Public Expenditure

Part of the debate – in the House of Commons at 5:54 pm on 9 March 1983.

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Photo of John Horam John Horam , Gateshead West 5:54, 9 March 1983

It is always pleasant to follow the hon. Member for Bath (Mr. Patten) because he always makes a civilised speech. I admire the deft way in which the criticisms of the Government are also criticisms of the previous Labour Government. His speeches are therefore put within the code of acceptable criticism from Conservative Back Benchers. I shall not press that point as I do not wish to discourage him from making other speeches of a similarly trenchant kind.

My central quarrel with the Government is that they do not appear to live in the real world when it comes to their economic policies. They do not ask themselves what is going on in the factories, offices, showrooms and export markets, in product development, research, management training and trade union co-operation and then ask themselves how they can help increase industry's confidence to plan on a more long-term basis and how they can help industry by encouraging enterprise and enhancing the skills that we deploy in the market place. Instead of that practical, down-to-earth approach, they seem to fix their gaze, as in a trance, on various intermediate financial targets such as the public sector borrowing requirement, sterling M3 and other arcane matters of which the public have little knowledge.

This approach reached its apogee when the right hon. Member for St. Ives (Sir J. Nott), in one of his previous incarnations, was Secretary of State for Trade shortly after the Government doubled VAT. He pointed out from the Dispatch Box that the doubling of VAT could not possibly increase prices in the high street because it would lower the PSBR. Moreover, he said that as though it were an obvious truth. The Government have got themselves into absurd circumstances by following those financial targets so closely and averting their gaze from what is happening in the real world.

I sometimes wonder why the Government have got themselves into this position. Even some Conservative Members have speculated about that recently. Some people argue that it is a cynical exercise, that monetary targets have been erected with the ultimate aim of dealing with trade unions and that a way out of these problems can be found by creating more unemployment. I believe that the recently published book written by the right hon. Member for Chesham and Amersham (Sir I. Gilmour) lends some substance to that theory. I have not read it yet, but I look forward to doing so with an eye to quotations for my leaflets at the general election.

Perhaps the Government are following intellectual fashion. We all know that there has been a great intellectual renaissance of the monetarist point of view. However, it is curious for the Conservative party to become a slave of intellectual fashion. I thought that they were always somewhat anti-intellectual. Indeed, they have been known, rather patronisingly, as the stupid party. It is strange that they should be hooked on the current vogue. That demonstrates the weakness of their view of what they are about. The Secretary of State for Energy believes that modern Conservatism is all about the monetarist view of the economy. That demonstrates a lack of understanding of the Conservative party's philosophical base. However, that is a matter for the Conservative party.

The Government seem to misunderstand that the real issue is not so much monetarism as a real understanding of the market in economic policy. I agree with those who have advocated a greater appreciation of the market, the Institute of Economic Affairs and other bodies. One of the Labour party's faults is that it has not understood the role of the market. But monetarism and the market should be separated. It is a pity that the Government entwine the two and assume that one inevitably encompasses the other.

Perhaps the Government are in this rather strange recherché intellectual position because most Ministers in charge of the Treasury and other leading Departments do not have much understanding or knowledge of business. That fact has been mentioned recently in the Chamber and it is probably true. Most Ministers are barristers or journalists with little experience of running a small or large business. That is a great disadvantage, as Conservative Members have said. The hon. Member for Chippenham (Mr. Needham) made a trenchant speech to that effect during a recent economic debate.

The result of the concentration on intermediate financial targets rather than on the real economy is that the economy has become rather like a business run by accountants. In fairness to the Government, I must say that the books are in not too bad a shape, but the business is rapidly going bankrupt. That is the real problem. Manufacturing output is nearly 20 per cent. lower than it was in 1979, and is at its lowest level since 1963. Car production is lower than in any year since 1957. Steel production is lower than in any year since 1950, and the number of houses completed last year was the lowest since 1947. The recession is deep because of the tendency to ignore what is happening in the real world.

The Government's approach is reflected fully in the White Paper that we are discussing. The emphasis is on financial control, and there is a superficial appearance that all is well. That surface impression is especially important this year, which may well be an election year, because the Government must seem to be always in control so that they can give away some money, while reassuring the City that little is changing and that nothing is being given away. The purpose of the exercise was explained clearly by the Chief Secretary to the Treasury a few days ago, when he made two successive speeches, saying in the first—with great pride—that expenditure was clearly under control, and in the second that there would be no giveaways or quick fixes. Those statements implied that he had fixed the expenditure by means of mirrors or massage, so that he could give the impression that it was under control and that there was still some room for giveaways.

The Chief Secretary's speech showed that, for once, it is more interesting to listen to the monkey than to the organ grinder. The Chancellor of the Exchequer seems to have sunk into Chancellor's purdah and, with his usual lack of eloquence, is happy to eschew words altogether in the runup to the Budget—[Horn. MEMBERS: "Cheap."] It is not cheap. The Chancellor probably relishes the pre-Budget period because he need not say anything about the economy. He says little enough at the best of times.

The surface impression is thus glittering but deceptive. The truth is more gloomy. As has been said three times in the debate, the White Paper reveals a substantial and continuing decline in capital expenditure since the Government took office, which has done great damage to industry and deepened the recession. The White Paper gives the impression that the Government are planning an increase in capital expenditure next year, but planned increases in capital expenditure during the past few years have often led in reality to underspending, so that there is widespread scepticism about whether planned increases will lead to real increases when the day comes.

It is interesting that such general scepticism in industry has been voiced widely. Indeed, never in the history of economic debate has British Aggregate Construction Materials Industries been so widely quoted as it has in this debate. That group says that, as the 14 per cent. promised increase in construction capital expenditure in 1982–83 was translated into a 6 per cent. actual rise, it remains sceptical about the effects of a planned 10 per cent. increase in 1983–84. That scepticism is fair. The Government should recognise that it is vital to consider not only financial markets—they spend much time worrying about opinion and confidence in those markets—but industrial confidence. Industrialists believe that, for all the words mouthed by the Government, there will be no real increase in capital expenditure. If they plan accordingly, we shall not have a real increase in capital expenditure. The Government should pay more attention to industrial confidence instead of being so obsessed with financial markets.

Much of the increase in capital expenditure depends upon an increase in local authority capital expenditure, but the latter has revenue implications. Will local authorities step up their capital spending while the Government's attitude to revenue expenditure and the means of controlling it remains the same? Much underspending, both in local authority areas and in Government areas, follows over-long bureaucratic and consultative processes. When I was a Minister at the Department of Transport, trying to improve the rate of progress on the motorway that has been planned for years or even decades to link the M1 and the M5 south of Birmingham, the real obstruction was not lack of Government finance but a series of consultations, leading to resolutions that were challenged in the High Court by local opposition groups. Many civil servants were tied down for months, if not years, by those consultations and the bureaucratic paperwork that flowed from them. The Government must either increase the number of civil servants working on the matter to ensure real progress, or they must try to slim some of the overelaborate consultation procedures. They are doing neither, but are exhorting local authorites to get a move on with their capital expenditure. The result will be the same lack of progress that happened under previous Governments. It will not be enough.

The Government wish much of the increase in capital expenditure this year to come from an increase in spending by nationalised industries. However, as the representatives of those industries—especially British Telecom—said to the Treasury and Civil Service Select Committee when it examined the White Paper, they have underspent because they face a much tougher market. The expected demand has not materialised and, as prudent business men, they have cut their planned capital expenditure. If demand does not rise, that will be the case next year. We do not expect much growth, and the nationalised industries will soon undershoot their external finance limits. Therefore, we cannot expect an increase in capital expenditure from this source. The outlook is rather gloomy, and the extent to which we can improve the economy on that front is likely to be small.

The Government have substantially cut aid to industry. Hon. Members on both sides of the House must agree that such aid should be handled with care. In recent years, much of the aid has not been well spent, but, whatever one's view of that, it is foolish to cut such aid in the depths of a recession. Only this morning I read in a national newspaper an article by Dr. David Storey of Newcastle university, who wrote a book called "Entrepreneurship and the New Firm", in which he said that many of the companies that have gone bankrupt during the past two or three years are the medium-sized companies—employing perhaps 250 to 1,000 people—who supply the large companies, or the giants of the economy. If demand ever recovers, those medium-sized companies will not be there to produce the components for the large companies, and the result will be an influx of imports.

That is a real fact in the real world, yet the Government have cut the financing of the very agencies that were developed by previous Governments to help restructure industries and companies that were fundamentally sound but in difficult short-term financial straits. As a result, those agencies no longer exist to help deal with that real industrial problem.

The same is true of regional aid. In my own area of Tyneside, there are now predictions that under present policies unemployment in the Northern region will average more than 20 per cent. in a year or two and that in the foreseeable future many young people will never become employed. Consequently, the north-south distinction will become larger. I worry enormously about what is happening in our great provincial cities, because it is clear that the Government have no interest in, and provide no resources for, any meaningful or coherent regional policy.

Whatever one's view about the share of public expenditure in GDP—there can be differences of view about that in the long term—it is foolish to decrease public expenditure during a recession. It is right to increase it, and the Government's failure to do so has further pushed the economy down. That is a fundamental point. It appears that they are about to add insult to injury by bringing forward a Budget that will do very little for industry but will concentrate on putting more money into the pockets of those with jobs rather than helping industry and the jobless directly.

This is, of course, an election year, and I suspect that the Prime Minister is looking for that sort of election help from the Budget. Equally, she is aware that the Government's promises on taxation have been so massively belied by their performance that she must feel under some pressure to restore her previous image as a tax cutter by concentrating the resources available on income tax cuts. That will not be good for industry or for the future of our country. It is a cynical exercise that is typical of the mean-spirited attitude now rampant in the Conservative party, and it will do the country no good.