I wish to follow two aspects of the remarks of the hon. Member for Chester-le-Street (Mr. Radice) because I believe that he has touched on some important matters. The first aspect is the considerable power of the public sector trade unions. That fact alone goes a long way towards explaining the dilemma that was mentioned earlier in the debate—why successive Governments of both parties have found it so difficult to restrain and contain current public spending but relatively easy to defer capital spending.
Secondly, the House would do well to pay close attention to what the hon. Member said about the local effects of national policy, whichever Government are in power. That is especially so when it relates to the large regions—too large in my opinion—of the North and West of the country, which tend, in every recession, to suffer the worst effects of deflationary policies.
One can have long arguments about whether the deflationary policy of a particular Government is right, or whether it should be stronger or weaker. However, one thing is certain. Not all Conservative Members' eyes glaze over when the subject of unemployment is mentioned. I believe that it is principally up to the employees and managements of the undertakings concerned, whether they are in the public or private sector, to mitigate and reduce the tragic consequences of the deflationary policies—particularly unemployment. They can best do that by adjusting more speedily and readily to the new and rather grim realities of the world of low or nil growth.
This all takes me fairly logically to the main burden of my remarks. The most significant thing about the White Paper is the context of virtually nil growth that is forecast over the entire period ahead—possibly the whole period of this Parliament. Obviously this has implications for overall public spending, especially if the Government at the same time want to reduce public borrowing, which is clearly too high, and further reduce direct taxation, to which we are still committed.
Furthermore, it is not really an option for the Government to increase indirect taxation as one way out of the box in which we find ourselves because of the inevitable impact on the retail price index. The same sort of argument would apply to those who seek to be more lax with public borrowing because of the im pact on interese rates and the so-called " crowding out " phenomenon.
If we take all those points as given, we will conclude that as long as the economic growth to which we had become accustomed in the 25 or 30 years before 1973 is no longer available, public spending should not be allowed to grow at all. That is not to say that certain components of public spending cannot grow and should not grow within the overall total. We see that reflected in the Government's public expenditure plans, where they seek to increase quite remarkably spending on defence, law and order, and one or two other things. But inevitably that means bigger reductions elsewhere to compensate for the increases in these programmes.
In that respect, whatever one's views about social justice and transfer payments, it is unavoidable that the social security budget should also be included in the process of economy. It also implies the need for greater efficiency and productivity in the public sector. That has been said by a number of my hon. Friends, although it has also been well said previously in debate that this cannot be done solely by cutting out waste and inefficiency. Indeed, if there was one exaggeration of which my party was, perhaps, unwittingly guilty in the months leading up to the last general election, it was the impression that was left that somehow one could make the sort of economies in public spending that we want to make merely by reducing waste and inefficiency.
Quite clearly, we must look to the possibility of redefining the borders between the public and private sectors and of cutting out certain public functions altogether, as my hon. Friend the Member for Ludlow (Mr. Cockerham) has already said.
In that context, I believe that the key questions that must be asked when we are discussing public expenditure are the questions alluded to by the Chancellor of the Exchequer in his Budget speech—and I remind the House of the two that I have in mind. First, which services are both central Government and local government best able and best fitted to provide? Secondly, where can the role of the State sensibly be reduced? It seems to me that we must come up with answers to those two questions in order reliably to reduce public spending without doing excessive damage in the process.
The answers that I would give are, obviously, that in the first place we must provide adequately for defence. I am delighted to see in the White Paper that this is scheduled to grow by 3 per cent. a year in real terms up to the end of the survey period. The same consideration applies to law and order, in my view, and again I am pleased to see the scheduled growth of 2½ per cent. a year. Once again, the same consideration applies to expenditure on health nationally, which is scheduled to grow by 2 per cent. a year.
However, it is when we turn to the vast spending on social security, in a country with an increasingly large ageing population, and at a time of high unemployment, that one has some most serious worries. I understand from the White Paper that about £20 billion, or one-quarter of total public spending, is now accounted for broadly under these headings, and that this has grown by about 50 per cent. in the last 10 years, as compared with an increase of only 15 per cent. in gross domestic product over the same period. This relationship cannot continue and could not have continued under any Government, whichever party had won the last election in May 1979.
This suggests to me that the Chancellor was absolutely right to make the point in his Budget speech about the need to reconcile the need, on the one hand, to protect the most vulnerable members of society with, on the other hand, the need to ensure that scarce resources are distributed in a way that does not unduly prohibit the creation of wealth. I believe that in the long term the way for us to do that very delicate balancing act is by revising and eventually implementing our commitment to the tax credit scheme. I am strongly in favour of that scheme.
I hope that my hon. and learned Friend the Minister of State, Treasury, will note this point, because I believe that the Government owe it not only to their supporters but to the country to complete their investigations into this important project We already have some of the building blocks for the tax credit scheme with the child benefit that we have in place and with the recent decision of the Government to tax short-term benefits.
I realise the arguments that there are against the tax credit scheme. It may be initially expensive to raise the thresholds, but I suggest that it need not be so if we abandon the 1972 commitment, which is now quite unrealistic in any case, to leave no one worse off when we make the change. It may be initially complicated with the parallel development of computerisation in the Inland Revenue, but I suggest that this need not pose an insuperable obstacle if there is sufficient political will.
On the point of political will, I remind my Front Bench of our party manifesto pledge. I am not one of those who believe in the mandate theory of Government—but sometimes it is convenient to cite these theories against one's hon. Friends when they seem to be departing from the Ark of the Covenant. In our manifesto we said:
We shall wish to move towards the fulfilment of our original tax credit objectives as and when resources become available.
That seems a sensible position to take.
My only difference with the Government Front Bench is that I should like us to fulfil that pledge sooner rather than later, if necessary at the expense of other programmes, not least—here is the important point in relation to the Select Committee's examination of public service manpower—because it could lead to some huge reductions in DHSS staff, and we could effect many of our social policies via the auspices of the Inland Revenue thereby winding down a great deal of the already overmanned DHSS.
My conclusion, therefore, Mr. Deputy Speaker—I warn you that it may be a lengthy one—is that any policy on public spending must reflect the new requirements of the world of low or nil growth, to which the Red Book drew attention on pages 17 and 18. It must take full account, equally, of the impact of the relative price effect and, therefore, deal more effectively than the Government have so far shown signs of doing with the problems of public sector manpower and public sector pay.
In this connection I agree entirely—I could not put it better myself—with paragraph 19 of the Select Committee's report, which says:
We are not convinced that cash limits are fully effective in controlling public sector pay.
Neither am I, and I suggest that the Government need to look to additional mechanisms for that purpose.
Equally, any decisions on public sector expenditure must reflect and will inevitably reflect our own political priorities as a Government. In other words, we have the priorities, as we all know, of defence, law and order, the Health Service, and the safety net principle in social security spending. We must eschew temptations to starve our public services for the sake of imprudent tax cuts that might be financed by the so-called fiscal adjustment of North Sea oil revenues towards the end of this Parliament. Equally, we must eschew the temptation to which the Labour Party might have succumbed if it had been in power, of trying to buy jobs and votes with a reckless expansion of the public sector in areas in which tradeable goods and services are not involved.
We on the Conservative Benches also need to recognise the vital relationship between the State as procurer of goods and services—to the tune of about £20 billion, these days—and the private sector as the main provider of those same goods and services. This is a point that the Prime Minister recognised not long ago in her speech during the debate on the motion of no confidem e, and I very much hope that the Minister who winds up this debate will be able to say something further about the Government's policy on public sector procurement, because at a time of deep recession it can not only create jobs but reinvigorate the economy.
My last remark, Mr Deputy Speaker—I warned you that it would be a lengthy conclusion—is that I believe that for the rest of this Parliament and possibly beyond, we in this country and, indeed, others elsewhere in the developed world, will need to learn how to do more with less—to put it in a slogan. I believe that to be the meaning of a future for the OECD countries based on true economy, and it is a future that we in this country could and should pioneer. I only hope that we have the political courage and imagination to make the necessary effort.