Autumn Statement

Part of the debate – in the House of Commons at 7:51 pm on 24th November 1983.

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Photo of Mr Peter Hordern Mr Peter Hordern , Horsham 7:51 pm, 24th November 1983

As the hon. Member for Fife, Central (Mr. Hamilton) said, the Chancellor's autumn statement has had a mixed reception. However, the criticisms have been so varied and wide that I am inclined to believe that my right hon. Friend must have got it about right. In one respect certainly he has it right, and that is the achievement of himself and his predecessor, now the Foreign Secretary, in reducing the rate of inflation. That has been an invaluable achievement.

I also approve of the Government's efforts to restrain public expenditure. It should be noted, however, that all the talk so far in the debate has been about cutting public expenditure at every level. In fact, public expenditure is due to grow again next year at a rate somewhat higher than the rate of inflation.

Like many of my hon. Friends, I regret that capital expenditure within the whole of the public sector is as low as it is, and the Government must give more attention to that. But I applaud the fact that the Chancellor has not sought to fudge the figures. The contingency allowance is as high as it has ever been—that is realistic—and no credit is given for shortfall, which is the amount that Departments do not spend.

The Chancellor is not at his happiest when making economic forecasts. Indeed, he would probably rather not make any, and it is only because the Industry Act compels him to do so that he has done so now, as he has on previous occasions. With all his reluctance, if he must make an economic forecast, it is a characteristic of his to pick the best aspects of it, and I have certain points to raise which should keep these aspects in perspective.

My right hon. Friend's ambition is to have a period of stable prices. He has made no secret of the fact that by that he means a lower rate of inflation than now exists. Judging from the money supply figures, I do not think that that is likely to occur. Recently my right hon. Friend has brought into being a new form of monetary measurement known as MO. It is a very narrow form of measurement by which he has sought to show that there is some relationship between the movement of this narrow measure of money and the course of inflation two years afterwards.

Although that may have been true—in the relationship between that narrow measure of money and the rate of inflation—of the last few years, if my right hon. Friend carries his researches back further he will find that there is no such relationship. It is only common sense that in times of high interest rates, people tend not to hold their money in notes and coins—that is the definition of this narrow money supply—but in bank deposits, and the level of bank deposits, the level of lending, is now at a very advanced rate and inconsistent with a lower rate of inflation than now exists. I think that it is consistent—I hope it is—with the official forecasts. I do not attach as much importance to arithmetical precision as I used to on these matters, but I do not think that it is consistent with a nil or nearly nil rate of inflation, and I hope that the Government do not try to persuade people that it is.

Another important factor is that the broad measure of the money supply is being affected in other ways. It is not as high as it would otherwise be if it were not for the fact that the Government are borrowing much more money than they need. They are doing that so as to allow private firms to issue commercial bills, which do not show up in the money supply. The effect of that is that the money supply figures on the broad aggregate would be higher than they now are. It also means that interest rates are much higher than they otherwise would be if the Government were not borrowing much more than they need to borrow. The Government must bear that factor in mind because interest rates are still far too high and firms cannot borrow on long-term rates. The Government must bear that in mind, too.

It is essential in all this that the price level does not rise more than is absolutely necessary, and that brings me to the Chancellor's decision to increase gas and electricity prices. There is a vast difference between expecting greater efficiency from the gas and electricity industries and demanding a higher price. The distinction between doing that and insisting on higher price increases is extraordinary, and I cannot help but believe that it, too, must be self-defeating.

I can see that there is a case for putting up the price of gas or demanding greater efficiency as we come to use stocks from the new gasfields, compared with the old. But if that argument applies, then the contrary argument must apply to electricity, when there are substantial stocks of coal throughout the country and enormous reserves of coal as well. On that analogy, the price of electricity should be going down, not up.

Has my right hon. Friend thought about the effect of the increase in the price of electricity not just on industry prices—naturally, it will have an effect there—but on the extra cost of pensions and supplementary benefits? May we be told exactly what the public expenditure implications are of those increases? I hope that in future, when this policy comes to be reconsidered, no attempt will be made to insist on a price increase of a certain margin. By all means get a higher return from those nationalised industries and set them targets—that is what they expect—but the imposition of a flat price increase will do more harm than good.

The performance of the "Star Chamber" has had some unexpected consequences, so much so that I understand that the Secretary of State for Social Services was not even aware, if The Times is correct, of what the effect of the increased rents on council house tenants would be. This method of procedure—the gathering in the autumn of Ministers, telling them that they must impose certain cuts—cannot be beneficial. If anybody is to perform the task, my noble Friend Lord Whitelaw is better than anyone else to do it. He was, with respect to my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath) about the best Chief Whip I have ever known, although I was not in the House when my right hon. Friend held that position.

If anyone can persuade people to do what they would not in their ordinary judgment do, it is my noble Friend Lord Whitelaw. Happily, he is unencumbered with economic theory, but I cannot help but wonder if this is the best way to proceed. Are we likely to control expenditure as opposed to cutting it in this way? Are the thousand cuts in public expenditure the best way to proceed annually?

As the House may know, I have long taken an interest in the National Health Service and its administration. If we examine over the past 30 years the headlong recruitment that has been made in the Health Service year after year, and especially in administration, I find it astonishing that not one health Minister ever sought to discover how many people were employed in the Health Service or what they did. That is a disgrace. I am afraid that it is endemic in the entire public sector.

I appreciate how difficult it must be to set clear objectives, but if we do not set clear objectives the Government are quite unable to excercise control either of numbers or resources. Without clear policy objectives nothing will be achieved except drift—and purposeless activity.

Hon. Members who have been in the House for a year or two appreciate the distinction between Ministers who direct and run their Departments as opposed to those who preside over them.

If I were asked to state the Government's objectives, I would say that they are, to bring down the rate of inflation, to privatise some public sector assets and to have a massive training programme for the young. Those are admirable objectives, but they are not in themselves sufficient.

We must ask other questions. How will we provide for the rapidly growing number of very elderly people in the next 20 years? How will we meet the cost of expensive medical equipment, and further scientific advance in medicine and drugs? How will we meet the cost of the extraordinarily expensive defence equipment year after year? How will we finance the state occupational pension scheme? How will we replace the loss of oil revenue? I wonder whether these important questions are being considered carefully or whether a strategy exists or is being formulated.

The public expenditure programme is too short in its time scale. I appreciate that three years is a long time when dealing with practical projections of programmes and resources. Since we are dealing with rolling programmes which follow on year after year, no thought is given to whether, in the prevailing circumstances, the work of a Department needs to be done differently or at all, or whether tax cuts can take the place of public expenditure. Still less is the work of a Department measured against the priorities and challenges of the next decade. I cannot but think that the shape of Departments and their work should reflect the challenge of the future rather than the programmes of the past.

It seems as though the Chancellor and the Chief Secretary to the Treasury are like men beleaguered by spending Ministers. Is it not time to create a new office, attached perhaps to the Cabinet Office, charged with formulating the demands for public expenditure for the next decade, examining the operations of the Departments in the light of those demands, recommending policies that seem to meet those demands, outlining the consequences if they are not met and presenting such policies and consequences for decision by the Cabinet? Once such policies had been discussed, and either accepted or rejected, the priorities would be agreed by the entire Cabinet and it would then be for Ministers to implement the decisions.

Moreover, the House and the country could be informed as soon as possible about these plans and the reasons for them. It would be clear to the country that the Government were acting in the interests of the whole nation. It should follow from that that the public service would have clear objectives which would improve morale and the public would feel engaged in a national effort. After all, is it not strange that a "Star Chamber" exists to carry through short-term cuts among all Departments, but that no comparable body exists to consider the future?

It seems to me that the creation of such an office, the fact that Government policy would be based on knowledge, the selection of priorities and consent to implement and publish them openly might create what would be seen as a national Government and deserve to be supported by the nation.