It is a pleasure to be able to take up the remarks of my hon. Friend the Member for Bury St. Edmunds (Mr. Spring), who serves with me as a member of the Select Committee on Health. I echo his comments about the growth of the elderly population and the proposals in the Budget, which I welcome, that are designed as a first stage to deal with the difficult problem of providing long-term care for the elderly.
I warmly welcome the Budget as a whole. I think that my right hon. and learned Friend the Chancellor of the Exchequer got it right. Some difficult decisions had to be taken, especially given the state of public finances.
The key to economic success is the achievement of sustainable growth. There is no doubt that in 1994–95 and beyond we have and will achieve that growth. One of the judgments of the Budget is whether we shall continue to achieve sustainable growth. I believe that we shall do so, and I think that most economists would share that judgment.
What do businesses ask of the Government in managing the economy? The answer is that they want stability. They do not want the old days of stop-go, when they boosted their production only to find that it had to come to a halt as the economy went into recession as a result of overheating. Businesses want stability. They want stable inflation, stable growth and stable interest rates so that they can plan sensibly. The Budget is prudent in its judgment on public finances because tax cuts are balanced by reductions in public spending. Surely that is the way in which to proceed.
It is important that tax cuts put money back into the pockets of the public. The cuts will have a significant impact on consumer expenditure. Despite the comments of Opposition Members, the public know better than the Government how to spend their money.
There is a danger that Budgets can be over-hyped. We heard so much nonsense before the Budget about the level of tax cuts that would be achieved. As I have said, my right hon. and learned Friend the Chancellor got it right with cuts of £3.25 billion, which were balanced by cuts in public spending. More important, does the Budget pave the way for reductions in interest rates, which would be much appreciated by businesses and mortgagees throughout the country? I believe that it does, and I urge my right hon. and learned Friend, in his meetings with Eddie George, to adhere to the tough line that he has adopted and go for interest rate cuts.
It is my view that the Governor of the Bank of England has been wrong about interest rates over the past year. The issue is crucial to understanding why my right hon. and learned Friend the Chancellor had limited room for manoeuvre this year. I spoke in the Budget debate last year, when none of us knew what growth rate would be achieved in 1994. We now know that we achieved a growth rate of 3.9 per cent. There was concern about whether the economy would overheat and whether inflation would get out of control. We have seen some increases in interest rates. If my right hon. and learned Friend had followed the Governor's lead, we would have higher interest rates.
What have we seen? In the Red Book, growth for 1995 was predicted to be 3.25 per cent. That was only a forecast. In the summer forecast it was scaled down to 3 per cent. It is now forecast to be 2.75 per cent. We know that in the third quarter it was down to 2.1 per cent. In other words, interest rate cuts have had an effect, along with the slow-down in the world economy, on the growth rate of our economy.
What has been the effect of that slow-down? Tax revenue has been reduced significantly. I understand the exact reasons for the reduction in tax revenues. It is a problem that affects other countries. We know for certain, however, that a slow-down in growth will have an impact on tax revenues. We know also that £7.5 billion is an enormous sum. The Government have had to face difficulties with the public sector borrowing requirement, but we have been extremely successful in keeping spending under control. That is a key achievement.
What better position would we have been in if tax revenues had held up? My right hon. and learned Friend the Chancellor might have been able to introduce further tax cuts. My message and plea to the Treasury Bench is that we should not be too cautious over the next 12 months. Let us see growth in the real economy. There is little sign of inflation taking off. Wage increases, for about the first time in our history, are below the rate of inflation. That is extremely good news.
At the same time, the slow-down in wage increases has had an effect on growth. In other words, there are some difficult balances. We must ensure that we achieve at least the levels of growth that are predicted in the Red Book. I would hate to have to say next year that we achieved not 3 per cent. but 2.5 per cent. I do not accept the argument that the underlying trend rate of the economy, which some say is 2.75 per cent., while others claim that it is 2.5 per cent., is fixed in stone for ever and a day. It depends on the improvements in productivity that industry is achieving, and there is no doubt that in recent years industry has become much more productive and successful. That should be borne in mind.
The debate has been fascinating. We hear a lot about new Labour and how the party has changed its ways, but listening tonight, particularly to the hon. Member for Barnsley, West and Penistone (Mr. Clapham), I thought that I must be in a time warp. The hon. Gentleman had some quaint ideas about a minimum wage encouraging investment in capital equipment. It might well do. That is not quaint. But it would have a disastrous effect on unemployment.
We also had a revelation that I have heard on previous occasions, again from the hon. Gentleman but also from other hon. Members, about Government directing investment. What a disaster it would be for Britain if the Government were to decide where investment should go. Government would never get it right when it came to deciding in which industries to invest. The only people who can judge where to invest are those in the businesses themselves.
We hear a lot about underinvestment. Investment is up, but the Opposition concentrate on public sector investment, as if that constituted the greater part of investment. I looked in the Red Book earlier to see whether my understanding of investment was correct. In broad terms, investment in Britain is running at about £100 billion a year. Of that, only about 20 per cent. is public investment. The vast bulk of investment is decided by businesses and industries throughout the land. They invest only when there is a stable macro-economic framework and they can see a demand for their product. That is why the Government are so right to have the sound economic policies that they have.
Listening to Opposition Members on public expenditure, I sometimes wonder whether they are being honest with the electorate. Earlier this afternoon we were told that we had squandered our oil revenues and privatisation receipts. But what have they been "squandered" on? They have been spent on essential public services. Since 1979, an extra 70 per cent. has been spent on the health service. Spending on education is up 50 per cent. per pupil. There has been a £70 billion increase in real terms in public expenditure since 1979. I do not recall hearing Labour Members say that we should not put more money into health or education. Therefore, it is dishonest of them to try to pretend that that money has been squandered.
To return to the specifics on public spending in the Budget, I applaud strongly the fact that my right hon. and learned Friend has found room for extra spending on essential services. I am particularly pleased to see the £1.3 billion extra—1.6 per cent.—for health, as well as the £878 million for education. Surely those are the right sort of priorities to have. We should cut out waste and inefficiency and spend money on essential services.
My right hon. and learned Friend the Chancellor has the Budget strategy right. It is a prudent Budget. I urge my right hon. and learned Friend to keep an eye on the ball of interest rates in order to ensure that we have the growth that the economy needs in the coming year. We must aim to ensure that we achieve at least the 3 per cent. set out in the Budget statement so that we are on target for the sustainable growth that the country wants and demands.