Autumn Statement

Part of Prayers – in the House of Commons at 2:53 pm on 8th November 1990.

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Photo of Mr John Major Mr John Major , Huntingdon 2:53 pm, 8th November 1990

I shall of course give way to the hon. Gentleman when we come to questions a little later.

But, beyond that, this is not the year for making substantial additions to plans in other areas. The priority must be to honour existing commitments, within a total for public spending that is affordable and fiscally prudent.

For 1991–92, the new planning total has been set at £200 billion, a little under £8 billion more than the previously published figure. The planning totals in the following two years are £215 billion and £226 billion respectively.

In recognition of the economic uncertainties and the risks arising from the Gulf crisis, these totals include higher reserves than last year's plans: £3½ billion in the first year; £7 billion in the second year; and £10½ billion in the third. I believe that these increases are prudent. Our plans also incorporate an estimate of privatisation proceeds at £5½ billion a year that is in line with the average outturn in recent years.

After taking account of inflation, the level of spending next year will be rather less than implied by last year's plans: that is, the cash additions to the planning total do not fully compensate for the higher level of prices now expected for 1991–92. This restraint is necessary, but it means that many of my colleagues have had to drop or postpone proposals that they would otherwise have regarded as desirable.

Nevertheless, within this total there are substantial extra resources in three main areas: health, social security and central Government support for local authority services. These additions to plans total some £7½ billion in 1991–92. It has also been possible to make improvements to other key areas including education, public transport, and the environment.

We have also been able to make savings elsewhere, including defence. I can assure the House categorically that financial constraints will not hinder in any way the United Kingdom's military contribution to resolving the Gulf crisis. However, the "Options for Change" announced by my right hon. Friend the Secretary of State for Defence on 25 July will produce increasing savings in the defence budget. Over the next three years the new plans provide for a real reduction in defence spending of about 6 per cent., and further reductions should be achieved in later years as my right hon. Friend's proposals are fully implemented. For the first time in the period since world war 2, we are now able safely to plan on a defence budget that is significantly less than one tenth of all Government expenditure and falling.

In certain other areas, we have been able to accommodate increases in expenditure by finding offsetting savings. For example, on the trade and industry and employment programmes we have made selective increases while keeping broadly to existing plans overall, and within the Home Office programme, lower prison population forecasts have enabled us to reduce the prison building programme, while considerable resources have been made available for the refurbishment of existing prisons, including Strangeways.

In July, the Government announced extra support for local authority current spending which will add around £2½ billion to previous plans. Current spending by local authorities has substantially outstripped central Government spending over recent years. This year local authorities in England budgeted for increases of over 5 per cent. in real terms before capping. This has led to community charges which in many authorities are far higher than expected or justified.

The additional support that we are providing for next year should enable local authorities to finance local services without sharp increases in their charges. My right hon. Friend the Secretary of State for the Environment has already announced that, if required, the Government will make vigorous use of their powers to cap high-spending authorities. I re-emphasise that.

Nearly £3 billion has been added to the social security plans for next year. This mainly reflects the upratings already announced by my right hon. Friend the Secretary of State for Social Security which maintain in full the real value of benefits paid to 10 million pensioners and 11 million people on income-related benefits. The additions also reflect the substantial extra cost of community charge benefit which will help about one in four charge payers. My right hon. Friend was also able to announce selective increases for poorer pensioners, people in residential and nursing homes and families. These improvements will be financed within the social security programme by savings from restructuring the statutory sick pay scheme, as announced by my right hon. Friend on 24 October.

As in previous years, the Government have also made very substantial extra provision for health. Between this year and next, spending on the national health service in the United Kingdom will rise by £3 billion, so that the real resources over and above inflation that are available for spending on health will increase by a further 5 per cent. The total real increase in health service spending since 1979 will now be nearly 50 per cent. This has enabled the NHS to employ some 8,000 more hospital doctors and dentists, and over 50,000 more nurses and, of course, to provide for more sophisticated health care than ever before. As a result, more than 1½ million more in-patient and day cases are now treated every year. In the largest sustained programme of hospital building ever seen, nearly 500 major capital schemes have been completed since 1979. The plans that I am announcing ensure that the next three years will see further improvements in services.

Extra finance is also being provided for public transport. London Transport and British Rail have large long-term investment programmes which will enable them to extend and to upgrade the London underground and to prepare for the opening of the channel tunnel. Between them, they will spend some £¾ billion on safety alone in the next three years. The new plans also consolidate the substantial extra provision for roads that was announced last year and include measures to relieve congestion in London. Investment in public transport in the next three years will be double the level of the past three years.

Central Government spending on education will be increased by more than £500 million next year, largely to finance the record number of students in higher education. One in five of the 18 to 19 age group will be in higher education, compared with one in eight only a decade ago.

The number of higher education qualifications gained, as a proportion of the relevant age group, is higher in the United Kingdom than in Germany, France, Italy and almost every other European country.

Following the publication of the White Paper on the environment, the new plans provide significant extra resources for environmental research and in support of environmental bodies such as the National Rivers Authority and the Countryside Commission. There is extra provision also for the Government's programme of action on rooflessness.

Throughout the past decade, we have sustained a high level of capital spending in the public sector. In total, it will approach £30 billion in the current year. Leaving aside defence, our new plans include an extra £1½ billion a year for investment by central Government and nationalised industries. There is also extra support for local authorities' capital spending on schools, housing and local transport.

Taking capital and current together, real growth in total public spending over the three survey years will be less than 2 per cent. a year—well within the trend growth of the economy. As I have said, this is a tight settlement and it means that the ratio of public spending to national income should remain stable at its present level for the next two years. Thereafter, as activity strengthens and inflation remains in check, the downward trend will be resumed.

I now turn to national insurance contributions. As usual, the review this autumn has taken account of advice from the Government Actuary on the income and expenditure of the national insurance fund, and of the statement on benefits that was made by my right hon. Friend the Secretary of State for Social Security on 24 October.

The lower earnings limit at which contributions begin will go up next April to £52 a week, in line with the single person's basic pension, while the upper earnings limit will rise to £390 a week. The upper limits for the reduced employers' rates will also be increased.

In addition to those changes, there will be reductions in the contribution rates paid by employers. As my right hon. Friend explained in the House on 24 October, the restructuring of statutory sick pay will add modestly to employers' costs from next April. It is right that the Exchequer should share these costs. Therefore, the main employers' contribution rate will fall next April from 10·45 per cent. to 10·4 per cent. and each of the lower rates will be cut by 0·4 per cent. This relief through contributions will limit the impact of the statutory sick pay adjustments on employers of lower-paid workers in particular. The necessary legislation will be laid before the House. The contribution rates paid by employees and the class 4 rates paid by the self-employed will remain unchanged.

I am publishing today the economic forecast required by the Industry Act 1975, the first since we became members of the exchange rate mechanism. I must emphasise at the outset that the Gulf crisis and its effect on world oil markets make the future unusually difficult to predict. The United Kingdom, along with other countries, has already seen some of the adverse impact on consumer price inflation. The oil price rise is likely also to contribute to the general slowdown in the world economy that was already under way before the Gulf crisis.

For the Industry Act forecast I am following the practice of international institutions such as the International Monetary Fund and assuming some fall in oil prices from recent levels to around $25 a barrel by the end of 1991. But I must reiterate that the situation in the oil market remains very volatile.

Despite these uncertainties, however, it is now clear that the tight United Kingdom policy stance of the past two years is bringing about an easing of domestic inflationary pressures. This will make possible both a sharp fall in retail prices index inflation next year and a strengthening of output.

So far this year, the public sector debt repayment has been running below both last year's outturn and our expectations at Budget time. Local authority borrowing was particularly high earlier this year as some authorities experienced delays in collecting non-domestic rates and the community charge. Public corporations' finances have been adversely affected by the slowdown in economic activity and central Government spending has also been higher. Nevertheless, despite this, I still expect a significant debt repayment in the year as a whole of £3 billion. This amounts to ½ per cent. of GDP and represents a strong fiscal stance at this stage of the economic cycle.