Is it not an extraordinary insight into the rakish mind of the Chancellor that he apparently thinks that the question "What would you cut?" ought to come before the question "What can you afford?"? Is it not a fact that the Chancellor ought to have an overall view of the level of public spending and that individual Departments ought to make cuts to fall within the limits?
Of course I take an overall view of public spending. That is why I took the decision earlier this year, and have stuck to it right through the year, that it would be a great mistake to try to cut public spending in a year in which unemployment is rising. It is not an irrelevant question to ask the hon. Gentleman and his various leaders on the Opposition Front Bench how big a cut in the public sector borrowing requirement they are aiming at, and how big an increase in unemployment that would bring about.
One of the things that worries some of us about public spending is that we use too many resources to achieve the effect that we do. What are the Government doing to improve the cost-effectiveness of the public sector?
As my hon. Friend will know, one of the major problems has been reorganisations of the administration in the public sector carried out by the Conservative Party. I mention particularly the right hon. Member for Worcester (Mr. Walker) whose reorganisation of local government is now generally agreed to have brought about an unacceptable increase of public expenditure in that field, and the right hon. Member for Leeds, North-East (Sir K. Joseph), whose reorganisation of National Health Service administration has not only been extremely wasteful but also positively damaging to the efficiency of the service.
May I ask the Chancellor, first, whether the introduction of an incomes policy has reduced or increased the Government's borrowing requirement, as compared with his Budget deficits? Second, how is it that the recently published Government figures show that in the year following local government reorganisation the number of administrative staff declined by 2 per cent.?
On the first question, the introduction of the £6 limit in July will reduce the pay costs in the public sector for the current financial year. On the second question, the studies that the Government have carried out have shown that since local authority reorganisation the ratio of non-productive administrative personnel to productive personnel has increased throughout local authorities.
As I have said, it is not the practice to provide revised forecasts of the current size of the public sector borrowing requirement, other than at Budget time. The borrowing requirement is financed from the non-bank public, from the banking sector, and externally. The pattern varies from quarter to quarter.
Is not the right hon. Gentleman aware, however, that Members of Parliament do not lead such cloistered and sheltered lives that they cannot face up to financial facts of life? Therefore, is it not now quite evident that the public sector borrowing requirement is running at an annual rate of £12,000 million? Is not the only inference to be drawn from the right hon. Gentleman's Mansion House speech that he expects it to be running at an even higher level next year?
I have no responsibility for—nor a very great interest in—the life style of the hon. Gentleman, but I take his assurance that he does not live his life in a cloistered way. However, the British concept of a public sector borrowing requirement is not one that is used in other countries—[Interruption.] No. The nearest equivalent which permits a comparison to be made is that of a general Government deficit. Our deficit is running at about the same level as those of Germany and the United States, and for the same reasons—that there are very high levels of unemployment in all three countries, which our Governments are determined to bring down.
Is the Chancellor aware that at least some of us on the Opposition side of the House support him in his firm stand against the panic and hysterical cries for public expenditure cuts from the "fat cats" on the Conservative Benches? Will he, however, comment on the evidence given to the Public Expenditure Committee by Mr. Wynne Godley—that public expenditure has been out of control ever since the PESC system was introduced, and that it went positively berserk under the previous Conservative Government from about 1971 onwards? Does the Chancellor agree that it is the main and primary function of this House to control public expenditure? Will he comment on the fact that over all these years the House has been failing manifestly in its main function?
Without commenting on the zoological remarks of the hon. Gentleman, let me say that I welcome his support as much as I deplore his hostility from time to time. But he is absolutely right in the main points he has made. He asked me to comment on Mr. Wynne Godley's evidence. The facts revealed by Mr. Wynne Godley about the total failure of the previous Conservative Government to control public expenditure deserve very serious consideration by Opposition Members—although I am glad to say that the hon. Member for Oswestry (Mr. Biffen), who sparked off this discussion, would agree, I think, with both of us about the responsibility of the Opposition Front Bench for the situation in which we find ourselves. He knows that the present Government are introducing cash limits on public expenditure in the coming year. We get a little bored by being preached at by the Conservative Front Bench to introduce cash limits when the Conservatives never took a step towards it when they had the opportunity to do so.
Will the right hon. Gentleman now begin to face his own responsibilities? Will he recognise that in successive Budgets his own forecasts of the public sector borrowing requirement have been wildly and grotesquely wrong? Does he recall that in his Budget Statement this year he said that a borrowing requirement of £10 billion would be unacceptably high, and incompatible with the Government's overall strategy? How far beyond that limit is the figure now running? When, if ever, will the point arise at which the Chancellor will decide to reduce public expenditure, as the only effective means of preventing monetary incontinence, unduly high interest rates and the total crowding out of private sector investment?
I do not think that the right hon. and learned Gentleman does anything to make up for the deficiencies in his record by that type of sermonising—[Interruption.] I shall answer the question. First, I am not going to give an estimate of the public sector borrowing requirement for the current financial year. No Government have done so in the past, except at Budget time.
The right hon. and learned Gentleman referred to the size of the public sector borrowing requirement crowding out private investment. If he and his hon. Friends had read the newspapers yesterday, they would have noticed that there has been a very substantial and welcome increase in bank borrowing by manufacturing industry in the last month. There is no evidence whatever that the size of the public sector deficit is crowding out borrowing by private business for investment purposes. I only wish that British business was following the example set by American multinational companies, which have been steadily increasing their investment in Britain in the last two years and propose a further increase next year.
I have less experience of profligate individuals than the hon. Gentleman may have. What I can tell him is that in a period like this, every other country with which I am familiar has accepted a public sector deficit of roughly the same size as ours in proportion to its gross domestic product. The Chancellor of the Federal Republic of Germany, for example, announced the other day that the German public sector deficit, which is a good deal less, conceptually, than our public sector borrowing requirement, was running at 7·2 per cent. of Germany's gross domestic product.
Earlier, my right hon. Friend stated his keenness to abide by Labour Party conference decisions. Does he not agree that the public sector borrowing requirement could be reduced in terms of the probable check on unemployment if the Government immediately took note of composite Resolution No. 27 at the Labour Party conference, which called for the introduction of selective import controls?
No, Sir. I do not agree with the connection between that resolution and the consequences for employment which my hon. Friend thinks would flow from its adoption. The conference agreed with me that there must be a substantial and dramatic fall in the public sector deficit once recovery takes off.
The main increase this year in the public sector borrowing requirement has been due to the higher levels of unemployment than previously expected, because this has both substantially increased Government expenditure on unemployment and other benefits and reduced Government revenue from taxation.
Instead of taking note of the Opposition, who have been calling for public expenditure cuts, will my right hon. Friend consider publishing the Treasury document which, as reported in the Press, shows unemployment soaring to two million in two years' time, the most optimistic forecast being a 1,500,000 minimum by winter 1978? In the light of this, does not my right hon. Friend agree that instead of the proposals discussed at Chequers what we really need is more public ownership?