I am grateful to the hon. Member for Cambridgeshire, North-East (Mr. Freud) for giving me the opportunity to put one or two matters clearly on the record about the Government's attitude both to the National Theatre and to the subsidised arts in general.

I can answer the hon. Gentleman quite straightforwardly. He first asked whether the Government wanted to stop subsidising the arts. To that question I give a resounding reply. No, of course we do not want to stop subsidising the arts. As a subsidiary to that question he asked whether we wanted the National Theatre to fade away. It is an unlikely concept that Sir Peter Hall might fade away, as the hon. Gentleman quickly added. Again I can say a resounding no.

To add to my resounding noes, the Government have supplied the more important commodity of money over the last years. Since 1978–79, there has been an 18 per cent. real terms increase in Government funding of the arts. That is no small thing at a time when many other programmes have been squeezed in real terms, and many of them within my Department.

There is no question that within the pressing priorities of Government the arts can be wholly privileged. They cannot. Professor Peacock was asked recently by the Arts Council to look into the argument that the arts had a higher inherent inflation rate than the RPI. He found, taking one year with another, that that was not generally so and that there was no special case to be made for the arts in that argument.

We heard reference by the hon. Gentleman to the argument from macro-economics that in some way the arts may be a generator of such production that funding of the arts diminishes the PSBR. I find that argument a little eccentric. It was refuted in a letter in the Financial Times today. Assuming that one believed the complete opposite to the kind of economics that The Times used to argue when Sir William Rees-Mogg was its editor and assuming, further, that we took a wholly Keynesian view of economics, it would still be for those putting forward this line of argument to show that investment in the arts would be better as an income and employment generator than, for example, investment in the construction industry, which is more naturally put forward as a candidate for such Keynesian pump-priming of the economy. Therefore I do not believe that that is either a necessary or a particularly convincing argument in favour of subsidy of the arts. The argument is more fundamentally based upon our assessment of the nature of a civilised society.

I agree with a great deal of what was said by the hon. Member about the extent to which the National Theatre is a beacon to the commercial theatre. However, I take issue with the hon. Member over the extent to which the National Theatre has or has not been decently funded. There is a familiar argy-bargy between the Arts Council and the National Theatre about whether there has been an increase in real terms in the theatre's funding. As the hon. Member rightly said, it all turns on how the £700,000 is to be treated. I think I am persuaded by the argument of the Arts Council that since this sum of money was not provided for expenditure in a single year—indeed, only about £250,000 was spent in the base year, while the rest of it was spent in subsequent years — it cannot be considered as part of the recurrent grant. If, therefore, that sum is ignored, the National Theatre has had a real terms increase of about 12 or 13 per cent. since 1978–79.

The argument of the Arts Council is reasonable, but it does not lie at the heart of the matter. As the hon. Member said, the heart of the matter is the attitude adopted towards the subsidised theatre, what is now required of the National Theatre, and whether we believe that it can fulfil its fundamental role following all the pressures that have been placed upon it. I accept the hon. Member's implication that there are certain kinds of activity that it is not worth doing badly—that it might be better to cut out some activity entirely rather than do it badly: that the concept of a second-rate brain surgeon is unsatisfactory and that the concept of a badly subsidised theatre is unsatisfactory. I assure hon. Members and those outside Parliament that the Arts Council retains its arm's length relationship with the Government. It is lobbying hard in public, perhaps not with a strident voice but with the persistent and scholarly voice of its chairman, for a good deal more money than has been made available to it.

The Arts Council is not making life particularly convenient for the Government in doing so. Nevertheless, it is doing its job for the arts. The arm's length relationship still obtains. It is for the Arts Council to judge whether the level of subsidy that is available enables this great theatre, with its many triumphs behind it — to which the hon. Member paid tribute and I join him in that tribute—to do its job. We do not believe that the Arts Council has so dramatically mistaken its judgment as to require the Intervention of my noble Friend to overturn that arm's length relationship and correct the allocation to the National Theatre.

What is the National Theatre supposed to do? There is a potential philosophical dispute about at least some of the comments Sir Peter Hall has made about the role of subsidy. In his diaries, from which we learned that Sir Peter quite rightly voted for my right hon. Friend the Prime Minister in 1979—which is very satisfactory to the Government—he wrote that to use sponsorship for the main house work would: not only be betraying ourselves but the rest of the subsidised theatre and the Arts Council. Private subsidy should be used to help us expand into areas we otherwise couldn't afford to be in: children's theatre, very experimental writing, etc. We should all welcome the injection of private money into those areas, but I do not understand the philosophical argument that in some way it would be wrong if private sponsorship could be found for some of the main line activities. It is difficult to understand why money extracted through the compulsion of the taxation system by means of the terror of my noble Friend the Lord Chancellor with the law and the Inland Revenue behind him is in some way good money, whereas money given voluntarily is in some way bad money. Money is money. As the Emperor Vespasian said when he put a tax on the urinals in the city of Rome, money does not smell. From wherever it comes, it is useful.

I hope that in the search for sponsorship and for money from outside, given the tremendous good will that has been generated over the years by so many of the performances that have been put on, the theatre will not limit itself in its application. It has been raising sponsorship, as the hon. Gentleman said, and that has particularly been applied to touring and outreach work and now to foyer music. But why not use all the great good will that exists to see if more can be done for the central aspects of the theatre's work?

I also agree that there is no evidence in, for example, the pay settlements, that the theatre is behaving in an irresponsible way in comparison with other theatres, but that does not wholly absolve it, despite the difficulties with the GLC which is being rather mischievous in the way that it is on the one hand dangling carrots of potential money and on the other laying down conditions that make it difficult for the money to be accepted and savings to be made. It must examine every cost in the way that institutions of the utmost excellence in other fields such as universities have to do.

Although Sir Peter argues that there has been no overspending, we must remember that the savings that he is now seeking are over £1 million. If he had what he says is his share of the Arts Council money — a 5 per cent. increase—that would leave him with a shortfall of some £900,000, so there must have been a coming budget crisis. We must ask the theatre, like all other institutions in the country, even those of the utmost excellence, to seek the further savings to continue that excellence and that contribution to our national life in the future.

Question put and agreed to.Adjourned accordingly at sixteen minutes past One o' clock.