Hornchurch

The hon. Member for Cardigan (Mr. Elystan Morgan) has spoken movingly about the needs of education. I think we all share his wish that the progress of education in this country should go forward as fast and as well as possible. But that progress must depend to a great degree on the economic progress of the nation as a whole, and that is directly related to the growth forecasts in the White Paper. It is these forecasts about which I wish mainly to speak this afternoon.

Before reaching the forecasts, I want briefly to refer to the cuts of 17th December. They will have a profound effect upon the whole of the White Paper. Part of them must come from real cuts. By "real cuts" I mean, for example, that if there were a class of frigates and one frigate were not to be built, that would be a real and specific cut out of the programme. But if, instead of cutting the programme in that way, there were to be a delay in spending, that would be another kind of cut. I would cut the cash going out, but it would not be of the same nature. It could be due to a bottleneck in industry because the goods could not be supplied in time.

Then there is a third aspect by which cuts could arise. They could come from deliberate delays, actually postponing contracts, on the part of the Departments. I understand from evidence given to the General Purposes Sub-Committee of the Expenditure Committee yesterday that the cuts of about £1,200 million are to come on top of any shortfall in spending anticipated on the White Paper figures. It is good to learn that much, but it would be an even greater help to understanding the effects of the cuts if a supplement to the White Paper could be issued later showing which cuts were of which kind, from among those that I have described—the real cuts, the cuts due to shortages and the cuts due to delays. They all cut the cash flowing out from Government spending, and that is the object of the exercise. I appreciate that there would be difficulties in providing figures such as I should like to see, but I hope that my hon. Friend the Financial Secretary will examine the prospect of giving such detailed figures in case it may be possible.

It is also clear that short-term considerations must overwhelm the accuracy of the White Paper figures for the coming year, particularly over the growth rate to which I referred. The figures shown on page 10 for 1972–78 are of two kinds. Evidence was given to the Sub-Committee that a fairly high rate of growth—perhaps 4 per cent.—would be needed over the remainder of the five years ahead after the immediate crisis has passed if unemployment was to be kept from reaching quite unacceptable levels. This is of the greatest importance. Hardly anyone in the House would disagree about that. But this aspect could be affected by new factors and especially by the growth of debt which we see ominously looming on the horizon—and not a very distant horizon.

I believe that the long-term outlook for Britain is good, but the oil crisis has undoubtedly hit our country hard. Our debts abroad could grow to much more than £10,000 million before the North Sea oil flows in. Already, as my right hon. Friend the Chancellor told us on 22nd January, we are estimating extra oil costs alone as about £2,000 million this year. That is a very heavy burden of debt and, however it may be offset by bilateral arrangements, must remain a debt to be paid one day.

We do not know and cannot know what will happen to the price of oil. It may fall or rise. But what we do know is that world liquidity has grown by 62 per cent. in the past two years alone, far more than the growth in world trade, and that such a growth in world liquidity can hardly be a prescription for low world prices, unless there is a world slump in trade on a quite unexpected and horrific scale.

At the same time we know that there is no stable base for world currencies. We may expect, therefore, to suffer more from volatile markets and from crises over our currency than we have done hitherto. Indeed, if we look at the unadjusted balance of payments figures we will see that over the past two years the violence of the upward and downward movement has been much greater than it has been in former years. These larger swings in the unadjusted figures all point to much greater uncertainties from month to month as we go along. Although we expect from the seasonally-adjusted figures that there may be an improvement due to the lower value of the pound, it all points to the growing need for a settlement of world currency problems before we can adequately plan our figures on a realistic basis for page 10 of the White Paper.

We wish the Chancellor luck in getting a world settlement. But can he get such a settlement when the Europeans themselves find it hard to agree? Whatever the settlement, we know that this counry has to borrow abroad. We hope for long-term loans on fair terms. We hope that we will not have to pay them back until the late 1970s or the 1980s. Indeed, we suspect that we should not be able to pay them back before then. But even in those years the debts must be repaid.

In these circumstances, what further steps can the Government take, in addition to the surtax increases and the cuts of about £1,200 million from public spending announced on 17th December? First, the Government could raise taxation and further cut demand. But one cannot help suspect that the cuts already made have done enough in reducing home demand and that a greater cut might lead to an unexpected, even savage, downward spiral of internally-generated slump, especially after the effects of the present coal and oil shortages are taken into account. Perhaps we might add at least a limited amount of taxation on some commodities, such as petrol or cigarettes. But to add greatly to taxation would seem unreasonable in the circumstances.

Second, the Government could cut public spending more than they have done; but the £1,180 million or thereabouts will already hurt. The hon. Member for Cardigan complained about part of that hurt. Perhaps the Government have done enough in that respect; but what they have done I commend.

Third, the Government could let the pound fall further. But the pound is already undervalued in real terms and there would be little point in allowing the value to fall so far that we were giving away our exports for less than the price of raw materials; and the stronger dollar is pressing the pound downwards quite hard enough.

What remains? What else could the Government do to save us from too great a burden of foreign debt, even though that debt is phased forward to the late 1970s and even the 1980s? Few things could affect the White Paper gross domestic product forecasts more than the size to which the debt grows. We must try to keep it within our capacity to repay within reasonable time.

It is therefore worth looking at unfashionable ideas. I should like to make four suggestions. They have not been fashionable for some time. They may not be the answer, but I believe that they deserve detailed examination.

The first suggestion arises from a thought worth recalling: that it is over 20 years since we were faced with world prices rising so severely against us. When the former Mr. R. A. Butler was newly appointed Chancellor of the Exchequer in November 1951, in the face of an expected severe foreign payments deficit he cut imports and, in his own words, "cut them good and hard" in November 1951, and more cuts followed in January and March of the following year. As he himself said: Our balance of payments position justified these exceptional actions, but we were acutely aware that import cuts limited expansion, carried the danger of reprisals, and could not for both these reasons be regarded as more than temporary. However, writing 20 years after the event, he said: I was the last Chancellor to use such import controls and must testify to their efficiency. Conditions have changed. The Government are no longer such a large purchaser themselves of foreign goods as they were in those days. The old wartime structure for administrative control has gone. We had not at that time the obligations we now have to our European colleagues.

But in some ways even now we are applying quantitative restrictions to imports by voluntary arrangements, so called. For example, on 16th February of last year it was announced in the House that Japanese industry had agreed to limit its exports of roller bearings to this country to 2,805 tons this year. The imports are monitored. Why cannot we extend this process? The old wisdom of R. A. Butler in 1951 and 1952 may still be helpful.

However, even then there was a comeback. Churchill apparently told Butler that Daladier was very worried that he might lose his seat in the French parliamentary Chamber. His district apparently exported glacé cherries whose entry had been stopped here. But the next year all was well. The restrictions were gone and the cherries could come in. Today the restrictions might not have to be applied for longer. They could simply be applied through the Department of Trade and Industry by limiting the licences to importers—I again stress this—on a purely temporary basis.

It could even perhaps be argued that such checks on the imports of manufactured goods might be to the benefit of our European partners themselves. After all, they can see only too plainly that we cannot go on buying so much in manufactures without achieving such potential debts that we might hardly be able to buy at all. It may therefore even be in their interests to co-operate in helping us in such a form of restraint.

The second aspect affecting the growth figures for the White Paper is the value of our currency. The floating pound has helped, though it should be noted that not all the pound is really floating because some of it is guaranteed at higher levels than the current exchange rates, and I believe that our obligations to meet the differences will soon have to be met.

Now, unless the Americans are willing and able to underwrite the value of the pound, surely it is time to consider fixing it—and fixing it at a fairly low level in relation to the value of the goods and services it represents; not fixing it for all time, but fixing it for as long as is necessary and convenient. At the same time as we do that, to prevent runs of hot money by speculative dealings, we would have to put firm controls upon dealings on the foreign exchange markets—that is, upon dealings not needed for normal trading purposes.

We might in those circumstances even be able, in part at any rate, to segregate some of our own internal interest rates from the need to draw hot money and keep it in this kingdom. We might even be able to bring down some internal interest rates, which in itself would be beneficial.

The third suggestion relates to the greater encouragement of our exporters. It is not enough to say "Exporting is fun". The men who work at it, like the men who promote it, should benefit directly. Why not, therefore, consider harmonising our top marginal rates of taxation down to those of our neighbours? The degree of discouragement for people to enter risky and difficult overseas markets is quite underestimated in our present taxation policy. If it were possible to relate the tax cut to the percentage of exports in a firm's accounts, that would be even more direct and salutary in its incentive effect. I can see that such taxation would inevitably give rise to anomalies, but what taxes do not have those?

The fourth and last suggestion relates to import savings. It is obvious to most of us that we have to go about our business of import-saving over oil. We are very glad to develop our own oil in order effectively to save imports. But the need to grow more of our own food, for example, has not been so obvious to most. That need may become as self-evident as the need to develop our own oil supplies if world food prices are sustained or increase. The old argument that the returns from maximum output of home agriculture are inadequate will hardly bear up any longer if food prices go on rising.

However that may be, one way or another it is certain that Britain ought to do all in its power to keep its foreign debts down to a reasonable proportion of our wealth and capacity for repayment.

Some of the suggestions I have made come quite painfully from me, because I have always been a believer in the freeing of trade, the removal of barriers to trade. I accept that what successive British Governments have done to remove barriers to trade has been the best thing for us. It is only now in these new conditions, in this threat of vast indebtedness, that I draw attention to these unfashionable ideas and ask the Government not necessarily to act upon all of them but to give them their careful thought.

Several Hon. Members:

Several Hon. Members rose——

Photo of Wing Commander Sir Robert Grant-Ferris Wing Commander Sir Robert Grant-Ferris , Nantwich

Order. I should point out to the House that we have had only five backbench speeches, averaging more than 19 minutes each. I shall not accommodate half the number of those who wish to speak if speeches of that length continue. I ask hon. Members, so that other hon. Members may get a chance to be heard, to restrict their remarks.

6.41 p.m.

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

I must say that I went a long way with the analysis of the problem as presented by the hon. Member for Hornchurch (Mr. Love-ridge). But I fear that it would be a good thing if the four proposals which he mentioned as being unfashionable remained unfashionable for a considerable length of time, with the exception of his last proposal where he was on ground with which I had considerable agreement, namely. the rôle of food import substitution.

Although the Opposition's amendment could mean that the debate could be about many aspects of economic and industrial affairs, I want to confine myself to some of the fundamental aspects of economic policy, because it is essentially a debate about demand management. It is not my purpose to apportion blame for what has happened or for the present situation in the country.

There are innumerable fashions in demand management. The one thing that is certain is that it is a great deal more difficult than it looks. It is always easy to get it right with hindsight, but at least hindsight may teach us something for the future. If we look for a moment at what has happened to public expenditure and public income in relation to demand management over the past few years, we can see a part of the problem.

In 1967 we had a public sector financing gap which was covered by public borrowing of £1,500 million; in 1970, only three years later, we had a public sector surplus of £1,000 million; in 1973, again only three years later, we had a public sector borrowing requirement of £4,000 million to £4,500 million. Whatever the proper management of demand may be, it cannot conceivably be that. No one seven years ago would have suggested that such a crazy course was the right one for demand to follow. I do not think that anyone seven years ago could possibly have forecast that that was the course it would follow.

Therefore, there must surely be better ways of managing demand. It is hardly surprising that Professor Neild has recently suggested a commission to investigate how we manage our demand and what we can do to improve it. Whether such a commission would come out with sensible suggestions is a moot point. But what is the Government's reaction to his suggestion? Do they consider that recent history indicates that we know how to manage these things and that everything is well under control?

Part of the problem has been that politicians and Treasury knights like to fly by the seat of their pants. They react to moods—politicians more than anyone else other than perhaps the media—and these moods are cyclical. We are about to become submerged in a mood at this moment of time—a mood of doom, gloom and national despondency, best described perhaps by Samuel Brittan the other day in the Financial Times with the words "sado-masochistic doom-mongering".

It is not a mood that is confined to even one or two parties in this House. The thinking behind it goes rather like this: "We are in a hell of a mess and we ought to do something about it, and that something must be deeply unpleasant. If we do not do something deeply unpleasant, no one will believe that we are being truthful about the extent of the mess we are in or that we are serious about our intention to get out of it."

There is doom and gloom by the bucketful—in the national Press, in this House, on television and elsewhere. There are calls for cuts in public expenditure and more cuts on top of those we have already had, calls for increases in taxation, which were implied almost, I thought, by the Opposition's amendment. I hope we may have a denial, but that implication could well be read into the amendment. There are calls for every conceivable form of foul-tasting economic medicine. It is not for nothing that economics has been called the "dismal science". It is indeed that at this time.

An epidemic of national misery will solve none of our economic problems. None of it will get us out of our present mess—that is certain. Indeed, there is far worse to come. We must beware that this national misery does not get us into a much worse mess. Many of the worse things that have been done to the British economy over 10 or 15 years have happened because we have too often tried to deal with yesterday's problems with measures which only served to cause tomorrow's problems.

At present everyone is obsessed with the problem of inflation. It is still a massive problem and will remain so for some time to come. But on the horizon already is the spectre of world deflation and a slump of 1931 proportions all over again.

For once in a debate of this sort we have had no mention of Mr. Wynne Godley from the Opposition Front Bench. I though that was surprising. Mr. Godley can hardly be called the "voice of reckless expansion", yet he wrote in the London and Cambridge Economic Bulletin in The Times on 23rd January: … the most probable outcome"—of the present policies—is calculated to be an export growth of only 8 per cent. a year. Given the same balance of payments target and Budget deficit, this would only generate output growth of 2 per cent. per year, increasing unemployment to about 800,000 by end-1977 and involving consumption growth at an average of only 1 per cent. a year for four years. He went on later: If no measures are now taken to expand demand, the likelihood is for a rapid adjustment and recession of just this kind. Those are forbidding words. So it is really back to base, back to the old problems of the British economy which the hon. Member for Hornchurch described just now and back to the question "Is there any way out?" He tried to flourish a few unfashionable suggestions with which I did not wholly agree.

I will spell out briefly what should be the aims of any British economic policy of any Government. Surely they are to procure a rising standard of living in line with the rising aspirations of the citizens, to bring about fair distribution of the available standard of living and wealth. That means all things to all men, but I mean a commitment to equality such as has not been practised by any Government that we have had so far. Another aim must be full employment, another must be stable prices and another, taking one year with another, a balance in our trade and financial transactions with the rest of the world. I do not say a balance of payments surplus or deficit, because one is as useless to us as the other.

Is this impossible? Is it the economist's equivalent of the philosopher's stone? There are plenty around to say "Yes". Much depends on the definition of words like "rising standards of living", "fair distribution", "full employment" and "stable prices". To deny that all these things can be brought into some sort of balance such as the average citizen believes is compatible with his happiness is to admit the futility of our endeavours. If they are to be kept in balance and if the Government are to be held responsible for maintaining that balance, the Government must be given the tools for the job.

I nail my colours to the mast immediately by saying that the long-term problem of the British economy, at least over 25 years, the problem of the debilitating low level of investment and its consequent low productivity, has been brought about by lack of effective demand for the goods that such investment will produce. That is at the base of all our problems today.

Photo of Mr John Loveridge Mr John Loveridge , Hornchurch

While many of us would agree with much of what the hon. Gentleman has said—that we must not allow demand to fall too low—would he not agree that none of the admirable things he has so well expressed that we need for this country can be achieved unless our debts are kept to a reasonable proportion? Massive debts would prevent what the hon. Gentleman wants.

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

Yes, indeed. I shall come to that point.

In earlier years, low demand was brought about by the national habit of clinging to an outdated exchange rate as though it were some piece of imperial driftwood. It caused us to deflate again and again in a vain attempt to stifle home demand and switch goods to the export market. It failed again and again. It failed because exporting, whilst it might or not be fun, was not profitable, and it was not profitable because the rate of exchange which we insisted upon had more to do with a national inferiority complex than with economic realism.

It was that analysis which caused some of us to urge in the mid-1960s that we should abandon the fixed exchange rate and adopt a managed float. A managed float enables the Government to have the best of both worlds. It removes the rigidity of fixed exchange rates yet provides a necessary degree of stability and enables the Government to have an exchange rate policy, which we do not, apparently, now have. It is effective against speculators and it thus has great advantages over a free floating currency, because the free float virtually excludes anything which can be called an exchange rate policy.

There can be no doubt that much of the recent deterioration in our balance of payments and a great deal of recent inflation has been due to the somewhat anarchic movements of the exchange rate of the pound. A large part of this problem could have been avoided had we adopted the managed float by means of crawling pegs instead of the free float.

The long-term economic problems of low investment, depreciating currency and a large balance of payments deficit cannot be solved by cutting back demand. The cuts in public expenditure which the Chancellor of the Exchequer has already announced will, I believe, have a considerable effect on business confidence, even without subsequent events of which we yet know nothing. In particular they will have a catastrophic effect on the construction industry.

Why have we been unable to build the houses we need? It is because of lack of confidence in the industry in future demand. We have continually had too short-term an approach to demand management in the building industry, and the crazy ups and downs in the supply of mortgage finance and of loans available to local authorities are the things which have really damaged the building industry in the long term.

The Chief Secretary to the Treasury spoke of the White Paper having been framed in the light of autumn's events. Since October we have had the massive cuts in public expenditure and an equivalent of a massive increase in taxation. I speak not of taxation in the sense that most of us know it but of the increase in oil prices, which will hugely reduce demand and is equivalent to an increase in taxation of about £1,500 million. Taken together with other measures, including the cuts in public expenditure, this means that since the autumn, when the White Paper was framed, we have had cuts in total demand between 1973 and 1974 of about £2,500 million a year.

I do not ask the Government to reflate immediately in the present crisis. I do not ask them to increase demand in the present period of short-term work. What I do ask is what are their plans for increasing demand when the short-term work period is over, because unless they are prepared to reflate the economy then we shall drift into very high unemployment and a 1931 situation.

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

Is the hon. Gentleman quite right about the extra oil money being highly deflationary? Surely the intention is to borrow the money back from the Arabs, in which case it will have no effect in terms of inflation or deflation because what goes out will come in again. It would be deflationary if, instead of borrowing, we had to deflate in order to enable our balance of payments to bear the extra £2,500 million.

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

We do not know what is the intention. As things stand, however, I believe that the hon. Gentleman is wrong when he says that the £1,500 million going out in increased oil expenditure will not be deflationary. I believe that it will end up as deflationary. That view is subscribed to by a large body of financial opinion. It is by no means mine alone. It is rare to find Samuel Brittan and the London and Cambridge Bulletin in agreement on anything, but they happen to be in agreement on this.

It is essential, in dealing with inflation, to distinguish between demand inflation and cost inflation, because demand inflation is yesterday's problem and cost inflation is today's and tomorrow's problem. If we try to deal with it as demand inflation, we shall cause a slump tomorrow. We have to deal with it as cost inflation, which will get worse rather than better. If we try to deal with it by the same means as we have employed in the past to deal with demand inflation, we shall fail miserably. We have tried it before. We tried it in 1970. We had a large excess of Government income over expenditure. Yet we still had inflation. The reason is that we were trying to deal with cost inflation by demand control. We shall fail again if we try that again.

There is an assumption, shared by all sorts and shades of political opinion, that somewhere there must be a point where reduction of demand will bite deep into cost inflation and stop it in its tracks. We have never found that point in the past. We plumbed the depths of unemployment in the early 1970s but we did not find it then and we shall not find it in the future.

What, then, should we do? First, on oil prices, I believe that we should do nothing except to allow the oil prices to work through with their full effect on the economy; to allow the increase to have its free and unfettered effect in reducing demand for oil and oil imports. The balance of trade deficit caused by the increase in oil prices must be covered by borrowing, although I do not necessarily imply that we shall be able to get it from the source of our problem, the Arabs.

There are enormous uncertainties in the near future in relation to oil prices, and it would be mad to ruin our whole economy in order to solve a problem which may be very short term. There is no point in gazing into a crystal ball for the future of oil prices. I judge it as at least as likely that we shall see a considerable fall in world oil prices within the next three years as a continuing shortage and continuing higher prices. In such a situation of uncertainty, it makes no sense to make long-term policy.

The best thing to do, therefore, is to finance the difficulty over the short term. The non-oil deficit was running at about £2.500 million at the end of last year and this, as the Governor of the Bank of England has pointed out, has to be reduced. The only question of policy, therefore, is how fast one goes for reduction. My advice to the Government is to make haste very slowly, because to do it quickly would create massive unemployment of well over a million. How can anyone say that we should solve our economic problems by putting a million people out of work, denying the country their output and paying them into the bargain to produce nothing? That makes absolute nonsense.

Do the Government expect that cost inflation in 1974 will run at a rate of 15 per cent. or more? It would be interesting to know what level they have decided it will reach. Stage 3, as we said when it was first introduced, is grossly inflationary. When do the Government believe that the threshold will be reached? Will it be April or May? What steps do they intend to take to postpone that date, at least until the end of this calendar year? What level are the Government aiming at? Are they aiming to bring inflation down from 15 per cent. to, say, 10 per cent. or 8 per cent. a year? Do they believe that stage 3 will do it? If not, what are they intending to do about that?

We must have a new counter-inflation policy to take the sting out of cost inflation. We need temporary subsidies on food and we desperately need increased family allowances because that is one of the things that could take a substantial part of the sting out of price inflation and its pressure on wages. A family with three children takes family allowances which are equivalent to 4·6 per cent. of average industrial earnings. When they were introduced by Beveridge—and they were introduced partly for the impact they would have on wage policy—they were equivalent to 8½ per cent. of average industrial earnings. If we increase them again, that alone would probably be enough to deflect a part of the pressure that is now coming from married men—and that includes married miners.

A selective counter-inflation tax to penalise those who cause inflation by excessive wage or price increases also seems to me the best and fairest way for the Government to control the overall amount which the country can pay itself, and it can do it selectively without the worst ravages of outright deflation through general increases in taxation. I do not see how this House can attempt to control public expenditure unless it is told what the Government's policy is in these key fields: exchange rate policy; counter-inflation policy; growth policy; investment policy; energy policy—particularly in relation to oil and Europe; currency policy—particularly in relation to the pooling of European reserves; and our balance of payments policy.

Exactly what level of deficit are the Government prepared to run with over the next two years, and what is their policy of import substitution? Do the Government have policies on these fundamental matters? If not, how can they make decisions about the level of public expenditure and the control of demand which have the slightest chance of coming right? These questions spring from every page of the White Paper and they must be answered before the House can do its job in controlling public expenditure.

7.3 p.m.

Photo of Major Sir Henry D'Avigdor-Goldsmid Major Sir Henry D'Avigdor-Goldsmid , Walsall South

The hon. Member for Cornwall, North (Mr. Pardoe) has achieved at least one unique feat in that he has mustered the support of more than 50 per cent. of his party.

Photo of Mr David Steel Mr David Steel , Roxburghshire, Selkirkshire and Peeblesshire

That is not original. We have heard it before.

Photo of Major Sir Henry D'Avigdor-Goldsmid Major Sir Henry D'Avigdor-Goldsmid , Walsall South

The hon. Member for Roxburgh, Selkirk and Peebles (Mr. David Steel) has been here so long that he knows everything. The hon. Member for Cornwall, North responded to the request from the Chair for short speeches from back benchers with a fairly lengthy oration and I shall not seek to emulate him in that respect.

This is an unfortunate White Paper which ominously appears in a blue cover. It is the most short-lived document any of us has ever had to consider because it came out almost simultaneously with its gravestone, the Government's measures of 17th December. They effectively buried under the weight of facts the forecasts, honourable and well-intentioned as they were, of the Treasury. We are therefore not looking at the White Paper for news of the future. The news of the future is all too painfully clear. We have here a recognition by the Treasury, under the promptings perhaps of the Expenditure Committee and with the support of a compliant Chancellor, that there was a need for the House of Commons to survey expenditure and to project it forward. That is what the White Blue Paper seeks to do.

I do not share the feelings of my hon. Friend the Member for Kensington, South (Sir B. Rhys Williams) that the document is therefore valueless. I think that the habit of seeking to build up a projection is useful and could be carried on from year to year. More than that, as years that are less crisis-ridden appear, the value of these White Papers will grow. In that respect, I am glad that the hon. Member for Ashton-under-Lyne (Mr Sheldon) referred to what I think was the major conclusion of our White Paper debate a year ago, namely, that the relevant report of the Expenditure Committee indicated the impossibility of maintaining a growth rate of 5 per cent. without cutting down considerably on personal expenditure. This warning was dismissed by my right hon. Friend who is now the Minister of Energy, and I only hope that his forecasts in his new capacity will not be equally misguided.

However, this is a valuable paper and the study of it has been useful to the General Sub-Committee and, I think, to the House. Yet the debate is taking place under artificial conditions because I do not think that even the Opposition in their desire to score a point believe that the present crisis could have been mitigated by means other than by concentrating on what was immediate. One can take immediate action about commitments for public expenditure on immediate projects, but any other action would need a Budget and would not be of immediate value. It seems inevitable that the action should have been taken.

Although the amendment is good enough to pay tribute to the work of the Expenditure Committee and its Sub-committees", and although I may be thought churlish in not accepting that, I still shall not vote for it. Even if it said lauds with the highest praises the work of the Expenditure Committee I do not think I should want to tiptoe across to the other Lobby.

This is an imaginary debate in an imaginary situation. Some months ago I referred to the citizens of Pompeii discussing the need to improve the public bathing system while Vesuvius was about to erupt on top of them. I think that the lava is now beginning to come down and that soon we shall be discussing another and grimmer forecast.

If one drives a car too fast for any length of time and has an almighty bang, one does not get back into the driver's seat saying that instead of driving at 70 miles an hour one will in future drive at 50 miles an hour, because it is unlikely that there would be a car to drive. That is the sort of dilemma facing the Government and the spending Departments.

By parliamentary tradition we should have a full day's debate on this matter which should be earnestly studied. With the exception of the hon. Member for Cardigan (Mr. Elystan Morgan), who made an interesting speech about student grants, no hon. Member had made an attempt to argue that the White Paper mirrors in any way the financial measures in store for us in the near, foreseeable future.

I congratulate the Treasury upon leaving out the accompanying Yellow Paper which we had last year called "Methodology". It is an unattractive word and an unattractive concept, and I am glad that it is no longer necessary.

I am pleased to see that the hon. Member for Ashton-under-Lyne is back in the Chamber again. His work and the work of the Sub-Committee have provided much useful material and have deservedly gained wide applause, so deservedly in fact that I think it is his ambition that all Sub-Committees of the Expenditure Committee should work in the same way. I take the liberty of departing from that, because not all hon. Members, or even all members of the Expenditure Committee, have a frustrated desire to be a cost accountant or chartered accountant. Sometimes in debates during the Committee stage of the Finance Bill we all think that we are the best of tax lawyers, but experience does not generally bear that out.

Your predecessor in the Chair, Mr. Deputy Speaker, advised me and all other speakers to be brief, and I shall do my best to make up for the length of other speeches by bringing down the average time.

There has been a great deal of talk about direct taxation not being altered, but I seem to remember that the measures announced on 17th December included an increase in surtax—what a terrible thing! However, it did not apply to anyone over 65. Therefore, I assume that it is only people over 65 who pay surtax who are liable to support the hon. Gentleman in question.

This is not an occasion when one can be other than mildly irrelevant. I have done my best to keep my irrelevancies to a minimum. I wish the Government well in their awful task.

7.15 p.m.

Photo of Mr Edmund Dell Mr Edmund Dell , Birkenhead

All Opposition Members regret that the Chairman of the Expenditure Committee is not willing to join us in paying tribute to the work of that Committee. We attribute that to his modesty.

Much mention has been made in the debate of oil, which will rescue us from our present dire situation. About that I make two comments. First, we are still waiting to hear from the Government what they propose to do to repair the serious mistakes which were made in the fourth round of licensing. Unless these mistakes are repaired they will rob the country of large sums of money which would greatly benefit our balance of payments. We have been waiting almost a year to hear what the Government propose to do to repair these errors. We wait and the matter becomes ever more urgent.

My second point is this. To me, as a non-economist, there is some amusement in finding after 25 years of demand management and the practice of demand management that we all now look to oil, to this sudden deus ex machina on our continental shelf, as a solution to our problems.

This goes some way to confirm the speculations of the hon. Member for Cornwall, North (Mr. Pardoe) who asked for a Royal Commission on demand management. I am content to rely more on oil than on our experience of demand management so far.

There are two things which everybody is talking about. The first is the prospect of a miners' strike and the second is whether public expenditure, even as amended after the December cuts, has to be matched by vast deflationary tax increases. Associated with those two questions is talk of an early General Election in certain circumstances.

One of the objectives in producing White Papers on public expenditure is, I understand, to improve the quality of government. I do not wish to suggest any close connection between the two, but I have observed no improvement in the quality of government since these White Papers began to emerge.

The great principle of the Government now is to stand firm. They say that it is necessary to stand firm, yet they have done more U-turns than a ballet dancer doing a pirouette. For this Government to consider having a General Election on the principle of standing firm, after making so many U-turns, would be the ultimate irony.

The crisis we face—there is no doubt that we do face a crisis—is a result of a fundamental and damaging illusion, the growth illusion. I do not say that growth is not welcome or desirable. I am not an "eco-doomster". I wish to see the economy of the country growing. The illusion which is damaging us is that Governments in short periods of office can increase the long-term growth rate of the economy by means open to them, apparently, but not, evidently, open to their predecessors. We have the great concept of the dash for growth. We have just been engaged in the Barber dash for growth, built on the analogy of the far more modest and controlled Maudling dash for growth. Public expenditure is allowed to expand, or taxes are cut, or both measures are taken, and the country goes into deficit. But it is said that at some point we shall catch up and that things will come right.

Photo of Mr Peter Hordern Mr Peter Hordern , Horsham

Does not the right hon. Gentleman agree that his party was also guilty of this folly, and that there was no more damaging document in that respect than the old National Plan?

Photo of Mr Edmund Dell Mr Edmund Dell , Birkenhead

The hon. Gentleman must regard my comments as falling where they lie. At the moment I am concerned with a far more damaging dash for growth than my party was ever involved in. My party left the country in a strong economic position, one in which we would have been far more able to face the crisis which we now have to contemplate than we are now in under the present Government. The Government make political claims. They go to the Dispatch Box and say that under their administration growth has been faster and that they have been spending more than Labour did.

These increases in spending are not achieved by any redistribution of national resources or even by any significant growth but out of inflation plus overseas debt. They build inflation into the system and call it growth. Credit is taken for annual reviews of pensions when inflation makes annual reviews inevitable. Anyone who criticises these manoeuvres is told from the Dispatch Box that he is an enemy of growth. Meanwhile, the balance of payments deficit goes on increasing and we do not begin to catch up. On the contrary, as we have seen on this occasion, things go on getting worse and worse.

In the end the Government use the happenings of October, the Arab increase in oil prices, to create a new stab-in-the-back legend. The Government say that it happened just at the moment when they were going to be successful. They claim that they were stabbed in the back by oil price increases.

On the occasion of this manoeuvre, this Government-inspired cycle of events, there was an additional misjudgment. The Government started by allowing a vast growth in unemployment and then they began to reflate. But they forgot that it takes time before a reflation works through the economy. A new doctrine emerged. Keynes was dead. The old demand management techniques no longer worked. For that we had the estimable authority of the right hon. Member for Wolverhampton, South-West (Mr. Powell), who told us at that moment of a different crisis, when unemployment was going up despite reflationary measures: we are in a new period when the rate of obsolescence, of technological change, of increase in productivity, has, at any rate for a time, outstripped the rate at which we are producing new needs, new demands and new methods of fulfilling them."—[OFFICIAL REPORT, 23rd November 1971; Vol. 826, c. 1205.] It appeared then that he still had some influence on the Government, because, summing up the same debate on unemployment, the present Home Secretary, then Secretary of State for Employment, echoed those words of his right hon. Friend. He said: we may be entering a period when the old principles of demand management based on Keynes and the rest may no longer be operating as Governments here of all parties, and Governments in many countries, had come to expect them, with justice, to work hitherto."—[OFFICIAL REPORT, 23rd November 1971; Vol. 826, c. 1259.] The trouble was that the demand was only just around the corner. The right hon. Member for Wolverhampton, South-West admittedly did not encourage the Government in the policies which they then followed, but that authoritative confirmation of their own fears led them into a typical panic. It is people who panic most who, having taken up a new position, then most often proclaim that the time has come to stand firm. In that panic the Government decided that they must pile it on, that the reflation so far was not enough.

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , South Angus

Although I have a great deal of sympathy with the right hon. Gentleman's argument, I think that he has the time scale slightly wrong. There were reports in the Financial Times, a matter of weeks before the debate to which he refers, that the Treasury had reversed its usual role and was begging the spending Departments to spend more money. Therefore, I do not think that faith in Keynesian demand management policies had evaporated to quite the extent the right hon. Gentleman suggests.

Photo of Mr Edmund Dell Mr Edmund Dell , Birkenhead

The hon. Gentleman may be right. But we had it from the right hon. Member for Wolverhampton, South-West and then from the Secretary of State for Employment that that thinking was the Government's motivation. After all, what followed suggested that it was the motivation.

It was then that we had what was probably the most painful of all the Government's reversals of policy, the Industry Act 1972, if anything a long-term measure, but introduced in a panic as a short-term device. We heard on "The World at One" today the Secretary of State for Trade and Industry speaking as though he still believed that it was a short-term device. He was telling us about all the wonderful jobs created in the regions by the Act. In fact, it has so far created a trivial number of jobs in the regions. It may create jobs in the future. Figures are offered of the number of jobs it will create, and I do not want to take away from its future credit, but what has changed the position in the regions so far has been the Government's macro-economic policies, and the Act has been insignificant in that context.

The Act may now have some short-term significance, because if the Government are to allow many firms to go to the edge of bankruptcy it may be the Government's interventionist instrument to save the situation from becoming even more desperate than it would otherwise be.

In addition to the Act, there were the further reflationary measures. The balance of payments deficit grew and grew. There was more and more foreign borrowing. The Prime Minister and the Secretary of State for Trade and Industry, casting aside their belief in market forces, went around the country begging people to invest and to export. Businessmen were invited to Chequers, as though they would suddenly come to the conclusion that a dinner at Chequers was a greater incentive to invest and export than the profitability of exports.

We have lived through a period of complete economic absurdity, which I hope will never be repeated. The Chancellor of the Exchequer has told us that he has been managing a growth policy. He has really been acting like a cowboy out West, riding a bucking bronco. The question has never been whether he could keep his saddle but precisely when he would fall off. Now he has fallen off, and the country, particularly in the regions, has been bruised. For anyone who wants to study the perils of demand management in the hands of a Government without judgment the last three years are a lesson.

Now we are told by hon. Members on both sides of the House that, having had an excess in one direction, we must have an excess in the opposite direction, that we have had excessive reflation and now we must have excessive deflation. This is a current danger.

May I state one political principle. I am against Governments being heroic at the expense of their people. Does anyone realise what the proposed deflationary measures would mean in my constituency, which in any case has benefited nothing like the rest of the country from the reflation that has taken place? Even on existing policies, even with the cuts that have taken place and such deflationary effects as the increased oil prices exert on the economy, the situation is likely to be serious enough in the regions, and there will be increasing unemployment in the country as a whole. If more is done, the situation will be far worse.

I say to the Government "For God's sake do not try to wrench us back into balance". There is a limit to what people in this country can take. We do not want confrontation with the miners, and we do not want confrontation with 2 million unemployed either.

My final reflection about the Government is to wish "If only they had believed more in market forces!" We recently heard an interesting speech by the Secretary of State for Social Services. Replying to a speech by my hon. Friend the Member for Ebbw Vale (Mr. Michael Foot), on 21st January, he accused my hon. Friend of showing his belief in market forces by calling for increases in miners' wages. The right hon. Gentleman advanced the remarkable proposition that market forces were best, but an incomes policy was inevitable. How something can be best when something else is inevitable, I do not understand. I acknowledge that the right hon. Gentleman is one of the ablest members of the Government, perhaps the only able member, but that is nonsense.

I do not think that market forces are best. I do think that they are inevitable. What is best is an attempt to insert some rationality into the operation of market forces by means of an incomes policy. But any attempt by an incomes policy to impose a greater rationality must be modest in its objectives.

I do not say that there are not times when a Government should stand firm. There are. But at this stage, when everyone acknowledges that market forces must force miners' pay upwards, when the Government themselves acknowledge that more will have to be done for miners after phase 3, it is an absurd strain on an incomes policy to try to cut out those market forces by something called phase 3. That is a way to make an incomes policy either totally impossible or at least a source of continual and damaging confrontation for the indefinite future.

How do the Government expect on that basis ever to achieve a voluntary incomes policy? It would be the ultimate crime to break the nation asunder in a fruitless attempt to resist, to the point of permitting a strike, those very market forces on which the Government were originally pledged to rely.

The nation faces a crisis of unparalleled magnitude. It is time to cool the confrontation. There was a time when Conservative Members, perhaps of greater substance than we see today, would have realised that. I only regret that there are not enough such Members on the Government benches now.

7.30 p.m.

Photo of Mr George Proudfoot Mr George Proudfoot , Brighouse and Spenborough

I am delighted to follow the refreshing speech of the right hon. Member for Birkenhead (Mr. Dell). It was the first straight political speech in the debate and I compliment him for that reason.

Yesterday the Expenditure Sub-Committee, of which I happen to be a member, took evidence. The evidence started with one of the Treasury knights saying that the White Paper was only of academic interest. I have spoken on the last three occasions when Public Expenditure White Papers have been introduced. Last year I felt that a one-day debate was not sufficient. This year, and perhaps because of the academic quality of the debate, I feel that one day is perhaps too much.

It must be admitted that the oil crisis has changed the outlook of the Western world. I can imagine that Treasuries in Europe and elsewhere are looking at their figures and wondering what will happen to the kind of arithmetic that is in our White Paper. It is not only this country that is in a mess. Every other country has the same mess on its hands.

On Monday, when I was in my constituency, I heard something on radio which made me think about the debate. I heard a quotation from an old philosopher. It was said that the world was made up of pessimists who looked only at the dark side of the clouds and moped; it then said that there were people who looked at both sides of the clouds and that they were the philosophers who shrugged their shoulders. Lastly, there were people who looked only at the bright side of the clouds and that they walked on the clouds all the time. The House often divides itself into the pessimists, who are represented by the Opposition, and the optimists, who are represented by the Government. I suppose that civil servants are the shoulder-shruggers who must get on with the whole thing.

The White Paper is the fifth of a line of similar White Papers. At least it has given the economic journalists something to write about. And they certainly write about it. It has the kind of pep of the theological argument of how many angels one can get on the head of a pin. It does not involve public opinion. It is very much a specialist argument. I heard the Chairman of the Sub-Committee, the hon. Member for Ashton-under-Lyne (Mr. Sheldon) mention accuracy. He said that we were £1,000 million out here and £500 million out there. That is right.

Those are the cash figures which are in the White Paper. However when we start to consider how far out the estimates are in percentage terms the matter takes on a slightly different complexion. When we consider how accurate the figures can be, the thousands of calculations which are made and the many spending Departments throughout the country which provide their figures for the White Paper, it is incredible that the present degree of accuracy can be attained.

For the first year, 1970–71, the figures were out by 4 per cent. For the second year they were out by 2·4 per cent. and for the third year by 2·9 per cent. For the three years together there was a discrepancy of 2·3 per cent. on £85,410 million. When the matter is put in that way, the figures do not sound dreadfully inaccurate.

Yesterday, when the Sub-Committee was taking evidence, it considered shortfall and whether the cuts were real. That was perhaps academic because it is obvious that both cuts and new expenditure can be real. The White Papers identify a Government's intention in a broad way. We have only to look through the White Papers for the last five years to see that the intentions of the last Labour Government were different from those of the present Government.

For those people who are, as it were, inside the figures—for example, the people who are responsible for getting them ready—the position looks very different from the position as seen by those who view them from the outside. The accuracy of the figures will always be debatable. I suppose that we must continue to have the White Papers, but in 25 years' time they may not be as important as we think they are now. They are indications and they may express hopes, but events outside any national Government's control can thrust such matters in any direction, as we have witnessed in the past few weeks.

Housing has been mentioned in the context of the White Paper. It is about time that we considered housing seriously. In the House we shout at each other all the time about a housing shortage. I am not convinced that there is such a shortage. We have a greater number of houses for our population than any other country in Europe. By that standard we are quite well housed. We should now consider our housing stock. It must be realised that we have many houses of the wrong size. The real demand is for smaller, single-bedroomed accommodation for retirees. Many councils have missed the boat in that respect.

In my constituency there are people who have their name on three or four local housing authority lists. It seems that those lists are like the motor car lists shortly after the war which were suddenly obliterated as motor cars became available. There is not a dire housing shortage in my constituency. In three and a half years only two constituents have come to see me about housing. I ask the Government to urge the new local authorities to investigate their housing lists and to revise them. In some areas we run the danger of having too many houses. It can be said that the stock of houses in the Yorkshire and Humberside Region is sufficient. About 100,000 houses in that stock are out of date. Some will have to be knocked down and some will be improved. The real shortage is in single-bedroom accommodation. As elderly people move into new, up-dated single-bedroom accommodation, which requires less looking after and less heating, younger people can move into the council houses which are too large for old people living on their own and which they have vacated.

The problem of big families has been mentioned. The answer has been found by many local authorities. If a local authority has a pair of vacant semidetached houses and it has a big family on the waiting list, it can open up the dividing wall and thereby provide accommodation for large families.

I am pleased that the Government intend to help housing associations. They have a great part to play in housing, and particularly for specialist groups such as the elderly.

Every time I look at the expenditure cuts I decide that one lot of cuts is sacrosanct. This year I would make expenditure on new roads sacrosanct. Greater productivity in every part of the country is derived from new roads. Everybody, except perhaps the environmentalists, wants motorways. That is because it is known that they increase economic efficiency.

Yesterday, when the Sub-Committee was taking evidence, a Treasury witness said that many of the shortages which were noted by the newspapers were purely anecdotal. I like that expression. There are many anecdotes about supposed shortages. All hon. Members can refer to one or two. I came across one a few weeks ago in the retail business. I was told that there was to be a dramatic shortage of paper bags. A person in charge of buying paper bags boastfully said "I have rung up all our suppliers and tripled the order for paper bags." That is how shortages are created. The difference between shortage and surplus is incredibly narrow in any economy and in any market. That applies not only to nations but throughout the world. The shortages which the world has seen this year will, I am sure, evaporate rapidly.

My hon. Friend the Member for Horn-church (Mr. Loveridge) said that if we made oil deals we would upset people in Europe. He seemed to be posing a conundrum, because a few paragraphs later he wanted to have import controls. I cannot imagine anything which would upset the world more than import controls. That would create, perhaps a world slump such as the slump which we had in the 1930s. To me that thought is horrific and abhorrent. I do not want to see mass unemployment.

It seems that the gloom merchants have got at the expenditure cuts. Future expenditure is to be cut, for example, on hospitals and roads. If we stop to take stock, it will be seen that we have more hospitals and schools than ever before. These cuts are not taking anything away from us except our expectations. Some people forget that in the political argument. We must take a rain check on them.

The White Paper talks of the management of the economy. I would love to be able to manage the economy and to operate a fine tuning control of it. It is the ambition of every politician, because then we would have perfection. I do not think that we will see it, either in my lifetime or that of my children. I accept all the electronic miracles that will come along, such as computers that can churn out statistics at an incredible rate, but I still cannot convince myself that we can tinker with the economy and get it exactly right.

The length of time between the tinkering and what happens is longer than any of us believe. In serving on the Expenditure Sub-Committee I get the awful feeling that trying to manage the economy is like being on the bridge of a giant tanker and attempting to bring it up the Thames at full speed. I can think of nothing more horrific. This has haunted me as I have heard witnesses dealing with these matters. I do not believe we will ever get much more efficient at it.

Many hon. Members have spoken about what they think should happen in the near future. I know that the Government are taking stock, as is every Western Government, as a result of the energy crisis. So far there have been no panic measures, and there should not be any. It would be bad business to do anything panicky and to try to act before the dust had settled. We ought not to hurl party political points at each other about getting the oil. I am sure that the motorists or the industrialists do not care where it comes from and whether we have to go to Switzerland to see the Shah of Iran as long as we get the oil.

I plead with my right hon. Friend the Chancellor not to increase taxation in the next Budget. There has been enough deflation. If we are not careful there will be far more people on the dole than anyone wants to see. We do not want mass unemployment. I would like to see the Chancellor cut income tax. If he still needs to raise the same amount, I would prefer to see him taking it from direct taxation and putting it on indirect taxation. I want people to be able to walk away from work with money in their hand and a free choice over a range of goods.

In that respect value added tax is excellent because it does not differentiate. It is a flat rate over the lot. All the talk of doom when VAT was introduced has vanished because the public have accepted that it is a fair tax which does not deflect their choice.

Photo of Mr Joseph Harper Mr Joseph Harper , Pontefract

Except for the fact that it has been unpopular.

Photo of Mr George Proudfoot Mr George Proudfoot , Brighouse and Spenborough

I do not think it has been unpopular. Purchase tax has vanished from sight. It was imposed over a whole range of different percentages. It deflected demand and it pushed about manufacturers of certain equipment. That was wrong. About four days ago I was talking to four chaps who work for me. One of them suddenly said "What's all this economic growth you politicians talk about?" I reckon that he had something. I said on Tyne-Tees Television months ago that people did not know what we meant when we spoke about economic growth. The commentator said afterwards "That is the most sensible remark I have heard for a long time". Politicians of all parties talk glibly about economic growth but it does not mean a darned thing to the average man in the street or to our wives. It is a piece of jargon which we have fallen into using, and the quicker we start telling people about the possibilities of our economy and our great reserves of skill within our people, the better.

Gloom is the fashion of the day. We must look at this carefully. I have looked at it and so also have the media. It is full of economic news. I can take all that economic news because I am a business man as well as a politician. A business man accepts that the conditions under which he operates are constantly changing. They change daily and he is used to meeting such changes. Suddenly we have national headlines talking of economic news, stories full of figures and dire warnings by journalists who normally never manage businesses. Those writings are read by doctors, carpenters and bus drivers. What do we expect when people read the kind of headlines we have seen recently?

I approach the whole thing philosophically. If we did not have this situation, we would have another. I have great confidence in the Government's ability to cope with this. I believe that the Government will be seen to have managed events so far incredibly well. Who tonight would think that a few weeks ago we were expecting petrol rationing at any minute? I see the Chief Secretary to the Treasury sitting on the Front Bench. He got into political hot water at that time. Look at the crazy mess the Dutch have got into. They had petrol rationing for four weeks but have had to pack it up as being unmanageable.

So far the Government have come out with flying colours. We have a new bargaining position in oil. I compliment the Government. They have acted with great calm over the so-called confrontation issue. I believe that they will succeed. I sincerely hope that the miners will back off, because I am sure that the Government will not.

7.47 p.m.

Photo of Mr Dick Douglas Mr Dick Douglas , Clackmannan and East Stirlingshire

It is not my intention to follow the hon. Member for Brighouse and Spenborough (Mr. Proudfoot) except to comment a little on his view of the oil situation. I do not think that the real impact of this in terms of import costs has been brought home to the people. My calculations are that the import cost of oil in the next few years will account for 25 per cent. of our total import Bill. In terms of goods and services we shall have to export about three times that amount to pay for the same quantity of oil we were importing in 1972. Every aspect of that is inflationary.

This is an important part of demand management in terms of the demand-pull type of inflation. To the best of my knowledge the Government have made no pronouncement upon this. They are scurrying hither and thither trying to patch up barter deals with the Shah of Iran and others in the Middle East. The fact that we have avoided petrol rationing is not something for which the Government can take a great deal of credit. It is due to fortuitous circumstances arising from the split among the OPEC countries.

I take the point made by the hon. Member for Cornwall, North (Mr. Pardoe) that there is just as much chance in the long term, not in three or four years, that the oil crisis will recede because the OPEC countries might see the difficulties, in international monetary terms, arising from their inability to make fruitful investments with the funds flowing to them. But that is a long-term matter.

I intend to draw attention to the division between the parties. I am pleased to see the hon. Member for South Angus (Mr. Bruce-Gardyne) in his place because he pays great attention to public expenditure matters. He asked a Question which was answered on 21st January about the proportion of public expenditure in relation to the gross domestic product. The reply gave the impression that public expenditure accounted for almost £1 in two of the gross domestic product. But that is a fallacious assumption because in the year concerned large transfer payments in social security were involved. I was happy to hear the hon. Member for Kensington, South (Sir B. Rhys Williams) say that such transfer payments should be excluded from public expenditure. If they are excluded, I admit that public expenditure is still substantial.

In 1972, public expenditure as defined by public authorities' current expenditure on goods, services and the public sector component of gross domestic capital formation accounted for £3 in every ten—substantial, but necessary.

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , South Angus

I wish that the hon. Gentleman would explain why he shares the view of my hon. Friend the Member for Kensington, South (Sir B. Rhys Williams) that transfer payments should be excluded from public expenditure. Public expenditure is that proportion of the nation's resources the distribution of which is pre-empted by the State.

Photo of Mr Dick Douglas Mr Dick Douglas , Clackmannan and East Stirlingshire

That is not in dispute. I am arguing that these transfer payments would be necessary anyway to ensure that people had an adequate standard of living.

Looked at from the point of view of national income accounting, the transfer payments go into consumer expenditure. It is important to make that distinction. I take it that the hon. Member for South Angus appreciates the distinction. On 17th December the Chancellor of the Exchequer argued that It would be quite wrong for the public sector to continue unabated its demands for goods and services and its consumption of energy, leaving the private sector to bear the whole of the brunt of the energy shortage."—[OFFICIAL REPORT, 17th December 1973; Vol. 866, c. 963.] That indicates what was in the right hon. Gentleman's mind. One might conversely argue that it would be wrong that the private sector, in times of national crisis, should be almost completely exempted from the consequences of direct fiscal cuts while the public sector bore the whole brunt of them. But the Chancellor is willing to accept that in real terms—because the cuts in taxation are at the margin—the public sector should bear the whole brunt in terms, not of the macroeconomics of demand management, but of the people in my constituency and other constituencies in Scotland.

My hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon)—I am sorry that he is not present to intervene if I misunderstood him—indicated that there was very little knowledge about what the cuts meant. There is a great deal of knowledge of what they meant to Scotland. We had the first salvo on 19th December 1973. I quote from the arrogant phraseology released on behalf of the Secretary of State for Scotland: With the fall in output resulting from the shortage of energy, it would be quite wrong for the public sector to continue, unabated, its demands for goods and services and its consumption of energy, leaving the private sector to bear the whole of the brunt of the energy shortage. That was what the Chancellor of the Exchequer had said. The document goes on to indicate what is expected from the cuts in the public sector in Scotland.

We had the second salvo on 21st December when cuts in the school building programme were announced. The primary schools which we need will not be built. Very few people will come to me saying, "We are very worried about increases in taxation and the possibility of other claims being made on us", but many people will argue for primary schools, because such schools are overcrowded, and they are not something which they can produce for themselves. This clearly indicates the difference between the parties.

The next salvo relates to housing. The Secretary of State for Scotland, in accordance with his housing finance policy, has decreed that local authority rents should rise. I shall not go into the merits or demerits of that matter——

Photo of Mr Dick Douglas Mr Dick Douglas , Clackmannan and East Stirlingshire

The hon. Gentleman says "Quite right", but people who are asked to pay rents commensurate with an economic valuation of their houses are entitled to homes which are up to modern standards. Yet the Secretary of State has called a halt to housing improvements. The guillotine has come down on local authorities.

Hospital boards in Scotland have been asked to cut their expenditure. The hon. Member for Brighouse and Spenborough said, "We have all the houses and hospitals we need". Let him come to my constituency where I will show him a hospital—the Bellsdyke Hospital for mentally ill patients—where people are housed in huts. That hospital is not commensurate with the standards that we require now that we are moving into the last quarter of the 20th century.

How are the Government able to get away with this? All Governments fall into this trap. They sever in people's minds the contribution which they make from tax and the benefits that they receive from the nation through public expenditure. During the last election I had time and again to draw to people's attention the fact that if they wanted social benefits in terms of education, roads, housing and hospital provision they had to pay for them through taxation. I have never shirked that. It is more necessary than ever before that the Labour Party should emphasise the close link between the benefits which people receive from public sector spending, particularly on the social services, and the contribution which they must make to them. Governments are able to get away with this because, as the Chancellor of the Exchequer said in his statement: In implementing this decision, the Ministers concerned will determine the priorities within their own programmes."—[OFFICIAL REPORT, 17th December 1973; Vol. 866, c. 964.] What about the people determining the priorities? How about trying to devolve the public expenditure decision a little more away from the ministries? I do not make this argument for the regions of England nor for the nation of Wales, but why cannot we in Scotland have a forward look at public expenditure?

In the majority Kilbrandon Report on page 117, paragraph 583 reads as follows: The first constraint is that Parliament must retain legal and effective sovereignty in all matters; the second is that the government of the day must have such control over expenditure and taxation as is necessary to stabilise the economy and to foster its development; the third is that a reasonable degree of equality in public services must be maintained between regions; and the fourth is that the central government must be responsible for minimising regional disparities in general economic conditions. These are constraints on the devolution-ary process which may or may not be acceptable, but I suggest that with the reform of local government in Scotland the massive new regional authorities have to be involved directly in the forward look at public expenditure to make it meaningful and to make them responsible through the electorate for determining priorities.

The Public Expenditure White Paper shows a massive investment in mining, and the Government make great play of what they did in the Coal Industry Act 1973. I was down a pit on Friday and I saw machinery there. The projection is that the machinery will be duplicated, but there is no projection to duplicate the men. The best miners are miners' sons, but man after man I spoke to said that he was not telling his son to go down the mine. If these public expenditure projections in terms of gross domestic capital formation are to be matched to get a viable mining industry, the Government will have to rethink their policy and posture.

I am no political friend of Michael McGahey, I never have been and I am not likely to be in the future. I have opposed the Communist Party throughout the whole of my adult working life. If the Government do not reorient their thinking about long-term possibilities the figures that appear in the document will be even more meaningless. The only way to ensure a viable mining labour force is to recognise that it is unique, it cossets itself, it is a community. Miners who move from pit to pit are looked upon as industrial nomads. The previous Labour Government have as much responsibility for this as have the present Government, but the present Government are in the driving seat and must do something now. They must give us the opportunity to have the balanced fuel policy that can be ours in the 1980s.

Not one drop of North Sea oil is yet ashore. All the efforts of the Government and of the Secretary of State for Energy are devoted to accelerating that process. I only wish that some of the Government's efforts were devoted to ensuring a balanced mining labour force. Otherwise, these projections for public expenditure, not for economic growth but for a better distribution of the national income and wealth, will not be realised.

8.4 p.m.

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , South Angus

The hon. Member for East Stirlingshire (Mr. Douglas) at the beginning of his remarks said that the debate highlighted the distinction between the two parties. He clearly identified himself as a high taxation, high public expenditure, man. I recall him putting that prospect before my constituents a few years ago, and they gave him a very dusty answer. However, I will not draw unreasonable conclusions from that.

The hon. Gentleman referred in his closing remarks to Mr. Mick McGahey. I personally believe that one reason why someone like Mr. Mick McGahey has attained his position today is as a reflection of the acute social pressures of inflation.

My argument for showing a low public expenditure, low taxation, preference is that in practice rapid acceleration in levels of public expenditure is inevitably bound to go with rapid and accelerating levels of inflation, either because the public expenditure has not been financed out of taxation, as has arguably been the position in the past three or four years, or because, although it is financed out of taxation, the reaction of the sort of people about whom the hon. Gentleman spoke is to say that they are not prepared to tolerate that their additional earnings should be eroded by higher taxation to pay for all the attractive public expenditure projects to which the hon. Gentleman referred, and therefore they will exercise their power as best they can to achieve higher wage settlements. It was this very argument that set off the inflationary spiral in the last years of the Labour Government.

I am sorry that I was unable to hear the whole speech of the hon. Member for Ashton-under-Lyne (Mr. Sheldon) who as the Chairman of our General Subcommittee guides us so efficaciously in our studies. I was fascinated by his proposition that the roads lobby and the like should take the respective sub-committees out to dinner. What worries me is who will take the General Sub-Committee out to dinner. Clearly, it must be the think tank, which presumably will take us to Annabel's or at least to the Mirabelle. That is an attractive proposition which I hope the hon. Gentleman will use his considerable influence to achieve.

May I say a brief word about the Opposition amendment and the way in which it was presented by the hon. Member for Heywood and Royton (Mr. Joel Barnett)? He was in some difficulty. He was espousing the proposition that rather than the December public expenditure cuts the emphasis should have been on correcting the excess of demand, if such existed, by means of higher taxation. He was honest enough, in response to an intervention by my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley), to acknowledge that the whole of that higher taxation should not be on the rich. But he elegantly glossed over what his own colleagues on the Front Bench, including the shadow Chancellor have been advocating, that not merely should there not have been cuts in public expenditure but there should have been, in addition to the existing open-ended subsidies to the nationalised industries, open-ended subsidies on food. The implications of that on public expenditure need only to be contemplated to cause profound alarm. That was an angle which the hon. Gentleman was careful to avoid.

There was one point in his speech which seemed a little odd. He complained that we should not add to taxation rather than curb public expenditure. At the same time he seemed to take the view that the increase in oil prices would not have a major and substantial demand effect. I shall revert to that matter a little later in my remarks.

I should also like to refer to the speech made by my hon. Friend the new Chief Secretary to the Treasury, and I should like to join in welcoming him to our debates. His historical survey was not totally uncontroversial. I was particularly interested by the context in which he put the latest public expenditure White Paper and particularly the adjustments announced by my right hon. Friend the Chancellor of the Exchequer on 17th December. The Chief Secretary said that the policies announced on that date were new policies to adjust to a new situation. This statement made me a little worried. It implied that the justification for the substantial adjustments to public expenditure levels announced by my right hon. Friend on 17th December was to correct an immediate and emergency situation in the economy. I find it hard to believe that public expenditure cuts can be used in this way.

If my right hon. Friends have any doubt about that proposition, they should study the evidence given by the Department of the Environment to the Select Committee on Expenditure on the subject of adjustments to the road programme. Evidence given by the Department in November last showed that its view of the road programme was remarkably inflexible in terms of early and precise adjustments within a time span of a year or less. The whole burden of the Department's argument was that changes in the level of public expenditure on the road programme could only have a medium-term effect. To my mind it is a little preoccupying to have the expenditure adjustments which were announced in December presented as a response to a sudden new situation resulting from the energy crisis and the change in the Government's expectation of growth which thus arose. We must go a little further and express some modified scepticism about the extent to which the £1,200 million cuts will emerge from the pipeline at the end of the day.

On a small scale I was a little preoccupied to see that my right hon. Friend the Secretary of State for Scotland in his meeting with Scottish local authorities the other day stated that, of the £71 million cuts—the share my right hon. Friend had to bear according to the statement on 17th December—some £2½ million had already disappeared. I should like to know where it has gone. I do not suggest that in the context of the total exercise this sum has any great significance, but if that experience as a dilution of the economies made by the Scottish Office is extrapolated in terms of other spending Departments, one appreciates that the basis of the £1,200 million cuts would soon be eroded.

It is also fair to say that an element of scepticism was induced by the evidence given by Sir Douglas Henley yesterday to the Expenditure Select Committee. I was, alas, not there to hear his evidence, but I read in the Financial Times a report of his remarks. They suggest that inevitably there is a certain amount of dubiety about the precise impact of the cuts announced on 17th December and the extent to which they will materialise nicely and neatly at the end of the day as a reduction of £1,200 million.

There is one other point arising from the Chancellor's statement of 17th December which I sought to raise during the speech made by my hon. Friend the Chief Secretary. I refer to the somewhat curious statement by the Chancellor: … the direction of the cuts in public expenditure must be such as to avoid, as far as is humanly possible, a reduction in employment in the public sector being added to the inevitable unemployment created by the energy shortage in the private sector."—[OFFICIAL REPORT, 17th December 1973; Vol 866, c. 963.] I am not clear about the logic of saying that we shall induce economies in the public sector so that these will have an impact on demand in the private sector, thereby inevitably reducing the level of demand for employment in the private sector, when the level of demand for employment in the public sector remains static. My hon. Friend the Chief Secretary answered my query on this point by saying that this was the way things were. But it is not a complete and sufficient answer to the question. Therefore, I hope that when the Financial Secretary replies he will be able to shed some light on this judgment.

I should like to refer to Table 1.4, "The Use of Resources", set out in the Blue Paper. Two alternative projections of expected growth rate are given. One is a figure of 3·5 per cent. of GDP in the period 1972 to 1978 and the other is a figure of 4·5 per cent. GDP. I understand that over the period 1972–73 the growth rate is now put at around 6 per cent. This would mean that the 3·5 per cent. growth rate in terms of GDP—the lower of the two hypotheses advanced in Table 1.4—would be equivalent to approximately 3 per cent. of GDP from this time onwards.

That strikes me as an highly optimistic assumption for a lower growth rate from now on. I thought that it had become apparent that, as a result of the oil situation, in the next 12 to 18 months we were unlikely to see any significant growth at all in the economy. Once again I ask the Treasury not persistently to err in its assumptions on the side of optimism and to offer us, not a high profile growth rate in the remainder of the quinquennium but a low profile—a rate more likely to conform to a low pattern of growth. This would enable us more easily to spell out the consequences for the nation.

In conclusion, I wish to refer to some of the remarks made in a fascinating speech by the right hon. Member for Birkenhead (Mr. Dell), with a fair amount of which I found myself in some agreement. What concerns me about the pattern of public expenditure in the past four or five years is the extraordinary yo-yo course we have adopted. There were reductions in 1970–71, large increases in 1971–72, a vast increase in 1972–73, and we are now back to reductions.

There is a lot of argument about how the precise figures should be calculated, but the fact is inescapable that we have had dramatic changes over the years in the pattern of public expenditure which cannot be in the desirable interests of the long-term management of the economy and, above all, of the nationalised industries which so often have to take the brunt of these enormous reductions.

I come back to the point which I made at the beginning of my speech. I think that what lies at the heart of the numerous changes in both directions that we have had in recent years in the course of public expenditure is the quite erroneous belief of the Treasury that it can fine-tune the economy from one period of six months to the next. If we have to have fine tuning, I suggest to my right hon. and hon. Friends that nothing could be a more unsuitable implement for that purpose than public expenditure.

Having said all that, my view is that the reductions announced on 17th December are highly desirable and represent the right course for the Government to take, not from the point of view of any immediate short-term management-of-the-economy considerations but from consideration of the fact that we inherited in 1970 a situation of public sector preemption of resources which my right hon. Friend quite rightly castigated in the autumn of that year as intolerable.

I hope that we shall now begin to see that we bring it to more accurate proportions and to more acceptable proportions of demand on total resources.

If we do that in this direction, I think that we shall be heading for a more balanced budget in the year ahead and a more modest borrowing requirement, which in turn will enable us more successfully to contract the excessive growth of money supply and lead eventually to substantially lower rates of inflation which must be our over-riding objective.

8.23 p.m.

Photo of Mr Robert Brown Mr Robert Brown , Newcastle upon Tyne West

We are facing three crises and, Heaven knows, a crisis in terms of 3½ years of this Government is nothing new. But three at one time is a bonus even for this lot.

We have inflation and the balance of payments crisis with an annual deficit, if the Governor of the Bank of England is anywhere near right, of some £3,000 million a year. Secondly, we have the oil crisis. Thirdly, we have an industrial relations crisis. The measures of 17th December imposed cuts in public expenditure of £1,200 million—£264 million on the nationalised industries, £212 million on roads and transport, £182 million on education, £128 million on defence, £80 million a year tax on capital gains on property, a 10 per cent. surcharge on surtax totally £35 million, and control of hire purchase. If those measures were meant to deal with the crisis, they are hopelessly inadequate.

As for inflation, the December budget is not likely to have any effect in the short term other than a dramatic slowing down in the building industry. With the housing situation that we have, this is one of the tragedies of the present situation. Long term, the likely effect will be governed by the extent to which inflationary pressure may have resulted from excess money supply associated with official deficit financing or excessive consumer credit.

The balance of payments is an immediate problem. The public expenditure cuts will make a minimal import saving contribution. I suggest that it will be about a third of a like amount of additional taxation. In any event, April is the starting date so the effects will not be felt much before this time next year or the back end of this year.

Obviously the hire-purchase restrictions will have a marginal effect on imports. But they will also hit home industries, not least the motor industry. Meanwhile the rapidly worsening value of the pound caused by our deteriorating balance of payments is like pouring petrol on the flames of inflation.

When we come to consider ways of dealing with the oil crisis, we find nothing in the Government's measures except for the hire-purchase restrictions which will damp down the demand for cars. But the oil crisis in itself was already doing this job, so that there is not much of a bonus in the hire-purchase restrictions, either.

Turning to the industrial relations front, I say at once that any attempt to present the Budget as hitting the rich is not even a starter. If we look at the £35 million surcharge on surtax, compared with the £300 million awarded to surtax payers in the 1972 Budget which is to be picked up this year, it is nothing short of a calculated insult to the lower and average wage earners.

The £80 million capital gains tax on property is like using a feather duster to move away deep, sticky mud. I do not think that a feather duster will do that job very successfully. Unless this tax is taken alongside better planning control it may well in itself prove inflationary.

The public expenditure cuts obviously will hit hardest the nationalised industries, public transport and education, which are all areas from which the poorer people mainly seek to benefit. This package is not calculated to convince trade unionists, least of all the miners, that this Government are pursuing a socially just policy, and the sooner that the Government realise that social justice can make one of the biggest appeals to the so-called rapacious trade unionists, the better we shall get along.

The cuts in public expenditure will affect not only socially desirable projects such as schools and public passenger transport schemes but, much worse, they will also reduce growth in the economy by about 2 per cent. below what it would have been without the cuts.

It is probable that unemployment will not increase as a result of the budget much before the end of the year. But in my view it is likely to double—in other words back to more than 1 million—and that is over and above any long-term unemployment resulting directly from the fuel crisis.

A package which does nothing in the short term is socially and economically damaging in the long term. Direct control on prices and on imports are what was needed. I have no doubt that on prices the Government find this politically unacceptable. But on import controls I have no doubt that we should soon run into trouble with our EEC relations.

I turn to the implications of the cuts for my constituents. At the back end of last month, the Department of the Environment issued a circular to local authorities calling for cuts on capital of 20 per cent. and on revenue of 10 per cent. What this means is that the new Newcastle-upon-Tyne District Council will not be able to initiate new capital schemes of any description.

Clearly this is a serious state of affairs, and it cannot be denied that a similar situation will prevail in all the other district councils within the Tyne and Wear County Council area. North Tyneside, South Tyneside, Gateshead and Sunderland will face the same problems as the new Newcastle district, and all five district councils have worthwhile schemes which should be commenced in the next 12 months.

The locally determined allocation will mean that the Newcastle District Council will barely be able to cover schemes already under contract. I understand that the total allocation for the whole of the Tyne and Wear County Council area for locally determined capita! schemes is £8 million for the coming financial year. Of that sum Newcastle District Council needs £3 million, which fortunately the other district councils have agreed, for its central area alone.

Newcastle is committed to central area redevelopment with two major contractors already working on site during the coming financial year to the extent of £3 million. It now learns that the proposed Department of the Environment allocation is to be £1·2 million. This is the type of problem that will face not only Newcastle District Council but every district council throughout the country.

The Government must appreciate that central area redevelopment cannot be financed from revenue and that such schemes already in midstream cannot be turned off like a tap. Therefore, this type of allocation is a complete nonsense. Goodness knows, the citizens of my fair city have suffered long enough with the central area redevelopment making the centre of the city resemble something like a battlefield. We do not want this to be protracted over years to come.

Last week at Question Time I asked the Secretary of State about the East Central Urban Motorway in Newcastle, and I should like to broaden this issue. Whatever one's view on the environmental argument that is now raging about urban motorways, only an idiot would argue that a scheme should be left in limbo when the major part of it has been completed. That is the situation with the East Central Urban Motorway in Newcastle. But added to that we have the nonsense of the Secretary of State for the Environment caving in to local pressures, he or his predecessor already having had a prolonged major public inquiry on the coast road extension scheme, and we are now in the midst of a further inquiry into that scheme. The initial inquiry resulted in massive demolition. We now have vast areas of dereliction waiting for the coast road extension scheme to go ahead.

Alongside that scheme we have the three-level major intersection at Brandling Park now almost completed. That major intersection will have two spurs, one to connect with the coast road extension and the other to connect with the North-West radial route. Neither of those spurs will be going anywhere.

The Secretary of State must realise that this is a lot of nonsense. He must urgently announce his decision on the coast road extension and give both grant and loan sanction for the coast road extension and the North-West radial route, so that we do not have the nonsense of this beautiful—some would argue that it was hideous—expensive three-level junction having two spurs going nowhere at all. It is complete lunacy to suggest that we should put up with that situation.

In the economic and energy situation debate on 19 th December I referred to the unequal effects of the Government's cuts on areas like the North-East where there is no question of any selectivity. In effect, this means that the poorer regions such as the North-East are carrying an unfair burden, because we are pushed faster into further poverty than the pot-bellied areas in the South-East and elsewhere. There is no doubt that we are carrying more than our share of unemployment at present. Clearly we shall carry a further burden of unemployment in the future.

If the Government believe in regional development, why do they not accept the case put forward by the Newcastle Airport Committee for an extension of the airport to international standards? Why do not the Government accept the case for the extension of regional airports on this basis and do away with the notion that everyone wants to fly from London? If the Maplin project were given a decent burial at once, we could do all of these things.

Finally, I turn to page 37 of the White Paper and to paragraph 7 thereon. That reads as a complete nonsense. The chapter is headed "Regional support and regeneration". Paragraph 7 is entitled "Regional employment premium". It states: At present no account is taken of any extension beyond 1974 of the premium, which is paid in respect of manufacturing establishments in development areas; though there is provision for residual claims into 1975–76. Once the precise form of phasing out the premium is decided, this provision will require amendment. Precisely what do the words "require amendment" mean? If they do not mean that REP will be maintained under some other name, it is a nonsense to talk about regional regeneration because the abolition of REP will spell absolute murder in the regions of this country.

8.36 p.m.

Photo of Mr James Hill Mr James Hill , Southampton, Test

I suppose that parliamentarians, by and large, are devious creatures. There have been many statements over the past year calling upon the Government immediately to take all possible heat out of the economy. On many occasions, from both sides of the House, we have been talking of the Government spending and spending and taking no heed of the heat that they are creating. If more hon. Members had been present for this debate, we should probably have heard many more claims, for we agree with the cut in public spending but not our particular bit of spending. I, too, shall fall into that category.

In all the cuts that must come, for the reasons that we well know, I am particularly concerned with one that is most serious, and that is that for the British Transport Docks Board and the various cuts that must come in the improvement of our ports.

Whether or not we agree about it, we are in the European Community. There have already been two major meetings of the European ports in Brussels. One was in November of last year and one was at the beginning of this month. I believe that another meeting of the ports with the Commission is scheduled in February. The European ports will have a policy of competition. Within the Community there are subsidies and certainly all the means of unfair competition. The ambition of the Commission is to rule out any unfair competition.

We realise that major ports such as Le Havre, Rotterdam, Bremen, Antwerp and Marseilles are very heavily subsidised. They have thought well ahead and their transport infrastructures are first class. They are tremendously efficient in clearing cargoes and in protecting the environment. This is, perhaps, one aspect that we have neglected. We have a very few years in which to bring our ports up to what we would consider to be a fully mechanised and efficient level so that we can compete in the Community.

There is a great charisma about Maplin. I know that there are many supporters of Maplin on this side of the House, but by the time it is developed Maplin will be too late to compete with the major ports on the European seaboard. This report makes little mention of Maplin because its development will take many years. The land has to be reclaimed and a city must be built to house the labour force for the port. It is to be positioned right opposite the most efficient port in the world, namely, Rotterdam. I do not think that it will be a viable proposition.

Rotterdam and the United Kingdom ports have a close and sympathetic understanding, even to the extent of wanting to form a seaports institute to cover all the main difficulties of modern management, employing and training the super-dockers of the future, and getting the maximum efficiency and maximum transport infrastructure to serve the main ports such as Rotterdam.

Paragraph 40 of the report says: The investment figures for British Transport Docks Board are lower this year than last, chiefly because some of the proposed development at Southampton did not in the event materialise. The bulk of the firm plans which the Board have are for devlopment at Southampton, the Humber and South Wales. I hope that the plans for the proposed development at Southampton will not be retarded any further. I have an interest here far beyond that of anyone else in the Chamber tonight. Southampton is in an exceptional position to compete with the major ports of Europe provided that it gets the necessary backing from the Government through the British Transport Docks Board.

Another sector where we are being a little mean and where we shall probably have to be a little meaner is the British Waterways Board. Throughout the continent massive use is made of the inland waterways for freight. We are always hearing from the environmental lobby, but we spend little or nothing on improving our inland waters such as they are. We have a great heritage. Perhaps they have fallen into disrepair and disuse, and it would be very expensive to cut further canals. This is a very simple, attractive, economic and efficient way of moving huge loads where time is not of the essence.

I ask my right hon. and hon. Friends in the Treasury not to neglect the British Transport Docks Board, in view of the competition it will face, or the British Waterways Board, with a view to assisting those two bodies to dealing with some of the difficulties of moving large loads.

The section on roads and transport links up with operating a major port such as Southampton. The report refers to an outlay of £321 million by 1973–74. We knew before the Budget of 17th December that this was to be cut, anyway. If the United Kingdom is to compete with the European ports, it is essential for a major port such as Southampton to have a motorway linking it with where the bulk of the cargoes will come from—in other words, what is wanted is a motorway from Southampton direct to the Midlands. We are not fortunate enough to have one. This must have come about from oversight. Otherwise it would be negligence to think of expanding a major container port over a few years without the necessary roads to the industrial Midlands and the North. I hope that the Department of Transport Industries will give this matter further consideration.

I congratulate the Treasury on the loans of £42 million to the private ports. These ports are worth while. They do a sterling job and create a facet of our economy which we on the Government side of the House can say is truly private enterprise.

The section of the White Paper dealing with housing has one or two items which I think the Treasury should have omitted. I refer particularly to paragraph 4 about option mortgages. Anyone who knows anything about mortgages and the sale of private houses will know that the scheme has not worked for some time. The paragraph states: The option mortgage scheme…is designed to help people with moderate incomes to buy their own houses". We all know that those words scarcely apply in such cases. To buy a private house one sometimes needs an income as much as one-third of the price. Consequently the option mortgage scheme, which was a good scheme for those on moderate incomes and not paying sufficient tax to get the full rebate, is not now something which deserves as many lines as it has in the White Paper.

There has been mention of house improvement grants. I must congratulate the Minister for Housing and Construction that the estimated number of grants for the year just passed was 400,000. That is an admirable figure. Admittedly the figures of properties needing repair do not seem to have decreased. Two million properties are in great need of repair and on that phenomenal basis it will take several years even to catch up on the backlog.

I am pleased to see that the provision of new accommodation by the new local authorities will be permitted without restriction. Certain authorities try to make out that the Government are restricting them in building council houses. I realise the difficulties and the problems of the yardstick and the more difficult problem of securing adequate labour. It is also extremely difficult to get tenders accepted. Nevertheless, the money is still there and local authorities which ignore it are failing in their duty to their citizens.

I turn finally to the regional employment premium and regional policy in general. I remind the House that there has been a certain amount of friction in Europe—I put it no higher—over the amount of the regional fund. The European Parliament and the Commission wanted 2,250 million units of account and the United Kingdom and Ireland wanted 3,000 million units of account, while the Germans wanted only 600 million units of account. I have heard reports and have read accounts in some of the more reputable papers that Germany is now offering at least double—perhaps a little more—and that tomorrow there is to be a meeting in Brussels of the Council of Ministers to decide on the eventual amount. I hope that the meeting will reach a firm decision. That would at least help to improve the figures in the years ahead.

8.50 p.m.

Photo of Mr Neil McBride Mr Neil McBride , Swansea East

I share the view of my hon. Friend the Member for Newcastle-upon-Tyne, West (Mr. Robert C. Brown) about the regional employment premium. If the regions are to realise their full industrial potential and provide employment for their people, the premium, due to be phased out in September, will need a replacement of some kind.

Despite what the hon. Member for Southampton, Test (Mr. S. James A. Hill) has said, it is clear that the Germans are not prepared to contribute exorbitantly to the Common Market regional fund. It will never reach the total of £950 million which the British Government envisaged. The Germans clearly will not go beyond £650 million in total.

Therefore, for Britain's peripheral areas like Wales the prospects of assistance are decidedly bleak, and the Government must tell us tonight what will be the alternative to the premium so that the regions are enabled to concentrate on providing industrial employment. I speak, of course, with particular emphasis on Wales, which is forgotten by a Tory Government.

The concentration of the cuts on the public services is typically Tory. They affect the nation to a very great extent, and Wales in particular. I am concerned particularly tonight about the prospects of small firms in Wales, having questioned the Prime Minister on the matter last week.

I have asked the Secretary of State for Wales whether he has assessed the effect of the increases of between 20 and 30 per cent. in industrial rating on businesses in Wales. In particular, how will the increases affect small firms? This is important in the Principality, where 90 per cent. of the firms employ fewer than 250 people and more than 70 per cent. of these employ fewer than 100. The Secretary of State has told me that, while he hopes that local authorities can hold domestic rate increases to 9 per cent., it is not possible for him to say what the rate increases will be for business and industrial ratepayers in the next financial year. He has recently received a letter from the Welsh section of the CBI and is sending a reply. But he has failed to take the House into his confidence.

The Government expenditure allocated to the rate support grant should have been increased in order to benefit both domestic and the non-domestic ratepayers in Wales. In the former case this affects the provision of services, and in the latter case it affects employment. To ease the burden and increase the cash flow of small firms, which are the backbone of the Welsh economy, it is imperative to consider how seriously the situation will affect future employment and prospects of employment. Yet the Secretary of State tells us that he has received a letter from the Welsh section of the CBI but cannot say what was in it.

I suggest to the Secretary of State that the great majority of small firms in Wales are worrying particularly about their cash flow, about the problem of securing overdrafts at rates varying from 15 to 20 per cent. interest. Time and again I have questioned the right hon. and learned Gentleman on this, as well as the Prime Minister himself. But it would seem that neither of them is among the friends of small businesses in Wales.

It is amazing that the Secretary of State had no prior discussion with the Welsh section of the CBI before the terms of the rate support grant were announced. This aspect of Government administration is a perfect example of muddle and maladministration. The Government seem to have forgotten the importance of small businesses to Wales, and these small businesses will have to look to the advent of a Labour Government for their interests to be cared for properly.

I also protest against the failure of the Government to steer industry to Swansea. The last section of a firm, 98 years old, will close down in Swansea in June. This, with the earlier closure of the main plant, will mean a loss of 800 male jobs in the area. Appeals to the Government to steer industry there to maintain the balance between productive and non-productive industry has been greeted with platitudes. It is time they did something positive to meet the problem and shook off their slothful torpor.

The Secretary of State for Wales has told me that up to the end of November last 2,738 houses were started in the Principality and 2,815 were completed. The case for increased Government expenditure on council house construction in Wales has been proved beyond doubt. The Secretary of State's figures are deplorable and represent a Welsh national political scandal. They are a memorial to the ineptitude of the Welsh Office and are the worst for Wales since 1946. The Government cannot blame the last Labour Government for that.

The great need in Wales is for houses to rent. It is impossible for thousands of my constituents and for people elsewhere in Wales to get a mortgage. The Secretary of State's failure to provide more council houses should provoke him to do the honourable thing and resign. The paltry nature of the figures is demonstrated by the fact that in Swansea there are 3,000 people on the waiting list for council houses. The situation is a condemnation of the Government and particularly of our stubbornly inefficient Prime Minister.

It will be impossible for local authorities to hold the increase for the domestic ratepayers at 9 per cent. They will be faced with the natural increase in the cost of goods and services and with the inflation which Government policies have induced. Those factors will push the increase beyond 9 per cent. Any Minister who tries to say that there will be no diminution in the level of services provided by the local authorities must be living in the cloud cuckoo land of accountancy.

The Government therefore have a clear duty to Wales in these matters. The Prime Minister never goes there and the Secretary of State seldom makes a visit. The Government must redress the imbalance in expenditure to provide the services which I have indicated are necessary and to ease the financial burden on the small firms and the domestic ratepayers of Wales. They deserve that and they ask no more.

8.59 p.m.

Photo of Mr Brian Walden Mr Brian Walden , Birmingham All Saints

There can be no doubt that, whatever else is or is not true, the proposition that the House of Commons is a peculiar place will go unchallenged. Let us face the fact that these public expenditure debates are, in terms of House of Commons participation, a disaster. As I gaze at the Treasury Bench I feel that the debate is rather like an Adjournment debate. There is, perhaps, one person more present than if the debate were an Adjournment debate. These debates are not working. Perhaps, having said that, I might say why the Opposition moved their amendment.

There is a number of reasons for the fact that these debates on public expenditure do not work. First, I agree strongly with the hon. Member for Kensington, South (Sir B. Rhys Williams) that the figures are simply not being presented in a way that means very much to Members of Parliament. It may be that that is a very great criticism of Members of Parliament, but I do not think it is. I think that the document is bedevilled at every point by co-called "real value" whereas what matters much more to Members of Parliament are money terms, discounting, if necessary, for inflation. I shall have more to say about that in a moment.

Another reason is that the debates have picked up the worst of all reputations, namely that of being uncontroversial. Those of us who participate in them do not see them like that. Nevertheless, many Members do. I think that they think the Government come along in a friendly and cheerful mood, which is rather a rarity, and ask both sides to come together to discuss the facts put by the Expenditure Committee in a friendly and non-controversial spirit to see whether any conclusion of a wholly uncontroversial kind can be drawn about the future of public expenditure. That is not an attractive proposition for a good debate.

That is partly the reason why the Opposition put on a three-line Whip and put down a highly controversial amendment, hoping that it would widen the scope of the debate—there is every reason for widening the discussion—into a general debate on some of the aspects of Government economic management. I do not think that this year it has worked, but the attention of the Minister will have been drawn, and he in turn may draw the attention of the Leader of the House, to the fact that there is something the matter with the usual format of these debates.

I do not discount the fact, although it may be irrelevant to any debate on public expenditure, that this Parliament is dying, and this House of Commons is dying as a place for discussion, largely, I suspect, because many Members feel that all the decisions that really matter are taking place outside the House and that there is very little point in turning up to listen to things which have only a marginal relevance to the government of the country—a tragic situation and a terrible condemnation of the way government is at present being carried on.

However, let us switch to the issue of the White Paper and public expenditure and expenditure in general. There have always been fashions in discussions of public expenditure and to some extent debate on it has been bedevilled by the existence of fashions. For a time after the war, determination of how much the public sector ought to spend was frankly haphazard. Then we switched to a doctrine that became very fashionable, namely, that public expenditure should be used as a tool of demand management. I do not suppose that that is now as fashionable as it was, largely because, I suspect, many Members, and indeed the Government themselves, think that the cancellation of programmes involves unacceptably high costs. Then, when I came into the House in the 1960s, attention was focused on the balance between the private and public sectors. Everybody used to get very heated about that.

At least the Expenditure Committee has now addressed itself to the general problem. I should not like to wind up the debate without paying a compliment to the Expenditure Committee on the work it has done. In particular, that of the Sub-Committee of which my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) is chairman has been excellent. It is certainly no fault of theirs that projecting public expenditure at the moment is a matter of very grave uncertainty indeed. Some of the technicalities the Expenditure Committee has dealt with excellently, and the Government have been right to accept them.

I want to say a word or two, but only a word or two, about some of the technicalities. I do not want to dwell on them, but there are one or two points which puzzle me. The first is the £600 million—I believe that the actual figure is £556 million—shortfall. I read in The Times, which Ministers have firmly denounced as wrong, which made me believe that there may be more in The Times report than I at first supposed, that the shortfall last year had arisen because of difficulties in obtaining resources to carry out the programme. Indeed, The Times suggested that the testimony given by the Second Secretary to the Treasury yesterday to the Expenditure Committee indicated that this might work itself through in this year's programmes, that the frustrated desires of last year might communicate themselves into what was done this year. The Minister denied that. Will the resources be available to carry out programmes at the increased level if local councils wish to do so? Are we looking at this matter in the right way?

I understand that the estimates of public expenditure until 1978 depend on the assumption of a 3 per cent. growth rate of production potential. That palpably is not very likely. Will the Minister say whether we have to consider that what figures we have have such a relevance as they do merely for the period 1974–75, and that there is not much prospect in that period that any shortfall incurred last year is likely to be taken up and thus distort any cuts on which the Government have decided?

I have another technical point, about the way in which the figures are produced. I said earlier that I did not think they were produced in a way which hon. Members found readily comprehensible. I would much prefer the figures to be given in money terms. It may be said, rightly, that that would not take account of inflation, which is a constant reality. I would not object if the effects of inflation, at different levels, were projected. Figures could be given in money terms showing rates of inflation at nil per cent., 5 per cent., 7 per cent., 8 per cent. and 9 per cent. The figures would make more sense to the average hon. Member if they were presented in that way.

I accept that technical economists do not like figures to be presented in that way, but it seems that the House is not overburdened with people who would agree with technical economists, I have sympathy with the hon. Member for Kensington, South when he says that information is not getting through to our colleagues in a way which they find stimulating. I do not always agree with Sam Brittan, but he suggested a long time ago that one of the reasons for that was the use of the sort of base in which the ordinary hon. Member is not interested. I agree. I should like to see the next White Paper contain figures in money terms, with the necessary discounts for inflation, included in a series of different estimates, at differing rates of inflation.

The White Paper reminds me of the plans of Lady Jane Grey for the government of England. She got them into the correct logical sequence and the proper methodical order, at the moment that the headsman, axe in hand, appeared round the door. The White Paper has no relevance to what is likely to happen over the next four years. It would be difficult for anyone in the House, even the Government, to devise the kind of estimates for 1976–77 and 1977–78 which would have much predictive value at present.

I leave aside entirely a point which I shall speak about later, namely, whether sums that the Government declare should be spent, and that they have decided will be spent, are spent, and whether there is a need for what economists call the "Jay index to work, whereby as one gets closer and closer to a given year the amount of public expenditure which has to be budgeted for in that year gets higher and higher.

The fact remains that the White Paper has been beheaded by the Chancellor's declaration before Christmas. I suppose that the Government, like Lady Jane Grey, could argue that their wounds were not self-inflicted, although I prefer the view of history that in the end her follies caught up with her. I am sure that history will take much the same view of the Government, especially if I have any hand in writing it.

I turn to the Government's whole attitude to public expenditure. No one can say that it has been marked by any boring consistency. Their first Public Expenditure White Paper contained a cut in spending of £942 million. The next had an increase in public expenditure of £482 million, and the next a substantial increase of £1,230 million. Now the Government are again reversing their policy, with big cuts. The Minister of State shakes his head. His testimony on this and other matters has been proved very fallible. The Government are reversing their policy. Any Government which find it so difficult to make up their mind about their own expenditure should be more modest in lecturing other people about theirs.

I suspect that the Government's to-ing and fro-ing does not have the great significance that some people attribute to it. It tends to be largely self-cancelling, because I suspect that the amount of money spent is a question of the availability of labour and resources rather than any Government determination.

But there is no doubt that a Government decision sharply to increase or sharply to diminish public expenditure must have an impact. The last time it was a sharp increase, although tempered by some of the mini-cuts last year, and the present intention is a cut in Government spending. It certainly has an impact at local level, where unfortunate people have to bargain with the Government about exactly what they will receive loan sanction to spend.

No one can say that the Government's record on public expenditure is any more consistent than it is on anything else.

Their record gives no clear indication of what they may or may not do if they are still in power when the various factors that have produced the present crisis no longer exist.

There is no real answer to the kind of question put by the hon. Member for South Angus (Mr. Bruce-Gardyne). There has never been an attempt by the Government to answer the philosophical case of the right hon. Member for Wolverhampton, South-West (Mr. Powell). He must know as little as I do about the Government's intentions. Sometimes we wonder whether they themselves know what their intentions are.

On public expenditure the Government's general record is not good. It is no wonder that their demand management in general has been bad.

One of the troubles with cuts such as those of December is their inherent senselessness, by the nature of what is attempted. I take as an example the health and welfare cuts, starting from the assumption that there has been a steady erosion of the standards of the National Health Service, coupled with the unhealthy development of parasitic growths upon the service, such as agency nursing systems, which are proliferating in Birmingham. Other hon. Members tell me that the same thing is happening in other parts of the country.

That is bad enough, but if one decides to cut the money spent on health how does that cut work out in practice?

What sort of result does it produce in terms of saving money? Last year the Government restricted loan sanctions and promised added rate support to cover expenditure on mental health. The Government did not promise that added support because of any representations which the councils had made. The Government did so because they wanted local authorities to bring up standards to the minimum recommended by the Department of Health and Social Security. However, because of the restrictions which started last April, and even more because of what was done just before Christmas, the Government have now reduced loans sanctions for many council projects.

I am told that Camden, for example, which had planned for 90 hostel places for the mentally handicapped, had only 11 such places approved. The Department of Health and Social Security admits to having deferred schemes for 3,684 day places and 1,694 residential places for the mentally handicapped alone, leaving out of account other groups of the mentally sick. I am not stressing that that is a great tragedy for the mentally handicapped, although, of course, it is. I am saying that it is a ridiculous way in which to attempt to save money. In fact, it does not save money. It is only because the Government have a potty way of looking at these matters that they could even suppose that it saved money.

That is not untypical of what happens when Governments look at expenditure programmes and contemplate a little amateur surgery. The reason for it being foolish to economise in such a way—I use the example of the mentally sick—is that the people who would now be going into hostels if the loan sanctions were granted are kept in geriatric wards and mental hospitals and cost the country far more than if they were allowed out into community care. It is a nonsense because the two programmes cannot be linked in terms of expenditure saving.

We must make savings, it seems, in terms of community care by increasing what will be the charge on the hospitals. A dafter way to proceed could not be imagined. I do not suppose that it would be believed in some countries that we could do our accounting in that way. We solemnly listen to what are described as savings in public expenditure when the country has to pay more money than would have been the position if loan sanctions had been granted for Camden and all the other places which had asked for the mentally handicapped to be free to go out into community care.

Photo of Mr Tom Driberg Mr Tom Driberg , Barking

Will my hon. Friend mention the cost to the health service of pharmaceuticals and especially those drugs prescribed under brand names?

Photo of Mr Brian Walden Mr Brian Walden , Birmingham All Saints

I do not want to go too deeply into the health service not only because of the time factor but because it might unbalance the argument. Of course, my hon. Friend is right. I could go through the whole of the health service and point out how, because we consider it in a narrow context and from accountancy purposes do not link it to other services with which it is intimately linked, we produce ridiculous results when we make what appear on paper to be expenditure cuts.

Expenditure cuts in terms of council housing and public transport do not make sense. They look good on paper but they will not save resources. Public transport cuts will only give rise to problems which will force people on to the already overcrowded roads, of which there will be fewer. I do not object to there being fewer roads, but there will be caused a good deal of economic loss and people will not be able to get to work so easily. People who live in London will rush on to an already overcrowded underground system. The underground system itself will be affected. I am told that the completion of the new Fleet line may have to be delayed because of Government measures.

Such cuts do not make sense. They are only paper accountancy. There is every reason to suppose that they will not work. It is the availability of labour and resources that appears to have a much greater impact upon what is actually spent than anything which the Government lay down in their own mandamus. That gives us nothing but cause for worry because it may mean that the burden which will fall upon the backs of those who can least carry it will be greater than the Government contemplate.

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , South Angus

The whole gravamen of the hon. Gentleman's case at the moment concerns the illusory and damaging effect of cuts in public expenditure. Surely precisely the same arguments apply to precisely the same extent when it is a question of expanding public expenditure in the same way.

Photo of Mr Brian Walden Mr Brian Walden , Birmingham All Saints

I do not think they do, for this reason if for no other. I know the hon. Member's views. Although he may regard ample public provision, or over-ample public provision, as being not the best way to use resources, what we can certainly say about an expansion of public expenditure is that it does not occasion any greater hardship for the poorer members of the community, whereas cuts in expenditure palpably cause greater hardship for them.

The hon. Member should not underrate the economic consequences of doing that. One of the troubles with the Tory Party has always been that it keeps its economics in a separate box. It does not understand how psychological attitudes and social realities affect economics and, therefore, affect the kind of economic policy that a Government can have. I ought not to need to belabour that point because the Government know well that their present management of the economy is entirely dependent upon the resolution of the miners and the railwaymen, especially the former. My advice to the hon. Member is by all means to keep a careful eye on public expenditure but also to keep a careful eye on the kind of provocative action which leads many people to feel that they are not getting a fair deal in society.

An unfair society inevitably means that it is necessary to spend a lot more money than was desired, in the most foolish ways. The proof of that was in the hon. Member's speech when he told us that the Government had done precisely this. Having panicked by "overkill" which had produced a great deal of unnecessary unemployment, they panicked back the other way and spent money as if it was going out of style. The hon. Member should not encourage us to make the same mistake again.

Let me switch now to the Opposition's obvious and unashamed belief, shared by a number of Tory Members, that there was a better way of determining the level of demand, if it had to be reduced, as I believe it did. The domestic level of demand had to be reduced, first to make room for exports, which is about the one area where I can see any bright prospects for us at all in the short run, and secondly to cut the import bill. Something had to be done, but it would have been far better to have tried to switch some of this load away from the public sector into the private sector.

Let me give one reason—which I have not heard mentioned yet but which is important—why that is so. It so happens that consumer spending inevitably involves a greater use of imports and energy than does the public sector. A reduction in consumer spending would have been greatly to our benefit in terms of import and energy saving. The Opposition do not hide the fact that they believe that at the minimum something should have been done with excise duty.

Consider cigarettes. They are relatively cheaper than they were two years ago. They are no less dangerous. If the Government argue that the demand for cigarettes is elastic and that the effect of increasing excise duty would mean that people would smoke much less, I would say that in that case we would save a great deal of money in the hospitals. If the argument is that demand is inelastic, I am right. The Government should increase the rate and they would get more money in.

The same applies to drink. I like cheap drink but I can see no justification at this time for not increasing the excise duty on alcohol. I admit that there are objections to increasing petrol duty, but generally I think that the advantages of doing so outweigh the disadvantages. It ought to have been done. Something should have been done about vehicle licence duty, too.

I do not want to be told that all these things would hit the consumer. Of course they would. The Labour Party does not have the shivering cowardice of hon. Members opposite in saying straight out that this is not a crisis which can be paid for by not building sufficient hospitals and not making proper provision for mental hospitals while people consume what they consumed before.

We must be frank and say that the people must be prepared to get themselves out of this crisis—they cannot rely on the Government to do it—and to achieve that they must make sacrifices. There might be a case for an across-the-board rise in the standard rate of income tax, although I would not commit myself to that. I tend to commit myself to far too much. I would necessarily want to see some of the calculations. Any change in tax rates inevitably requires time and such a change could not have been made in December and become effective, straight away, although, if a firm decision had been taken to do it in the budget, it could have mitigated some of the expenditure cuts. Whether it should be done I prefer to wait and see from the budget.

However, I am prepared to advance the proposition that at least half and possibly more, even if one accepts the Government's figures as being right, of the amount of money which needed to be taken out should have been taken out from the private and not from the public sector. The Opposition are frank enough about that. Hon Members opposite can make party capital out of it if they choose. But that is our view and we stick to it.

No one is more to blame than the Government's Treasury team. I exempt the Chief Secretary, because the unfortunate fellow has only recently come to his job. We have seen a few of them off in our time, and I expect to see him off. However, the rest of the team must carry the major share of blame for consistently arguing that increases in taxation were bad for everybody in the country and penalised people, which is true, whereas neither charges nor cuts in public expenditure, in some mystical way, had no effect on ordinary people. Apparently it was only taxes which mattered.

I have said time and again—and the Government still do not admit it, although there is an overwhelming weight of economic evidence for it—that the so-called tax cuts have benefited only the very rich. If one reads Mr. Alan Day's article in the Observer last Sunday—and I invite the Government to do so—one sees that every other section of the community has just kept step because of the inflation and other technical factors mentioned in the article. Only the very well-to-do have benefited.

But even if that were not so it is ludicrous to have one set of unavoidable charges called "tax", which is bad, and another set of unavoidable charges for the great majority of people in this country simply called "charges"—school milk, for instance—which is good and does not have any impact on the family budget. Public expenditure cuts are bound to hit the working class family—and the larger it is the worse it will be hit—more than anybody else. I give the hon. Member for Kensington, South full credit for having the political guts to say that what was wrong with his Government's policy was that it was utterly insufficiently redistributed and that it took no account of family budget realities. I honour the hon. Gentleman for saying that.

What I do not honour is the consistently misleading advice given to the country by the Treasury team. It has propagated many of the myths which have helped to divide our society. Its advice has created a good deal of the poisoned atmosphere which has caused the crisis.

The economy has been run in the most manic way basically so that the Chancellor of the Exchequer will be able to say, at an election, that the Tory Party is the party which cuts and does not raise taxes, and he will be able to parade once more the endlessly boring speech which he has made in opposition and in government. Presumably he hopes to mislead and hoodwink anybody who cannot simply look around. If we want to see the Government's monument, we should look around: the worst industrial relations situation we have had in my lifetime; a three-day working week which may become a two-day working week; the bitterest partisan feelings expressed on both sides; election hysteria about every two weeks; the grimmest prospects for the balance of payments position, having inherited the most substantial balance of payments surplus we have ever had; a dim prospect that we shall be able to borrow the money to cover it—if we wish to cover it is without accepting further deflationary restrictions and, on top of it all, this.

The Government could hardly do worse. I do not expect the Government, in what little life remains to them, to do any worse. Even if they could beat the miners' strike—and it is a ludicrous conception, this is not Lüneberg Heath, the miners are not going to put their Davy lamps on the table and sign a surrender document to Edward Heath—even if the Government could beat the miners and go back to a five-day week, my judgment of their economic management and their management of public expenditure would be that they had created a desert even if they called it peace.

9.30 p.m.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

This, the fifth debate on a Public Expenditure White Paper, is still an annual occasion which is in search of a tradition. In the first debate in January 1970 the hope was expressed by both sides of the House that it would become a major feature of our parliamentary programme, but in successive years it has continued to fall between two stools—a technical discussion on public expenditure control techniques and analysis on the one hand, and a partisan battle on the other.

In many ways the speech made by the hon. Member for Birmingham, All Saints (Mr. Brian Walden) reflects this fundamental dichotomy. It may be regretted that the terms of the Opposition's amendment have ensured that few hon. Members taking part in the debate have concentrated on technical analysis, because this is the only occasion in the year when these matters can be discussed in depth on the Floor of the House.

I take issue with the hon. Member for Heywood and Royton (Mr. Joel Barnett) who suggested that these matters were better left to Committees upstairs. Certainly the work which the Expenditure Committee, the Sub-Committees and others have done has been extremely important, but it is right and proper that from time to time the proceedings of the Committees which work so hard upstairs and the matters which they are analysing should come to the Floor of the House. Therefore, it is a matter for some regret that the Opposition's amendment should—naturally enough—have generated several partisan and divisive speeches.

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

What else does the hon. Gentleman think this is?

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

This is an occasion when serious analysis is appropriate, and I hope to engage in that in answer to some of the arguments put forward by Opposition Members.

Some hon. Members went into detail. My hon. Friend the Member for Kensington, South (Sir B. Rhys Williams), for example, went in some detail into the questions of pensions and social security, and the hon. Member for Cardigan (Mr. Elystan Morgan) went into detail on student grants. As the hon. Member for Cornwall, North (Mr. Pardoe) said, essentially the debate today has been about demand management. That view is shared by the House as a whole. That perhaps is not unhelpful, and it is necessary to put it in the context of public expenditure and the White Paper that is before us today.

I am sure it is true, as the hon. Member for All Saints said, that there is a fundamental difference in approach between the two sides on the scale of public expenditure and on its extent. It would be very naïve to suppose that it is not recognised on both sides of the House that there is a choice to be made between public expenditure on one hand and taxation on the other, and there is certainly a difference in view on those matters between the two sides of the House.

It is illuminating to look at the successive annual Public Expenditure White Papers that have been issued from October 1970 onwards and to look at the main individual policy changes which have been made from year to year to see how the aggregate of public expenditure has been affected, as the hon. Member for All Saints sought to do.

The figures reflect two things: first, the determination of the Government to keep public expenditure under control and, secondly, the fact that public expenditure can be used as an important aid in economic management.

I do not think that one has to be, as my hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) said, a wild enthusiast for fine tuning to suggest that it is appropriate to alter the rate of growth of public expenditure to allow for changes in economic circumstances. Thus both the 1971 and 1972 public expenditure White Papers include countercyclical proposals designed to help to reduce the level of unemployment. But the public expenditure plans were also designed to taper off as the economy approached the limits of capacity.

Let me say to the hon. Member for Birmingham, All Saints that some time ago it was said that there are many ways of being different but there is only one way of being the same. It would be inappropriate for the Government to say that they would not change public expenditure policies even though circumstances had radically changed. That is the important point.

It has been argued—and this was one of the matters mentioned by the hon. Member for Birmingham, All Saints—that public expenditure was out of control even before the oil and coal crisis and that in any event we would have had to cut back. At the technical level it is important to get the record straight.

Reference has been made to the Jay-index, which is not to be confused with the J-curve—and indeed the latter has more validity than the former. It has been argued that the rise in public expenditure was inexorable, despite all our attempts to control it. The suggestion has been that the latest White Paper estimates for 1973–74 and those for each of the three following years are still higher, in volume terms, than those in last year's White Paper. It is true that public expenditure has a remarkable buoyancy and it requires great perseverance and determination to hold it within reasonable bounds, never mind reducing spending plans. It is not true that the upward pressure has, as alleged, proved inexorable. I should like to spend a few moments in seeking to clear up just how misunderstandings on this point can arise.

There are various ways in which public expenditure figures can be usefully displayed for various purposes, but there is only one satisfactory way of deciding whether the estimates in one year's White Paper are higher or lower than those in a previous year's White Paper. That is to take the earlier set of estimates, which will be valued at that year's prices, to revalue them up to the basis of the new White Paper, and, if necessary, to make adjustments to ensure that the coverage is the same. A great deal of work is involved if the correct answer is required, but there are no short cuts. Clearly, on a proper basis of comparison the estimates for 1973–74 have been slightly reduced and those for each of the following years have been reduced by more than £100 million. The figures are shown in more detail in tables 1.3, 3.11 and 3.12.

The hon. Member for Birmingham, All Saints suggested that we should change the basis and express the figures in money terms for differing rates of inflation. In my view—and I am speaking very much off the cuff—I believe that this would greatly complicate the White Paper. It is difficult to present these matters as clearly as possible, and it is true to say that as a result of the work carried out by a Select Committee on Expenditure and the suggestions which it has made, coupled with the work done by officials and others, the presentation in the White Paper is a great deal better than on previous occasions. My hon. Friend the Chief Secretary referred to this matter in his speech, but there is a limit to the extent to which one can simplify matters. In a sense the more one tries to explain a complex matter, the more difficult it becomes. If the presentation which is now before the House is an improvement, then no doubt scope for further improvement will need to be taken into account.

I turn to a point made by a number of hon. Members who questioned whether the cuts are real. This point was made by the hon. Member for Ashton-under-Lyne (Mr. Sheldon), my hon. Friend the Member for South Angus and particularly by my hon. Friend the Member for Hornchurch (Mr. Loveridge). I think that this is a very important point. My hon. Friend the Chief Secretary said that the complaints about such measures were likely to be either that the cuts were nasty or that they were bogus. Therefore, it is right to clarify the position on whether the cuts are real.

No one can doubt that the action being taken by Departments in co-operation with local authorities and nationalised industries to change their physical plans so as to reduce their 1974–75 expenditures to the extent required represents real cuts. Details of many of the programmes have been given to the House in recent replies to several Parliamentary Questions, and my hon. Friend the Chief Secretary referred to the error in the report in The Times today suggesting that the shortfall in 1973–74 might well cancel out the cuts of 17th December because the spending authorities might try to catch up what they failed to spend this year. There will be no such catching up. All spending programmes will have to be adjusted to the figures given in the White Paper which provides us with an important yardstick—less, of course, the cuts in the December reductions.

If the Government had not taken action on this scale there would have been serious excess demand leading undoubtedly to frustration of some public expenditure plans in a haphazard and dangerous way. By their action the Government have ensured that the more essential parts of the programmes should be able to proceed. As for the years after 1974–75, the programmes will have to be reviewed carefully in the light of the prospects of the economy and the paramount need to ensure that the necessary improvements in the balance of payments and in building up productive investment take place.

Having clarified that point, I turn to another main argument which has been used——

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

I hope that the hon. Gentleman will allow me to proceed a little further. I have a great deal to say, and I think that I have clarified that point. If the hon. Gentleman wishes to intervene later, no doubt he will do so.

A number of hon. Members, including the hon. Member for Ashton-under-Lyne suggested that——

Photo of Mr Robert Sheldon Mr Robert Sheldon , Ashton-under-Lyne

My point deals with the shortfall of £400 million which was allocated to the Departments and not spent. Will the hon. Gentleman confirm that the only acid test about whether the water is not be squeezed out of the estimates by the various Departments is that that shortfall continues beyond the period covered by the cuts? In other words, after those cuts are made, if there is still a £400 million shortfall, we shall know that the £1.200 million saving has been genuinely effected.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

I think that I have covered that point in what I have just said. The fact is that there will not be any catching up. If we take as the yardstick the White Paper and these cuts, I think that we shall find that the cuts are real for the reasons that I have given.

I turn to the points which have been made by hon. Members who argue that there has been overheating of the economy and that even before the oil and coal crisis this overheating would have forced the Government to impose an economic stop. This is a myth which the Leader of the Opposition and the right hon. Member for Leeds, East (Mr. Healey)—who, I am glad to see, assents that it is a myth—have been at pains to build up. There is no truth in any of this, as the November issue of the very independent National Institute Economic Review made clear. It stated that in real terms the Government's growth strategy as it was, before the oil and coal crisis. appeared to have been almost completely successful. It said that the panic about overheating had been much overdone. The Institute found that many of the supply difficulties reported had been brought to light merely by the exceptionally rapid rate of advance so far. It said that there were supply difficulties but that these had been very much exaggerated. It went on to examine the issue of spare capacity in some detail. It examined 11 capacity utilisation indicators over the past decade and concluded that only two indicated as high a pressure of demand in 1973 as in the boom period of 1964 to 1966, and that those two were suspect. Therefore, it is reasonable to say that the situation that we were in before the present crisis arose—I will expand on this in a moment—was one in which the Government's objectives were being achieved.

Photo of Mr Denis Healey Mr Denis Healey , Leeds East

The Government have now decided to cut public expenditure by £1,200 million and to make further cuts in demand. They have also said that they do not propose to take action to deal with the oil part of our deficit. The Governor of the Bank of England has insisted that the Government must deal with the non-oil part of the deficit, which was running at £2,500 million a year before the oil changes began to hit our economy. If these cuts are not directed to the non-oil deficit, to what on earth are they directed?

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

I will come to that precise point in a short time.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

No. I will come to it at the appropriate moment.

The point I was making—it is important—is that it is clear from the National Institute's analysis that the situation before the present crisis arose was one where the Government's objectives were being achieved. The National Institute explicitly said: Nevertheless, in real terms, the policy appears otherwise to have had almost complete success: growth has been stimulated, two-thirds of a million new jobs have been created and recorded unemployment has fallen by well over one-third of a million. What is more, the growth of private consumption is now slowing down as planned, whilst the evidence is that a major upturn in private industrial investment has begun and will appear fully in 1974. In addition, despite the strong rise in demand "— this is part of the answer to the right hon. Gentleman— export growth has kept pace with import growth in volume terms, and in the most recent four months has (for goods only) exceeded the growth of imports in the ratio of 7 to 3.

Photo of Mr Enoch Powell Mr Enoch Powell , Wolverhampton South West

Mr. J. Enoch Powell (Wolverhampton, South-West) rose——

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

That is a straight extract from the National Institute's report. The fact is that, until the radical change in the oil supply price position and the industrial action from which we have suffered over the last two months or so, the Government had achieved what no previous Government succeeded in achieving—a smooth transition from high unemployment to high utilisation of capacity and a growth path in line with the growth in productive potential.

Photo of Mr Enoch Powell Mr Enoch Powell , Wolverhampton South West

Do I gather from my hon. Friend that the Government's objects which were thus achieved included a 10 per cent. annual rate of inflation?

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

Certainly the rate of inflation was not satisfactory. I hope to have time to say more about that later.

It is important to stress that we had achieved what no previous Government had succeeded in achieving—a smooth transition from high unemployment to high utilisation of capacity and a growth path in line with the growth in productive potential.

In this context I should like to take up the point made by the hon. Member for Heywood and Royton and by my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid). The record published at the time of the last Budget shows that the rate of growth in demand was designed to taper off from about 4 per cent. or 5 per cent. to about 3½ per cent. That being so, our problem now is to cope with the changed world environment in which we find ourselves, to solve our immediate domestic difficulties and to restore economic growth.

The division between consumption and investment and Government expenditure and balance of payments in early November was developing as intended, but clearly we must now adjust to the new problems.

The measures announced by my right hon. Friend the Chancellor of the Exchequer were necessitated by fundamental and dramatic changes in the world economic scene. We must now recognise that the total burden of our balance of payments, with oil adding a massive amount to our import bill, requires a major effort to restrain demand at home so that resources can be steered in sufficient quantities towards the export sector and towards investment, particularly in the energy sphere which is now of such importance.

Photo of Mr Denis Healey Mr Denis Healey , Leeds East

This is a very important point. The Government have consistently said at international and national gatherings that they will not try nationally and unilaterally to deal with the oil component of their deficit for fear that this would lead to an international slump. Is the hon. Gentleman now saying that the sole reason for the Chancellor's measures in December was to deal with the oil component of our deficit?

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

No. The right hon. Gentleman has asked that question previously.

Photo of Mr Denis Healey Mr Denis Healey , Leeds East

That is what the hon. Gentleman is saying.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

No, it is not. If the right hon. Gentleman will allow me to proceed, I shall seek to answer the various points which have been raised.

During 1973 our exports rose twice as fast in volume as the average over the past five years. Indeed, we increased our share of world trade in the first half of 1973 for the first time since the war. Clearly, as a result of exchange rate changes, the present situation is that British goods are highly competitive. We should be taking advantage of the J-curve effect, but this clearly requires an increase in exports. It is all the more important that we should not be handicapped by industrial disputes. I agree with the hon. Member for Heywood and Royton who said that it would be tragic if we were not to take advantage of the present position.

That is one of the reasons why my right hon. Friend the Chancellor took measures before Christmas to reduce demand by £1,200 million in 1974–75 and to help to free resources for the export market.

There have been massive increases in world commodity prices, which were having an effect on the balance of payments long before November. Since the beginning of 1972 the world prices of food and of raw materials for industry have increased by about 120 per cent. This situation has radically affected the position. Raw materials which cost £1 in 1972 now cost our industry £2·20. Wheat which was £32 per ton in 1970 now costs £115 a ton. Therefore, we are in a situation in which there has been a severe deterioration in terms of trade; but there was reason to believe that, as the effective depreciation of sterling worked through the balance of payments, the deficit would begin to improve.

I want to pursue a particular point which is also of great importance. We cannot now hope to achieve a 3½ per cent growth target over 1974. But I am sure that we must press ahead with all urgency with our efforts to raise the underlying potential to produce, whether it be by building up investment, by increasing skills or by other methods.

Photo of Mr Tom Driberg Mr Tom Driberg , Barking

On a point of order, Mr. Deputy Speaker. If you are allowing the Minister to read his speech, Mr. Deputy Speaker, will you ask him to read it a little more vividly?

Photo of Wing Commander Sir Robert Grant-Ferris Wing Commander Sir Robert Grant-Ferris , Nantwich

I should hate to interfere with the way in which hon. Members present their speeches. I have enough trouble without that.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

I shall certainly seek to put forward rather more vividly some of the points which have been made during the debate, and I shall seek to do so by reference to the Opposition's amendment. That is a matter which is worth raising.

I say to Opposition Members that what has been singularly lacking in the debate has been any view upon the Opposition's view of public expenditure. The right hon. Member for Leeds, East said that the hon. Member for Heywood and Royton gave that view.

Photo of Mr Denis Healey Mr Denis Healey , Leeds East

Mr. Healey indicated dissent.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

The fact is that he added one or two caveats, but he certainly did not say what the right hon. Member for Leeds, East has said on other occasions. The right hon. Member for Leeds, East has said that the Labour Party intends to increase public expenditure by between £5,000 million and £6,000 million a year. The right hon. Gentleman has put forward a number of massive proposals for increased public expenditure. The Opposition's amendment suggests that the policy which we are putting forward, which is a prudent policy, is not satisfactory, yet the Opposition are putting forward policies which would increase public expenditure massively. Therefore, it is reasonable that we on the Government side of the House should ask exactly what is the Opposition's policy on public expenditure.

I wanted to ask the hon. Member for All Saints about the Labour Party's policy and also to answer his argument that the public expenditure cuts are unfair and that they hit the poorer members of the community more than others. I do not believe that that charge can be justified. Indeed, the Government's policy as a whole, particularly our counter-inflation policy, has been designed specifically to help the low paid. As for the cuts, I do not believe it is the case that they will fall more heavily on poorer members of the community.

Labour Members have made clear that in their view the Government should go for tax increases. Indeed, the hon. Member for All Saints was clear and explicit about that. The House will have listened with great interest—[Interruption.] I say to the hon. Member who intervened that that is precisely what the hon. Member for All Saints suggested with such animation. [An HON. MEMBER: "A vivid speech."] Yes, it was vivid, and I think that the country will find that what he said was vivid.

Hon. Members suggest that there should be tax increases and no doubt, as the right hon. Member for Leeds, East said, they would have concentrated on the rich. I am never sure whom the right hon. Member for Leeds, East regards as the rich. One should remind him that if all the income remaining to those earning over £5,000 a year were withdrawn in higher taxation it would yield only one-third of the £1,200 million represented by the expenditure cuts.

We know that the Labour Party's preference is for higher taxation, but in the circumstances which we faced last month we judged it preferable to let the public sector bear the main burden in the reduction of demand that was needed rather than go for tax increases which inevitably, for the reason I have mentioned, would have fallen on a wide range of people at many levels of income.

There is, of course, a valid choice. It is a difficult one. Opposition Members have made it abundantly clear where their preference lies, but in the circumstances which confronted my right hon. Friend the Chancellor of the Exchequer in December there was a clear case for allowing the public sector to bear the main burden of the reduction in demand and thus avoiding the risk of boosting inflationary pressures. If my right hon. Friend had then taken action on indirect taxation, that would have had a direct impact on inflation and on prices. If he had acted on direct taxation, as the hon. Member for All Saints suggested, that would have reduced take-home pay and added to wage claims at present.

The measures which my right hon. Friend took were appropriate. They are ones which I believe have had general acceptance. The late Iain Macleod once said that economic measures which seemed popular at first sight were soon found to be unpopular. But it would have been wrong, as my right hon. Friend pointed out, to impose heavy increases in taxation in the circumstances which we face now, particularly in the difficult industrial circumstances.

For that reason I ask the House to reject the Opposition's amendment. It is unjustified and is irrelevant to the present circumstances that we face. I ask the House to note the White Paper which, together with my right hon. Friend's proposals, is a satisfactory answer to the present economic situation.

Question put, That the amendment be made:—

The House divided: Ayes 280, Noes 301.

Division No. 43.]AYES[10.0 p.m.
Abse, LeoCronin, JohnGarrett, W. E.
Albu, AustenCrosland, Rt. Hn. AnthonyGilbert, Dr. John
Allaun, Frank (Salford, E.)Crossman, Rt. Hn. RichardGinsburg, David (Dewsbury)
Archer, Peter (Rowley Regis)Cunningham, G. (Islington, S. W.)Golding, John
Armstrong, ErnestCunningham, Dr. J. A. (Whitehaven)Gordon Walker, Rt. Hn. P. C.
Ashley, JackDalyell, TarnGourlay, Harry
Ashton, JoeDarling, Rt. Hn. GeorgeGrant, George (Morpeth)
Atkinson, NormanDavidson, ArthurGrant, John D. (Islington, E.)
Austick, DavidDavies, Denzil (Llanelly)Griffiths, Eddie (Brightside)
Bagier, Gordon, A. T.Davies, G. Elfed (Rhondda, E.)Grimond, Rt. Hn. J.
Barnes, MichaelDavies, Ifor (Gower)Hamilton, James (Bothwell)
Barnett, Guy (Greenwich)Davis, Clinton (Hackney, C.)Hamilton, William (Fife, W.)
Barnett, Joel (Heywood and Royton)Davis, Terry (Bromsgrove)Hamling, William
Baxter, WilliamDeakins, EricHannan, William (G'gow, Maryhill)
Beaney, Alande Fraitas, Rt. Hn. Sir GeoffreyHardy, Peter
Beith, A. J.Delargy, HughHart, Rt. Hn. Judith
Benn, Rt. Hn. Anthony WedgwoodDell, Rt. Hn. EdmundHattersley, Roy
Bennett, James (Glasgow, Bridgeton)Dempsey, JamesHatton, F.
Bishop, E. S.Doig, PeterHealey, Rt. Hn. Denis
Blenkinsop, ArthurDormand, J. D.Heffer, Eric S.
Boardman, H. (Leigh)Douglas, Dick (Stirlingshire, E.)Horam, John
Booth, AlbertDouglas-Mann, BruceHoughton, Rt. Hn. Douglas
Boyden, James (Bishop Auckland)Driberg, TomHuckfield, Leslie
Bradley, TomDuffy, A. E. P.Hughes, Rt. Hn. Cledwyn (Anglesey)
Broughton, Sir AlfredDunn, James A.Hughes, Mark (Durham)
Brown, Robert C. (N'c'tle-u-Tyne, W.)Dunnett, JackHughes, Robert (Aberdeen, N.)
Brown, Hugh D. (G'gow, Provan)Eadie AlexHughes, Roy (Newport)
Brown, Ronald (Shoreditch & F'bury)Edelman, MauriceHunter, Adam
Buchan, NormanEdwards, Robert (Bilston)Irvine, Rt. Hn. Sir Arthur (Edge Hill)
Buchanan, Richard (G'gow, Sp'burn)Edwards, William (Merioneth)Janner, Greville
Butler, Mrs. Joyce (Wood Green)
Callaghan, Rt. Hn. JamesEllis, TomJay, Rt. Hn. Douglas
Campbell, I. (Dunbartonshire, W.)English, MichaelJeger, Mrs. Lena
Cant, R. B.Evans, FredJenkins, Hugh (Putney)
Carmichael, NeilEwing, HarryJenkins, Rt. Hn. Roy (Stechford)
Carter, Ray (Birmingham, Northfield)Fernyhough, Rt. Hn. E.John, Brynmor
Carter-Jones, Lewis (Eccles)Fisher, Mrs. Doris (B'ham, Ladywood)Johnson, Carol (Lewisham, S.)
Castle, Rt. Hn. BarbaraFitch, Alan (Wigan)Johnson, James (K'ston-on-Hull, W.)
Clark, David (Colne Valley)Fletcher, Raymond (Ilkeston)Johnson, Walter (Derby, S.)
Cocks, Michael (Bristol, S.)Flelcher, Ted (Darlington)Jones, Barry (Flint, E.)
Cohen, StanleyFoot, MichaelJones, Dan (Burnley)
Coleman, DonaldFord, BenJones, Rt. Hn. Sir Elwyn (W. Ham, S.)
Concannon, J. D.Forrester, JohnJones, Gwynoro (Carmarthen)
Conlan, BernardFraser, John (Norwood)Jones, T. Alec (Rhondda, W.)
Corbet, Mrs. FredaFreeson, ReginaldKaufman, Gerald
Cox, Thom"s (Wandsworth, C)Freud, ClementKelley, Richard
Crawshaw, RichardGalpern, Sir MyerKerr, Russell
KinnocK, NoilMurray, Ronald KingSmith, Cyril (Rochdale)
Lambie, DavidOakes, GordonSmith, John (Lanarkshire, N.)
Lamborn, HarryOgden, EricSpriggs, Leslie
Lamond, JamesO'Halloran, MichaelStallard, A. W.
Latham, ArthurO'Malley, BrianSteel, David
Lawson, GeorgeOram, BertStewart, Donald (Western Isles)
Leadbitter, TedOrbach, MauriceStewart, Rt. Hn. Michael (Fulham)
Lee, Rt. Hn. FrederickOrme, StanleyStoddart, David (Swindon)
Leonard, DickOswald, ThomasStonehouse, Rt. Hn. John
Lestor, Miss JoanOwen, Dr. David (Plymouth, Sutton)Stott, Roger
Lever, Rt. Hn. HaroldPadley, WalterStrang, Gavin
Lewis, Arthur (W. Ham, N.)Paget, R. T.Strauss, Rt. Hn. G. R.
Lewis, Ron (Carlisle)Palmer, ArthurSummerskill, Hn. Dr. Shirley
Lipton, MarcusPannell, Rt. Hn. CharlesSwain, Thomas
Loughlin, CharlesPardoe, JohnTaverne, Dick
Lyon, Alexander W. (York)Parker, John (Dagenham)Thomas, Rt. Hn. George (Cardiff, W.)
Lyons, Edward (Bradford, E.)Pavitt, LaurieThomas, Jeffrey (Abertillery)
McBride, NeilPeart, Rt. Hn. FredThorpe, Rt. Hn. Jeremy
McCartney, HughPendry, TomTinn, James
MacDonald, Mrs. MargoPerry, Ernest G.Tomney, Frank
McElhone, FrankPrescott, JohnTope, Graham
McGuire, MichaelPrice, William (Rugby)Torney, Tom
Machin, GeorgeProbert, ArthurTuck, Raphael
Mackenzie, GregorRadice, GilesUrwin, T. W.
Mackie, JohnReed, D. (Sedgefield)Varley, Eric G.
Maclennan, RobertRees, Merlyn (Leeds, S.)Wainwright, Edwin
McMillan, Tom (Glasgow, C.)Rhodes, GeoffreyWaiden, Brian (B'm'ham, All Saints)
McNamara, J, KevinRichard, IvorWalker, Harold (Doncaster)
Mallalieu, J. P. W. (Huddersfleld, E.)Roberts, Albert (Normanton)Wallace, George
Marks, KennethRoberts, Rt. Hn. Goronwy (Caernarvon)Watkins, David
Marquand, DavidRobertson, John (Paisley)Weitzman, David
Marsden, F.Roderick, Caerwyn E.(Brc'n&R'dnor)Wellbeloved, James
Marshall, Dr. EdmundRodgers, William (Stockton-on-Tees)Wells, William (Walsall, N.)
Mason, Rt. Hn. RoyRoper, JohnWhite, James (Glasgow, Pollok)
Mayhew, ChristopherRose, Paul B.Whitehead, Phillip
Meacher, MichaelRoss. Rt. Hn. William (Kilmarnock)Whitlock, William
Mellish, Rt. Hn. RobertRowlands, TedWilley, Rt. Hn. Frederick
Mendelson, JohnSandelson, NevilleWilliams, Alan (Swansea, W.)
Mikardo, IanSheldon, Robert (Ashton-under-Lyne)Williams, Mrs. Shirley (Hitchin)
Millan, BruceShore, Rt. Hn. Peter (Stepney)Williams, W. T. (Warrington)
Miller, Dr. M. S.Short, Rt. Hn. Edward (N'c'tle-u-Tyne)Wilson, Alexander (Hamilton)
Milne, EdwardShort, Mrs. Renée (W'hampton, N. E.)Wilson, Rt. Hn. Harold (Huyton)
Mitchell, R. C. (S'hampton, ltchen)Silkin, Rt. Hn. John (Deptford)Wilson, William (Coventry, S.)
Molloy, WilliamSilkin, Hn. S. C. (Dulwich)Woof, Robert
Morgan, Elystan (Cardiganshire)Sillars, James
Morris, Alfred (Wythenshawe)Silverman, JuliusTELLERS FOR THE AYES
Morris, Charles R. (Openshaw)Skinner, DennisMr. Joseph Harper and Mr. Walter Harrison
Morris, Rt. Hn. John (Aberavon)Small, William
Mulley, Rt. Hn. Frederick
Adley, RobertBurden, F. A.Edwards, Nicholas (Pembroke)
Alison, Michael (Barkston Ash)Butler, Adam (Bosworth)Elliott, R. W. (N'c'tle-upon-Tyne, N.,
Allason, James (Hemel Hempstead)Campbell, Rt. Hn. G. (Moray & Nairn)Emery, Peter
Amery, Rt. Hn. JulianCarlisle, MarkEyre, Reginald
Archer, Jeffrey (Louth)Carr, Rt. Hn. RobertFarr, John
Astor, JohnCary, Sir RobertFell, Anthony
Atkins, HumphreyChannon, PaulFenner, Mrs. Peggy
Awdry, DanielChapman, SydneyFidler, Michael
Baker. Kenneth (St. Marylebone)Chataway, Rt. Hn. ChristopherFinsberg, Geoffrey (Hampstead)
Baker, W. H. K. (Banff)Chichester-Clark, R.Fisher, Sir Nigel (Surbiton)
Balnlel, Rt. Hn. LordChurchill, W. S.Fletcher, Alexander (Edinburgh, N.)
Barber, Rt. Hn. AnthonyClark, William (Surrey, E.)Fletcher-Cooke, Charles
Batsford, BrianClarke, Kenneth (Rushcllffe)Fookes, Miss Janet
Beamish, Col. Sir TuftonCockeram, EricFortescue, Tim
Bennett, Dr. Reginald (Gosport)Cooke, RobertFoster, Sir ohn
Benyon, W.Coombs, DerekFox, Marcus
Berry, Hn. AnthonyCooper, A. E.Fraser, Rt. Hn. Hugh (St'fford & Stone)
Bitten, JohnCordle, JohnFry, Peter
Biggs-Davison, JohnCorfield, Rt. Hn. Sir FrederickGalbraith, Hn. T. G. D.
Blaker, PeterCormack, PatrickGardner, Edward
Boardman, Tom (Leicester. S. W.)Costain, A. P.Gibson-Watt David
Body, RichardCrouch, DavidGilmour, lan (Norfolk, C.)
Boscawen, Hn. RobertCrowder, F. P.Gilmour, lan (Norfolk, C.)
Boscawen, Hn. Robert Bossom, Sir CliveDavies, Rt. Hn. John (Knutsford)Gilmour, Sir John (Fife, E.)
Bowden, Andrewd'Avigdor-Goldsmid, Sir HenryGlyn, Dr. Alan
Bray, Ronaldd'Avlgdor-Goldsmld. Maj. -Gen. JackGodber, Rt. Hn. J. B.
Brewis, JohnDean, PaulGoodhart, Philip
Brinton, Sir TattonDigby, Simon WingfieldGorst, John
Brown, Sir Edward (Bath)Dixon, PiersGower, Sir Raymond
Bruce-Gardyne, J.Douglas-Home, Rt. Hn. Sir AlecGrant, Anthony (Harrow. C.)
Bryan, Sir PaulDrayson, BurnabyGray, Hamish
Buchanan-Smith, Alick (Angus, N&M)du Cann, Rt. Hn. EdwardGreen, Alan
Buck. AntonyDykes, HughGrieve, Percy
Bullus, Sir EricEden, Rt. Hn. Sir JohnGriffiths, Eldon (Bury St. Edmunds)
Gryils, MichaelMcNair-Wilson, MichaelRost, Peter
Gummer, J. SelwynMcNair-Wilson, Patrick (New Forest)Royle, Anthony
Gurden, HaroldMadel, DavidRussell, Sir Ronald
Hall, Miss Joan (Keighley)Maglnnls, John E.St. John-Stevas, Norman
Hall, Sir John (Wycombe)Marples, Rt. Hn. ErnestSalnsbury, Timothy
Hall-Davis, A. G. F.Marten, NellSandys, Rt. Hn. D.
Hamilton, Michael (Salisbury)Mather, CarolScott, Nicholas
Hannam, John (Exeter)Maude, AngusScott-Hopkins, James
Harrison, Brian (Maldon)Maudling, Rt. Hn. ReginaldShaw, Michael (Sc'b'gh & Whitby)
Harrison, Col. Sir Harwood (Eye)Mawby, RayShelton, William (Clapham)
Harvie Anderson, MissMaxwell-Hyslop, R. J.Shersby, Michael
Haselhurst, AlanMeyer, Sir AnthonySimeons, Charles
Havers, Sir MichaelMills, Peter (Torrington)Sinclair, Sir George
Hay, JohnMills, Stratton (Belfast, N.)Skeet, T. H. H.
Hayhoe, BarneyMiscampbell, NormanSmith, Dudley (W'wlck & L'mington)
Heath, Rt. Hn. EdwardMitchell, Lt.-Col. C. (Aberdeenshire, W)Soref, Harold
Heseltine, MichaelMitchell, David (Basingstoke)Speed, Keith
Hicks, RobertMoate, RogerSpence, John
Higgins, Terence L.Molyneaux, JamesSproat, laln
Hiley, JosephMoney, ErnieStalnton, Keith
Hill, John E. B. (Norfolk, S.)Monks, Mrs. ConnieStanbrook, Ivor
Hill, S. James A. (Southampton, Test)Monro, HectorStewart-Smith, Geoffrey (Belper)
Holland, PhilipMontgomery, FergusStodart, Rt. Hon. Anthony
Holt, Miss MaryMore, JasperStokes, John
Hordern, PeterMorgan, Geraint (Denbigh)Stuttaford, Dr. Tom
Hornby, RichardMorgan-Giles, Rear-Adm.Sutcliffe, John
Hornsby-Smith, RI. Hn. Dame PatriciaMorrison, CharlesTapsell, Peter
Howe, Rt. Hn. Sir Geoffrey (Relgate)Mudd, DavidTaylor, Sir Charles (Eastbourne)
Howell, David (Guildford)Neave, AireyTaylor, Frank (Moss Side)
Howell, Ralph (Norfolk, N.)Nicholls, Sir HarmarTebbit, Norman
Hunt, JohnNoble, Rt. Hn. MichaelTemple, John M.
Iremonger, T. L.Normanton, TomThatcher, Rt. Hn. Mrs. Margaret
Irvine, Bryant Godman (Rye)Nott, JohnThomas, John Stradling (Monmouth)
James, DavidOnslow, CranleyThomas, Rt. Hn. Peter (Hendon, S.)
Jenkin, Rt. Hn. Patrick (Woodford)Oppenheim, Mrs. SallyThompson, Sir Richard (Croydon. S.)
Jennings, J. C. (Burton)Orr, Capt. L. P. S.Trafford, Dr. Anthony
Jessel, TobyOsborn, JohnTrew, Peter
Johnson Smith, G. (E. Grinstead)Owen, Idris (Stockport, N.)Tugendhat, Christopher
Jones, Arthur (Northants, S.)Page, Rt. Hn. Graham (Crosby)Turton, Rt. Hn. Sir Robin
Jopling, MichaelPage, John (Harrow, W.)van Straubenzee, W. R.
Joseph, Rt. Hn. Sir KeithParkinson, CecilVaughan, Dr. Gerard
Kaberry, Sir DonaldPeel, Sir JohnVickers, Dame Joan
Kellett-Bowman, Mrs. ElainePercival, IanWaddington, David
Kershaw, AnthonyPeyton, Rt. Hn. JohnWalder, David (Clitheroe)
Kimball, MarcusPike, Miss MervynWalker, Rt. Hn. Peter (Worcester)
King, Evelyn (Dorset, S.)Pink, R. BonnerWalker-Smith, Rt. Hn. Sir Derek
King, Tom (Bridgwater)Pounder, RationWall, Patrick
Kirk, PeterPowell, Rt. Hn. J. EnochWalters, Dennis
Kitson, TimothyPrice, David (Eastlelgh)Ward, Dame Irene
Knight, Mrs. JillPrior, Rt. Hn. J. M. L.Warren, Kenneth
Knox, DavidProudfoot, WilfredWeatherill, Bernard
Lamont, NormanQuennell. Miss J. M.Wells, John (Maidstone)
Lane, DavidRaison, TimothyWhite, Roger (Gravesend)
Langford-Holt, Sir JohnRamsden, Rt. Hn. JamesWhitelaw, Rt. Hn. William
Le Marchant, SpencerRawlinson, Rt. Hn. Sir PeterWiggin, Jerry
Lewis, Kenneth (Rutland)Redmond, RobertWilkinson, John
Lloyd, Rt. Hn. Geoffrey (Sut'nC'field)Reed, Laurance (Bolton, E.)Winterton, Nicholas
Lloyd, Ian (P'tsm'th, Langstone)Rees, Peter (Dover)wolrige-Gordon, Patrick
Longden, Sir GilbertRees-Davles, W. R.Wood, Rt. Hn. Richard
Loveridge, JohnRenton, Rt. Hn. Sir DavidWoodhouse, Hn. Christopher
Luce, R. N.Rhys Williams, Sir BrandonWoodnutt, Mark
McAdden, Sir StephenRidley, Hn. NicholasWorsley, Sir Marcus
MacArthur, IanRidsdale, JulianWylie, Rt. Hn. N. R.
McCrindle, R. A.Rippon, Rt. Hn. GeoffreyYounger, Hn. George
McLaren, MartinRoberts, Michael (Cardiff, N.)
Maclean, Sir FitzroyRoberts, Wyn (Conway)TELLERS FOR THE NOES
McMaster, StanleyRodgers, Sir John (Sevenoaks)Mr. Walter Clegg and
Macmillan, Rt. Hn. Maurice (Farnham)Rossi, Hugh (Hornsey)Mr. Paul Hawkins.

Question accordingly negatived. Main Question put and agreed to.


That this House takes note of the White Paper on Public Expenditure to 1977–78 (Command Paper No. 5519).