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Government Economic and Social Policy

Part of Orders of the Day — Opposition Day – in the House of Commons at 7:10 pm on 9th June 1993.

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Photo of Mr John Townend Mr John Townend , Bridlington 7:10 pm, 9th June 1993

I was most disappointed by the leader of the Opposition's speech. It was a brilliant, witty and humorous speech worthy of the music hall, but it had no real content. The right hon. and learned Gentleman showed himself to be wholly devoid of the necessary attributes one looks for in a Prime Minister. Having admitted that we have a public sector deficit of £50 billion, and when asked whether he would deal with it by reducing public expenditure or increasing taxation, he stood at the Dispatch Box and said that he would deal with it by reducing unemployment.

That is fatuous. If unemployment goes down, the deficit will of course also go down but, even if unemployment were nil, we would still have a deficit because only half of the deficit is due to the recession. The rest is structural. By his answer, the right hon. and learned Gentleman showed that he is barren of ideas and knowledge and wholly incapable of being Prime Minister.

I begin my main speech by saying how sad I was to learn of the previous Chancellor's departure. I worked with him as Chairman of the Back-Bench finance committee, and I am sure that history will be kinder to him than the media and some of his colleagues. He knows that I disagreed with his policy in the summer of last year but since white Wednesday, as I call it, he put in place the right policies for recovery: low interest rates, a competitive pound and low inflation. He had a healthy scepticism for the exchange rate mechanism and, if he were honest, he thought that a single currency was for the birds. He was determined to do all in his power to cut spending and reduce the deficit. His Budgets were innovative and elegant, and he introduced two great reforms which will come to be appreciated in time.

First, our method of devising the Budget always seemed ludicrous. We did not decide how much we had to spend. Instead, every Ministry decided how much it wanted, we added it all up and then decided how we could finance the total. The previous Chancellor changed the system—the Budget will now be worked out from the top down instead from the bottom up.

My right hon. Friend's second innovation was to bring the fixing of taxes and the dealing with public expenditure together at the time of the Budget. That is a first-class reform, which will start this year. It must be a bitter blow that he was not allowed to present it.

The new Chancellor, whom I congratulate on his appointment, faces two very important tasks. The first is to ensure that the recovery which, as some of my hon. Friends have said, is not yet strong—indeed, in some areas it is virtually non-existent or fragile—continues to strengthen. As other European economies go into an even deeper decline, and as the American economy falters, there is a danger that Britain's recovery could slow down.

The new Chancellor should do everything possible to ensure that that does not happen. I suggest that he uses the freedom of a floating pound to lower interest rates as necessary and to slacken the monetary stance. If need be, he should at the same time tighten the fiscal stance, but I shall deal with that in a moment.

My initial worry about the new Chancellor was that, after white Wednesday, he was one of those who wanted to rejoin the ERM at an early date. However, he has recently expressed the view that it is unlikely that we shall rejoin during this Parliament. I hope that it is a real conversion rather than a diplomatic one. I should like to think that it proves that he now supports a floating exchange rate. If he confirms that, many of my colleagues will breathe a sigh of relief.

The second vital task facing the Chancellor is, of course, the reduction of the public deficit which will this year rise to £50 billion—more than 8 per cent. of gross domestic product. If the Chancellor succeeds in his first task of obtaining higher growth, it will go some way to solving the deficit problem. If, however, he fails, and if the recovery grinds to a halt, the deficit will get worse. Even if he is successful, other action will be needed. The big debate in the House and in our party is whether we should reduce the deficit by increasing taxation or reducing public expenditure.

In his last Budget, the former Chancellor presented a package of tax increases worth £10 billion. I must tell the new Chancellor bluntly that he should turn his attention to what I admit is the difficult task of reducing public expenditure and forget any idea of increasing income tax, especially the standard rate.

The Tory party won the election for two basic reasons. First, the British public preferred the Prime Minister to the former leader of the Opposition. Secondly, they believed that we would take less out of their pay packets than the Labour party, and that Labour was the party of spending and taxation. We should heed the warning of George Bush's experience across the Atlantic. He said, "Watch my lips." The people watched his lips, and he did not do what he had promised. As we know, he lost the election. If we go into the next election with direct tax rates higher than those at the previous election, we shall Jose all credibility. We shall be finished, and there will be no significant difference between us and the Labour party.

We are already committed to the proportion of GDP taken by taxes rising from 34·5 per cent. this year to 37 per cent in 1997–98. That compares with only 29 per cent. in the United States and 31 per cent. in Japan and Switzerland. There is no alternative to cutting public expenditure.

I accept that there will be difficulties. I have heard it said that we cannot cut overseas aid because 20 Conservative Back Benchers will not vote for it and that we cannot touch social security because a further 15 would not accept that. Everyone favours cutting Government expenditure in the generality but not in the particular. I must tell my Back-Bench colleagues—I am sorry that there are not more of them here—that cuts will have to be made across the board and everyone's pet service is likely to be affected.

The alternative—there is only one—would be a massive —I stress that word—increase in taxation which many Conservative Members would not stand for and which the country would not accept. When the package is proposed, it must be accepted as a whole. We cannot choose from it a la carte—we cannot allow people to say that they like one part but not another.

The increase in public spending is a major cause of our deficit. I wish to put the matter in context, because many people believe that the deficit was caused mainly by the recession. In the past four years, public sector spending went up by no less than £30 billion in real terms. In the four years to 1991, it went up in real terms by £3 billion. Since 1988–89, public spending increased from 39·25 per cent. of GDP to 45·5 per cent. of GDP this year, an increase of 6·25 per cent.

So much for all those accusations of public expenditure cuts. On those figures the Government could be accused of being profligate. I feel that the Government made a big mistake in not grasping the nettle in the public spending round last year. If they had started earlier, the problem would have begun to be solved earlier.

I shall take a few moments to make suggestions about where savings could be made. It is easy to say, "Cut spending," but not so easy to say where the cuts should be made. During the recession every business in the country has had to cut its costs and slim down its work force. Whole layers of management have been abolished. Barclays bank, for example, has got rid of 6,000 people. But in the bloated public sector no such exercise has taken place; indeed, the number of civil servants is rising.

If we compare the present public sector with the industries that used to be in the public sector but have now been privatised—British Telecom, British Gas, the electricity companies and so on—we see enormous differences. Those privatised industries have cut costs significantly and reduced their Labour forces, yet they have increased efficiency. Under British Telecom the telephone service is infinitely better than it used to be, and BT now has 33,000 fewer employees. This year the British Airports Authority has reduced its work force by 19·5 per cent. and PowerGen has reduced its work force by 20 per cent.

If local government—excluding teachers—and the civil service did only half what the private sector has done, billions of pounds would be saved. Indeed, if they reduced manning levels by only 5 per cent.—private companies have had to do much more—they would save 2 per cent.

There was a lot of laughter when my hon. Friend the Member for littleborough and Saddleworth (Mr. Dickens) mentioned overseas aid. But we are spending more than £2 billion on overseas aid. That is very worthy, and if we had the money I should support it. However, not only do we have a Budget deficit: we have a large balance of payments deficit. We are borrowing foreigners' money to give to other foreigners, and we shall have to repay the loan with interest. In our present straitened circumstances we could easily knock £0·5 billion off aid.

The fact that expenditure per head on major services is significantly higher in Scotland, Wales and Northern Ireland than it is in England is kept rather quiet. The local government grant per head in Scotland is 50 per cent. more than in England. In Scottish schools we spend almost 50 per cent. more per pupil, and on health we spend more than 30 per cent. more per head in Scotland than in England.

I found the figures for the north of England, because it always used to be said that spending was lower in England because England has wealthy areas in the south. But the figures for Scotland are significantly higher than those for the north of England. That is not fair and we cannot afford it. We should move progressively to a system in which the amount spent per head in all the countries of the kingdom is roughly the same. Our English children have the right to have the same spent on their education as is spent on the education of the Welsh, the Scots and the Irish.