Public Expenditure

Part of the debate – in the House of Commons at 7:42 pm on 18th February 1987.

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Photo of Austin Mitchell Austin Mitchell , Great Grimsby 7:42 pm, 18th February 1987

I am grateful to the hon. Gentleman for demonstrating exactly what I was saying. The way in which he read that out showed that there was no logic for the 20 per cent. level being fixed. That level applies across all authorities. It bears no logic to the specific circumstances of each one, or to the position in the building industry or in the economy generally in any particular year. That proportion has remained unchanged. Initially it was plucked out of the air. Because the Government have highly trained, Oxford and Cambridge and public school-educated civil servants to find excuses for the failure of their policies, they can now justify it, but it has no logical justification. The same arguments that the hon. Gentleman has just given us would have applied to 25 per cent., or 30 per cent. There is no conceivable reason why that figure has been fixed when it would be far simpler, given the needs of the building industry and the housing crisis that is building up, to set them freer at any rate, if not totally free.

There is a fourth fiddle on investment in the Government's expenditure plans. In the late 1970s that was already down by a third. We have become a shabbier, shoddier country because of the failure of public investment, yet, whatever the Chief Secretary said, the plans are for a continuing fall. What emerges from the Government's expenditure plans is a continuing fall of 3 per cent. per annum in real terms. If realised, the plans will mean a capital formation decline of 17 per cent. down on the already depressed level that existed at the end of the 1970s. The construction industry is in an even worse position. In 1986–87 it will be 15 per cent. below the level of 1978–79. It will decline by a further 7 per cent. by the end of the decade. That is what is in store for construction in the plans in the White Paper.

The old stupid position of trying to cut public spending, thereby amplifying a much bigger cut in investment, operates again, even in the projections for the future in the White Paper. That has happened despite the fact that the CBI, the TUC and all the reports that we have received from NEDO say that money desperately needs to be spent on infrastructure to stimulate the economy in a fashion which does not suck in imports and which is a beneficial economic stimulus. We need to spend on infrastructure. The Government propose to cut spending. That seems to be the approach in the White Paper. We are seeing the Government throwing an opportunity away. We should seize that opportunity to increase spending. The Chancellor by his policies, partly by the spending cuts and also by the general economic management during the whole period with which he has been associated with the Treasury, inflicted enormous damage on the real economy of this country.

There has been a 30 per cent. decline in manufacturing employment over that period. In areas of Yorkshire and Humberside, which I represent, there has been a 35 per cent. decline in manufacturing. That is the record. There is now a process—slight and inadequate I am afraid—of recovery going on. Why is it going on? It is going on because the Chancellor has been forced willy-nilly by circumstances, and without avowing it, into adopting large chunks of the Labour party's 1983 manifesto.

That manifesto was criticised as impractical, but let us look at the record. It said that there should be a substantial devaluation of sterling, which was overvalued and thereby inflicting great harm on the real economy and manufacturing. We suggested a 30 per cent. devaluation in 1983. Sterling is now 30 per cent down on the level of 1982. The Government have adopted the Labour party manifesto. Improvements will follow, although sterling has still some way to fall. It is still 20 per cent. overvalued against the deutschmark and our manufacturing exports are still 25 per cent. up as against manufactured imports. The devaluation forced on the Government, willy-nilly because of oil, the fall in the dollar and the state of the real economy, a devaluation resisted every step of the way by increased interest rates, will be beneficial.

We secondly proposed in the 1983 manifesto to increase public expenditure. We gave an illustrative figure of £15 billion for the public sector borrowing requirement. This year, the PSBR plus privatisation is a £15 billion public sector financial deficit, which is what we suggested in 1983.

Thirdly, we suggested increasing spending on job schemes and public sector employment. Now, because the election is approaching, as the hon. Member for Wolverhampton, South-West pointed out, although he gave the wrong page reference, there has been a huge increase in job schemes and the community programme, calculated to bring the unemployment figure below 3 million by the time of the election. We advocated that in 1983 and it has been done.

Fourthly, we suggested scrapping monetary targets, and the Chancellor is now doing that because he cannot meet them.

Those four basic proposals in the Labour party manifesto have been implemented by the Government. Although they are too little, too late and although the Chancellor has resisted them every step of the way because he did not want to carry them out, they were right, and improvements have followed. It is possible to argue that the economy is riding the J-curve rather than heading for a remorseless balance of payments crisis. If that is true, as I think that it is, it is clear that here is an opportunity to expand and to seize the advantages that come our way because the Chancellor has at last been forced to abandon overvaluation.

However, on the Chancellor's premises, retribution will follow after the election if a Conservative Government return. He has always resisted these beneficial developments. Therefore, it follows that he will want to strengthen sterling after the election by putting up interest rates even more, and that he will try to deal with the problem of inflation, which is increasing, and for which he has no other strategy, by deflating the economy. It follows that he will have to tackle the problem of financing unemployment by increasing taxation. Increasing VAT will be forced on him by the EEC.

All those consequences follow from the Chancellor's premises, but they need not follow if we set out to exploit the opportunity that lies ahead of us and that we could exploit by stimulating the economy and deliberately bringing down interest rates. The Chancellor has been against that and given us lots of excuses. First it was that when he got the public sector borrowing requirement down, interest rates would come down, but that did not work. Then his excuse was that our interest rates were high because American interest rates were high, but now ours are the highest in the world. American interest rates are lower, but ours have not come down. Let us get interest rates and sterling value down. We can then expand the economy, content that the stimulus will not cause us to rush overseas to buy more imports, but will stimulate manufacturing and investment here.

That is the opportunity that only the kind of programme put forward by the Labour party, which is an expansionary programme and not the half-baked fiddling with the figures presented by the Government, can seize. This is a historic opportunity. In the 1990s, we shall be heading for a national tragedy, given what has been done to manufacturing industry and the fact that the value of oil, which alone has allowed us to survive and maintain our standard of living, will be chipped away. We have an opportunity to expand and face that problem, but the Government will not seize it. Only our proposals, by bringing down interest rates, encouraging investment and stimulating demand in all the ways available to Government, will do this. We do not want a credit explosion, which will lead to asset inflation of 1972, 1973 and 1974 dimensions. Stimulating demand through public sector spending and putting people back to work, especially by building houses, is the only way to proceed. It is a tragedy that, while in 1979 in Yorkshire and Humberside there were 17,800 housing starts, in 1985 there were only 12,300. At a time when there are 400,000 building workers out of work, that is a folly. As a further step, we need to increase regional incentives to attract development out of London.

It is ridiculous that there is such a house price explosion in London that this week a broom cupboard has been sold for £36,500. Anybody who buys a broom cupboard for that price is as daft as a brush anyway. That is the price of a seven-bedroomed house in Grimsby. It is ludicrous that people cannot afford to transfer south because they cannot afford the housing. Through regional incentives, we should be taking industry to where people, the unemployed and the social capital are, but the expenditure plan proposes cuts in regional spending.

Spending by the Department of Trade and Industry has been cut massively, and much of what it had went to the regions. Regional support is generally industrial support. As predicted by these figures, that will be cut by 31 per cent. in real terms. Regional support has been halved since 1983. The Government are now estimating that it will be cut again by another half next year. At £200 million, that is a 52 per cent. cut in regional support programmes. It means that for every £4 that the Labour party spent on regional incentives in 1979, this Government will be spending £1. That is at a time when the gap between north and south is widening and there is a desperate need to encourage industry to go to the people, and particularly, one would hope, to areas with high unemployment such as Grimsby, the north-east, Yorkshire, the north-west and so on. What such areas can do to attract industry has been greatly undermined as the north-south gap widens. That is not a formula for seizing opportunities. If expansion will overheat the economy, it will do so less rapidly if we can attract industry north and develop new manufacturing there.

As a last priority, we need to expand real training, not just schemes to get people off the register, but training to confer real skills so that we do not run into the skill shortages and skill bottlenecks into which the British economy has run all too often in the past. All that needs to be done to put our people back to work and to give the country some pride so that it can face the world and compete on equal terms with powerful exporting economies. All that we have done over the past eight years is inflict harm on our manufacturing base and make it less able to compete.

All this needs to be done to make society better because we are steadily becoming a more shabby, shoddy, nasty and declining society. Our roads are in potholes, our National Health Service inadequate and our education creaking. Our universities are declining from the centres of excellence that they once were as they lose brains to higher paid posts overseas. That is not the sort of future that any hon. Member would want for the country, but it is the type of future that we shall have unless we improve on the priorities of the public expenditure programme, seize the opportunity for growth that lies ahead of us, and say to the Government, "Enough. You have tried to fiddle the figures for too long to try to show that decline was prosperity and development." It is time to stop the figure-fiddling and to give way to a party that will turn the situation around.