HC Deb 09 March 1976 vol 907 cc251-383
Mr. Speaker

Before I announce the selection of amendments I must say that I wish that the House had been more crowded to hear my statement.

It will not surprise the House to learn that I have an enormously long list of right hon. and hon. Members who wish to speak during this two-day debate. It is extremely unlikely that all will be able to be called. I shall endeavour to ensure that there is a fair hearing for all the differing viewpoints that are held within the House, but I want hon. Members to know that neither the Deputy Speakers nor I intend to intervene during the debate in the interests of those still waiting to speak. If right hon. and hon. Members make long speeches they will, therefore, consciously be preventing others from contributing to the debate.

I make one further point, and in doing so I take a leaf out of my predecessor's book. I make a special request to right hon. and hon. Members not to come to the Chair to pursue their claim. I shall do my best to be fair in the selection of speakers. I must tell the House that canvassing will be a disqualification.

Before calling the Chancellor of the Exchequer, I must inform the House that I have selected the amendment standing in the name of the right hon. Lady the Leader of the Opposition, which reads as follows: leave out from 'House' to end and add 'declines to approve a White Paper which will lead only to lower living standards, fewer jobs and higher taxes'.

Mr. Arthur Latham (Paddington)

On a point of order, Mr. Speaker. With respect, I should like to express not only my disappointment and feeling of frustration but that of a considerable number of my hon. Friends that, again, a further amendment on the Order Paper representing a substantial body of opinion in this House is not to be put before the House for debate and vote. You have intimated that you will endeavour to call speakers representative of many points of view on the White Paper on Public Expenditure, but it will be readily obvious to you and to the rest of the House that that will not provide an opportunity to measure the support of hon. Members generally for the proposition on the Order Paper.

As you will be aware, Mr. Speaker, I have been engaged in making representations to a number of quarters not only on my own behalf but on behalf of those who signed the amendment and others, to try to find a way in which it might be possible for the amendment properly to be selected by the Chair. The difficulty that we seem to experience is that, on the one hand, the Government say that it is up to the Chair and, on the other hand, the Chair—I ask you to confirm or deny this, but it is based on your predecessor's ruling as well—then says that it is up to to the Select Committee on Procedure. As you and hon. Members know, the Standing Orders of this House are so tightly drawn that any procedural initiative is within the strict control of the Government. Therefore, one seems to go round a triangle in trying to find a way by which an amendment such as this can be called.

Despite what your predecessor said in the debate on employment when a similar issue arose, the Select Committee on Procedure has not yet been established. Would you, Mr. Speaker, in the absence of a Committee to deal with the matter and in view of the Government's protest that they cannot take an initiative, agree, without precedent, to extend the experiment by which a second amendment was called?

I remind you, Mr. Speaker, that one such amendment has been called on behalf of the Liberal Party and one has been called on behalf of the nationalists. Certainly no other minority group within the House has had the opportunity of having a second amendment called. At the last count, those subscribing to this amendment considerably outnumbered the other two groups which I have mentioned.

Mr. Douglas Henderson (Aberdeenshire, East)

Further to that point of order, Mr. Speaker. If the hon. Gentleman and his hon. Friends formed a party, they might expect their amendment to be called.

Mr. Bob Cryer (Keighley)

Further to that point of order, Mr. Speaker. Would you be kind enough to review the decision that you have just made on the basis that the Government do not, as a matter of course—this has been the position over many years—consult Back Benchers of the majority party before producing these discussion documents? It seems necessary that, to maintain the democratic traditions of Parliament, some system of discussion should be developed. If that is not possible within the majority party, I suggest that there should be an opportunity for a section of the majority party to put down an amendment which will have some chance of being called.

We are presented with documents which represent a fait accompli. We are then told that if we have a different view on the way forward to achieve Labour Party policies, our amendment cannot be called. That seems to be a denial of democracy, because either way we are stultified in our attempt to ensure that the Labour Government push forward to follow the policies on which we were elected.

Mr. Speaker

There are four amendments on the Order Paper. This matter, which causes concern to hon. Members, is not new. If the House wishes to change its procedure, it is entirely a matter for the House. There was an experiment during the debate on the Queen's Speech which my predecessor also used for the four-day debate on devolution. If I were to venture pushing that experiment further today, I should consciously and deliberately be encouraging an alteration in the procedure of this House. That is not my job. It is a matter for the House. The sooner the Select Committee on Procedure is set up, the better. This is a matter for the Select Committee on Procedure.

Mr. Eric S. Heffer (Liverpool, Walton)

Further to that point of order, Mr. Speaker. I accept that there is a difficulty here and that there has been an experiment. But are there not precedents for Mr. Speaker calling amendments by minorities within major political parties? I recall this point well, because I was one of those who signed such an amendment which was called and voted upon. Are we not reaching the stage where Parliament is being made a farce when it is assumed that every Member of ithe major political party accepts everything that his Government put forward? If we are to believe in the concept of democracy and the rights of individual Members in this House, there must be an expression of opinion within political parties. I ask you to consider the precedents established by previous Speakers on this matter.

Mr. Speaker

The hon. Gentleman raised very much the same point of order with my predecessor when a similar difficulty arose in the debate on employment. I cannot alter what I have said. It is not a matter for me. I have made my selection and it must stand.

Mr. John Peyton (Yeovil)

Further to that point of order, Mr. Speaker. With respect, I support your ruling, particularly your suggestion that the Select Committee on Procedure be reappointed to settle this matter. I believe that you are entirely right to follow the guidance given by the Committee in its Report. I hope that this matter will be looked at again in the proper way. These bitter differences between what are euphemistically called the majority parties can be settled elsewhere.

3.47 p.m.

The Chancellor of the Exchequer (Mr. Denis Healey)

I beg to move, That this House, in rejecting the demand for massive and immediate cuts in public expenditure which would increase both unemployment and the cost of living, recognises the need to ensure that manufacturing industry can take full advantage of the upturn in world trade by levelling off total public expenditure from April 1977 while keeping under continuous review the priority between programmes. My purpose this afternoon is to explain why the Government have decided that public spending should mark time for several years after next April, what in practice is implied by levelling off our programmes in this way, how the Government propose to ensure that the spending limits set in the White Paper are not exceeded in practice, and why they reject the criticism levelled at their plans by the Conservative Opposition and by some of my hon. Friends. Indeed, there must be few, if any, public expenditure White Papers in the past which have united the political extremes to such an extent as this one. It has even reached the point where the Daily Telegraph has given hospitality, if not sanctuary, to my hon. Friend the Member for Tottenham (Mr. Atkinson) writing an article on behalf of the Tribune Group.

First, I give the reason for the levelling off. The basic objective of the Government's economic strategy is that Britain should move into the period of world recovery with the highest possible level of employment, with steadily increasing investment and exports, and with its manufacturing industry steadily absorbing a greater proportion of the nation's resources and manpower.

Since the 1974 White Paper was published over a year ago, the depth of the world recession has come as an unpleasant surprise to all Governments, although I can claim that we in Britain came closer to predicting it accurately than most of our trading partners. Because the recession is that much deeper, the difficulty of returning rapidly to full employment is that much greater, although the large amount of spare capacity in the economy makes it possible for us to envisage a higher rate of growth in output than it would otherwise have been reasonable to expect.

At the Chequers meeting last November, the Government, the TUC and the CBI committed themselves collectively to give priority to the regeneration of our manufacturing industry over other economic and social objectives. This put a special obligation on the Government to plan the future distribution of the nation's output so as to permit a steady shift of both resources and manpower into manufacturing industry. If we are to reduce unemployment to 700,000 in 1979—and certainly nothing less ambitious should be our objective—then our gross domestic product must grow at an average rate of 5½ per cent. over the preceding three years and manufacturing output must grow at about 8½ per cent. a year over the same period.

We must seek to achieve what our main competitors in France, Germany and Japan have already achieved—an increase in manufacturing investment sufficient not only to improve our competitiveness but also to generate substantial increases in manufacturing employment. The House will know that the higher rates of manufacturing investment in those countries were accompanied by an increase in manufacturing employment of 11 per cent. in France, 31 per cent. in Germany and 155 per cent. in Japan. During the same period—1955 to 1973— manufacturing employment actually fell by 13 per cent. in the United Kingdom, and British firms have been investing only two-thirds as much as German firms, only one half as much as French firms, and under a quarter as much as Japanese firms.

I admit that it will not be easy to reverse a trend which goes back at least to the end of the last war. I believe that what other countries have done we can do—but only if we ensure that, once recovery gets under way, the major part of the increase in the nation's wealth so generated goes into manufacturing industry, particularly into exports and investment.

Of course, no Government can give a firm guarantee that these targets will be achieved. But if they are not achieved, there will be less, not more, scope for public spending. Given the crying need to base our recovery on exports and investment, public expenditure could increase at the rate envisaged a year ago only at the expense of privately financed consumption, and the necessary restraint on private consumption would have required tax increases equivalent to 8p in the pound more on the basic rate of income tax than is now needed. I do not believe that it would be possible to count on the necessary moderation in wage claims, nor the necessary effort in industry, if the average man and woman were losing well over 50p from every extra pound they earned in tax and national insurance contributions.

Another factor which has led the Government to revise last year's programmes is the increase in the real burden of debt interest caused by the dramatic fall in our inflation rate. The agreement of the trade unions to the £6 pay limit last summer has transformed our economic prospects in every way. The steady fall in our inflation rate, which the TUC recognises must continue through the next wage round, will bring us immeasurable benefits. But it also brings us one disadvantage in the field of public expenditure. When inflation is rising at the rate it was a year ago, and real interest rates are negative, the burden of servicing Government borrowing is reduced. When inflation is falling as it is today—and as we intend it shall continue to fall until our rate is at least no higher than that of our international competitors—then the real burden of debt interest is substantially increased.

Because of this, as the White Paper makes plain, the real burden of debt interest in 1978–79 is likely to be about £3,000 million higher than we envisaged a year ago, although I admit that it is extremely difficult to form an accurate assessment of how this will move. Fortunately the resource content of this debt interest is very much smaller than that of spending programmes—because no more than about 30 per cent. of the interest paid on the internal debt is likely to get into consumption during the period and thus represent a demand on resources. On the debt interest paid at home much will return in tax, since the individual holders of interest-bearing assets tend to be better off than the average. Moreover, much of the interest payments which go to institutions are added to their reserves—some of which may well be invested in industry. On the other hand, about one-seventh of the debt is held abroad, and we must regard the interest on this as leading to a claim on real resources of a pound for a pound.

For all these reasons, the Government have decided that after next year, when there will be a rise in total public expenditure of 2.6 per cent., including debt interest, expenditure should broadly level off for the following three years. I warned the country that this was likely in my Budget Speech last April, and repeated the warning last July. These are not cuts in the current level of expenditure, on the contrary. But the White Paper does mean that after six years of increasing expenditure—three years under a Conservative Government, which increased programmes by an average of 4.3 per cent. a year, and three years under a Labour Government in which the increase will have averaged 4.1 per cent. a year—the programmes will mark time and the increase in output we expect will go into exports, investment and, to a small extent, into personal consumption.

Moreover, the Government are taking special steps to ensure that the planned limits on expenditure are not exceeded in practice, as so often in the past. The new Consultative Council, which enables local authorities and central Government to discuss spending programmes throughout the year, has already proved its worth in the area of local authority spending, which has in the past been most liable to escape control. The results are already to be sen in the exceptionally low rate increases planned by so many councils this year.

The Government are planning to institute much more effective monitoring of expenditure. Moreover—and all ex-Ministers will realise the importance of this innovation—the Cabinet has established much more effective continuous control of claims on the contingency reserve, that is to say the element in the total of planned public expenditure which is not allocated in advance to specific programmes.

Most important of all, the Government are introducing cash limits to cover a wide range of public expenditure. About three-quarters of central Government voted expenditure—excluding social security benefits—will be covered. Rate support grant is included in this. Cash controls will also apply to most local authority capital expenditure.

So far as central Government expenditure is concerned, the only important exceptions to cash limits are items like social security, where the amount of money spent will depend on circumstances outside the Government's immediate control. Although at one time he implied the opposite, I doubt whether even the right hon. and learned Member for Surrey, East (Sir G. Howe) would actually cut the old-age pension because people were living longer, or cut unemployment benefit because more people were out of work.

I do not pretend that the process of agreeing how the necessary reduction in previously planned expenditure would be achieved was a pleasant or an easy one. It never is. But I would claim that the Government have done all that can be done to observe the priorities to which they committed themselves at the last General Election. We warned the country at that time that the priorities we set out in our manifesto are part of a programme for a five year term of office. Much of what we want to do will take longer because of all the heavy spadework which has to be done to create the economic strength on which all else depends …". Earlier in the manifesto we said that the timing of this will depend on how quickly and how completely we get on top of the economic problems. In other words, we gave fair warning in the manifesto that it might be necessary to revise programmes for the reasons stated.

Mr. Heffer

Will my right hon. Friend not also agree that at the end of the manifesto it actually said that the Government were not being too ambitious but that they had costed the whole thing? On that basis the original costing surely meant that they had already decided what the cost would be. Why, then, are we going back on our original costing?

Mr. Healey

I have just stated the reasons. First, we made it clear that what happened to the world economy and to our own economy would determine the rate at which we could carry out these commitments. We costed them. But we also knew that things might happen in the world economy, like the current recession for which we do not bear responsibility, which would make it essential to give priority to economic revival rather than to some of our social priorities. We said so in terms in the manifesto from which I have just quoted and on which my hon. Friend the Member for Liver-fought the last General Election and, I am glad to say, no less than I, won his seat.

Too often in the past, Governments faced with this problem have simply made equal percentage cuts in all programmes across the board. We acted very differently. We agreed at Chequers that the regeneration of British industry should be our first priority, and that was a commitment endorsed unanimously by the Labour Party Conference three months earlier. So we have actually increased last year's programmes for jobs, industry and trade by nearly £500 million. There are additions to the social security programme, while planned expenditure on housebuilding and overseas aid remain untouched at the level planned last year.

The programme cuts are limited to other areas of public expenditure and here, too, we have done our best to observe our priorities. We are maintain- ing the programmes for community ownership of development land and for nationalisation of the aircraft and shipbuilding industries and of the ports. We are maintaining the new regional planning machinery through the creation of the Scottish and Welsh Development Agencies. The National Health Service will continue to expand, though at a lower rate than we hoped last year.

At the end of the White Paper period—in 1979–80—we shall still be spending 20 per cent. more in real terms on education than in 1970–71. More 16 to 18 year-olds will benefit from non-advanced further education. The pupil-teacher ratios achieved in the last decade will be maintained—20 to 1 in schools overall and 10 to 1 in sixth forms. Even after the next increase in the price of school meals, they will still be receiving a 50 per cent. subsidy.

Above all, we have given special priority to the pensioner. The old-age pension will still be increased in line with average earnings—or prices, if they have risen more. We have already legislated for child benefits next year. There will be further help for the disabled. We have made further specific cash provisions for non-contributory invalidity pensions, mobility allowances and invalid care allowances.

I would not claim that the priorities we have chosen are perfect in every respect. Indeed, we have left it open in our White Paper to modify and adapt our plans as the general course of the economy and the most important needs of the community require. We shall listen carefully to any constructive advice on priorities which is given us either in the House or outside. But, given the scale of the problem we faced, and the disappointments we were bound to inflict on those who set their hearts on seeing greater improvements made faster in so many areas of our society, I believe that we have preserved the essential priorities to which we committed ourselves in October 1974.

Mr. Norman Atkinson (Tottenham)

Is not the greatest central challenge to most Socialists the fact that the Government now envisage in 1980 a level of public expenditure which is 3 per cent. less than the proportion devoted to public expenditure in 1971—in other words, the proportion relative to the gross domestic product will be reduced in 1980 in comparison with 1971? Is the Government's reason for doing that that this level of public expenditure is too big for the economy to carry, or are there other reasons why it is necessary to reduce this proportion?

Mr. Healey

If my hon. Friend listened to what I said earlier, he will know that the reason why we are reducing public expenditure as a percentage of the gross national product—although we are not cutting the total level that it will have reached by the end of next year—is purely economic—

Mr. Atkinson

I know that it is economic.

Mr. Healey

My hon. Friend asked me whether it was, and I have answered him. He may disagree with me. If he does, I have no doubt that he will have an opportunity to put his point of view. But it is necessary, for the reasons which I stated and which were endorsed implicitly by the policy statement on industry, accepted unanimously at the last Labour Party Conference, to make room for a substantial shift of resources, during the upturn, into manufacturing industry.

I believe that this is also the view of the great majority in the trade union movement. Indeed, I was interested to see Mr. Scanlon, who is the leader of my hon. Friend's union, quoted as saying in Glasgow last Friday: We support the government completely and absolutely in its general strategy. We are not against the cuts in principle but against the cuts in certain directions—for example in education and some of the social services. I believe that, in using those words, Mr. Scanlon spoke not only for himself and the great trade union which he represents but also for the overwhelming majority of the working men and women who turned out in unprecedented numbers in a by-election to support the Labour Government in Coventry last Thursday.

Indeed, in the light of the vote of confidence which the Government have just received—not only in Coventry but in so many party and trade union meetings up and down the country, including my own Yorkshire Regional Conference of the Labour Party last Saturday—I find it difficult to understand the amendment put down by my hon. Friend the Member for Luton, West (Mr. Sedgemore) and some of my other hon. Friends.

Their amendment makes a great deal of the TUC Economic Review. That Review points out that much of the Press comment on the White Paper misrepresented the Government's proposals. It emphasises, as I have emphasised, that they generally meant a scaling down of hopes for the future as opposed to cuts in current spending levels. I repeat that this is the TUC Economic Review, which I have no doubt will be quoted selectively during the course of this debate. It fully accepts the need to give priority to extra resources for manufacturing industry. Its criticisms are there. They are limited but nonetheless important for that. It expresses concern at certain specific programme cuts, as Mr. Scanlon did, and declares its anxiety that the balance of payments and capital spending might not automatically improve to fill the gap caused by the reduction in public expenditure.

Mrs. Margaret Bain (Dunbartonshire, East)

Will the right hon. Gentleman accept that many of us find it difficult to reconcile what Mr. Scanlon said with what trade unionists at the grass-roots level say in our constituencies? Most trade unionists who have contacted us indicate that they are totally against the public expenditure cuts envisaged by the Government and believe that they strike at important aspects of the standard of living of the working-class community in Great Britain and Scotland.

Mr. Healey

The House will form its own judgment about whether the hon. Member for Dunbartonshire, East (Mrs. Bain) is better qualified to speak for rank and file trade unionists than Mr. Hugh Scanlon. My own view is that Mr. Scanlon is very much better qualified than the hon. Lady is and has proved it in a lifetime of service to the trade union movement.

Mr. Neil Kinnock (Bedwellty)

Given the absence of trade union credentials on the Opposition Benches, may I draw my right hon. Friend's attention to the front page of the Transport and General Workers Union's publication Record which carries an article by Mr. Jack Jones, the general secretary of my trade union, calling for selective reflation involving increased public expenditure? On a more mundane level, may I draw my right hon. Friend's attention to a resolution passed by the Oakdale Lodge of the National Union of Mineworkers in my constituency calling upon me to oppose the proposed cuts because of their effect on the unemployment position and stressing that the present level is not acceptable and that the policy laid down by the Government will only increase it?

Mr. Healey

Of course I am aware that there are different views. If there were not the minorities would not be so heavily defeated in the party as they have been at the union and party meetings to which I referred, including the Yorkshire miners' resolution at last Saturday's conference. When my hon. Friend quoted Mr. Jack Jones' article in the union publication, he was unable to quote anything attacking the public expenditure cuts. But he quoted some remarks about the next Budget which I shall have the opportunity to discuss with Mr. Jones and other members of the TUC General Council on many occasions in the coming weeks.

I must press on, Mr. Speaker, because I take seriously your warning about the need to curtail speeches. [Interruption.] I see that there is some discussion among members of the minorities. Perhaps they will be kind enough to sort out their differences outside the Chamber so that the rest of the House can hear what I have to say.

The real anxiety—and it is a serious one—expressed in the TUC Economic Review is that the balance of payments and capital spending might not automatically improve to fill the gap caused by the reduction in public expenditure. I do not believe that our economic performance will improve automatically although I fear that the House will have to wait until my Budget before hearing details of the Government's approach to securing the improvements that we need. At this stage I can only repeat that without this levelling off of public expenditure it would have been physically impossible to achieve the improvement that we need in the rest of the economy. If we should fail, for any reason, to get that improvement, we shall have to cut public expenditure programmes further, rather than increase them.

The Tribune amendment, if I may call it that, like the Conservative amendment, claims that the White Paper will increase unemployment. But the White Paper envisages no reduction in public service manpower as a whole, simply a levelling-off, although there will be a small reduction in the size of the Civil Service—a reduction smaller than its annual turnover. I do not believe that the House or the country will feel that this levelling off of public service manpower is unreasonable. Local authority manpower increased by over 1 million between 1959 and 1974 when manufacturing employment fell. It is in nobody's interest that this steady transfer from manufacturing into the service industries, both public and private, should continue.

Perhaps my hon. Friend the Member for Luton, West will catch your eye, Mr. Speaker, and repeat some of the arguments he used in Tribune the other day. But both his figures for public expenditure as a proportion of gross domestic product and his figures for direct taxation are between two and four years out of date.

Mr. Brian Sedgemore (Luton, West) rose

Mr. Healey

I shall be only too glad to accommodate my hon. Friend in a moment or two.

Mr. Kinnock

The Tories can go home.

Mr. Healey

I hope that hon. Gentlemen opposite do not take that advice because I shall be saying something about their amendment in a moment.

Over the last four years Britain has overtaken most of her competitors in both the fields I mentioned. Moreover, the speed at which a country can afford to increase public expenditure or taxation depends largely on the rate at which its output is increasing, and our output has been increasing steadily more slowly than that of our competitors in Europe and the rest of the world.

Mr. Sedgemore

Is my right hon. Friend aware that the figures that I published for taxation for 1974 and 1975 were based on an Answer supplied by the Treasury on 15th January 1976?

Mr. Healey

Of course I am aware of that. The point I am making is that my hon. Friend's comparisons between Britain and other countries in the rate of taxation and in the percentage of public expenditure as a percentage of gross domestic product were based on figures which are several years old. They have been much changed by the events of the last two to four years.

Mr. John Pardoe (Cornwall, North)

The right hon. Gentleman supplied the figures.

Mr. Healey

Yes, but they are out of date. That is the point. Hon. Members opposite should know—especially those with pretensions to economic knowledge as well as other pretensions that we well understand—that the world figures for 1975 are not yet available. Even OECD has been unable to produce them.

I understand the general concern—

Mr. Pardoe

If the right hon. Gentleman is going to knock down figures that have already been produced he must say why they are useless in this context. They can be useless only if our public expenditure since 1972 has increased more rapidly than that of other countries. Will he produce the figures and show us what has happened?

Mr. Healey

I will ensure that my right hon. Friend gives some of the relevant figures later in the debate. But the figures over the whole range of countries are not available—

Mr. Sedgemore

I used those that were available.

Mr. Healey

My hon. Friend the Member for Luton, West must contain his excitement. I have more to say, but not much more to say about him.

Mr. Dennis Skinner (Bolsover)

Do not be personal.

Mr. Healey

I hope the Official Report can record this exquisite moment in parliamentary history when Satan has rebuked sin.

I understand the genuine concern of some of my hon. Friends, reflected just now by my hon. Friend the Member for Tottenham, that the Government may have abandoned a fundamental principle of the Labour movement, which is that public expenditure should be used to correct inequalities in society and to improve the performance of the economy as a whole. Of course we have not abandoned that principle.

Mr. Peter Tapsell (Horncastle)

Will the right hon. Gentleman give way to an hon. Member from this side of the House?

Mr. Healey

I will give way to that side of the House in a moment. We simply must make room—

Mr. Tapsell

Will the Chancellor of the Exchequer explain to the House and the country why, at this grave stage in our economic history, he has devoted the whole of his speech to what sounds like an internal party political squabble?

Mr. Healey

The hon. Gentleman's pomposity will be proved unsuitable when I come to deal with the amendment tabled by his hon. Friends. The concern expressed by some of my hon. Friends is widely felt in the movement and it is my duty to deal with that concern as much as it is to deal with the views expressed by the official Opposition.

We must make room in the next few years for a big shift of resources into manufacturing industry or our relative economic performance is bound to decline still further as it has declined under successive Governments over the past 30 years. Once that decline is reversed, we shall be able to resume the steady improvement in our social infrastructure which is temporarily halted by this White Paper. But it will be physically impossible to achieve the improvement on which we can build further progress towards our social objectives unless we make room for it now by levelling off public expenditure for a few years once recovery is well under way.

I now turn to the amendment put down by the right hon. Lady the Leader of the Opposition.[HON. MEMBERS: "Where is she?"] She is wooing the trade unions, I dare say. In line with the cautious but rather cack-handed opportunism which has infected so much of her behaviour in recent weeks, she has drafted an amendment which gives little clue to what she thinks the Government should have done—except, I suppose, the implicit suggestion that they should have cut expenditure sufficiently to have permitted substantial reductions in taxation.

Mr. Nigel Lawson (Blaby)

Hear, hear.

Mr. Healey

Many of her hon. Friends, particularly the right hon. and learned Member for Surrey, East, who has also signed the amendment, have been more forthcoming. He has asked for much bigger cuts in public expenditure and has finally confessed that this would mean substantial increases in unemployment, and he has insisted that the cuts should be made immediately so that they will increase unemployment at a time when it would otherwise be levelling off and falling.

In the second place, he and the rest of the Opposition Front Bench never cease to complain that the public sector borrowing requirement is far too high, so they could not offer to cut taxation as well as public expenditure, for that would leave the public sector borrowing as high as before, unless—and perhaps this is what they really mean—they seek to cut public expenditure by more than is required to eliminate the public sector borrowing requirement. If not, there would be no scope, on their argument, for cuts in taxation.

The House must judge this new posture of the Conservative Party against its record in office, the promises it made in its last election manifesto, and its voting record in its last two years of Opposition. First, I will deal with the record in office. As the White Paper makes clear, under the Conservatives, public expenditure' programmes, including the contingency reserve and shortfall, rose on average by 4.3 per cent. a year during their last three years in office. In Labour's first three years the average is 4.1 per cent—less. If we include debt interest the picture is reversed. Total public expenditure averaged 4.3 per cent. under the Conservatives and 4.6 per cent. under Labour.

But the important difference, as the hon. Member for Oswestry (Mr. Biffen) pointed out the other day, is that this Government have not, like their predecessors, financed expenditure simply by printing money. On the contrary, as he writes: The White Paper has been published against the background of two years relatively effective monetary control". The price of the monetary profligacy through which the Conservative Government financed their massive increases in expenditure programmes is still being felt in our exceptionally high inflation rate, as I know the right hon. Member for Leeds, North-East (Sir K. Joseph) would agree. I am glad to see the right hon. Gentleman nodding his agreement.

Mr. Lawson

Would not a more important indication of the difference on public expenditure between the Conservative Government and the present Labour Government be that under the Conservative Government public expenditure never rose above 52 per cent. of gross domestic product, whereas under this Government it has already gone up to 60 per cent.?

Mr. Healey

That is not the case at all. What is particularly interesting is that the really big spenders in the last Conservative Government, apart from the right hon. Member for Worcester (Mr. Walker), now ranging hungrily in the wilderness, were the right hon. Lady the Leader of the Opposition and her Rasputin, the right hon. Member for Leeds, North-East, who I am delighted to see is to address the House tomorrow in this debate. The average annual increase in the right hon. Lady's Department during these years was 6.2 per cent., the increase in expenditure on health and personal social services in the right hon. Gentleman's Department was 5.2 per cent.—both well above the Conservatives' average of 4.3 per cent. It was the right hon. Member for Leeds, North-East who introduced the reorganisation of the National Health Service which, as all hon. Members will know from their constituency experience, has produced a bureaucratic nightmare.

It would be nice to feel that these increases in expenditure under the Front Bench opposite reflected some conscious choice about priorities but that is not 60. According to the right hon. Member for Wanstead and Woodford (Mr. Jenkin), who was responsible as Chief Secretary to the Treasury for public expenditure in the Conservative Government at the time—and I quote from a fascinating programme on Radio 3 on February 29th this year: At no stage do I ever recollect a discussion taking place: now is the time to cut back on roads in order to spend more on the disabled. It just doesn't happen like that. That was what the hon. Gentleman said, and I am sure that it was true. But I have news for him. That is exactly how it happens under the present Government.

Mr. Patrick Jenkin (Wanstead and Woodford)

Would the right hon. Gentleman read the next sentence?

Mr. Healey

The next sentence was contributed by a Mr. Klein. I will read it but I would advise the hon. Members opposite to read the whole of it. Mr. Klein said: Does it, in fact, reflect political muscle or the negotiating ability of individual Ministers? The right hon. Member replied: Inevitably. And you cannot get away from it. You cannot make a system that has to be run by often highly articulate and able individuals. I can only say if hon Members had read that they would not have had the insolence to put down an amendment in the form of the present amendment.

Mr. Ian Gow (Eastbourne) rose

Mr. Healey

I will not give way to the hon. Gentleman. I have given away a great deal more than Ministers are normally required to do in these debates.

But I have news for the right hon. Gentleman. That is exactly what happens in a discussion of priorities under the present Government, but for a group of ex-Ministers with the record of the Front Bench opposite to lecture the present Government on the control and planning of public expenditure requires either a total collapse of memory or an impudence which beggars description. Moreover, their total indifference to the cost of their programmes continued when they were in Opposition. As I have described in detail on earlier occasions, the cost of carrying out the commitments they made in their election manifesto in October 1974—commitments on tax credits, building society mortgage interest, student grants, pensions and so on—would have been over £3 billion. Even when the election was over they went on asking for more public expenditure.

The House will recall that they had been asking for more, not less, on defence; more, not less on agriculture; more, not less, on law and order; more, not less, on social security. They even wanted us to spend £373 million on the Channel Tunnel. Now we are asked to believe that they have seen the error of their ways. Now they say they want massive and immediate cuts in public expenditure with special emphasis on subsidies and what the hon. Member for St. Ives (Mr. Nott) described in our last debate as transfer benefits—pensions and so on. The result would be not only massive and immediate increases in unemployment but also an enormous and immediate increase in the cost of living. If we were to abolish subsidies on housing, food and the nationalised industries that would immediately raise the Retail Price Index by about 5 per cent.—and this without the abolition of tax relief on mortgage interest which the hon. Gentleman told us the other day should be considered.

Of course, none of the official leaders of the Opposition has the courage to say what is really implied by all these fine phrases. The only honest statement of their policy was made available—God bless him!—by the hon. Member for Blaby, only a few days ago in introducing the Bow Group's proposals for eliminating the public sector borrowing requirement and providing for a surplus to reduce the Government's recently accumulated debt. The whole House must be grateful to him for his candour.

In brief, the cuts proposed by the Bow Group amount to about £12 billion although the proposed introduction of negative income tax would reduce the true effects. The Group would cut £3,700 million off housing, mainly by eliminating subsidies, including rent rebates, and raising average council house rents by about £5 a week. It would also abolish local authority renovation grants and slash the number of council houses built. It says nothing, however, about ending mortgage interest relief.

The Group would cut education by £3,000 million, introducing taxable vouchers for primary and secondary education and insisting that all places of higher education should be paid for directly by students. It would cut £800 million off health expenditure by introducing consultation charges and providing a less highly trained family practitioner service with lower salaries. It would cut £4,450 million off trade and industry by abolishing road and transport price subsidies, phasing out regional support programmes and Government-sponsored research and development, phasing out selective support for industry and giving the nationalised industries what it calls an independent financial structure.

At the same time the Bow Group would abolish the Price Code and corporation tax. It would also cut defence expenditure by £400 million, partly by transferring certain functions to the private sector. I suppose that the British contribution to NATO would be provided by Securicor, or perhaps Slater Walker.

I must ask the right hon. Lady whether she endorses these proposals. If she does not she must tell us what she would put in their place. As the hon. Member for Blaby (Mr. Lawson) rightly states—I will quote him and no doubt he will enjoy hearing his words in my mouth: now that the general case for cutting public expenditure has been accepted"— by the Conservative Party— it is time to discuss in practical terms precisely where cuts of the magnitude required might be made. This is unlikely to be popular, the hon. Gentleman goes on. He is a frank and candid man. He continues: It is understandable if politicians"— by which he is referring to his political leaders on the Opposition Front Bench— flinch from spelling it out. But, however disagreeable and open to misrepresentation the discussion of specific economies may be, it is essential if public opinion is to be educated in the new reality. To that I can only say "Hear, hear."

Mr. Lawson

I hope that the right hon. Gentleman will have the courtesy to point out that this admirable pamphlet—I had no hand in writing it but I contributed a foreword—is obtainable from the Bow Group at the price of 40p.

Mr. Healey

And let me say that it is cheap at the price. I recommend all of my hon. Friends as well as Conservative Members to obtain a copy and to quote it ceaselessly on every political occasion in the immediate future.

It is no good attacking the proposals in the public expenditure White Paper unless hon. Members are prepared to say precisely how they would deal with the problems which it is intended to solve. General rhetoric and ideological daydreams are no substitute for the hard decisions a responsible Government must make. We have taken the necessary decisions and in doing so I believe that we have preserved the priorities on which we fought and won the last election. We have structured and phased the levelling-off in our expenditure programmes so that it will not cut jobs or increase the cost of living at a time when the fight against unemployment and inflation is at its height.

We have laid the basis for the regeneration of our manufacturing industry and, in doing so, have created the conditions on which alone our social programmes will be able to resume their advance. On all of these grounds I ask the House to approve the motion.

4.35 p.m.

Sir Geoffrey Howe (Surrey, East)

I beg to move, to leave out from 'House' to the end of the Question and to add instead thereof: 'declines to approve a White Paper which will lead only to lower living standards, fewer jobs and higher taxes'. I turn at once to the remarkable speech we have heard from the Chancellor of the Exchequer—

The Parliamentary Secretary to the Treasury (Mr. Robert Mellish)

It was a good speech.

Sir G. Howe

The Patronage Secretary is kind enough to take the view that it was a good speech. The furthest I would go is to say that it was wholly characteristic—

Mr. Healey

That is why it was good.

Sir G. Howe

Yet another insight into the Chancellor's mind. It was dominated by blustering misrepresentation of the right hon. Gentleman's political opponents, of their past record and their present intentions. Occasionally it revealed a degree of insight into the nation's problems and a limited awareness of what ought to be done about them. The whole speech was rendered profoundly unattractive by the style of aggressive complacency that dominated it.

The Chancellor did not give us very much of what we usually hear from him, namely, his delusions about the international reputation and standing of this Government. He patted himself on the back only once or twice. I am not surprised. We find that the pound has fallen in the judgment of world markets by 3 per cent. since last week and by 16 per cent. since the Chancellor came into office—no doubt because of the continuation of the policy which the markets of the world are now judging. What we have seen is a repetition of the Chancellor's failure to accept any responsibility for Britain's present economic position. Time and again he seeks to pass the burden back somewhere into the increasingly middle distance, appearing to have forgotten altogether his wholly misleading assertions of 18 months ago.

The right hon. Gentleman was saying to his hon. Friend the Member for Bolsover (Mr. Skinner), who interrupted him, that about 18 months ago he had no possible idea of the world recession, that it was not apparent then. His hon. Friend the Member for Liverpool, Walton (Mr. Heffer) commented pretty tersely at that point "You did not know what you were doing." That is a charitable explanation. The fact is that in the October 1974 election the right hon. Gentleman told the nation, presumably because he believed it, that unemployment and inflation were falling, and social programmes could go on rising. Those were his forecasts and promises then, when he did have full responsibility. They are forecasts that have not been fulfilled.

The time is long past when the right hon. Gentleman can keep looking back to the actions of the previous Conservative Government to provide an alibi for his present failure. It is high time that he was man enough to accept his responsibility for the present state of the economy.

Let me say a word or two about the right hon. Gentleman's comments on the record of the last Conservative Government. He repeatedly seeks to present his own reckless trail of over-expenditure as being in some way comparable to or better than that of the last Conservative Government. Let us look at the facts. It is true that there was a substantial growth in spending during the last two years of the last Conservative Government. But it fol- lowed a period of substantial cuts during the first two years of that Government. It took place during years of substantial growth in the nation's total resources, so that, as my hon. Friend the Member for Blaby (Mr. Lawson) was pointing out, over the three years 1970–73 the public expenditure share of the gross domestic product remained virtually constant—50.6 per cent. in 1970 and just over 51 per cent. in 1973. It may well be too modest for a Conservative Government to hold the public expenditure percentage of the GNP to that level. At least they have always achieved that.

The Chancellor's performance is in line with the record of his Socialist predecessors. The Attlee Government after the war sharply raised the level of GDP spent by the Government, as did the first Wilson Government of 1964 to 1970. The present Chancellor has increased it from about 50 per cent. to 60 per cent. It is high time that he acknowledged and accepted responsibility for that and ceased to lay blame where it cannot properly be laid.

It is high time that the Chancellor stopped returning to his other old gramophone record—the manifesto on which we fought the last election. Time and again he misrepresents our manifesto and claims that we were committed to a large spending programme, which we did not know how to finance. That is wholly untrue. It was his party which deceived the nation, and, apparently, the hon. Member for Walton, by saying that it had costed its programme and was going ahead with it.

Our manifesto said: In the present economic emergency, it would be irresponsible for any Government to pretend that there can be general increases in public spending in real terms. This means having to postpone many of the things we would like to do straight away. We set out some of the things we hoped to be able to do and added: in order to prevent inflationary consequences, it may be necessary to make cuts in public spending or increases in taxation. The time for the Chancellor to criticise my party will be when he puts his name to a manifesto that compares in honesty and integrity with ours.

Just as the Chancellor deceives himself about the past and the future, he also deceives himself about the adequacy of the White Paper as a plan for restoring health to our economy. On his presentation of the merits of the White Paper today, one does not have to look far to understand the country's present plight. If that is the best we can hear from him, it is a sad thing that he holds the high and important office of Chanecllor of the Exchequer.

Perhaps I should be a little more charitable about the Chancellor of the Exchequer in those areas were he has shown at least some degree of insight. The massive expansion of public spending is a central cause of our problems and the Chancellor was seeking to explain this to his hon. Friends when one interrupted to ask why he had departed from the programme of the Labour Party. The Chancellor said the reason was purely economic. What a revelation! The Chancellor is being confronted by the conflict between economic realities and the political fraudulence with which he and his party have fought election after election.

Some insights are at last getting through to the right hon. Gentleman. The White Paper points out that the tax burden has greatly increased, and says: Tax thresholds have fallen sharply in relation to average earnings, and people are being drawn into tax at income levels which are below social security benefit levels. The increase in the tax burden has fallen heavily on low wage earners. In words which might have come from any hon. Member on this side, the Government are beginning to realise that one of the effects of the current level af public expenditure is a crippling tax burden.

Mr. Healey

I have said that before.

Sir G. Howe

The Chancellor may have said it before on one of his occasional good days, but if he thinks that is the impression that he and his party have given to the country over the years, he deceives himself even more than I thought.

The White Paper says that public expenditure on that scale leads to an increasingly inefficient use of resources and adds: Changing the structural distribution of resources in this way"— from the public to the private sector— is the only means of restoring and maintaining full employment. The White Paper makes clear that public expenditure increases on this scale cause a crippling burden of debt, and that the reason the debt has risen in this way is the Chancellor's failure to control public sector borrowing and his failure to estimate the true size of the interest costs.

It is no argument for the Chancellor to say, as he did today, that the resource costs may be less. That may be true, but the taxpayer must still find the additional gross resources with which to meet that additional sum on the spending side of the budget. High borrowing means high repayments and interest rates and higher burdens on taxation. The Chancellor is consuming today what our children and maybe even our grandchildren will have to repay. For that reason, he is having to propose cuts in the social programmes to which his party is committed, so that we can repay the debt burdens that he has incurred.

By overspending in this way, he has consciously added to the risks of future inflation if he fails to cover the borrowing requirement in a sensible way. Additionally, he is placing the freedom of the people of this country in very real danger. The Home Secretary has said: I do not think you can push public expenditure above 60 per cent. and maintain the values of a plural society with adequate freedom of choice. We agree with that. In fact, we would put the figure far below 60 per cent. Every time the Chancellor takes another slice out of the average taxpayer's pocket, he takes another slice of freedom with it. We find that intolerable and are glad to see that the Chancellor is beginning to accept this point.

In his speeches about the White Paper, the Chancellor has accepted the case that we have been making. Why else would he want to reduce the amount of GDP represented by public expenditure from 60 per cent. to 53 per cent.? He has accepted our view that the case for continued high-spending Socialism has been totally destroyed. I understand the sense of shock that will bring to hon. Members opposite like the hon. Member for Tottenham (Mr. Atkinson). But if they looked back over the last 20 years, as I am sure the Chancellor must have done, and contemplated the addition of 1 million people to the public service payroll and the 50 per cent. increase in the share of the nation's resources taken by the State, together with the £6½ billion more, in real terms, being spent by this Government than was planned by the last Conservative Government, they would have to agree that there has been nothing like a comparable improvement in the standard of the public services.

We have a disintegrating postal service, a collapsing rail service and a National Health Service that sometimes seems close to breakdown. Municipal services become lower in quality as they become more expensive. This is hardly "The Future of Socialism" about which people like the Secretary of State for the Environment used to write years ago.

The Chancellor says he has not abandoned any fundamental principles of the Labour Party. If he has not, it is high time he did so. The party is over for all of them, just as it is for the Secretary of State for the Environment.

Mr. Atkinson

Will the right hon. and learned Gentleman summarise what he has been saying and tell the House why it is good for the private sector to borrow and invest but bad for the public sector to do the same sort of thing?

Sir G. Howe

There are two reasons. First, so little of what the public sector borrows is invested and secondly, on its track record, the public sector in this country has not shown itself competent to manage investment. I challenge hon. Members opposite to point with enthusiasm to any record of glowing success of management of public sector investment. It is not there.

Mr. Raphael Tuck (Watford)

What about the thousands of bankruptcies in the private sector?

Sir G. Howe

They are the consequencies of over-spending by the public sector. The eating up of resources by the public sector helps to destroy the private sector.

We are seeing the Galbraithian chickens coming home to roost. If we are to believe the White Paper, the Chancellor at least now sees something of all this. I congratulate him on having understood and accepted so much of the analysis we offered him—but, unfor- tunately, the conversion is apparently only skin deep.

The other message that emerges from the White Paper is that having understood precisely what is wrong, the Chancellor and his colleagues propose to do nothing about it. That seems strange to those in the City and other places who are sometimes impressed by the virtues of the Chancellor's apparent insight. They ask why it is that a man who sometimes appears to talk such sense appears not to take appropriate action. I shall tell them why. They do not see, as we see, the party that faces us, with hon. Members sitting below the Gangway harrying and heckling the Chancellor. They do not see the National Executive Committee of the Labour Party, or even those who hold the arks of the covenant of the Labour Party in Newham, Hammersmith and elsewhere. The Chancellor takes some comfort from being able to secure the support of his own Yorkshire area for the policies he puts forward, but that is not sufficient to impel him from diagnosis to the virtue of what he should do.

Even if the Chancellor knows what to do—perhaps he does—even if he wants to do it—perhaps he does—he is not allowed to do it by the deeply divided party to which he belongs. Some Labour Members are still determined—they make clear with every intervention they offer that they are anxious to do so—to take the British people still further along the road that has brought such prosperity to the people of Romania, such freedom to the people of Czechoslovakia. Their sort will not rest until they have built a neo-Leningrad in England's green and pleasant land.

Mr. John Mendelson (Penistone)

Before the right hon. and learned Gentleman takes off into his fanciful stratosphere, may I comment on what he said? He referred to the amount of public money that has been spent on the social services and education and said that there was nothing to show for it. That is an unjustifiable running down of important services. If the right hon. and learned Gentleman asked ordinary people—parents, for instance—why they are so concerned about possible cuts in the educational budget in years to come, he would find that people value the services as parents, not as doctrinaires, because they have been a great success. The right hon. and learned Gentleman is wrong to run down that expenditure.

Sir G. Howe

I do not want to follow the hon. Gentleman too far into his stratosphere. Labour Members know as well as I do that although people are glad to have seen the expansion of public services very few truly believe that they have seen anything like value for money in terms of improved public services in return for the vast outpouring of public expenditure and high taxation involved.

Mr. Peter Hardy (Rother Valley)

Tell us what you would do.

Sir G. Howe

I am coming to that. I want to devote a little more time to the Chancellor's responsibility for our present position. He has presided—there is no escape from this—over the most massive expansion of public spending, far beyond the nation's resources, and he sets that out in the White Paper. When we ask ourselves why he has done so, we find this curious statement in paragraph 1 of the White Paper: Popular expectations for improved public services and welfare programmes have not been matched by the growth in output". Too true, but who has done so much to arouse those popular expectations if it is not the Labour Party? In a moment of penitence in talking to the Institute of Fiscal Studies the Chief Secretary to the Treasury said: I have no sympathy whatsoever with those who try to 'con' working people into believing that it is somehow possible … to have increasing public expenditure, with lower output from an ever-declining manufacturing base, and without levels of taxation which would be unacceptable to the average worker. In other words, we cannot have our cake and eat it, and the sooner the politicians stop pretending we can, the better it will be for the country. I express the hope that that observation will be prominently displayed at every meeting of the Labour Party's National Executive and at every meeting of the Labour Party Conference and engraved on the hearts of those who have led the Labour Party into raising those expectations in just that way in all the years they have been in business.

The Labour Party has, moreover, allowed an expansion of public spending in a way that has led to a dramatic explosion in wage inflation. Time was when we used to hear from the Labour Party about a document entitled "The Social Contract"; but it seems to have gone away.

On looking closely at the text of the Chancellor's speech on the debate on unemployment I found the way in which it had been redefined: … 18 months ago, the intolerable increase in wage inflation which took off in the autumn of that year".—[Official Report, 29th January 1976; Vol. 904, c. 689.] That was the social contract. It is the intolerable increase in wage inflation which has contributed so much to this growth of public spending. The Chancellor stood by while the strategy of last year's Budget totally collapsed. He is occasionally disposed now to remind us—

Mr. Michael English (Nottingham West)

May I offer the right hon. and learned Gentleman a Galbraithian chicken? Is he aware that John Kenneth Galbraith, to whom I presume he was referring, in an article last week said that he thought that Britain was the only country in the world successfully to be controlling the combination of inflation and unemployment?

Sir G. Howe

If Britain in her present condition is what Professor Galbraith regards as a success, that is an apt commentary on Professor Galbraith.

The Chancellor continued to say that he was following the course set out in his last Budget. He seeks to have us believe that last year he was resisting cuts in public spending this year because he wanted them to be put off until some year in the future, when they would be appropriate. His Budget speech last year gave three keys to his strategy. First, there was a declared determination to reduce public borrowing in 1975–76 by £1 billion below the level of the year before, and by £3 billion in the year after that. Secondly, there was a determination to achieve that by expenditure cuts in 1976–77 and by higher taxes in 1975–76. What has happened? We certainly had the higher taxes, but we do not seem to have had anything else. We have much higher public borrowing and public spending in the current year and the year to come than was intended.

At that time my hon. Friend the Member for St. Ives (Mr. Nott) and I—and others—were telling the Government that they should be making cuts now. The answer given on many occasions by the Chief Secretary was "No, it is being carefully planned to have the cuts next year". Those were the cuts of £1,100 million in the year just about to begin. That was the case put forward by the Chief Secretary and the Chancellor. Time and again from the Opposition Benches we said "How foolish can you be to be planning cuts in public spending in 1976–77, when unemployment will be towards its peak and perhaps still going up?" They said "Nonsense, trade will have turned, and in any event it will be right to do it at that time."

All is now presented as part of a grand design, but the Chancellor knew then what he should have done, which was to begin cutting public spending then so as to create more room for an expansion in the private sector now. His failure to do that has resulted in still more jobs being lost in the past and in the present. The White Paper is a totally inadequate response to the present situation.

Mr. Hardy

Tell us what is an adequate response.

Sir G. Howe

I am coming to that. I shall tell the House why it is inadequate. It is inadequate first, because it proposes no effective cuts until 1977–78—which is the wrong time. On the Chancellor's own analysis, projected from last year, that is when the upturn will be coming, if not peaking. If he starts making cuts then he is likely to find himself making the cuts at a time when unemployment is once again on the way up.

Secondly, the White Paper is inadequate because it visualises a continued expansion, on a massive scale, of public borrowing. The debt interest per household in 1973–74 was £170 a year. In the year just finishing it has gone up to £255 a year. Therefore, it has gone up by 50 per cent. in the last two years under this Labour Government. If we carry on in the way projected in the White Paper, the debt interest per household will be running at well over double that—nearly £600, in 1979–80. That is a situation which simply cannot be allowed to continue.

Mr. F. A. Burden (Gillingham)

Should it not also be pointed out that some time ago one of the Treasury Ministers, in reply to a question, stated that the borrowings from abroad were preserved against inflation by being paid back in dollars when the debts became due?

Sir G. Howe

That may be true of some of them, but not all of them. The more important point is that the Chancellor warned against his own policy in his Budget speech last year by saying: By relying unduly on borrowing we would run the risk of being forced to accept political and economic conditions imposed by the will of others. This would represent an absolute and unequivocal loss of sovereignty which I think neither side of the House would wish to invite."—[Official Report, 15th April 1975; Vol. 890, c. 284.] That is the position towards which he is still steering us. Moreover, the cuts that he is making are curiously designed because of the huge burden of borrowing which overhangs us. There are cuts in health, education, and the prevention of crime. It is strange to think that the Labour Party believes in cuts at the heartland of the Welfare State simply to pay for the huge increase in the cost of borrowing over the past two years over which it has presided.

It is tragic that the Chancellor is leaving virtually no room for the shift towards future profitable investment which the White Paper regards as necessary. In his speech the Chancellor had a brief word about the programme for the expansion of industry which the White Paper foreshadows. However, if one examines it one sees that it is no such thing. The sums to be devoted to trade and industry between 1978 and 1979 are allocated almost entirely along the following lines: to the National Enterprise Board, just over £1,000 million; to British Leyland, another £200 million under the Industry Act; to the capital programme of the nationalised oil corporation, about £450 million. There is also a large sum for aircraft and shipbuilding nationalisation. Therefore, the lion's share for this so-called programme for industry is going towards "lame ducks", or the next best thing; far more to the less heroic "wounded heroes" and almost nothing towards the expansion of investment in profitable industry.

It is remarkable that the Chancellor has taken credit on several occasions during the last year for the expansion in industrial training which is contained in the changes which he has been making. The part of the White Paper dealing with that matter shows that the increase in provisions for industrial training in this White Paper compared with those set out in last year's, is no more than 13,000 additional trained men over the four years that lie ahead. Therefore, even there he offers very little that is likely to lead to success.

The most disturbing feature of all is the one to which I come last—namely, that the White Paper offers the prospect of still further increases in the tax burden. On the day when the White Paper was published the Chancellor was saying that if the White Paper forecasts were fulfilled, then if the real value of tax thresholds were maintained, we could look forward to income tax increases of between 2p and 6p in the pound. That is the message of the most shocking paragraph in the entire White Paper; paragraph 6 says that The tax burden will still increase but, says the Chancellor, "by a manageable amount". Manageable for whom? Does the Chancellor really believe, having read the opening page of his White Paper, that increases in the tax burden are "manageable" for widows and others who are struggling in the poverty trap and for people living on investment income who now face a starting point for that worth about £570 compared with £2,000 in 1972? Certainly he cannot believe that further increases in taxation are "manageable" for the average wage earner now paying about £700 a year more per household in taxes of all kinds than he was two years ago; and likely to be paying about three times as much as that if the projections in the White Paper are fulfilled.

Least of all, can the Chancellor believe that further increases in taxation are manageable for the so-called high income earners—the managers, the executives and the technologists—who have been facing cuts in their real post-tax income of a sixth or even a quarter over the past four or five years?

I find it impossible to see how the Chancellor can defend the prospect of a society in which people who may have been working for their companies and for the country overseas return to this country on promotion and are rewarded by sharp cuts in their post-tax income on appointment to important positions in this country; or a situation in which people below the poverty line will be paying still more tax.

For all those reasons the White Paper represents a less than adequate response to the problems which face the country. For the reasons which my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) will go into, the prospect is, in reality, a great deal worse than that. The White Paper forecasts from which these projections are extracted are unreliable, unsustainable and far exceed in their optimism the most euphoric passages in the late lamented National Plan. Upon those foundations it is perfectly apparent that the Chancellor has failed to grapple with the problems which are very serious and formidable.

The prospect is a bleak one. But there is a way out which this Government neither have the support, nor the insight, nor the courage to undertake. Let me tell the Chancellor what he should be doing. In the first place, he should be a great deal more honest about the hardships that are and will be involved in getting this nation back on the road again. If he is not prepared to face them now, if he is not prepared to explain them to the nation now, they will be a great deal more painful later.

Second, he must acknowledge, as he does on his good days from time to time, that some immediate falls in living standards are inescapable if far worse reductions in living standards are to be avoided later. That is the inescapable arithmetic, even on the basis of his own White Paper.

Third, those changes must not be achieved by the route which he prescribes of still higher taxes. They can be achieved only by requiring those who can afford it to pay more realistic prices for the goods and services that they enjoy. That is a realistic analysis in a world where the Chancellor often reminds us that the nation's living standards have already been cut by 5 per cent.

Of course, there must be proper management of the money supply, but not alongside fiscal and other policies which will continue to feed the public sector at the expense of industries and firms in the private sector—which could be providing the jobs and the wealth of the future. That is why, although we may be impressed by the Chancellor's conversion to monetarism, we are not particularly impressed by the way he combines that with fiscal policies which continue to starve and squeeze the private sector intolerably.

As the White Paper says, the real answer to our problems can come only from changing the structural distribution of resources. That is the only means of restoring and maintaining full employment. The point we make, which we made last year and will continue to make even though it may become too late, is that the time for starting that change is now. The Chancellor knows very well that one key to producing that change lies in having the courage to move away from the present pattern of price control.

The real reason why firms will not invest is that real profits have now become virtually non-existent. One cannot be expected to invest what one does not have. Steps must be taken to restore profitability; for there is no chance of promoting investment today if there is the prospect of rigid price control over the profits of tomorrow. Then the Chancellor must move more quickly to reduce the burden of subsidies. The Chancellor sees the sense of that. There is no question of principle at stake here. For he is himself committed to eliminating the subsidies on nationalised industry prices. That will be uncomfortable enough. And it should be accompanied by a far more vigorous attack on overmanning in some of these industries if all those employed there are not to price themselves out of jobs.

On the same analysis, he should press ahead with the elimination of food subsidies. Here, again, the principle is not in dispute. For they are a wasteful and inefficient means of providing help—introduced solely to assist the Chancellor to secure re-election for his party in the summer of 1974. It would do far less to raise food prices if food subsidies, along with other expenditure, were reduced, than to allow a continued fall in the value of the pound, which will inevitably happen unless spending is brought under control.

The right hon. Gentleman must be looking much more vigorously and questioningly at the scope for reducing subsidies on housing. Even now, taking account of the changes foreshadowed in the White Paper, the Government are planning to spend in 1978–79 about £1,500 million a year more than was foreshadowed in December 1973 in Mr. Anthony Barber's last programme. It is doubtful whether that huge increase in spending has secured more houses or has reduced the housing shortage. Of course, we want to continue to help those in need with the provision of homes. But it is very difficult to justify the changes in the scale of spending which has taken place.

In 1971–72 rents contributed about 73 per cent. of the income towards local authority costs of housing. The figure is now 43 per cent.; and at the end of the White Paper programme it will have risen to 50 per cent. In the meantime, the average council house rent, as a percentage of income, will have fallen from 7 per cent. to 5 per cent.—at the same time that the average initial mortgage repayment, as a percentage of income, will have risen from 25 per cent. to 40 per cent. It is difficult to argue that there is no scope for significant further savings in that area of public expenditure.

It is difficult, also, to argue that the Chancellor should not be making earlier moves to reduce the number of jobs in the Civil Service as he plans to do, by £140 million, in 1978–79. It is very curious that the Government are, at present quite unable to identify where those reductions should be made, and what programmes should be subject to scrutiny, although, in their same White Paper, the Government are able to give us exact forecasts for 1978–79 of the rate at which criminal proceedings will have increased, and of the way in which they look forward to an additional 2,700 prisoners in our gaols. All these matters can be forecast in the White Paper; but not those significant points to which I have referred.

If the Government intend to make the reductions in public spending which are necessary, most important of all the Government should abandon the sacred cows of Socialism which are still stalking through the industrial towns and cities of this country, destroying jobs as they go. I am glad to see that both factions of the Labour Party are united in embarrassed laughter at the validity of the point I am making.

It is time to spell out how much this Socialist Government have cost us this year through Socialist measures over and above the programmes inherited from the last Conservative Government. Let me list them. They include food subsidies, increased housing subsidies, the National Enterprise Board, industrial assistance programmes ranging from Norton Villiers Triumph in all its forms to the Scottish Daily News, nationalisation of building land, the enforced comprehensivisation of schools, the abolition of pay beds, the nationalisation of oil, shipbuilding and aircraft, and, most recently, the extension of the Dock Labour Scheme.

The total cost, in this coming year, of these programmes is just over £1,700 millions. And if we add to that the extra debt interest this year, in addition to the programmes foreshadowed by Mr. Barber—as he then was—that represents an additional £2,300 millions. So we have a total being spent this year, on the extra cost of Socialism, of about £4 billion. That is the area in which the Government should be setting out to make cuts, and I hope they will not begin to argue that large parts of that spending make any contribution to the creation or maintenance of jobs. There are huge chunks of it in respect of which precisely the opposite is true. The threat of a capital expenditure programme for North Sea oil, through the nationalised corporation, of £450 millions, is at this moment delaying private investment, creating redundancies and unemployment in the platform yards and deferring orders for the engineering works in which the private sector could be expanding.

There is the threat of nationalisation of shipbuilding and aircraft. Who in his right mind would now be committing further private investment to industries which have been overshadowed for years by the threat of nationalisation which is still going ahead? So, thousands more jobs in the capital goods industries are being destroyed by that aspect of public spending.

The Community Land Act is scheduled to cost about £350 millions over the next five years. Do the Government not realise that builder after builder is laying off workers, unable to contemplate the commencement of new building schemes so long as that shadow lies over his market in the years ahead?

There we have £1,000 millions of public spending which is literally destroying jobs and which is putting even more at risk—far more than would be threatened if all the other public spending cuts that I have suggested were put in train.

Mr. J. Enoch Powell (Down, South)

It would be a help to those of us who are hoping to take part in the debate if the right hon. and learned Gentleman could draw together the various details which he has given in the last five or 10 minutes and indicate the total amount of the reduction in the proposed expenditure for 1976–77 which he considers to be necessary.

Sir G. Howe

I am grateful to the right hon. Gentleman. I have indicated to the House the scale of over-spending which has been embarked upon by the Government, which is now running at about £6.3 billion this year above the last Barber projection. I have identified particular spending programmes running at £1.7 billion extra this year and which are directly due to policies which should not be taking place, together with additional loan costs of £2.3 billion. That is the direction in which the reduction in public spending should be made as quickly as possible, and that is the order of magnitude of the reduction.

Mr. Healey

The right hon. and learned Gentleman may be just approaching the answer to the question we have been putting to him for so long. He has spoken about the direction in which we should be moving. Will he answer explicitly the question put by the right hon. Member for Down, South (Mr. Powell)? What cut does he say should be made in the spending plans for 1976–77 as published in the White Paper? We do not ask him for a distribution at the moment, simply the size of the cut he is recommending.

Sir G. Howe

I have indicated precisely the areas in which and the programmes from which reductions should be made. I have answered the question explicitly. I have made very plain to the House that the totally unnecessary cost of the programmes introduced and still being carried through by this Government, including loan charges, is £4 billion. I have indicated the areas in which the Government should bring for ward spending cuts to meet that over spending—

Mr. Healey

Is the right hon. and learned Gentleman saying £4 billion?

Sir G. Howe

That is the target we should like to see, but Heaven knows how quickly we could achieve it.

Mr. Healey


Sir G. Howe

The Chancellor well knows that a large part of that programme of spending involves the payment of interest charges on expenditure already incurred during the last two years under his Government. There must be a limit to the pace at which one can unscramble and reverse that money, which is now water under the bridge.

I have plainly indicated the areas in which cuts should be made and the kind of cuts that should be made. Britain's desperate situation is the result—and this is the tragedy because the Chancellor recognises this—of the policies followed by his Government. The policies foreshadowed in this White Paper offer us only more of the same. It is for that reason that I ask the House to condemn the White Paper along with the Chancellor of the Exchequer, who has presented such an inadequate document.

5.20 p.m.

Mr. Sydney Irving (Dartford)

We have just heard what I am sure more hon. Members regard as a wholly inadequate response to an important occasion. The right hon. and learned Member for Surrey, East (Sir G. Howe) left what should have been the main core of his remarks—his proposals for cuts in public expenditure—to the last five minutes of his speech and then mentioned two or three proposals which would have been inflationary or have caused unemployment. Unless he and his party take this aspect more seriously, they cannot hope to be listened to in the country.

Every Labour candidate at some time in his career repeats the memorable phrase of Nye Bevan: Socialism is the language of priorities". That is part of a whole vocabulary of rhetoric which is designed to indicate that the Labour Party believes in planning, participation and accountability. I wish that that were truer in practice. If there had been as much planning over the past 20 years as there has been rhetoric, we should have solved many of our difficulties a long time ago. However, planning often means painful choices and we too often shy away from such choices. It is just such choices that we are considering today.

The truth is that, despite the amount of lip service to planning, there has been very little planning since the war. In a recent study just published in translation from the French, entitled "Planning and Politics in Britain", Jacques Leruez says: One can hardly speak of a crisis in British planning if only because it has never been more than a succession of isolated efforts which have led to nothing and which have been temporary expedients rather than thorough-going reforms. In a foreword to the book Professor Hay ward comments that both Labour and Conservative Govenments have appeared to confuse planning with exercises in economic forecasting. Perhaps that can be excused in a Conservative Government who do not believe in intervention, but it is less acceptable in a Labour Government who do.

However, that is equally true of many other aspects of our activity. We still await integrated policies for energy and transport, both of which lie at the heart of some of our greatest problems and where a lack of both causes increasing difficulty. We have placed great emphasis on ownership. But what have we done with the industries that we have taken into public ownership? We have neither left them to work on their own according to commercial criteria nor integrated them into a co-operative effort to avoid duplication and waste and to gain strength by such an effort.

I give the Chancellor credit for more clear thinking in this direction than most of his predecessors. He has achieved a great deal in the past 12 months. I want to make my own position clear and to stand by the consequences of my choice. My first priority is the country's recovery—the establishment of a prosperous and expanding economy and an end to unemployment, of which we have seen so much of late. I am sick and tired of this country trailing behind the rest of the world. This feeling is shared by many people.

Therefore, I welcome the fact that the White Paper puts recovery of the economy as its highest priority. Whatever criticisms the Chancellor may be subjected to about so-called cuts, whether here or in the country, he will not be forgiven by the people of this country for failing to secure economic recovery, for without that everything else is meaningless.

Greater public expenditure can be achieved only in one of two ways—by higher taxation or by increased borrowing, both of which are increasingly unacceptable. The White Paper shows the staggering increase in taxation on the lower income groups. That will increasingly bring resistance to the very public expenditure which taxation is designed to sustain.

Borrowing makes us increasingly vulnerable to outside forces over which we have no control. The British people want to control their own destiny and they are prepared to pay a higher price for the privilege than many politicians have calculated. However, the medicine must clearly have a chance of ridding us to the "stop-go" which has bedevilled our efforts since the War.

I was not a Member of Parliament on 17th December 1973, due to a temporary aberration on the part of the electorate, which I am happy to say it made good in February 1974. I remember clearly the sense of anti-climax which people felt after Anthony Barber's Budget when they had steeled themselves to expect considerable measures and found that there were no tough measures in the Budget and the whole exercise appeared to be phoney.

I hope that the Chancellor will forgive me for saying that the outcome of his present efforts is of greater consequence that his personal reputation. After 25 years of failure there is growing disillusion with Governments and it will not outlive this present crisis without permanent damage being done to our democratic institutions. There is, and not without some justification, a questioning of the capacity of Governments to deal effectively with our affairs and a resistance to authority which will make government more difficult because of a growing scepticism about the competence of Governments. It is from that feeling that many of our present problems arise, including that of devolution.

It is becoming increasingly difficult for ordinary people to understand how massive miscalculations can be made in various parts of our economy—in the public service and in Government—without any head rolling. Too many times since the war it seems that the call has gone out for a percentage cut across the board regardless of any qualitative judgment about the consequences. Surely in departmental expenditure of billions of pounds all expenditure cannot be of the same value. I welcome the Chancellor's comment that in the present cuts an attempt was made qualitatively to examine the expenditure with a view to finding out what was important and what was less important.

I repeat the request I made in a debate at the beginning of the year for a Select Committee on local government to be set up to enable hon. Members to assist in the process—along with the Consultative Council—to establish priorities in expenditure. I hope that those who com plain bitterly about the so-called cuts, whether they are hon. Members, public or professional bodies, will seek to reach a consensus about priorities and assist in determining what facts—

Mrs. Bain

How does the hon. Gentleman reconcile his views with the fact that six years ago the Prime Minister said that industrial success depended upon investment in education? Education services have now been singled out as one of the most exemplary examples of what public expenditure cuts mean.

Mr. Irving

If within the next year or two we do not succeed in securing growth in manufacturing industry, there will be no education at all. Therefore, I am prepared to accept a slowing down of the rate of growth to enable recovery so that expansion can continue in a year or two. These are not cuts in any real sense. They are a slowing of the rate of expansion which was hoped for only last year. We shall be spending more money, not less. We shall be spending £53,000 billion at the end of this period as against £51,000 billion in this present year.

The expansion that the economy needs must be achieved. I am not sure that as yet we have the balance right, but I welcome the Chancellor's statement this afternoon that during the next two years he will be prepared to ensure that whatever is necessary to achieve economic expansion, even if it means further revision of our progremme, will not be shirked. The Government have been absolutely right not to give way to the clamour for cuts in public expenditure in this year and the following year. That would have led only to more unemployment, making it worse, and deepening the crisis.

I believe that within a month or two our recovery will be under way. It may be rapid, but it will certainly be brittle because it will be due substantially, in the first instance, to restocking, which, because of the low levels to which stocks have fallen, will be fast and spectacular. However, nothing must stand in the way of proper investment and sound expansion. Demand for goods will improve before the end of the year. The American recovery is already under way, as is that of the Japanese. I am sure that Germany's recovery will soon become apparent, too.

If we are to secure the permanent recovery of which I have spoken, we must be sure that nothing impedes our growth. There are two easy options that I should like to mention. The first is that of import restrictions. It would be madness to embark on unilateral restrictions at just the moment when we hope that foreigners will look favourably on British goods. I believe, however, that there is scope for voluntary arrangements which the Secretary of State for Trade could negotiate in some fields. I believe that he has already done so for certain products. He is at present looking at possibilities in regard to paper and pulp.

In this way we shall not suffer the retaliation that would prejudice the future of our expansion. I do not want protection for the workers in my paper mills at the expense of unemployment among my engineering workers because of retaliation against our engineering products. Nor do I believe that my paper mill workers would want it.

Finally, as regards defence expenditure, I do not subscribe to the view that Russia is bent on world war or world domination. However, there is sufficient uncertainty in the world for us not to leave ourselves too exposed. I believe that by their action with the Cubans in Angola the Russians have made a fundamental error. They have highlighted the real danger from Russia, which is of continuing intervention in Africa and elsewhere, and they have alerted the West to the danger of the imbalance between Russia and the West which no counting of weaponry has brought out in the last five or six years, although in that time the changing balance has been there for all to see.

I support the Chancellor's White Paper as a necessary measure to ensure recovery so that we can eventually make the progress in other fields that we all wish to see.

5.33 p.m.

Mr. Peter Hordern (Horsham and Crawley)

I am glad to be able to speak after the right hon. Member for Dartford (Mr. Irving), who spoke in a characteristically courageous way about the real alternatives that exist for Britain in the realm of public expenditure. The right hon. Gentleman has been a Member of this place for a long time. Like some other hon. Members, he looks at all public expenditure White Papers with a considerable degree of cynicism. I believe that this White Paper should be regarded with even more cynicism than those which have customarily been laid before us.

The Prime Minister said, over the weekend, I think, that the Labour Party had carried out two-thirds of its programme. We now see the pound plummeting through the floor, the highest level of unemployment, and a rate of inflation which is twice that of any other Western country. One is impelled to ask what the position will be when the Prime Minister has completed the Labour Party's programme.

At any rate, the White Paper is not a document about which the Tribune Group should be too exercised. Members of the Tribune Group are experienced White Paper watchers themselves. I see no reason why they should give this document any more credibility than they have given others in the past. Perhaps it is only an excuse to allow them to let off steam in their customary way. They know that these projections are entirely improbable, and they know so for the excellent reasons of historical precedent.

As far as I can see, there is only one hard fact in the White Paper, and that is the degree to which public expenditure will rise during the coming year—by no less than £1,600 million. For support for that statement it is worth looking at previous White Papers, and in particular at the projections for the fifth year of some previous White Papers, just to see how the forecasts have performed.

Command Paper 4234 forecast an expenditure for the fifth year, 1973–74, of £31.4 billion. The out-turn, curiously, was not very different: It was £34.1 billion. Cmnd. 4578, for 1974–75, forecast £36.3 billion: the out-turn was £44.7 billion; that was £8 billion up. Cmnd. 4829 forecast for 1975–76, the fifth year, £46.9 billion, and the out-turn was £55.7 billion. That was only a matter of £9 billion out.

We are asked to believe that the position will be greatly different with this White Paper. We know that in the last five years, talking in terms of 1975 survey prices, public expenditure has risen from £40–3 billion to £49.2 billion, yet we are told that in the next five years the rise will be from £51.1 billion to £53.32 billion, and that that is all that the rise will be. Despite all the experience of the last five years and despite all the slippage and the admission which Mr. Wyn Godley provoked from the Treasury, of £5.8 billion, we are told that public expenditure will increase by £2 billion only, in real terms, in the next five years.

By all precedent that is a most unlikely proposition. It is about as likely as the Secretary of State for Employment going to the House of Lords and joining Lord Goodman's firm as a partner for political advice. There is not the remotest hope that these forecasts will prove to be accurate.

I turn now to the share of public expenditure and the essential forecast of investment and growth, which is the other leg of the argument. My hon. Friend the Member for Guildford (Mr. Howell) elicited in a Written Answer on 2nd March the information that between 1974 and 1979 investment in manufacturing industry would grow at a rate of 5½ per cent. per annum, based on Case II of the public expenditure White Paper. We know from "Economic Trends" published yesterday that manufacturing investment was down by about 12½ per cent. last year and that manufacturing investment is expected to fall by a further 8per cent. in 1976.

Therefore, we are asked in the White Paper to believe that we shall have an increase in manufacturing investment in the remainder of the period of 16 per cent. per annum, a sort of Japanese rate. We are asked to believe that manufacturing output will rise on the same basis by 9 per cent. per annum after 1976. It is really of such stuff that dreams are made on.

To achieve the central forecast the economy will have to grow by 4½ per cent. from now on. That is a figure which has never happened in any two-year period since the war. That is the basis on which all the forecasts are founded. That is the way in which public expenditure is to be contained.

What is happening is the pursuit of the impossible by the incredible. But are the Government quite so stupid as they appear? Is there not some way in which the forecasts can be made more realistic? Of course there is. One method is to let the pound slide. If the pound slides, it is possible that investment may pick up. It is certainly the case that our exports would be more attractive and our imports correspondingly more unattractive. That is a simple device which the Government have seized. They have done so quite openly. The Treasury, in its unattributable briefs, has also led us to believe that its policy is to let the pound sink.

But the Government, as all Labour Governments have done in the past, have totally neglected the effect of this sort of behaviour on market opinion. They do not understand how markets work. I do not think they like them and the certainty is that they do not understand them. They do not understand what they have unleashed in letting the pound fall. They do not understand that by announcing that as a policy they will allow the pound to sink they will influence a great many overseas holders of sterling, who have no reason to pay immediately, to delay their payments.

Correspondingly, there are a great many manufacturers in this country who have to import from abroad and who may wish to advance their payment, or to pay immediately. That process is known as leads and lags. There are many other aspects which I could recount.

Mr. David Marquand (Ashfield)

Who floated the pound in the first place?

Mr. Hordern

My argument is not about floating the pound. The flotation of the pound is a reflection of what overseas holders think of the value of the pound. If the Government, as a matter of policy, set out in their White Paper to show that nothing can be achieved unless the pound floats down, what does the hon. Gentleman think the consequences will be?

It is commonly thought within the Labour Party that these matters can all be solved by some simple arithmetical device such as letting the pound go. They do not realise what the effect will be on the British people as a result of the extra cost of imports, raw materials and food. It is the Government who will have to learn that lesson. Labour Members have no idea how markets work. Grave problems may well appear in the next few weeks because of the patent unreliability of the forecasts in the White Paper.

Mr. Cryer

Is the hon. Gentleman saying that the devaluation of the pound, which started under the Conservative Government, has led to inflation because of the increased price of raw materials and food coming into the country? If so, will he tell the House what importance he attaches to wage demands as a contribution to inflation?

Mr. Hordern

I do not accept either of the hon. Gentleman's points. Increased import costs cannot be responsible for inflation. All that happens is a transfer of income into the costs of the imports. The same is true of wage demands. There is only one cause of inflation—namely, the printing of money. It is as simple as that. If public expenditure is out of control, the economy is out of control. The Government have put themselves into this mess and, as usual with a Labour Government, they will have to rely on other countries to get them out of it.

If, as I believe, public expenditure turns out to be much higher than forecast and the growth of the economy much lower, either taxation or debt interest, and probably both, will have to rise considerably. There is not much room for extra taxation without driving more businesses to the wall and exacerbating revenue problems. Table 1.4 shows that the debt interest at 1975 survey prices is likely to be £5 billion in 1975–76, growing to £7.5 billion in 1978–79—that is a rise in debt interest alone of 50 per cent. in four years.

Of course, when it comes to borrowing on the market we cannot borrow in funny money. We have to borrow pound notes from institutions and private individuals. The Chancellor said again today—this appears in the White Paper—that that does not matter very much because it is not a demand on resources. But that is not the whole position.

The Chancellor says that it is not expensive borrowing because part of the sum comes back in revenue. But it does not. Pension funds pay no tax of any kind. The private investor must know better than anyone that a great quantity of Government securities are specially issued with the object of bearing a low rate of interest, and a substantial capital gain. Therefore, those investors can get tax-free capital gains so long as they hold their securities for more than a year. The Chancellor's argument does not function in that respect.

Every family in the land is now paying £8 a week interest on the debt alone. That exceeds national insurance contributions. But that is not the worst of it. Let us suppose that the forecasts turn out to be even reasonably successful. We shall then see some growth in stocks, in investment and in the economy. We are told that that is the Government's strategy.

Let us suppose that the balance of payments improves so that we are nearly in balance. At present the money supply has not been expanded unduly. In the words of the Treasury in its evidence to the Public Expenditure Committee, it has conspicuously succeeded in that objective in the past two years". Only the Treasury, with its invincible ignorance of the market, could make such a remark.

The massive borrowing requirement of £12 billion is being met because companies are not investing and because private individuals are saving, not spending. The moment private individuals and companies start to spend money, they will have to borrow from the banks. They will then be competing with the Government. Either interest rates will have to rise, in which case there will be no investment and no growth in revenue, or the Government will start to print money, and cause inflation. I believe that that is the course the Government will take.

The Government are carefully erecting a funeral pyre for the economy and, I think, for themselves. The moment they start to print money, they will be putting a match to the funeral pyre. The Government have put themselves into a position from which it is not possible to recover without cutting public expenditure now. Let that be done.

5.48 p.m.

Mr. Brian Sedgemore (Luton, West)

The hon. Member for Horsham and Crawley (Mr. Hordern) is a monetarist. His market economics are almost as absurd as the White Paper. Anyone who is looking for a definition of absurdity need look no further than the White Paper. The economics are shabby, the politics are tragic and the philosophy is left unsaid. Let us remember that philosophy is about meaning. The White Paper means that the centre of gravity of British politics has changed. The question for the Labour Party is not whether it is a Socialist party but whether it is a social democratic party.

I cannot help reflecting wryly that if some of the European zealots among my hon. Friends who go to Strasbourg and waste public money were to do less of whatever it is they do in Europe and v/ere to study taxation and expenditure on social services, welfare and health, for example, they would report that we as a nation barely match up to Gaullist France, that we are to the Right of Social Democratic Germany and light years away from more Socialist Sweden. They would report that the House is in danger of becoming Europe's foremost chamber of Bourbons. If the White Paper is the best that we can do, we are not worthy of the people we purport to represent and, dare I say it, lead.

It has been said that economics are at their best when they accord with the laws of arithmetic. On that simple test the White Paper is a failure. It is a rag-bag of hypotheses, forecasts and accounting identities, which work back from the results that the Government hope to obtain. For that reason no credence can be placed on the figures for investment, the shift of resources into the balance of payments, or the growth of our GDP. Judged against reality, the figures do not add up. They do not make sense.

It is even more tragic that the same conclusions can be drawn about the employment figures. The White Paper sets a target of 600,000 unemployed by 1979. At least, that was the target on 1st March. The Chancellor of the Exchequer put the figure up to 700,000 today. It seems that in a week the employment target has slipped by 14 per cent. That shows a careless juggling with one of the most critical figures for us as a political party.

Let us assume, for the sake of argument, that we want to bring unemployment down to the modest target of 600,000 by 1978–79. At the moment 1.3 million people are unemployed. According to the OECD figures yesterday, we can expect unemployment to reach 1.5 million before the trough, in employment terms, bottoms out. If so, in the next four years we need to find 900,000 more jobs, assuming that the total work force stays the same. But, according to figures published by the Department of the Employment, we can expect an increase in the work force of 600,000 during the next four years. Making an adjustment for the overlap of the years, during the next four years we shall need to provide 14 million jobs to meet our target.

We have to do that against the strategy of this White Paper of no increase in public sector employment, a strategy in which the bulk of the increase goes into manufacturing industry, and—this is important—against the background of an average decline in employment in the private sector as a whole of just over ½ per cent. per annum from 1960 to 1973. Therefore, if we are to put the bulk of 1.4 million jobs into private manufacturing industry over the next four years, we shall need growth rates in the manufacturing sector of well into double figures—possibly 15 per cent. plus—in each of the next four years.

If the proposition is that we should put the jobs into the private sector generally—that is, into both private service and manufacturing industries—given the underlying rate of growth of productivity in our economy—the Treasury does not like looking at past relationships; it does not believe that the future can be predicted from the past—we might have to create growth rates of about 7 per cent. per annum in the private sector in each of the next four years. Those growth rates are outside the rates postulated in the White Paper. Indeed, they belong to the realm of fantasy.

In giving those employment figures to the public in this White Paper we are grievously misleading them. I am not surprised that Ministers at the Department of Employment in private, if not in public, are at loggerheads with the Treasury over this matter. They take a more gloomy view of the relationship between investment and employment in the manufacturing sector than some of us do.

The TUC calls for unemployment to be brought down to 600,000 by June, 1978. The White Paper, looking at the projections, puts the figure at somewhere between 800,000 and 900,000. I believe that, unless policies are changed the figure will regrettably be nearer the million.

Some of my hon. Friends do not consider 600,000 to be the full employment target.

If we were to define full employment as entailing 400,000 people out of work, on the basis of figures given by Mr. Alan Lord, the Second Permanent Secretary to the Treasury, and of figures argued by the Cabinet in the Chrysler dispute, the difference between full employment and the extra unemployment that we shall have in the next 12 months would cost the taxpayer £3 billion. That sum is exactly equal to all the public expenditure cuts announced for the year 1978–79. That is the cost of the Treasury's current depression economics. That is the cost that this nation pays because our docile Cabinet has let the Treasury become the ruling oligarchy.

If we wish to pay for increased public expenditure, we can do it through one of three methods—one was left out by my right hon. Friend. We can do it through increased tax receipts, through policies of economic growth, through increased taxation itself, or through increased borrowing. The growth policies in this public expenditure White Paper are likely to fail for two basic reasons. First, they will not shift the required amount of resources into the balance of payments, or certainly not unless the aim is to go for the one-dollar pound and import-led hyper-inflation. Secondly, they will not bring about the increased investment in manufacturing industry which is needed, or they will not do that unless the Treasury decides to adopt the policies of the Labour Party, the TUC, the National Executive Committee, and all those other august bodies.

I believe that we still need to implement Labour's industrial strategy and to introduce planned reflation behind wide-ranging but selective import controls across semi-manufactured and manufactured goods. That planned reflation should be concentrated on investment in public and private manufacturing industry, in the nationalised industries, in the construction industry, in housing, and, for the sake of those jobs, in labour-intensive industries in the public sector.

The TUC Economic Review 1976 seems to support those policies. I do not want to score points with the Chancellor about this matter. But, given their element of modest language, the TUC's views seem to be a considerable indictment of the Chancellor's current policies.

Mr. Jack Jones appears to support those policies as well, because he said: We refuse to await a vague upturn in the economy … a course which rebuilds the economy while avoiding inflation—selective import controls and really big money for the National Enterprise Board are vital here. It gives me no pleasure to say that, on the basis of this White Paper and subsequent questioning of Treasury officials and Ministers, they do not basically appear to accept the doctrines of the TUC or of Mr. Jack Jones. I suppose that it could be argued that some of us are running away from reality in the sense that we project policies of economic growth about which some people might say "We are not going to use your mechanisms. If we do not get the economic growth, from where will the money come?"

Leaving aside my belief that the policies we advocate could produce that economic growth, we must look fairly and squarely to taxation, not dig our heads into the sand and suggest that we can pluck money out of the sky and con the British public, as the Chief Secretary appeared to suggest some people were trying to do. I have not heard anybody project that argument. We on this side of the House are in favour of widening the manufacturing base.

Sir Keith Joseph (Leeds, North-East)

I am listening to the hon. Gentleman with intent interest. Will he explain how increasing taxation will help to reduce unemployment? To the extent that taxation was increased, the purchasing which the income taken away by taxation would have achieved will not occur and people throughout the country will be thrown out of work as a result. Will he deal with that point?

Mr. Sedgemore

I take the right hon. Gentleman's point. I thought that someone would interrupt and ask me about that. We are talking about two different time scales. I am not advocating increased taxation in this Budget or, indeed, in the next. I am talking about the possibility of increased taxation in the period 1978–79 to 1979–80 in the hope that the tax base will have been widened through some economic growth. I agree with the right hon. Gentleman's argument that if at this stage we start increasing taxation, we run the risk of increasing unemployment, and I do not think that there is any difference between us about this.

Mr. John Watkinson (Gloucestershire, West)

Earlier in his speech my hon. Friend promulgated the idea of imposing large-scale import controls. Would he not accept, as a necessary concomitant of large-scale import controls, that we should have to impose' increased taxation to dampen down the inflationary effects of that programme?

Mr. Sedgemore

No, I think that, given the massive excess capacity we have in the economy, we could impose our import controls, plan our investment and plan the upsurge, not in the manner of the Chancellor of the Exchequer, who ran off to a bank, but in a Socialist manner. There would be demand consequences and it would be for the Treasury to work out those consequences and plan that reflation in a proper fashion. The Chancellor of the Exchequer, with his consummate skill, could manage that.

It was a pity that the Chancellor of the Exchequer, first denied that the figures I had given were accurate and said that they were out of date, because we are only in the third month of 1976, and they came from an Answer to my Question on 15th January 1976. When the Chancellor of the Exchequer sought to suggest that the figures were giving a wrong impression, he was quite unable to supply one single figure in rebuttal. I ask the Chancellor of the Exchequer to read the answers given to me and to others on Monday 1st March 1976. They are not out of date. They were given about a week ago. Let him read those answers and try to draw fair deductions from them.

The deductions I draw—both from the official statistics, which the Chancellor of the Exchequer may not like, and from the answers we were given by the Treasury—are that it is now clear that we are not submerged by a burden of taxation which none of our competitors has to face. It looks as though taxation as a proportion of our gross domestic product in this country might be about the same as in France, slightly less than in Germany, and considerably less than in Sweden.

It is quite clear that the corporate sector in this country now pays less tax than many of its competitors, and I should be very surprised indeed if the corporate sector's share of tax, both as a percentage of GNP and as a percentage of total tax, has not declined during the past 20 years. What is absolutely clear is that the Treasury now admits that since Labour took office the colossal sum of £7,600 million has been handed back to companies in the form of tax allowances—£3,600 million in capital allowances, and £4 billion on the deferment of tax on profits on stock appreciation. Of that sum, £2 billion has already been taken up and £2 billion has been set against future profits.

In classical mythology, St. George slew the dragon, but in our case St. George, on the Government Front Bench, has given the dragon £10 million in tax relief for each and every day that Labour has been in office, including Sundays. In return the dragon has slain St. George by slashing investment last year, projecting further falls in investment and putting men on the dole at a rate we have not seen in this country for the past 40 years. I understand profitability as well as the hon. Member for Blaby (Mr. Lawson) and the Chancellor of the Exchequer, but even one-third of that colossal sum of £7,600 millon, if used sensibly in support of Labour's interventionist policies, could have brought us great rewards in investment, jobs, output, and the avoidance of public expenditure cuts.

The Treasury now admits that the burden of indirect tax in this country has fallen considerably with the replacement of selective employment tax and purchase tax by VAT, by holding down specific duty taxes and by subsidies. The important question is whether it is now the crime to end all crimes for the Labour Party to go to the public and to say that we can provide even more schools and even more hospitals but that this may mean some increases in taxation, that it may involve new taxes on wealth, or on such things as advertising, that it may involve withdrawing tax relief for the better off, and even tightening up on tax avoidance. It may in the future involve us as a political party in saying to the British public that the man on average earnings will have to pay more tax, whether through VAT, increases in taxes on alcohol and tobacco, or even through direct taxation. The only political point" I make about that is that if that really has become a crime, indeed the nature of the political parties in this country is changing, changing too fast, and changing for the worse.

My next point concerns borrowing and deficit financing. Recently, a new Trotskyite theory—apparently supported by the hon. Member for Horsham and Crawley—has been developed by Mr. Peter Jay to the effect that if public expenditure is financed through borrow- ing, that is a capitalist conspiracy to transfer wealth and power from working people into the hands of rentiers, bankers and sheikhs. Old-age pensioners, people who send their children to new schools, and people who receive medical treatment in new hospitals, will find the theory prima facie a little hard to take. When we consider that debt interest payments involve a transfer of resources from one section to another—quite often the same group of people—and that, on the Treasury's own calculations, 70 per cent. of the interest payments are either saved or go back in savings, indeed that theory begins to look very curious.

In this respect, it may not be odd that Mr. Peter Jay has only two disciples on this side of the House. One is his father, whom we all admire for his admiration of his son. The other is the former editor of Tribune, now editor of the Sunday Mirror, my hon. Friend the Member for Wolverhampton, South-East (Mr. Edwards).

There is another serious point to be made about the borrowing requirement. The figures for debt interest look very large indeed in the White Paper, but I should like to quote the remarks of Mr. Terry Ward, of the Department of Applied Economics at Cambridge: On the face of it figures of debt interest … are too high, in the sense that it is only possible to obtain such figures on the basis of extreme assumptions about the future borrowing requirement, the average rate of interest and price inflation. Indeed, an annual rate of inflation for the next four years of some 4 per cent., combined with interest payments of 12 to 14 per cent., seems on the face of it to be an unlikely combination.

The Treasury itself says that it might be an over-estimate by as much as £1,000 million. That sum is exactly equal to all the education cuts and all the housing cuts for the year 1978–79. It would be a tragedy if my hon. Friend the Member for Eton and Slough (Miss Lestor) resigned because the Treasury, believing that these cuts would not occur, simply wanted to create a hidden contingency fund. That thought may not be so far from the truth.

Perhaps the most tragic aspect of this matter is the crescendo of hysteria against which these cuts have been introduced and the nature of the arguments that we have heard over the past six months from, I regret to say, people on both Front Benches. It has been said—in what must be the most meaningless theory ever advanced in British politics—that as public expenditure rises to more than 60 per cent. of GDP, the pluralist society and democracy itself are in danger.

You will remember, Mr. Speaker, if you refer to the second column of Table 4.2 in page 134 of the Public Expenditure White Paper, that in real terms public expenditure is given as less than 50 per cent. of the gross domestic product. Apart from that, is there really anyone who believes that the future of democracy depends on doubling the price of school meals, substantially increasing the rents of council tenants and ensuring that our children are taught in overcrowded schools? I do not believe it. I do not believe that our party believes it. I do not believe that this nation believes it. I even find it hard to accept that Piltdown woman and Selsdon man in all their obscene nakedness believe it, either.

It is often said that people do not listen in this House of Commons, that an hon. Member can talk his head off and nothing will happen, that on Thursday we shall all have forgotten about public expenditure, and that the Legislation Committee, which dominates our activities in this Chamber but which we cannot even mention, will continue its job. It is also said that occasionally people look at the way that hon. Members vote in this Chamber. Therefore, I think that I and some of my hon. Friends will really have to look at the way in which we vote tomorrow night.

6.12 p.m.

Mr. Nigel Lawson (Blaby)

I find myself in agreement with a great deal of the analysis that we have just heard from the hon. Member for Luton, West (Mr. Sedgemore), especially some of his comments on the thinking, reasoning and arithmetic behind the White Paper. It will come as no surprise to anyone to hear that I do not agree with his conclusions. However, I commend him on his honesty in saying that Socialism means higher taxation, and that Government supporters should not be afraid of this. It is an honesty which compares favour- ably with what we heard earlier from the Chancellor of the Exchequer.

I also commend the importance which the hon. Member for Luton, West attaches to this White Paper as an indication of the sort of society that we intend to have. It is very important from that point of view, too. No complete blueprint of a society can be given, but, so far as one can be given, this White Paper has great relevance.

I am sorry to see that the Chancellor of the Exchequer is leaving the Chamber, because he has a great deal to learn. However, we know that he has learned a little bit already, and we should be grateful for that. Thanks partly to him, for the first time in many years it is not necessary in a public expenditure debate to spell out the reasons why it is both economically and politically essential to cut back on public expenditure. The arguments which have been advanced consistently over the past two years by my right hon. and hon. Friends and myself have at last been accepted, at least in principle, by the Government and the vast bulk of their supporters.

The arguments were set out very cogently in a speech by the Home Secretary at Llangefni a few weeks ago, and they appear more succinctly in the first couple or pages of the present public expenditure White Paper. They have been restated today by my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe), and with rather less skill by the Chancellor of the Exchequer. In short, we can now see that the imperative need to cut back on public expenditure is accepted on all sides of the House, with the single exception of what I suppose we must now learn to call the Oriental wing, or perhaps the East End, of the Labour Party.

It was not always thus. Only a few months ago, the Secretary of State for the Environment—a West End man if ever there was one—was proclaiming to the House: I favour the highest possible level of public expenditure. It is a view that I have held for many years."—[Official Report, 15th October 1976; Vol. 897, c. 1335.] Indeed it is, and I must say that I have sometimes felt in this House that the only difference between the so-called extremists and the so-called moderates in the Labour Party was that the extremists wanted the Socialist milennium tomorrow whereas the moderates wanted it deferred until their children had completed their private education.

However, there has been a change, and the most remarkable of all is the Damascene conversion of the Chancellor of the Exchequer. Right hon. and hon. Members on both sides of the House will recall—I was not myself here at the time, though I read about it in the Press—how, a little more than two years ago, on 17th December 1973, the noble Lord, Lord Barber announced courageously, if a trifle belatedly, public expenditure cuts amounting in terms of the latest White Paper prices to more than £1,700 million, to take effect, be it noted, in the immediately forthcoming financial year.

What congratulations were then showered upon him by the then Shadow Chancellor, now the Chancellor of the Exchequer? The right hon. Gentleman thundered: The Opposition's contention is that by indiscriminate cuts in public expenditure right across the board the Chancellor is likely to make all our problems more difficult—not less difficult—to solve."—[Official Report. 17th December 1973; Vol. 866, c. 968.] Look at what the Chancellor of the Exchequer is saying now! But true to his then beliefs, the big spender from East Leeds, on taking office, immediately wiped out all those cuts and in 1974–75 alone increased public expenditure by £5.5 billion. It is a staggering amount. Today, with all the fanaticism of a convert, he seeks to pretend by his manipulation of phoney figures that all along it was the wicked Tories who were bumping up public expenditure and that it is he who has been manfully struggling and striving to bring it under control.

However, the right hon. Gentleman's characteristically fraudulent attempt to rewrite the past would be regarded by most of us as a venial sin if we had any confidence in what he intended to do for the future. But it is this which is lacking. The White Paper, as my right hon. and learned Friend the Member for Surrey, East pointed out, spells out clearly the necessity for public expenditure cuts—whether some Government supporters accept the argument or not, it is spelled out in black and white—and, having spelled it out, the Chancellor of the Exchequer does nothing about it. There are no cuts at all.

Mr. Raphael Tuck

How can the Opposition presume to reject a White Paper which will lead only to fewer jobs when they are trying their best to have massive cuts in public expenditure which will result in even fewer jobs than that? Is not that effrontry equal to that of the man who, having pleaded guilty to murdering his parents, asked the judge, in mitigation, to take into consideration the fact that he was an orphan?

Mr. Lawson

I am sure that the hon. Member for Watford (Mr. Tuck) will seek to catch the eye of Mr. Speaker and thus will have an opportunity to tell us more of his after-dinner jokes.

When I say that there are no cuts in the White Paper, I am not referring just to this enormous burden of debt interest which more than cancels out all the theoretical cuts that there are to be in public expenditure programmes.

I agree with the hon. Member for Luton, West that possibly the true figure for debt interest will turn out to be a little lower. However, it would be extremely unwise to count on it. The Chancellor of the Exchequer has already found it very difficult to forecast the public sector borrowing requirement on which the debt interest burden depends.

But this is not the real point, although it is a striking fact that it took from the glorious revolution of 1688 to the inglorious coming in of this Government for us to build up a total National Debt of £26 billion; and it looks very much as though, by the end of the coming financial year, that National Debt will have doubled. In other words, in three years this Government will have succeeded in adding as much to the National Debt as it took all previous Administrations the best part of 300 years. This is a striking fact, and it is very significant to those people who will have to pay higher taxes to bear the burden of the debt interest on that sum, bearing in mind that it is not just the taxpayer who has to pay more but the hard-working exporter who will have to export more to pay the debt interest on the large proportion of the debt which is held overseas. So let us not shrug aside debt interest as if it is something of no importance. It is of considerable importance.

However, leaving aside debt interest, when we examine the situation we find that all that is expected is a cut of £2.4 billion in planned programmes—and not a penny of it by 1976–77. In the coming financial year public expenditure is expected to rise even further. The cut is planned to be £2.4 billion in 1978–79—more than two years, and no doubt one General Election, later.

All hon. Members who have studied the matter know from experience that these projections for the far distant or even medium-term future are not worth the paper they are written on. Some hon. Members will be aware of the Wynne Godley phenomenon which showed that public expenditure for a comparably distant year had exceeded what was intended by between £5 billion and £6 billion. That year was 1974–75 and, ironically, the latest figures for that year, which have just been published, show that it is up by a further unintended £600 million.

The figure is not, of course, openly published in the White Paper, but it is there, half concealed, for those who know where to look. A further £600 million has slipped through between the publication of the last White Paper in January 1975 and the end of that financial year. That represents a rate of slippage of £2.4 billion a year—ironically, exactly the same figure as the Government propose to cut in 1978–79.

All the evidence shows that no credence whatever can be placed on the figures for later years, and that the only figures in any White Paper on which we should concentrate are those concerning what happened last year, what is happening this year and particularly what the Government propose to do next year. If the Chancellor of the Exchequer had been in earnest about cutting public expenditure he would have made cuts in 1976–77, but there are none. He is nothing but a White Paper tiger.

In the right hon. Gentleman's April 1975 Budget he said that he was going to make cuts in 1976–77 but in fact he is increasing public expenditure by about £3.5 billion in the coming year. Roughly half of this is extra debt interest, and the other half is extra spending on public sector programmes. In the last few weeks, since publication of the White Paper, Ministers have been moving this way and that trying to find some way to explain why they are not cutting expenditure in 1976–77 after all, in spite of the Chancellor's saying in the last Budget that cuts would be made and in spite of the fact that the case for cuts is argued in the White Paper.

The Chancellor said today, and other Treasury Ministers have said at other times, that they did not know at the time what the depth of the world recession would be. That is nonsense, because the very trough of the world recession occurred last April. Since then there has been a slow but gradual recovery, led by the United States. The depth, not of our recession but of the world recession which is what the Chancellor was talking about, came in April last year, just when the Chancellor was promising to cut public expenditure in 1976–77; so that argument will not wash.

Another argument Treasury Ministers have put is that cuts now would create higher unemployment. That, too, is nonsense. If they were afraid that cuts would cause higher unemployment— I am not sure they would—it could be offset by reductions in taxation. The Chancellor of the Exchequer and the Chief Secretary to the Treasury have admitted that, and everyone knows it to be so, but still they have chosen not to do it. The real answer was given by the Chief Secretary in a bout of honesty a few days ago when he said that cuts in 1976–77 would mean a cut in existing programmes, not a cut in planned growth. That is what it boils down to. The Government were afraid that if they made cuts in 1976–77 the hon. Member for Eton and Slough (Miss Lestor) would not have gone out on her own, that there might have been a few other exits as well. However, why Ministers should be upset by a possible further strengthening of the Government in this way I find hard to understand.

I would like to devote a little more time to the argument about cuts in public expenditure causing higher unemployment and the refusal by the Government to offset this by lower taxation, because this represents a conscious choice by the Government. Everyone should be aware of that. Faced, in his own mind, with a decision that demand in the Keynesian sense should not be taken out of the economy, the Chancellor had the choice whether to achieve that by maintaining expenditure at a higher level or by cutting taxes to a lower level.

The Chancellor chose to use public expenditure as a weapon for short-term economic management. But that is contrary to everything in the White Paper, which reads: Changing the structural distribution of resources in this way—that is from the public to the private sector—"is the only means of restoring and maintaining full employment". Despite that, the Chancellor chose the other road, although he must have known that many of our troubles in the last 10 years or more have been due to using public expenditure as an economic regulator. Under Governments of both parties, when demand has been slack public expenditure has been put up but when demand is high public expenditure has not been cut back; instead, taxes have been raised. So, inexorably, public expenditure gets a higher and higher proportion of the gross domestic product. There is a vicious circle, and that is one of our main problems as a nation. The problem is that high public expenditure strangles private industry, and the strangulation of private industry creates higher unemployment, which leads Governments to increase public expenditure, and the vicious circle goes round and round. We must break out of it.

The Chancellor quoted the employment figures, which indeed are striking. Over the last 10 years employment in industry, trade and commerce—both private and nationalised—fell by 4 per cent. But civil employment in government itself, nationally and locally, rose by 33 per cent. That is astonishing and it cannot be sustained. We do not have the latest figures, but the Staff Watch figures suggest that, in the last decade, from 1965 to 1975, there has been a drop of about 10 per cent. in total industrial employment and a 40 per cent. increase in civil employment in Government.

Mr. Kinnock

While the hon. Gentleman is giving figures, will he trace the flow of private investment? Is there not a definite tendency throughout the world, not just in this country, to take investment out of manufacturing industries and put it in the more profitable sectors of the service industries which are increasing in our affluent societies? Does that not have something to do with employment and our industrial base? Can that be blamed on any tendency of Socialism? Does he recall that it happened under his own Government, even in the Barber tax holiday when manufacturing investment fell?

Mr. Lawson

I do not believe that has anything to do with it. Our figures for the fall in employment in industry and the rise in employment by Government are quite different from the trends in other countries. They are clearly connected with our economic performance, which I regret to say has been worse than that of other nations. We are reminded of this daily by what is happening to sterling. The question is, which has come first? Is it the inherent weakness of private industry which has forced the Government to employ more and more people, or is it the case that the Government, by employing more and more people and raising more and more in tax to sustain all these Government employees, are weakening private industry? I believe that it is the latter which is the more likely but I accept that it could be held that there is an inherent weakness in British industry. If that is so, however, it makes it even harder to understand the figuring and reasoning in the White Paper. I believe that it is not so, that given a fair chance the private sector can stand on its own feet; but it is none the less odd that, coyly hidden away in the White Paper, we find the Chancellor of the Exchequer telling us that we are about to have an economic miracle. It is scheduled to occur between 1976 and 1979 and is held to be "likely". That is the word that appears in the White Paper itself. We are to have a growth rate of 6 per cent. per annum in real terms, with exports up 14 per cent. per annum and private fixed investment up by 16 per cent. a year.

Mr. Pardoe

C'est impossible!

Mr. Lawson

The hon. Gentleman says "C'est impossible". I do not know whether that is in order, but if it is not impossible it is very unlikely. Certainly, such a performance could be maintained only with a steadily falling exchange rate, which the Chancellor of the Exchequer foreshadowed in his letter to the International Monetary Fund. Perhaps that is what is happening in the foreign exchange markets today. I must say that it was a staggering omission that the Chancellor told the House nothing of his policy towards the pound and the exchange rate.

But the really serious thing is that the Chancellor takes this as the basis on which public spending is thought to be right. In other words, it is on the basis of an economic miracle that it is held that we can maintain this level of public expenditure; and if we do not have it, public expenditure will have to be cut far more. The Chancellor should be honest enough to say that this is highly probable, if not certain.

I have not the time to continue so, alas, I will not be able to go into where I believe the cuts should fall—[Interruption.] Otherwise I would certainly have done so. But perhaps if I am successful in catching your eye, Mr. Speaker, on a subsequent occasion, I shall be able to enlighten the House on that. In conclusion, I would say that none of us on the Opposition side of the House is preaching any kind of negative doctrine. We seek a much stronger, healthier economy and we are saying how that can be brought about. It is only on the basis of a stronger, healthier economy that we shall be able to get better public services in the long run, and hon. Gentlemen opposite know that as well as we do. Unfortunately, there is nothing in the White Paper that will achieve it. The White Paper is a fraud, rather like its author—who I am afraid has shown this afternoon that he is as incapable of rising to the occasion as. unfortunately, is the pound.

6.35 p.m.

Mr. David Marquand (Ashfield)

We have had a very entertaining speech from the hon. Member for Blaby (Mr. Lawson)—a good speech, but somewhat inconsequential when it came to the concluding paragraphs. No doubt on a subsequent occasion we will hear the nub of the argument and learn exactly what cuts the hon. Gentleman wants and in what way they will contribute to the economic strength of the country. All the same, he made a serious and important point when he said that lurking within the White Paper was an assumption that an economic miracle may come in this country. I have been very critical of the Chancellor of the Exchequer in past months, but I am bound to say that I believe the strategy behind this White Paper is right. It is right, because I believe it is possible that we may at last get something approaching an economic miracle if we can hold to the course it lays out.

What is the central cause of Britain's steady economic decline over the past 25 years? We have been held in a vicious circle of low growth and declining competitiveness. Successive Chancellors of the Exchequer have tried to break out of the vicious circle by means of a consumption-led domestic boom, and each time that has been tried it has made the disease even worse than before. That was what happened under the noble Lord, Lord Barber—one of the reasons why anybody with even a short political memory finds it somewhat extraordinary to hear purist, tough, rigorous speeches from the Opposition Benches now. The noble Lord tried it and so did the right hon. Member for Chipping Barnet (Mr. Maudling) in 1964. On both occasions, a consumption-led boom in this country led to a balance of payments crisis and to a further weakening of the British economy. Everybody with any economic knowledge in this House knows perfectly well that the only way in which we can escape from the vicious circle that has held us back for 25 years is through export-led growth. Somehow we have to repeat the experience of West Germany in the 1950s, when the Germans enjoyed sustained export-led growth on the basis of an undervalued currency.

I welcomed what happened in the currency market at the end of last week and yesterday, because this shows that the authorities in this country are now, at last, managing the exchange rate in a way that will make it possible to have export-led growth. For we are now beginning to see an upturn in world trade when the British economy is still depressed. This is exactly the ideal conjunction for an economic miracle, if one is ever to take place in this country and if we are ever to reverse the steady decline of the last 25 years.

Mr. Doug Hoyle (Nelson and Colne)

I was very interested in what my hon. Friend said, talking of an export-led growth of the magnitude achieved in West Germany. He well knows that the world recession is still there with a slight chance of recovery, but when trade begins to recover where are we to find export-led growth of that magnitude of which we can take advantage?

Mr. Marquand

My hon. Friend is questioning whether world trade is to recover on the scale necessary. I believe that it is, and that we are now seeing the start of what will be a substantial recovery in world trade. We can take advantage of it because we are a little bit behind. We still have spare capacity and spare resources to shift into exports, provided we have a tough and vigorous exchange rate policy deliberately designed to keep our exports under-priced and our currency undervalued. That is the first pre-condition of a breakout from the vicious circle that has held us back. But the second pre-condition is that we have to hold back domestic consumption while resources are shifted into exports—and there is no chance whatever of holding back domestic consumption in the way required if the whole of the burden has to be borne by the private sector. That is the simple arithmetic behind the White Paper.

Table 1.1 on page 6 shows that private consumption, even after the cuts that have been announced in this White Paper, is hardly going to grow at all over the period it covers. We are to have an increase in personal consumption of 0.8 per cent. under Case I, the lower growth case in the White Paper, and a 1.8 per cent. increase in personal consumption in Case II. These are very low figures and, as has been pointed out already in this debate, they must by definition mean some increases in taxation. Does anyone seriously believe that it will be possible to restrain private consumption in this way, in the real world, if we have not only the increases in taxation foreseen in the White Paper but the additional increases that will be necessary if no cuts in public expenditure take place?

My hon. Friend the Member for Luton, West (Mr. Sedgemore) made a brilliant speech, powerful and well-argued. He was honest enough to say that his policies would involve higher taxation and that this party should go out and campaign to that end. What he and those like him fail to realise is that although our constituents may vote for higher levels of public expenditure, and may even applaud us when we get on the platform and say boldly that we are in favour of higher levels of taxation to pay for this public expenditure, they have a nasty habit of rebelling against the consequences when higher taxes are actually imposed. In their capacities as taxpayers—and as trade unionists—they are not prepared to allow their personal consumption to be held back to the extent necessary to finance the public expenditure programmes that would take place if there were no cuts whatever.

During the next two years it will be essential as never before to hold the line on the Government's incomes policy. If that breaks down all hope of breaking out of the vicious circle disappears. There is no chance whatever of holding the line on the incomes policy if the entire burden is borne by personal consumption. That is why I support the economic arithmetic of the White Paper.

But, as the hon. Member for Blaby pointed out, the White Paper is not simply an economic document. It is also a social document—a statement of the Government's social priorities. Although I support the economic arithmetic I cannot support the social priorities within the White Paper. Some of them are right. I am strongly in favour of cutting back on the road programme and of increasing expenditure on industrial training in the way foreshadowed. Indeed, those increases are far too small. I note with some surprise that at the end of the period we shall have in training in any one year, taking account of the difference in the size of the working population, 20 per cent. of the figure in Sweden, where more than 1 per cent. of the economically active population are undergoing training in any one year. But although the White Paper's figures are low, they do at least represent a move in the right direction.

I cannot, however, accept the relative priorities given to education and to aid to industry. They make nonsense of everything this party stands for, and they also run directly counter to what is desirable for the longer-term future of the economy. I joined the Labour Party because I detest the class system of this country. That is the central belief that binds us together on the Government Benches. Can anyone seriously deny that one of the central causes of the class system is the educational inequality that still exists in this country? The Secretary of State for Education and Science and his predecessor have carried through a radical policy on comprehensive schools—a policy I strongly support. But there is no chance whatever of those policies succeeding without a considerable improvement in the standards in our State schools.

The White Paper says that as a result of demographic changes it is now possible to cut educational expenditure without lowering standards. Maybe that is so. But it is not enough to maintain existing standards in the State sector of education. We have to improve them dramatically if we are ever to deal with what Helmut Schmidt rightly called "Your damned class structure". That is what this party is all about, and I therefore find it extremely sad that the Cabinet should have reached the decision it did on education.

Since I have said that I accept the economic arithmetic in the White Paper, and since I am also saying that expenditure on education should not be reduced in the way proposed, I must in honesty say where I would put the cuts. Quite bluntly, I would make them in the aid to industry programme. This is nonsense. Some of it is desirable. The increases in expenditure on training are a part of the aid to industry programme, and, as I have said, are thoroughly desirable. I am, however, extremely sceptical as to whether we receive value for the money spent on regional policy. We had a thorough investigation of this by one of the Sub-Committees of the Expenditure Committee. Incidentally, it would be nice if we had a Government who actually took notice of what the Expenditure Committee recommended in these inquiries.

A very searching inquiry was made into regional policy expenditure by the Sub-Committee of the Expenditure Committee chaired by my right hon. Friend the present Minister of State for Defence. It showed without any doubt that a great deal of public money had been badly spent. The other day, a similar investigation was made of the motor car industry, by the same Committee, now chaired by my hon. Friend the Member for Sheffield, Attercliffe (Mr. Duffy). That showed, to put it mildly, that there is a good deal of doubt as to whether the money which is going to be spent on the motor car industry will be sensibly spent. The Government are making a mad decision in proposing to spend as much money on increasing aid to industry. These are quite nonsensical priorities, even from an economic point of view.

Mr. Lawson

Does the hon. Gentleman not agree that one of the curiosities about the Government's strategy is that they believe that because they are in favour, rightly, of giving greater priority to industry, this has to be done through public expenditure rather than by allowing the private sector to charge more?

Mr. Marquand

Basically, I agree with the hon. Member. Of course, public money can sometimes be used to help the private sector. The Conservative Party is barking up the wrong tree if it thinks it can escape this. It is necessary for there to be close connections between the Government and the private sector. But the idea that simply pouring out large sums of public money—often without proper scrutiny or control—must necessarily add to the long-term strength of the economy is absurd. I hope that the Government will think again here.

Whether we believe in higher levels of public expenditure, as my hon. Friends in the Tribune Group do, whether we believe in, broadly speaking, the levels foreshadowed in the White Paper or whether we want much greater cuts, as the Conservatives want, we must all ask ourselves seriously, as Members of Parliament, whether we think that this juggernaut of public expenditure is in any meaningful sense now under democratic control.

If we come to the conclusion that it is not—and that is my view—we owe it to our constituents and to the effective operation of this House to devise much better machinery for parliamentary control than we have yet done. The Expenditure Committee was a step in the right direction. We need to go a lot further. We need to cover every spending Department by the appropriate Sub-Committee of the Expenditure Committee and to insist that every spending Minister must appear before that Sub-Committee and justify his forward estimates, in the way Treasury Ministers have to justify their proposals for tax increases before the Finance Bill Committee.

I very much hope that the review of parliamentary procedure which I understand is now to be undertaken will make that one of the central objects of its investigation. It is no good talking about being Social Democrats, Democratic Socialists, Democratic Conservatives or even Democratic Liberals if the central question of democratic politics—the question of who gets what from the public purse—is not effectively under the control of this House.

6.50 p.m.

Mr. John Pardoe (Cornwall, North)

We have just heard a splendid analysis of the economic problems facing this country. I share the gloom of the analysis but cannot entirely share the optimism about the future. I do not believe an economic miracle is just around the corner for this Government, any more than it was for the last Conservative Government when we had all the talk of it from the then Secretary of State for Trade and Industry, the right hon. Member for Worcester (Mr. Walker). It is just possible that it ain't going to happen.

Many hon. Members will be taking part in this debate, which is a welcome departure in expenditure debates. I cannot remember so many hon. Members wishing to take part in a White Paper debate. It is a good thing that public expenditure is no longer an esoteric subject for specialists. We are discussing not just a fairly minor aspect of economic policy, but the whole guts of the economic future of this country over the medium term, if not the long term. If this White Paper is implemented, it will determine the strategy and shape of the British economy for years ahead. I do not see the White Paper as the light at the end of the tunnel.

The Government believe that public expenditure is too high, differing in that from the Tribune Group. I understand that difference. The Government believe they must cut public expenditure per se and keep it below 60 per cent. of the national income. I do not suppose any of us would wish to put a figure on what the Government regard as their Utopian ideal. The Government also wish to bring down public spending in order to divert a major part of the nation's resources into manufacturing industry. I agree with that strategy and only wish we had been following it for a long time.

The problem for the Government is that they can only be successful up to a certain point. If they create enough jobs in manufacturing industry simply to absorb the jobs which are shed by the cutting of public expenditure, that will not bring down the rate of unemployment or absorb the additional work force coming into the economy. We must get enough growth in manufacturing industry, as a result of this strategy—and this is the problem—to absorb the people who will be losing their jobs in the public sector and a large chunk of those on the unemployment register in order to bring down unemployment to 650,000 or fewer.

I hope that all the extra people who will be coming into the work force will be suitably trained. I do not see how the Government proposed means, as spelled out in the White Paper, the Chancellor's speech and other economic utterances by the Government, will achieve this end.

If the Government did not get their growth, the cuts they would have to make in public expenditure would be so catastrophic that none of us would be able to see where they could be made. The hon. Member for Blaby (Mr. Lawson) has introduced a Bow Group notion about certain cuts being made, but they are not within the realm of practical politics and could not be implemented in the lifetime of a Government.

Mr. Lawson

Has the hon. Member read the pamphlet?

Mr. Pardoe

No. I am taking Press reports and some of the figures given by the Chancellor of the Exchequer. The hon. Member for Blaby did not tell us in his speech which cuts he would make. He pins his faith in large public expenditure cuts, but I do not believe they are politically possible within the lifetime of a normal Government.

Neither do I believe the growth is possible. If the strategy is to be borne out, we have to assume such a rate of economic growth over four years as we have never before achieved over such a period. That would be worthy of the nomenclature "economic miracle", but why should it happen now? What has changed?

Certainly exchange rate policy has changed, though we have had no statement on that from the Government. There was a substantial link in Germany in the 1950s and 1960s between exchange rate and economic growth. There is no doubt that a massive part of Germany's great investment boom was caused by the confidence which a low-value mark gave to German manufacturing industry to get out and sell in world markets. It was an export-led boom caused by correct exchange rate policy.

That may be enough for us in the long term. I have no doubt that if we pursued that policy for 10 years we would probably get to the other side of our problems. But could we get to the end of that 10 years first? Exchange rate policy is a better stimulus to the success of a trading nation and manufacturing industry than anything else.

However, the structure of our whole trade at present does not give us cause to look at this matter with optimism. I am indebted to the official journal of the Netherlands-British Chamber of Commerce for some interesting figures. In the latest issue, Dr. Jacob Post writes: Various international studies have shown that the composition of British imports is such that a growth of the British Gross National Product by 1 per cent. goes hand in hand with a growth of imports by 1.7 per cent. In addition the structure of the British export mix is such that a growth of 1 per cent. of the GNP of the trade partners results in a growth of British exports by only 0.7 per cent. This is a kind of doomsday machine for British trade and I am not optimistic about our coming out right at the end of the tunnel.

One factor which no one has yet fed in is the problem of raw material prices. I suspect we are on the verge of a great commodity boom which will not take long to arrive. There has been frenetic activity on the commodity markets. The boom seems to be taking off.

Mr. Lawson

I wonder whether, in view of the delicate affairs of his party, the hon. Member should, at this stage, declare his interest.

Mr. Pardoe

I was about to say how I knew there had been frenetic activity on the commodity markets. It is an interest fully declared in the annals of the House, if the Register of Members' Interests can be so described. I am a member of the London Metal Exchange and a director of an international trading company.

I do not think that metal is not typical of the rest of raw materials. It probably is. If we are to achieve a great investment boom in manufacturing industry we must get the growth we want. We shall need such enormous increases in manufacturing investment as we have not experienced in the past. I do not know why we should expect to get them in the near future.

Alternatively, we need a massive improvement in the productivity of current investment. If we got enough, we would be shedding labour within the manufacturing sector and it would be impossible to meet the Chancellor of the Exchequer's employment target. I cannot see that the atmosphere in industry is conducive to an investment boom. It did not happen under the last Conservative Government. It was a very slow business, and investment did not go into manufacturing industry to anything like the extent hoped for by the then Government.

Why should industry invest in Great Britain? The trend of profitability here would make anybody with money to invest gloomy about the prospects. The gross trading profits of companies in the United Kingdom, after providing for stock appreciation, were 15.7 per cent. of gross domestic income between 1950 and 1959. Between 1960 and 1969 this figure fell to 13.7 per cent. In 1970 it was 10.5 per cent., in 1973, 9.8 per cent. and in 1974, 6.7 per cent. It is coming down rapidly, and in 1975 was no better.

To take an international comparison, a parliamentary answer to a Question on 9th December shows that ever since 1960 the net operating surplus as a percentage of net domestic product in the United Kingdom has been about one-third lower than it has been in France, Germany and other EEC countries. For instance, for 1960 to 1963 the United Kingdom average was 22.3 per cent. and the average for all EEC countries was 30.8 per cent. From 1970 to 1973 the United Kingdom averaged 18.6 per cent. and all EEC countries 26.9 per cent. That demonstrates that our figures have been lower over a long period, not just in the last two or three years. It is ridiculous to suggest that our economic growth problems started within the last 18 months or two years.

We need a commitment to return to much higher levels of profitability in the private sector. That is impossible in the present climate of opinion about profit. That does not arise just under a Labour Government. The Conservative Government made exactly the same public opinion objection to high profitability, and they had to perform many strange political actions. We have to make high profitability acceptable to the great mass of people. I do not object to it. What worries me are the people who get the profits. If everyone had a share I should be happy. In countries where the return is higher and there is a much better rate of investment, such as France and Germany, there are much better schemes for sharing profits.

I do not regard this as a great cure-all, but the only alternative to a massive extension of profit sharing in British industry is to go for some kind of centralisation, or Socialist direction, whereby the Minister decrees how much of the national resources goes into investment, as is done in Eastern Europe. That does not seem to have been a great success in Romania, Hungary and Russia. In France, profit sharing has been compulsory since 1967 for companies employing more than 100 people. In 1971, 2.6 million employees were covered by profit-sharing arrangements and in 1974 4.7 million people were covered. That is a considerable increase, which shows the trend of events in France, and we should follow that line.

The hon. Member for Blaby said that the Chancellor offered bribes for votes between February and October 1974. He also referred to the Conservatives' theoretical cuts in public expenditure. They will always happen as long as we have Parliaments that last only for a few months. If the Government have to think constantly of getting a working majority within 18 months or two years there will be continuous bribery. Many of the problems in British manufacturing industry are caused by the lack of continuity of Government policies. We had an instance recently with the television tubes industry. We have only one factory left, all the others have been closed down. Since 1960 there have been 41 changes in taxation and hire-purchase arrangements for television sets. How can there be any investment with that kind of instability?

The right hon. and learned Member for Surrey, East (Sir G. Howe) said that the Conservatives would be able to cut expenditure. He attacked the Government for not making enough cuts in public expenditure. It is not just a question of cutting expenditure over a short period. There has been an inexorable rise in the proportion of the national income taken by the public sector, so that it is now 60 per cent. It has gone up each time there has been a Labour Government, and under Conservative Governments it has not come down. I am prepared to accept the figures and say that it has not gone up much under Conservative Governments, if at all, but it has not come down. Not counting defence, between 1944 and 1948 it went up from 20 per cent. to 35 per cent. From 1964 to 1968 it went up from 35 per cent. to 45 per cent. and from 1973 to 1975 it went up from 45 per cent. to 55 per cent., or 60 per cent. including defence.

I suppose that the argument Conservatives might put forward would be that we should always have a Conservative Government, but the electoral system is unlikely to return Conservative Governments for ever. Although we have alternation between parties in Governments, at least we should get all-party agreement on the percentage of the national income which should go into the public sector. If we do not, we shall reach 100 per cent. sooner or later. That will be at about the time when the hon. Member for Blaby reaches the Dispatch Box as Chancellor of the Exchequer. He will preside over the 100 per cent., and I hope he manages it rather better than previous Chancellors have done.

Unless a commitment to cut expenditure is a specific commitment it is not meaningful. The Conservatives came to power in 1970 with a specific commitment to cut taxation and a vague and un-specific commitment to cut public expenditure. They were successful with the first but not with the second. The gap between income and expenditure widened, the Conservatives were unable to borrow the difference and had to print money. That is why the money supply increased. There is nothing new in Government cuts being announced three years ahead. They never takes place because in three years' time there is always a reason for postponing them.

The Conservatives are not honest in the attitude they have adopted to the White Paper. When the Conservatives come to power, I do not believe that they will cut public expenditure. I fundamentally disagree with part of their amendment because I believe it is dishonest. For the Conservatives, with the information available to them and the present outlook for the British economy, to say that they will reduce the living standards of the British people, although they castigate the Government for doing that, is grossly hypocritical. The British people will have to get used to the idea of their living standards falling for a long time to come, whether we have a Conservative or a Labour Government, and the sooner they get used to that the better.

7.8 p.m.

Miss Joan Lestor (Eton and Slough)

The right hon. and learned Member for Surrey, East (Sir G. Howe) said that part of the solution for him would be for the Labour Government to sacrifice some of their sacred Socialist cows. I hesitate to say that I am one of those sacred Socialist cows, but I rise to defend one or two of the sacred Socialist cows that the Government came into power to introduce.

The debate rests on two assumptions. The first is that public expenditure is far too high and the second is that we have almost reached the limit of the taxation that can be imposed on the community. The Government have argued that the proposed cuts in the White Paper are not cuts at all but are merely reductions in the amount that would have been spent on expanding services. That is particularly relevant, so I am told, to education. We are told that things will not get worse. They will either remain the same, or improve, but not as much as we had hoped. It has also been argued that because of the falling birth rate we do not need to spend as much to provide the same educational services or to improve existing educational services.

My hon. Friend the Member for Luton, West (Mr. Sedgemore) to some extent analysed how he viewed the present economic situation. My right hon. Friend the Chancellor tends to treat the contributions of my hon. Friend the Member for Luton, West with some alacrity and therefore I should like to draw his attention to an article by Howard Glennerster in the New Statesman. Howard Glennerster writes rarely, if ever, for the Tribune Group and I am certain that he does not get much of his information from the Treasury. However, the Chancellor cannot afford to treat him with the same alacrity as he treats my hon. Friend, because over the years the Labour Party has used Howard Glennerster to back up many of the theories which it has put forward in connection with economic and social policy. It is worth noting that Howard Glennerster and my hon. Friend the Member for Luton, West both agree in the conclusions that have been drawn.

I shall refer to only part of the article by Howard Glennerster because I wish to deal mainly with education. He said that the increase in the public sector's use of goods and services has increased very little over the last 25 years. The largest increase in spending since 1971 has been on subsidies, net lending and capital grants to the private sector and the payment of interest on Government borrowing. If it is true—I think it has been established by many people who have analysed it—that social service expenditure is about half of total public expenditure and if it is true—which I doubt—that public expenditure is reaching the bounds of public tolerance, all my Socialist hackles tell me that the least we could do is to treat all public expenditure equally, so that all areas of spending should receive the same treatment as has been afforded to social services. However, we did not do that.

The hon. Member for Cornwall, North (Mr. Pardoe) has also stressed that this country does not spend anything like as much as some others on the provision of services. According to a recent PEP report dealing with the Economic Community Britain is also currently devoting less—and in a number of cases significantly less—of her total wealth to social security, health and welfare provisions than any of the continental countries in the EEC. Therefore, it is hard for the Government to argue that we have reached the bounds of public tolerance in connection with what we are spending on our social services.

The falling birth rate has been used as an argument for cutting expenditure on education. I point out that we also have an ageing population whose demands on the community will increase because the productive area of the community will decrease if the birth rate falls. That matter must also be taken into consideration.

My hon. Friend the Member for Luton, West referred to the cost of unemployment and the figures given by the Treasury in connection with the inquiry into the car industry which indicate that we are spending about £72 million a week on unemployment pay. The National Union of Teachers estimates that 15,000 teachers will be unemployed by the end of this year. At a cost of training of £7,000 each, this means that over £100 million has gone into training teachers whom we shall not employ. I am told that some of them will get other jobs, yet we are cutting education services in order to pay unemployed teachers unemployment money. In my view, that is totally illogical. If we had adopted the same attitude towards the doctors and trained them and then told them that we could not be bothered to employ them but would pay them unemployment money, the outcry by hon. Members on both sides of the House might have been greater.

Last year we told the local authorities that there would be a 2 per cent. growth in education expenditure. Indeed, I was present when that argument was put forward. The local authorities said that this would mean a 2 per cent. cut because they argued that in order to maintain existing commitments in education they needed a 4 per cent. growth rate. It was true and it is still true that more money will be spent on education. However, that is not enough, and was not enough then, to preserve existing standards of provision. That is what the argument is about. If we bear that in mind as well as the way in which the rate support grant works, we have no means of guaranteeing that even his so-called 2 per cent. growth will take place. I should like an assurance that these cuts which some people say do not exist—I intend to show that they do—will be restored when times are better.

I have already mentioned that the argument has been put forward that because there is a falling birth rate things are not so bad and that the cuts, imaginary or otherwise, will not affect the pupil-teacher ratio. When I chaired the Labour Party working group on education and we worked out the policy I was not told to bear in mind a falling birth rate and to cut my cloth according to that. My colleagues and I all believed that if there was a falling birth rate we would be able to use the teachers whom we had trained, and presumably judged that we needed, in order to ensure that we had smaller classes and, therefore, an improved pupil-teacher ratio. In that way the area of disadvantage which my colleagues had worked out would be the area we would be able to look after. We believed that we could do more about remedial teaching in minority groups and about all the cases which we have isolated so much in our arguments. Therefore, we desperately needed the trained teachers whom now we shall not employ.

It has been argued that these cuts may never happen and that the whole thing is really an exercise. I do not know about cuts mentioned in the White Paper or the forecasts for the future. Obviously I do not know what will happen in the future. However, there must have been some reason for putting them in the White Paper. I do know that some local authorities are already not replacing teachers who are leaving the service. That means that the pupil-teacher ratio in many of our schools will not remain the same. It will get worse. Anyone who wants evidence of that shall have it. It is there for everyone to see. Existing teachers are not being replaced.

The falling birth rate did not happen today or yesterday. Indeed, the falling birth rate of the future has not yet been felt in our schools. The non-replacement of teachers is taking place now.

Mr. Lawson rose

Miss Lestor

I shall not give way to the hon. Gentleman. He has interrupted many times during the debate. I want to continue the theme which I have been developing.

We must bear in mind that cuts are not only for the future. They are taking place now. What has been left out of the calculation of the falling birth rate and all the rest is that if the expectations in education are what some of us hope they will be, then more young people will stay on at school and the extra teachers will be needed. I hope that many of them will stay on. If our predictions on the birth rate are as accurate as our predictions were on the number of teachers we said we would need in order to improve the education services, I doubt some of the predictions about the birth rate.

It is important to ask questions about which local authorities were consulted and how they were consulted about the birth rate and the correlation of that with teacher reductions. I doubt whether many consultations took place. One cannot simply say that, because the birth rate falls, it follows that in that proportion we can reduce the number of teachers. The ILEA, the only body I know to have looked into this matter, has argued that a 5 per cent. reduction in the birth rate would mean only 1 per cent. reduction in the number of teachers required. It depends on the areas affected as to whether these are specialist teachers or not. There is no simple equation to this calculation. The relationship between the number of teachers who are not employed—that is the 15,000, some of whom will go into other jobs—and the number of children in the classroom who will suffer appears not to have been thought out.

It is important to note that the TUC, which has broadly accepted the Government's strategy, has expressed its concern about education, and Mr. Jack Jones has voiced his opinion on the matter. The TUC recognises that this is not just a question of a diminishing level of expectation in education, but of cutting back on provision that will be desperately needed in the future if educational performance is to match the demands of the country. The Government should be talking about more, not less, training.

I turn now to pre-school education. We were hoping for an expansion of nursery education, but almost one-third of all local authorities have between them refused £4.7 million of the £26 million allocated this year for nursery expansion. Only £1.9 million has been reallocated. In the last two months the number of authorities planning to abandon plans to expand nursery spending rose from 26 to 33. The White Paper says that, in spite of the reduced capital expenditure on provision for the under-5s, it is still possible to ensure that acceptable standards of accommodation will be provided in areas of greatest need. How on earth do we know that? How do we know that an authority which is cutting back does not have the greatest need? All the evidence available to me suggests that the statement that the provision of nursery education in areas of greatest need will go ahead is nonsense. We have no control over what local authorities do about nursery education. All the evidence is that they will cut back regardless of need. This is one of the most damaging aspects of the White Paper.

The White Paper says that there will be no increase in the number of places for under-5s after 1977, but the Department of Education and Science says that this does not mean that there will be no money for building. The White Paper allocates only £6 million for 1978–79 for nursery building. That sounds as though expansion will not take place even after the difficulties set out in the White Paper have been overcome.

It has been constantly argued that the cuts are not real. The evidence I have collected from reliable sources about what is happening in education today does not bear that out. This is the point which angers me most. If the cuts set out in the White Paper are not already taking place, what are the cuts that are being carried out? If the White Paper is warning local authorities that they will not be able to spend as much as they would like in two or three years' time, they will naturally hold back now because they do not know whether, when the time comes, they will have the finance to carry out their plans.

Perhaps I should give examples of the cuts. In Calder Vale the education committee has cut £700,000 from the 1976–77 budget. The non-replacement of teachers will save £218,000. That represents a cut in the pupil-teacher ratio. By serving more artificial meat in schools another £10,000 will be saved. In East Sussex there will be reductions in further education. In Knowsley in Lancashire, which includes Huyton, cuts include the shutting of 50 school canteens, a worsening in the teacher-pupil ratio, with a saving of £300,000. Reductions in building maintenance will provide another £400,000. In Strathclyde, which is not as closely related to these matters as other authorities, 40 out of 90 planned nursery schools are to be dropped.

Libraries and youth services feature in the cuts of almost every local authority programme for which I have evidence. That applies to Surrey where there will be a worsening of the pupil-teacher ratio through a reduction of 100 teachers. It is, therefore, ridiculous to say that the cuts are not taking place. Every local authority knows that they are, and the Government must come clean about it.

The nursery schools are one of the worst hit areas. The only way to get adequate nursery provision is to lower the school starting age to 4 and to make the necessary financial arrangements with local authorities to compel them to provide nursery education for all the children who want it. I like the local authorities to proceed with that approach of their own volition.

When we wrote our manifesto we made certain commitments in education, and many of those were directed towards the areas of social disadvantage, areas where we wanted to close the gap and to give opportunities to children at the lower end of the scale. These cuts are biting into the opportunities for those children whose parents look to the Labour movement to articulate their needs and to create the means by which their aspirations may be fulfilled. We articulated their needs very well, by writing the manifesto. The Government, however, have failed to make the policies live up to the commitments in the manifesto to which so many of us feel devoted.

7.29 p.m.

Mr. Charles Fletcher-Cooke (Darwen)

It is always right to honour a Minister who resigns on a point of political principle. It is a difficult thing for a Minister to do. It happens much less frequently now than it used to, and it is therefore all the more honour to the hon. Member for Eton and Slough (Miss Lestor) for putting her principles before her office. I mean that sincerely.

She considers that the cuts have begun, and I wish that I believed that. Nobody else does. It was quite clear from all the speeches on the Labour side that there are to be no cuts for the coming year and that public expenditure is to increase. Even if the cuts may have begun in some sectors, it is clear that overall expenditure next year will be more than this year. If that is so, the only question that I want to ask and answer shortly is: where will the money come from to pay for that increase? The answer is broadly hinted at on page 118 of the "document of shame". I agree with that description of the White Paper, though for rather different reasons from some Labour Members. It is shameful to impose this burden upon the generations that are to come because that is clearly the message of paragraph 6 on page 118, where the glories of borrowing are extolled. It says: The remainder of debt interest"— other than the seventh, which is overseas debt interest— represents an internal transfer of purchasing power. A good deal of it returns to the Exchequer in tax, and of the remainder it is believed that a considerable proportion is saved (adding, for example, to pension funds). It almost sounds as if it is worth doing for its own sake because it is so desirable. Clearly, the Chancellor realises that he has reached the limits of taxation—in spite of what the hon. Member for Luton, West (Mr. Sedgemore) said earlier in an eloquent and honest speech—because of his need to procure an extension of the incomes policy. The whole problem will then be shoved on to the shoulders of our children and grandchildren. That is more than a mere transfer payment.

When we refer to transfer payments we usually mean a transfer of command over purchasing power from the rich to the poor, from the taxpayer to the old-age pensioner. That, according to one's political views, is to a greater or lesser extent desirable. However, at least those people are represented by their votes in this House. They have all had a chance to vote and thus decide the manner and degree of the transfer. However, those who will have to pay the debt interest have no votes—many of them are not born. To increase the debt interest in this way is more than a mere transfer payment, as is said on page 118 of what is, therefore, a shameful document.

Only yesterday the Minister of State, Department of Industry took credit for allowing the British Steel Corporation to borrow an enormous amount of money to take charge of its £300 million deficit this year. In other words, future generations will be landed with burdens because we do not have the courage to make that Corporation, among other corporations, more efficient, or the courage to ensure that our manpower is rationalised. At present three steelworkers do the job that one steelworker does in Germany. Therefore, we have to subsidise them, not by taxing the present voter but by taxing those who are lo come. The transfer of responsibility to our children and grandchildren who have no votes is shameful.

We are in the same situation as New York City. New York City kept loading itself and future generations with debt until it went bankrupt and until the debts were very nearly repudiated. We are told that already the average family—this has not been denied—will have to pay £600 a year in taxation to service existing debts at the end of the period forecast blithely by the Government in this White Paper on Public Expenditure. It means that those who pay direct taxes, who comprise only a fraction of the households in this country, will pay £1,000 per annum, or whatever the figure is, before they start to pay for old-age pensions, hospital and education services and all the other services to which the hon. Member for Eton and Slough and her hon. Friends referred. If, before one starts paying for current requirements one has to pay debt interest, there can be only one end. Either money is printed and inflation is re-stoked again, so that the debt is gradually repudiated—which is the classic way of getting rid of a burden of debt that is found to be too great—or the process stops because the young refuse to pay what they have not themselves voted for.

We have now reached the limits of this process. The hon. Member for Eton and Slough mentioned a few weasel words about how she was told these economies are all right because the birth rate has fallen and, therefore, the school population will be less. That is rubbish. The reason is that there was a fight over the Cabinet table and the Secretary of State for Education and Science was not as strong as the Secretary of State for Social Services. All these excuses make the whole matter more cynical and insincere than if weasel words were not used.

The White Paper extols how glorious it is to incur debts, because one gets almost the whole debt interest back in the form of taxation and, anyhow, it increases pension funds, and so on. Those are the biggest weasel words of all. It means that the Chancellor will not cut public expenditure next year and, therefore, the money must be found from somewhere. He will not tax us any more, because to do so would violate his incomes policy, so he has to put the whole burden on future generations. If only he would say so and if only we could have less cant, humbug and insincerity about this matter, the monstrous and shameful things that he is doing would be a little easier to bear.

7.28 p.m.

Mr. John Garrett (Norwich, South)

I wish to refer briefly to the form, content and scope of the White Paper, which I consider an insult to the collective intelligence of the House. It is wholly inadequate to the crucial and important task of this House of acting as a watchdog on the Executive. The information contained in it is patchy in content, inadequate in detail, inconsistent and ambiguous. It does not provide adequate means for the elected legislature to scrutinise, examine and question the big issues of public policy, the justification for expenditure or its effectiveness.

There is less information in it than in previous White Papers, although the Treasury is fully aware of the demands made by the Select Committee on Expenditure for more information on spending programmes. The Treasury treats these demands with a fine and gentlemanly arrogance. For example, in its reply to the Special Report of the Select Committee on Expenditure on the financing of public expenditure, which asked for the further development of the annual public expenditure survey system so as to give us more information on individual programmes, the Treasury said: The Government would not be disposed to move in the direction of the further elaboration of systems or of over-refinement of forecasts. The Treasury is our servant. It is there to supply the information that we want, not to argue with us on the question. In oral evidence to the Select Committee on Expenditure, Treasury officials said that both they and Ministers thought that the White Paper was getting too long and detailed, as if the Committee were there for their convenience. The Chief Secretary, also in oral evidence, said: A lot of information has been left out because Ministers felt that we were in danger of overloading the public mind"— I am quoting verbatim from the evidence of the Chief Secretary— with the volume of paper. … It was felt that there would be no harm in reducing that somewhat. The Chief Secretary is among the last persons that I would accuse of arrogance, but he seems to have taken on the mantle of his Department. That seems to me to have been an insulting reply.

The presentation of the White Paper prevents any rational examination of the course of public spending over the next five years, because it is not accompanied by any equivalent forecast of revenue or borrowing, nor by the Treasury's medium-term economic forecast. I am glad to see on the Government Front Bench my hon. Friend the Financial Secretary, the hon. Member for Ashton-under-Lyne (Mr. Sheldon). I seem to remember him conducting a campaign for about five years over the failure of the Treasury to provide medium-term economic assessments to the Public Expenditure Committee when he was its Chairman. Now that he is poacher turned gamekeeper, I hope that he will explain how he proposes to alter the system so as to give the information about which he was beefing for so long. I cannot see why such matters should be secret.

For at least a decade the Treasury successfully resisted supplying the information necessary for us to take this White Paper in context. The White Paper veers from one extreme to another in the amount of detail it presents. We are given two pages of information on the administration of justice and the treatment of offenders, including, for example, spending, to the nearest £100,000, on legal aid. Those two pages cover no more than £200 million worth of expenditure. We also have two pages on health and personal social services accounting for £4,500 million worth of expenditure.

When we ask for real information on which we can examine the aims and objectives of expenditure, the underlying policy decisions, the community needs and requirements to which expenditure is addressed, and the justification and the effectiveness of expenditure, the Treasury seems to have some difficulty in understanding what we want. A look at the practices of foreign Governments would demonstrate what we mean. I shall spell it out.

I want to see public expenditure over the next five years sub-divided into individual service programmes and accompanied by forecasts of revenue and borrowing and the economic assessment for the period. For each programme I want a statement of the objective of the spending, measures of its effectiveness, its efficiency, its impact on the community, and details of how it fits into some general strategy for the development of community services, and the manpower involved; in other words, a programme budget. That is a term that is understood in the rest of the world, but not, apparently, in the Treasury. I hope that that is clear enough. Monitoring and surveillance of the Executive by the legislature demand nothing less.

Coming to this White Paper, one finds that the general strategy is quite clear, but, unfortunately, it is bogus. It is based on the premise that by reducing public expenditure we make room for industrial investment and exports. The general review in Part I says this, and Treasury Ministers have repeated it.

The fallacy of this concept is that there is no reason to believe that it will ever happen. There is no historical evidence that it has ever happened previously, nor that the machinery exists to ensure that it will happen in the next five years.

The Chief Secretary says in effect that the whole thing will change, that these relationships will work and that if one cuts public expenditure, the chances are that industrial investment will increase. It is true that industrial investment is low, as it has been in this country for decades, but there is much evidence to suggest that we get a very low return on the investment that we make in industry. Neither making room for investment nor blanket tax reliefs are ever likely to alter that situation.

The only way in which we are ever likely to improve investment levels or the return from the investment that we already have is by the systematic analysis of industrial performance on a sector-by-sector and firm-by-firm basis, and by the Government, management and unions together establishing the cause of the problems, the bottlenecks and the obstacles to improved performance and drawing up specific action programmes to deal with them—in other words, planning.

In the clothing industry it is clear that the problem is in plant layout and operating methods. In the footwear industry the problem is primarily in design. In some industries and firms the problem will be product innovation. In others it will be process innovation, in others marketing, in others management, in others export credits, in others unfair competition from imports, industrial relations and so on. Making room for investment and exports makes sense only in the context of specific schemes of assistance, specific intervention and the specific use of Government funds for re-equipment. It makes sense only in the context of a powerful National Enterprise Board and an extensive network of planning agreements to make sure that it happens.

The general strategy of the White Paper will not work in the environment of the move from hard to soft planning, which has clearly happened already in the Government's industrial policy. That is the weakness. It is the move from a proper planning agreement system and a powerful NEB to this wishy-washy discussion group of the TUC, the CBI and the Government, heralded by the Chequers conference. That is the problem.

The second main proposition in the White Paper is that we have reached the limit of taxation in this country and that to increase taxation by another penny would cause us all to be seized suddenly with some kind of paralysis. It is worth bearing in mind that, as the Expenditure Committee said in its last Report, we are in general a lightly taxed country. Tax revenue as a percentage of gross national product in Britain is well below the level for countries that are much more successful than we are. It is lower than that of Sweden, West Germany, Holland and France, for example.

Indirect taxation in Britain is very much lower and has been falling relatively over the last few years. Employers' social security contributions are much lower here than they are in other countries. Stock relief on taxation to companies this year will be worth over £1,200 million. Capital allowances to companies will be worth £1,800 million. We are pouring buckets of money over the corporate sector without any appreciable return in terms of industrial performance or any means of monitoring that performance.

Tax reliefs to people with mortgages cost nearly £1,000 million. Tax reliefs on life assurance to individuals cost £250 million. We are nowhere near our taxable capacity, and yet to avoid raising taxes and to make this mythical improvement in manufacturing industry, we cut the proposed growth in education expenditure by £680 million.

I am well aware of the arguments about a falling school population, but, as my hon. Friend the Member for Eton and Slough (Miss Lestor) said, that falling population should have provided the opportunity to raise educational standards. What element of public expenditure is more worth while than expenditure on education? The main effect of the education cuts is to reduce the school, college and university building programme by half between the 1974–75 level and the originally proposed 1979–80 level.

Slum schools—and there are plenty in East Anglia—50 or more years old will have to be botched up and used for another five or 10 years. Is that the right way to give working-class children a start in life? On straight cost-benefit analysis, education spending is a far more useful contribution to the country's economic performance than blanket giveaways to industry.

The Government have got their priorities all wrong. I trust that Labour Members and the Labour movement in the country will fight to see that the cuts in education expenditure are restored.

The White Paper is a model of obfuscation and issue-dodging. It is really a wish list rather than a plan. It evades the questions that we as parliamentarians are entitled to ask. It is devoid of rigorous analysis and has made entirely the wrong choices. Luckily, we have 12 months before the next White Paper to bring pressure on the Government by all possible means to see that their mind is changed, particularly in the direction of implementing those manifesto pledges that said that we would start to build a planned economy.

7.49 p.m.

Mrs. Margaret Bain (Dunbartonshire, East)

Most right hon. and hon. Members who have spoken in the debate have spoken in general terms about the implications of the White Paper. I should like to restrict my remarks basically to the implications for education, particularly in Scotland. My hon. Friend the Member for Aberdeenshire, East (Mr. Henderson) hopes to be lucky enough to catch your eye, Mr. Deputy Speaker, tomorrow. If he is, he will deal with the White Paper in more general terms.

However, I want to say at the outset that I believe that the cuts envisaged throughout the White Paper strike a blow at democracy as we believe it should exist. The White Paper does nothing to provide the opportunities which should exist in our society. It does nothing to eradicate poverty and to promote social justice. The White Paper will go down in history as one of the most atrocious pieces of paper ever to come before the House. It will go down in history as a bludgeon of democracy.

The SNP cannot accept that there is any real justification for the cutbacks that are envisaged- We have consistently argued against increase* in administrative costs, costs which are probably epitomised by local government reorganisation. We have argued for increased public expenditure and for a complete review of priorities for Government expenditure. We believe that Scotland is poised for a period of expansion and reflation, not contraction and deflation.

Six years ago, the Prime Minister was telling us that investment in education was an essential corollary of industrial success, but the right hon. Gentleman is now leading a Government who preside over the death throes of education. As the hon. Member for Eton and Slough (Miss Lestor) said, this is a great blow to many of us. We are already seeing the results of the Government's strictures in our communities and constituencies.

I am the first Member from Scotland to speak in the debate and I shall outline for the benefit of the House what is happening in the Scottish local authorities. For the financial year 1975.76 the Tayside Region has cut back on education expenditure by £4.28 million. The Grampian Region has cut back by £3 million, the Lothian! Region by £1.5 million, the Highland Region by £1.5 million, and the Strathclyde Region by a massive £17 million. I shall concentrate on the cutback that has been made by Strathclyde, but that does not mean that I in any way deprecate the significance of what is happening elsewhere in Scotland, or throughout the United Kingdom. However, my own constituency lies within the Strathclyde Region and I am more au fait with what the cut-backs mean for those in the Strathclyde Region.

In Stathclyde 100,000 children are being educated in sub-standard schools. It is an area in which 97.5 per cent. of the worst areas of multiple deprivation in the United Kingdom exist. Deprived schools are fed by deprived homes. In that way a vicious circle is built up and maintained. The result is that working-class children cannot hope to escape. In the west of Scotland the phrase "equality of opportunity" has become meaningless and empty.

In November 1975 the Chairman of the Finance Committee of the Strathclyde Region, Councillor O'Halloran, stated publicly that there would be no cut-backs in education expenditure, yet we are now faced with a cut-back amounting to £17 million in the Strathclyde Region. Nowhere has this been more obvious than in my own constituency where a technical college was opened and closed on the same day. In the short time available I cannot hope to express exactly what that meant to the community of Cumbernauld, save to say that the whole community regards it as a gross mismanagement of resources.

The Cumbernauld community paid rates and taxes to have the college built. Money will be spent on repaying the loan, to maintain a level of heating and to employ janitors to prevent vandalism. However, the college will remain a white elephant and no education benefit to the community will stem from it.

It is disastrous that the local authorities appear not to be accountable for the decisions which they take. When I asked the Under-Secretary of State for Scotland with responsibility for education whom I notice is not present, whether he was satisfied with the situation within the Strathclyde Region during Question Time last week, he replied that it was a matter entirely for the region. It is ridiculous that the Government, who are paying rate support grant to regional authorities, should not provide for accountability when such decisions are being taken. The Government should lay down guidelines, apply criteria and provide for accountability on the part of the regional authorities. It is even more disastrous when we remember that the £100,000 which is needed to keep open the Cumbernauld Technical College is the equivalent of what the Strathclyde Region has awarded itself as a hospitality account for the regional councillors for the next year.

A 14 per cent. reduction in administrative costs by the Strathclyde Region would keep the technical college in Cumbernauld open and prevent cut-backs in nursery education. However, the regional authority seems accountable to no one. It can make decisions without consultation.

I share the fear of the hon. Member for Eton and Slough that we shall never get out of the present situation. Why is that so? It is because the White Paper, in terms of education in Scotland, paves the way for the most severe cut-backs that we have ever envisaged in a civilised society. Formidable lists of cut-backs have been detailed by educationists and teachers' unions since the White Paper was published.

The cut-backs result in what could be termed minor matters, such as a reduction in the number of janitors and the non-replacement of furniture, but we must consider the real education nitty-gritty. There will be the curtailment of child guidance, a reduction in adult literary courses, no replacement of teachers when they leave through natural wastage, the closure of adult centres, and new courses not being offered by colleges of further education. A formidable list can be built up which demonstrates that the Government are striking at the heart of what they should be supporting—namely, the standards which should be available to the working-class community.

The Government are also guilty of the sin of trying to compare 1979–80 with the financial year ending March 1975. They should compare it with the current year when taking into account the expenditure that is planned by the local authorities.

Table 2.10 has 90 per cent. of its contents devoted to education. But Table 3.1 shows that in Scotland there will be a reduction of £57 million in education expenditure over four years. That is a reduction from £605 million to £548 million, a cut of 9.4 per cent. For the rest of Great Britain the cuts amount to 1.9 per cent. over the same period. Therefore, Scotland must bear a burden of 39 per cent. of the total cuts in education expenditure.

When I first studied the tables and analysed the situation, I thought that I had made a mistake. I accept that I am not the most numerate of people. I did not take higher maths, or A-level maths as it is called south of the border. However, various research people came up with the same statistics.

I am horrified by the situation that the statistics reveal. At present education expenditure in Scotland accounts for 7.9 per cent. of the Scottish gross domestic product. If we take the lowest growth rate which is envisaged, the decline as a proportion of GDP amounts to 4.1 per cent. I am willing to admit that expenditure in Scotland on a population basis is probably slightly higher than elsewhere in the United Kingdom, but, as I never fail to point out, Scotland has greater problems than other areas.

The report produced by the National Children's Bureau indicates that one in 10 of our children is born to fail. The Census Indicators of Urban Deprivation Report and the Euro-Scot Report demonstrate that Scottish children are seriously disadvantaged. If the Government can in any way deny or refute the statistics that have been presented, I shall be delighted. I am horrified, as are my constituents, members of my party and the grass roots of the trade union movement—many trade unionists have approached me in my constituency about the implications of the White Paper as they feel that the standard of living of the community is being attacked—by much of the White Paper.

I conclude by repeating what the EIS, Scotland's largest teachers' union, said when reviewing the White Paper. It asked: Why has education had to bear such damaging cuts? Why hit the future to spite the children?

7.59 p.m.

Mr. Eric S. Heffer (Liverpool, Walton)

I hope that the hon. Member for Dunbartonshire, East (Mrs. Bain) will not expect me to take up her remarks on Scottish problems. I trust that tomorrow some of my hon. Friends representing Scottish constituencies will make their comments on the White Paper as it affects Scotland.

I want to follow the line of argument taken by my hon. Friend the Member for Eton and Slough (Miss Lestor), who said that we were discussing cuts which are already taking place. That is a matter that we tend to overlook. The Budget Statement of 15th April 1975 announced economies amounting to £1,123 million for 1976–77. But the Government had to feed money back into public expenditure because there was a rise in unemployment. It is remarkable that, to stem the rise in unemployment, the Government were forced, out of sheer necessity, to push money back through extra public expenditure.

Nevertheless, my right hon. Friend the Secretary of State for the Environment, in Circular 88/75, made certain suggestions to local authorities. The circular was issued in England and Wales on 3rd September 1975. There was a similar circular for Scotland as well. Among the specific cuts suggested in that circular were the following: no improvements in staffing ratios in schools, and appropriate reductions in staffing in areas of declining school population; a tightening of staffing ratios in higher education; restrictions on the admittance of rising fives in infants' schools; increases averaging about 60p per week in council house rents from the spring of 1976; additional increases in public transport fares; further cuts in the road programme, including maintenance as well as construction and improvement; in social services some delays in bringing capital works into use other than children's homes; possible cuts in opening hours of libraries, museums, and so on; reductions in the level of services in parks and open spaces, refuse collection, general administration, and local planning.

Although the Government were forced, because of rising unemployment, to pump money back through public expenditure, that still did not cater for the many areas that I have just outlined. On the one hand, there was an attempt to stem the tide of unemployment. On the other hand, the cuts already being made were helping to drive up the level of unemployment and to reduce the necessary services which are essential to give ordinary people a better life. That is the essence of our argument.

We are concerned with our objectives. What are we here for? The suggestion by the Home Secretary that if public expenditure rises to 60 per cent. of the national income there will be an end of democracy is utter rubbish. My hon. Friend the Member for Luton, West (Mr. Sedgemore), in an absolutely magnificent speech, made it clear that many other countries, where the level of public expenditure is much higher than in this country, are good, healthy democratic societies. It is not true to suggest that we shall have a vast bureaucratic type of society if we further increase public expenditure.

My hon. Friend the Member for Eton and Slough was right to point out that local authority services are being affected by the cuts now. If any hon. Members do not believe that, I suggest they should have words with the National Union of Public Employees, NALGO, and the other unions concerned with public sector services.

Mrs. Reneé Short (Wolverhampton, North East)

And the NUT.

Mr. Heffer

My hon. Friend includes the NUT. I was referring to other sections which are conducting a tremendous campaign against the cuts which are taking place.

The hon. Member for Oswestry (Mr. Biffen), in an interesting article in the Daily Telegraph, rightly made the point that the projected cuts are concentrated towards the end of the period, not for the year ahead. I do not deny that, because cuts are already taking place, and further cuts are projected from April next year, as my right hon. Friend the Chancellor of the Exchequer said. Indeed, the term he used was "levelling off".

What does that mean in real terms for the people of this country? I am concerned about real terms. I could not pretend to theorise about economic matters, as do some of my hon. Friends. I could not pretend to be an economic genius. I think that everyone who knows me will accept that I am not. However, I know when projected cuts will affect the people I represent. For example, I know that the phasing out of food subsidies, on top of the marvellous arrangement which has just been reached with the Common Market which will mean tremendous increases in food prices anyway, will mean even further increases in food prices for the British people.

There are to be cuts in housing subsidies. It is important that every council house dweller should know that, by the end of 1979–80, he or she is likely to be paying another £2 or £3 per week in rent as a result of Government policy.

We are faced with other projections, all of which affect our people. I agree that the Government have not in any way suggested cutting the national insurance benefits. The social security benefits are not being cut. They are continuing. But once this kind of solution to the problem is proposed the argument put forward by right hon. and hon. Gentlemen on the Opposition side of the House gathers strength, because it is they who have been arguing, as they rightly boast, for the last two years that the way to deal with our problems is to cut public expenditure.

They are now saying that the Government are doing too little, and doing it too late, but they are not prepared to answer the question put to them by the right hon. Member for Down, South (Mr. Powell), and they are vague about what should be cut when anyone wants to know precisely.

They are also totally hypocritical, because they are putting forward an amendment criticising the Government for putting extra burdens on the shoulders of the people and at the same time demanding further cuts which would put more and more burdens on them. They know they are being hypocritical, and that is why I, for one, would never vote in the same Lobby with them.

But I also tell the Government that they must not rely on the fact that I and many of my colleagues will be voting with the Government. It might not be a bad thing if the Government were to lose this White Paper, or Blue Paper—blue would be a more appropriate colour than white—because they would then come back with further projects.

In listening to the debate in the House tonight, I do not think that any hon. Members on the Government side, whether they are Tribunites, non-Tribunites, from the Manifesto Group or anywhere else, have up to now spoken in favour of the White Paper. Apparently I am mistaken. There has been one.

In his arguments about the Labour Party's policy, my right hon. Friend the Chancellor of the Exchequer was very selective indeed. He has a habit of quoting from documents such as "Jobs and Prices", and from statements of the National Executive Committee concerning industry and industrial strategy. What he does is to quote about two sentences from documents which appear to move slightly towards the Government's position.

I should also like to quote from the document "Jobs and Prices", which states: The further measures which now have to be taken must, therefore, be selective. … We believe that the Government should introduce, for a period, selective import controls on certain manufactured and semi-manufactured goods. … Such controls could be applied relatively more heavily on those products and so on.

I could also quote from the Trades Union Congress 1975 Economic Review, which argues most clearly two of the points that I and my colleagues on the Government side have been arguing for a long time, concerning import controls and the rigid control of capital outflow. These are clearly stated in the TUC's Economic Review.

My right hon. Friend the Chancellor of the Exchequer said that he would always listen carefully to constructive proposals made by anyone, either inside or outside the House. I ask him to begin to listen to the constructive proposals that have been made consistently over the last year, both inside and outside the House, by a number of people who have argued for an alternative economic strategy. That is the basic point that we are putting forward.

There are different approaches to our economic problems. The answer we are being given by the Government is one approach. Unfortunately, it is the traditional Treasury and Tory answer to the problem. It is the answer which is always put forward in times of crisis, when unemployment has risen, and when the crisis of capitalism has worsened. We saw it in the 1930s and we see it again today.

The alternative to that approach is to do what my hon. Friend the Member for Norwich, South (Mr. Garrett) suggested, and begin the process of planning our economy, planning our society, in a Socialist fashion. That is what a Labour Government, based upon the party's constitution, are elected to do. I ask the Government to listen carefully to the constructive proposals made inside and outside this House by the Labour movement, to take note of them, and to begin to carry them out.

8.18 p.m.

Mr. Dafydd Wigley (Caernarvon)

I shall not attempt to deal with all the points mentioned by the hon. Member for Liverpool, Walton (Mr. Heffer) but I certainly agree with his underlining of the requirement for an economic strategy to meet the problems now facing us.

The White Paper is only one part of the story. The complementary part must come at the time of the Budget. We have to see how the economic burden is to be loaded on different sectors of the community. We shall also have to face up to the question of import controls in one form or another and to the question of economic planning. I do not believe that the White Paper in itself stands an earthly chance of solving the community's problems.

Many hon. Members have said that public expenditure is per se the big evil. I do not believe it is per se the problem. There are questions such as the nature of public expenditure and how it is being used. Our primary concern should be with the benefit that comes from public expenditure. If we are dealing with public industry, it is a question of productivity and effectiveness within public industry. If it is in terms of services, it is a question of the effectiveness of generating a social wage from those services. We are concerned with the effectiveness of public expenditure and not with whether it reaches some arbitrary proportion of the gross national product, whether it is 50, 55 or 60 per cent.

In both public and private sectors there can be waste, under-utilisation and misuse of manpower. This happens in private industry as well as in the public sector. There can be an overloading of bureaucracy within private industry. It can easily be hidden where private industry pushes up its prices to show an overall profit. This factor is then out of sight. But in the public sector it is the first thing to be mentioned whenever there is a squeeze on the economy.

It is necessary to look at the overhead content of the non-productive paper-pushing bureaucracy in both the public and private sectors if we are to have an improvement in total productivity. That includes the industrial and the social wage productivity of the economy. If we are to get greater productivity of this kind, it means getting the questions of the market right, getting stability for industry and getting competitiveness. There is not very much in the White Paper to meet any of these needs.

There are a number of questions which arise about the total limit on resources available. Members of all parties inevitably have to face the reality of the situation that Britain's economic position in the world is not what it was. The age has gone when our economy could depend on cheap raw materials imported from an empire, on cheap fuel imported until recently from certain parts of the world, on cheap labour brought in from various overseas countries and on cheap food imported from a Commonwealth or empire. All those four factors have come to an end, and there must be an effect on the economy. That effect is now coming home to roost. It means that Britain's day as a super-Power has ended. It cannot continue with an imperial pretence which has been around our necks for so long.

The £12,000 million deficit around the neck of the Chancellor of the Exchequer to some extent is the result of trying to keep up that imperial pretence. It means that there must be a greater recognition that military expenditure cannot continue at the level of the past. We heard today that the level is running at 5.75 per cent. of the gross national product. That is still higher than that of many countries in Europe whose economies are basically sounder than the economies of these islands.

That brings me to the priorities in the cut-back. If there is to be a cut-back—and we recognise that we must look at the effectiveness of expenditure and where it can be best spent—we should look at the priorities in functional terms and to some extent in geographical terms.

Once upon a time, Socialism was about giving to some according to their needs from others according to their means. I compare the situation in my part of the world with that in South-East England. I see a much higher standard of living in the private sector and a much higher provision of public social facilities in South-East England, and I wonder whether the same potential exists in Wales as in the South-East to cope with any cut-back. Wales has a 15 per cent. lower average personal income per capita and a 28 per cent. lower average personal wealth per capita. In other words, the capacity to contain further cut-backs is a good deal lower in Wales.

The hon. Member for Walton referred to the effect of the cuts on council house rents for people on social security who have to be propped up by the community. Even if social security retains its real value, its effective value for those people will be reduced, because items which come out of it, such as council house rents, will take a greater proportion of it, as will items such as the cost of public transport, on which people in this category are so dependent. Therefore, the net result may be a cutting back, and the cutting back will be harder in those areas where personal income levels are low, such as Wales.

The situation is not only that income levels are lower. Existing facilities are poorer as well. In Wales the housing stock is much older, with 47 per cent. of it being pre-1919, compared with 33 per cent. in England. That means that there are additional expenditures related to that housing stock, yet we have cut-backs in housing in Wales as elsewhere.

The road situation in Wales is archaic, with only 30 miles of motorway and with a large leeway to make up. There are fewer social service facilities; for example, there is a serious lack of special schools in many parts of Wales, even though there is a greater need. And there are other strains on the social services because of the older structure of the population. In many parts of Wales the standard of schools is outrageous and is excused only by the fact that depopulation takes away the motive force for providing new schools. Yet all these cut-backs are hitting Wales as everywhere else.

Taking education in Wales, the White Paper refers to a cut-back from £210 million in 1974–75 to £206 million in 1979–80. Looking at my own county, the situation to be seen is that the cutbacks are taking place now. In 1974–75, in Gwynedd £2 million was being spent on schools in the capital programme. This year it is down to £700,000. Next year it is down to £300,000. According to the White Paper, next year's level for Wales will go down by a further two-thirds by 1980, which seems to imply a cut to £100,000 in Gwynedd. It is ridiculous, and no education structure can be expected to cope with it.

Housing expenditure in Wales has been cut back from £205 million in 1974–75 to £139 million in 1979–80. In revenue terms, that will affect people living on the breadline. But, in addition, capital expenditure on housing by local government is being cut from £146 million in 1974–75 to £63 million in 1979–80. It cannot be tolerated. The situation in Wales is that in 1974–75, when the figure was £146 million, we achieved a total of 16,700 new houses compared with a requirement of 25,000 a year just to keep up with need. Because of insufficient spending on housing in Wales, the number of unfit houses rose from 90,000 in 1968 to 150,000 in 1973, and this figure will get much worse because of the reduction in expenditure on housing now being proposed.

My party believes that the priorities of these changes in public expenditure are wrong and that if there is to be any axing, projects like the MRCA should come much nearer the top of the list. If there are to be 385 of these aircraft, each costing £5 million or £6 million, they represent a total expenditure of about £2,200 million, and that would have been enough to cover the total United Kingdom cut-back in expenditure on education, health and housing in the three years to 1980. That is not the priority of this White Paper, and that is where it goes wrong. There should have been different priorities in function and an attempt to gear expenditure priorities to the geographical situation.

In Wales there are 76,000 people unemployed, and it is they who are copping the worst of the economic ill-wind. I missed the speech of the hon. Member for Luton, West (Mr. Sedgemore), and I regret that. I suspect, however, that he probably said that it is not these people alone who should bear the burden, that the effect should be spread and borne by everyone and that, if necessary, we have to face higher taxation to bring these people into some sort of activity. If it costs £30 a week to keep a man idle and £40 a week to create some work for him, we should be willing to face the extra taxation which that implies. It is wrong that the 5 per cent. or 10 per cent. at the bottom of the scale should bear the worst of the economic ill-wind.

Reference has been made to the regional employment premium. Looking at the figures in Table 2.4, I see that they are at a constant level for three years. Apparently there is an assumption that there will not be an increase in the numbers employed in development areas over those three years. If that is so, it is a very bad assumption and it underlines our fears. Our fear is that the Government investment programme for industry may not help the industrial situation in Wales if a large amount is being channelled into shipbuilding and aircraft. Those are not the sectors which we should expect to provide the answers in Wales for our unemployed.

However, it is valid to consider how to get the best value from regional expenditure. My own experience suggests that there has been some misuse of money which has been channelled into regional investment by successive Governments. We need to ensure that every company accounts meticulously for the way in which it uses money which it obtains on the pretext of regional investment. In reality, it is often treated as miscellaneous income into the company's profit and loss account.

I want to raise now one or two other points which are significant for Wales. The Welsh Development Agency is to have £138 million over five years. That is not enough to generate the jobs we need. The Wales TUC has put a figure of £500 million on that task; that is much nearer to what is required. We also need to underline that it is not just manufacturing industry which will provide our answers. We must look at how many jobs can be created in agriculture so that we can produce more of our own food instead of importing it.

We should also consider such things as tourism, which is very important to an area such as mine. In the White Paper, financial aid to tourism is to be cut from £19 million to £14 million. I wonder what effect that will have on the economy of an area like Gwynedd.

There is also a bone of contention in Wales concerning the announcement after the White Paper was published that the fourth television channel will be axed. This decision has united opinion of all shades in Wales—Welsh-speaking, non-Welsh-speaking and across party lines. When one bears in mind that the figure for a Welsh language fourth television channel is two-thirds of the annual expenditure on military bands, which will be £15 million this year, one sees why people in Wales are feeling irate that this item has been thrown out of the window.

This is a partial White Paper, it has wrong priorities and it does not measure up to the nature of the problems we face. For that reason, my party will oppose it and we hope that hon. Members in all parts of the House, particularly Labour Members, will do likewise.

9.30 p.m.

Mr. R. B. Cant (Stoke-on-Trent, Central)

I support the Government, unpopular as that might make me with my colleagues below the Gangway. There is almost a total unawareness among some of my colleagues that we have reached, in an important way, a kind of watershed in the history of this country. I do not believe that this is just another little crisis, similar to the stop-go crises there have been in massive profusion in the post-war years. The people of this country have had their expectations raised more, perhaps, than the people of other countries. Our history has been one of rising public expenditure during the war periods, a levelling off, and a waiting for the next war.

The Second World War, With Beveridge, the Welfare State and full employment policies, made a dramatic change in the way in which people viewed the future and in what they expected the State to do for them. We were forunate, because in the period up to about 1970 we had the underlying economic strength to finance those expectations. I shall not go into all the factors which have been mentioned, but there is no doubt that we had a period of cheap food, cheap raw materials and, whether due to Bretton Woods or not, a reasonable international financial system. World trade was growing at about 10 per cent. a year and there was a massive advance in technology.

I believe that we have reached the end of this period, because the terms of trade have changed against the Western industrialised world in general, and in particular because our industrial weaknesses are becoming more apparent to us and to other countries.

We have a crisis, and the Government are right to produce this document, although no one has really welcomed it. I do not want to do that. I merely say that I do not subscribe to general theories such as that we have reached the limits of taxation. Nor do I subscribe to the fashionable theory, which has been given much publicity, known as the Bacon-Eltis theory about the growth in public administration and the decline in the numbers in manufacturing industry.

These general theories do not really explain the problem that faces us. I am speaking against the clock, but I would first like to make the point that many of my hon. Friends who have spoken in most critical terms about the cuts in public expenditure have greatly exaggerated what has taken place. For my sins—I do this without any members' allowances, or other such things—I serve on two local authorities, a district council and a county council, and I have spent hours in policy and resources committees—to give them their fashionable title—trying to achieve such cuts to keep down the rates. It really is a labour of Hercules, if not of Sisyphus, because it is extremely difficult to make cuts. When we talk in this Chamber about cuts in expenditure we are talking, let us be fair, of estimates which have all been massively increased, so that the cutting out of a little bit of fat here and there can be undertaken as a kind of annual ritual at budget time by local authorities.

There is a change in the climate. No doubt great pressure is exerted on local authorities actually, or through the threat of cash limits, but certainly the two authorities on which I serve are not making the kind of cuts that have been suggested here this evening. While I do not go around with a Blue Book tucked under my arm, quite frankly I do not believe it. I have been in public life at local level for so long that I do not believe all these extrapolations and predictions which gentlemen in the Treasury and in other Ministries make. I would say to my colleagues, let us get this in perspective.

Mrs. Renée Short

What is the perspective?

Mr. Cant

It is clear that there are certainly going to be cuts in the rate of growth of expenditure, but I cannot see any dramatic cuts in the general services which most local authorities provide.

Mr. J. W. Rooker (Birmingham, Perry Barr)

Come to Birmingham.

Mr. Cant

That is one of my ambitions.

I agree with what was said by my hon. Friend the Member for Norwich, South (Mr. Garrett) about the future in terms of planning. This is an exceedingly important contribution. I will say quite frankly that this kind of essay in macroeconomics is something about which I have learned a great deal from my right hon. Friend the Member for Bristol South-East (Mr. Benn), my friends of the Tribune Group and others. We must undertake this. I would agree that one of the partial solutions to this problem is, frankly, to try to take out of the Budget itself much of the money and the financing that is directed towards industry. I would like to see funds made available for industry on a much bigger scale from sources like pension funds, insurance companies and so forth, which do not act with the social responsibility or social accountability that they should; but that is another point.

We must face up to the fact that we cannot just assume that public sector spending and the services that local authorities, for example, provide will automatically increase and develop over the years. To go back to my local government days, I am chairman of an environmental services committee. I have a very nice little office in a nineteenth-storey penthouse. From the window of my office I look down on a little steelworks which produces 350,000 tons of steel a year. After fighting a four-year battle with that great leviathan, the British Steel Corporation, success was achieved, in the sense that the Corporation agreed to invest £12 million in a new electric are furnace—made in Japan, of course.

The point is that the work force will be cut from 2,500 to 1,000 men, who will be producing and rolling exactly the same amount of steel. We cannot accept that all the sacrifices in terms of unemployment should be made by manual workers in the steelworks, in the construction industry and so on while the civil servants, nationally and locally, are cocooned in security for ever.

Mr. Heffer

Does my hon. Friend agree that if we cut the capital programmes of local authorities—school building programmes and such things—more building workers will be unemployed?

Mr. Cant

I am conscious of that. Much criticism has been directed towards the general thesis of the Government that we must make room for what will happen when the world economy takes an upturn. I believe that this will take place and that we will have export-led growth to some extent. I do not believe all of this hocus-pocus about the growth in investment. We must, at any rate for the time being, leave room for this expansion. If it does not take place we will be in substantial difficulty.

We have to accept that the reason why the Government have been able to operate in this way in their battle against inflation has been due to something not often talked about openly. It is quite simply the fact that the Government are able to finance their public sector borrowing requirement in a way paralleled in some other countries but not to the same extent. The Government have been supported by a high savings ratio. That is most important. If anything happened to disturb that ratio and change it from 14 per cent. to 10 per cent., or 9 per cent., we would start printing money. We would not have an export-led boom or an investment-led boom, but a consumer-led boom.

We have to ask whether this is likely to take place. To answer that question we must ask why the savings ratio has escalated. If we examine the development of building societies in the past year we see that the position with regard to deposits is horrific, with £2 billion on-lent. Large chunks of building society deposits are coming not from the institutions but from people. This is a function of the great rat race on the Stock Exchange which took place last year, when a person could, if he was quick, double or treble his money. A lot of people came out of securities and put their money into building societies. This is a one-off operation.

If the building societies cannot get a level of deposits comparable with last year, the Government will start printing money. That is why they must move with caution. It would be irresponsible and unreasonable of the Government to adopt the attitude to public expenditure that is becoming too fashionable and that would involve serious reductions in manpower.

On the whole, the Government have hit just the right level. We must have regard for the times in which we live. It is wrong for my hon. Friends to attack the Government because they are convinced that the Blue Paper means substantial reductions in public expenditure in future.

Mr. Deputy Speaker (Sir Myer Galpern)

The winding-up speeches are due to begin at 9 o'clock. If possible, I should like to call two more Back Bench speakers before then.

8.45 p.m

Mr. Ian Gow (Eastbourne)

I agree with the opening remarks of the hon. Member for Stoke-on-Trent, Central (Mr. Cant). He is right to tell the House that for too long public expectation has been raised beyond what the nation can afford, and raised too often by politicians at successive General Elections. That rise in expectations has been matched by an unwillingness of successive Governments to raise taxes accordingly. Over the past five years, this has resulted in an increasing tendency towards deficit financing, because Governments have been unwilling to raise in taxes the money necessary to fulfil expectations which have often been raised irresponsibly.

It is against the background of the gulf between expectation and reality that we are debating the White Paper. There is an increasing atmosphere of public scepticism and doubt whether Parliament and the Government can halt and then reverse the national decline.

This decline is illustrated in several ways—the unprecedented rate of inflation, the accelerating decline in the external value of our currency, and the record amount of borrowing. Our production is lower than during the three-day working week, and taxation is higher than in North America, Japan or any other EEC country. As the White Paper itself confirms, public expenditure has risen by 20 per cent. in the past three years, while output has increased by less than 2 per cent. No political manifesto has contained these sorts of promises. Small wonder, therefore, that there is growing incredulity among the public about the promises of politicians.

A major factor in our economic decline has been the virtually uncontrolled growth in public expenditure. It is an extraordinary fact that this growth has not been matched by public satisfaction with some of the key areas of expenditure. In housing, we still have very long waiting lists, as the hon. Member for Stoke-on-Trent, Central, who is a member of two local authorities, well knows. We have interminable hospital waiting lists, and our schools and education system emphatically do not meet the needs and expectations of the people.

The conclusion drawn from these facts by the Labour Party—certainly by hon. Members sitting below the Gangway on the Government side—is that we need additional public expenditure—still more of the medicine which has failed. I draw the opposite conclusion. I should like to generate more private money to pro- vide more free enterprise and choice in housing, health and education.

The White Paper recognises a truth which has too often been overlooked in the debate, namely, that the overriding need at present is to create more wealth, and the whole scale of public expenditure is directly opposed to that task. Yet the Government are beginning to learn, for on page 4 of the White Paper these words appear: The Government's purpose in making these hard decisions was to ensure that the increase in national output in the next three or four years is not appropriated for use in the public sector, but instead is available … to provide for increased productive investment". I underline and endorse those words, as

I do the words on the following page, in paragraph 20: The reductions in public expenditure programmes in the later years will also favourably affect the estimate of output growth and influence the prospects for the prior claims". The Government are just beginning to learn that the greater the size of the public sector the smaller the amount of resources available for the creation of wealth. It is significant that the Chancellor told the House today that over the past 15 years the number of people employed in local government had increased by more than 1 million, whereas the number of people engaged in the wealth-creating industrial sector had fallen.

There are other serious consequences of the scale of public expenditure. There is not just the erosion of freedom at home, where as much as 60 per cent. of the GDP is spent by the State. The freedom of employment is at risk and, more sinister, the Government's freedom of manoeuvre is very much restricted by the scale of their borrowing, because the Chancellor of the Exchequer can no longer follow an independent economic policy unless he has the consent of his creditors.

The Chancellor told us that one-seventh of the total sum that the Government have borrowed is borrowed from abroad. I am surprised that the figure is so low. I fear that that proportion will rise be-because so great have been the demands of the public sector borrowing at home from domestic resources that the Chancellor will have to turn more and more to the oriental potentates to finance public expenditure. Then the Government will find, in pursuing their economic and foreign policies, that they dare not offend our creditors.

Labour Members below the Gangway have generated a lot of heat about cuts which, in reality, are bogus. After all the turmoil, and the gestation of the White Paper, only the hon. Member for Eton and Slough (Miss Lestor) resigned. I am not surprised that there were no further resignations from the Government, because the cuts are in no sense real ones. On the contrary, there are no cuts until the financial year 1977–78. The Government acknowledge that in the White Paper, in dealing with subsidies for school meals. It is true that the cost of those subsidies this year is a mere £331 million, but on page 88 we read this: The present average subsidy of over 60 per cent. will be reduced by 1980 by about half. Why does the Chancellor not do now what he commits himself to doing in the White Paper? Why is it not possible for the Government to increase now, instead of in September, the cost of a school meal from 15p to 20p?

Deficit financing, on the increasing scale that we have seen, in creating a millstone round the necks of the next generation. It is permissible, perhaps, for a Chancellor of the Exchequer to impose rates of taxation which affect the citizens during the time when the Chancellor of the Exchequer or his Government are in office. It is indefensible to hang a burden of debt round the necks of the next generation to the extent that this Government are doing.

Debt interest this year is running at £5,000 million. On the basis of the figures in the White Paper, that will have risen by 50 per cent., to £7,500 million, by the end of the decade.

I turn to the point made by my hon. Friend the Member for Horsham and Crawley (Mr. Hordern). What happens if the Government can no longer borrow? What happens if the supply of borrowing dries up? If that happens, as my hon. Friend pointed out, the Government have only one alternative, which is to print money.

I do not believe that the so-called cuts in public expenditure go nearly far enough. Every time the Government announce that they will make cuts in public expenditure there is an opportunity for them to stop the deception of the past two years. The opportunity to stop this deception has been missed. The people are still being deceived into thinking that, somehow, we can opt out of the real world. We cannot do so, and it is time the Government were honest with the British people and told them so.

8.57 p.m.

Mr. Doug Hoyle (Nelson and Colne)

This has been a strange debate because the Opposition have been completely muted in what they have had to say. They have not gone for the Government in their usual way, because if the cuts are carried through in the manner described in the White Paper, the Government will be carrying out the policy which the Opposition have been advocating. The Liberal Party has either been represented not at all or by one Member. We know that it has certain difficulties.

In my view all the better speeches, whether supporting or attacking the Government's proposals—I support the latter—have come from Labour Members. We have been trying to analyse the situation and to look at it in the light of what is possible in the circumstances.

I do not believe that the contemplated cuts can be written off as imaginary cuts, which is what has been attempted by both sides of the House. They will not be imaginary cuts to those who find that the modernisation of the schools which their children attend is being slowed down. It must be remembered that many children go to old schools. They will not be imaginary cuts to those who find the price of school meals increasing. Moreover, there will certainly be an effect when the food subsidies are phased out, because they are a great help to families of four and to pensioners.

One of the things we have been fighting for concerns public transport. Bus subsidies are being cut and this will have a tremendous effect upon rural areas. Our appeals for such things as the maintenance of rail services are met only by further cuts.

The White Paper will mean a real cut in the standard of living for many of the people who support the Labour Government. I can understand that constituents in Eastbourne will be little affected by the cuts, but that does not mean that we can ignore their effect on the Government's overall strategy. The balance in that strategy must be redressed if we are to eliminate the high levels of unemployment.

My hon. Friend the Member for Luton, West (Mr. Sedgemore) made a strong case against the whole outline of the Government's position. As he said, unless we control the imports which are flooding in, it is pointless to talk about cutting unemployment. Not for the first time the Government seem to be totally dependent upon an upturn in world trade and upon some sort of export-led growth. That growth is a mirage, because at the moment we are suffering high levels of imports through a lack of modernisation in our industry at home.

If we imagine that by creating more room in the economy we shall achieve greater investment, we are forgetting the experience of previous Governments. That investment can be secured only through a new body such as the National Enterprise Board, yet that board is to be starved of funds. It is being allowed only £1,000 million up to 1980. The inadequacy of this proposal has been highlighted by the TUC Economic Review. If the NEB is to be succesful in modernising British industry, it must be given the right financial strength. By depriving it of that strength, we shall only add unemployment in the public sector to the unemployment already existing in private manufacturing industry.

The Government are setting out on the wrong road, and it may be the road to disaster. It was not the road outlined in Labour's manifesto. If we stick to that approach, it will be at our peril, because we shall be doing just what the Conservatives want us to do. The beneficiaries of that policy do not sit on the Labour Benches.

9.3 p.m.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

In view of the various Press reports, my appearance at the Dispatch Box tonight must be taken entirely as a one-night stand.

I should like first to refer to a report which appeared in the Sunday Times about the public expenditure White Paper. It was entitled "The Treasury cooking the books". For the enlightenment of the House I have obtained a copy of the recipe. It is entitled "Pie in the Sky". The ingredients are a high forecast for growth, a very high spending total for next year, a cut in public spending in years 2, 3, 4 and 5 to give an excellent average, and then it is served up.

My hon. Friends the Members for Horsham and Crawley (Mr. Hordern) and Blaby (Mr. Lawson) have made it entirely clear that they do not believe that there are any hard figures in the White Paper except that for next year's expenditure. I suggest that that is the general feeling of the House. The first cook who sought to make this recipe was Mr. George Brown, as he then was, in his National Plan. He planned for the gross domestic product to rise by 25 per cent. over the period 1964 to 1970, but the actual rise was 14.2 per cent. He said that public expenditure would rise by only 23 per cent. over that same period, but it rose by 27.1 per cent.

It is always the same story. The first shot of the present cook, the Chancellor of the Exchequer, with his kitchen maids sitting beside him, was in January 1975 when he said that there would be 3 per cent. growth between 1975 and the current financial year. In fact it was negative. Growth planned for the year ahead of 3 per cent. turned out to be zero or even negative. Neverthless, that did not stop the right hon. Gentleman from planning to increase public expenditure by 2.8 per cent. and increasing it by 3.9 per cent. That is another perfect example of what I mean.

In his Budget Statement last year the Chancellor said: … public expenditure savings must make a substantial contribution in 1976–77 to the necessary reduction in domestic demand. The planned level of expenditure in that year as set out in the White Paper, will be reduced by over … £900 million at 1974 survey prices."—[Official Report, 15th April 1975; Vol. 890, c. 295.] I have done the arithmetic and £900 million off at 1974 prices meant that next year's public expenditure would be 1 per cent. less than that for the current financial year. We now read in the current White Paper that next year's public expenditure will be 2½ per cent. more. Therefore, the Chancellor has changed his estimate for 1976–77 from a cut of 1 per cent., about which he beat his breast and caused consternation below the Gangway, to an increase of 2½ per cent.

What has gone wrong? Why did the right hon. Gentleman not refer to this in his speech this afternoon? How is it that he could make a change of 3½ per cent. in a year when growth turns out to be negative rather than positive? If mistakes of this order of magnitude are made, especially during the same Chancellorship, at least the Chancellor could apologise to the House, tell us what has gone wrong, and come clean.

The Chancellor's next shot is contained in this White Paper. I must treat the House to the delightful assumptions upon which it is based. It is that by 1980 the trade balance will be in equilibrium, unemployment will be down to 3 per cent., or 600,000, inflation will run at minimal levels, private investment will have grown every year at, I think, 8.7 per cent.—but every hon. Member has used different figures for that—and exports will have grown every year at 7½ per cent. to 8 per cent. Taking the middle course, the gross domestic product will have grown at 3.4 per cent. a year. That means, in effect, since last year was a year of negative growth, that the gross domestic product will have to grow at 4.5 per cent. every year from now.

It is unlikely, to say the least, that those assumptions will come true. They are the most optimistic set of assumptions that we could have. It makes the whole matter seem to be totally political and unrealistic. If we are simply to take idealistic assumptions about what will happen five years hence, juggle the figures to fit, and at the last minute slip in a mammoth rise of £1,300 million in next year's expenditure and take it out in later years through cuts, the House can have no confidence in the way in which the White Paper is put together. To cut expenditure three, four or five years ahead is an old trick. It is never jam tomorrow, but always jam today. It is hard to understand how this can be called a cut.

That brings me to the speech of the hon. Member for Eton and Slough (Miss Lestor). I echo what was said by my hon. and learned Friend the Member for Darwen (Mr. Fletcher-Cooke) about her courage in resigning, but I wonder whether she has not resigned on a false prospectus, because the cuts about which she was talking and the cuts about which the hon. Member for Liverpool, Walton (Mr. Heffer) was talking were cuts occasioned by the local authorities in response to pressure from the ratepayers about the very high level of rates. I would concede, if the Chancellor claimed it, that perhaps his cash limit on the block rate support grant has had some additional effect, but certainly my county council in Gloucestershire was cutting long before the cash limit and it was determined to hold rates down. That is the cut about which the hon. Lady is talking.

However, the cut about which we are told in the White Paper is not scheduled to take place until two years hence. A document of shame indeed it is, but not for the reasons advanced by hon. Members below the Gangway. It is a document of shame because it makes no cuts at all.

I would say to Tribune Group Members who have made such a fuss and dance today, particularly about Mr. Speaker's wise decision not to select a special amendment for them, that they are indeed, as my hon. Friend the Member for Blaby said, a lot of White Paper tigers. They can vote on the main Question with us if they do not like the White Paper. Why should they have a special Division provided for them so that they may have a safe vote in the certainty that we shall not support them and that they will not have to defeat their own Government.

We know that it does not matter if one defeats the present Government. What has happened to the salary of the Secretary of State for Industry? It was cut by £1,000, but the Government did not go to the country. So it is perfectly safe and it is perfectly all right from the Tribune Group to beat the Government. The Government will not go to the country. They do not mind being defeated. They will accept the verdict of the House.

Mr. English

Is the hon. Gentleman aware that no Government have ever resigned on a defeat on an individual's salary?

Mr. Ridley

If the Tribune Group Members do not like the White Paper, let them vote against it, and let them not be paper tigers any more, or play chicken any more.

Mr. Heffer

The hon. Gentleman must be aware that because the Opposition want to cut public expenditure even further than the Government are projecting in the White Paper, the Tribune Group, or anyone else on the Government side of the House, would not ally itself with the Opposition to do that. Whether or not we vote for the Government tomorrow remains to be seen.

Mr. Ridley

It would be disaster if the hon. Gentleman's policy were ever to triumph. He and his friends behave like a bull in an economic china shop—I could even say a heifer in an economic china shop. It would be a disaster if they were to gain their way. However, if they do not like the White Paper, let them join us in the Lobby in voting against it.

There is one curious thing about which I want to question the Chancellor or the Financial Secretary. The Chancellor says that economic growth is to be 3.4 per cent. on the middle projection. How is he to achieve it? The answer that will be given is that the Government will concentrate on industrial investment in innovation. After Chequers we were even told that the extra resources for industrial innovation would come from cutting the social programmes.

I have here the figures. Industrial innovation and general support for industry in the current year is £952 million. In 1976–77 it is to be £697 million, and in 1979–80 it is to be £504 million. Therefore, industrial innovation is very nearly halved. On the other hand, social programmes rise over the same period from £20.96 billion to £21.5 billion. Maybe the movement is not so very great, but expenditure on social programmes is increasing. How is it that the Government put forward their strategy as being to increase industrial investment? However, my right hon. Friends and I do not necessarily feel that the right way to achieve industrial expansion is by spending a great deal of the taxpayers' money. I ask the Government how they square the figures with what they said they were going to do.

If there is less growth than we are led to expect and believe, will there be a further cut in public expenditure? If the 3.4 per cent. growth rate is not reached, the results will be catastrophic. The effect on taxation, or the necessity to print money, will become appalling if we do not achieve that growth rate. Will the Chancellor give an undertaking that if we seem to be slipping, he will do something immediately? If he does not take action, the country will be in very serious trouble.

What have we had for the large increase in public spending? The White Paper tells us that it has increased in volume terms over the past three years by 20 per cent. while the domestic gross product has grown by only two per cent. Have we had an improved National Health Service? As my hon. Friend the Member for Eastbourne (Mr. Gow) has said, we have longer queues, more discontent and more labour unrest in the NHS than ever before.

What about education? What improvements have we seen in education? The hon. Member for Eton and Slough has resigned, albeit on a false prospectus, because of the starvation of resources for the education system. What about higher education? Does the National Union of Students complain that its members' grants have been increased too much as a result of the extra 20 per cent.?

What about the poverty in our society? Labour Members are keen to be the champions of the poor, the first pedlars of compassion, but poverty is on the increase. Are not large poor families more numerous as a result of the 20 per cent. increase in real resources spent in the public sector? Then there is local authority spending. What needs to be said about that? We all know that local authorities are spending more money on poorer services. We all know about homelessness and housing shortages. Housing queues are increasing despite the unlimited expenditure upon housing. What have we got for our 20 per cent. increase in volume?

I suppose that the Treasury team will be canvassing in Carshalton in the next day or two. I can imagine the Chancellor of the Exchequer jumping out from behind the forsythia one fine spring morning and being asked by Mrs. Housewife "What have I got for my 20 per cent. extra taxation?" I suppose the right hon. Gentleman will reply "Well, you have had a very large chunk of RPE." No doubt she will ask "What is RPE?" Probably the Chief Secretary will come tripping round among the tulips to bail out his right hon. Friend. He will explain that RPE is relative price effect. We have had £5 billion or £6 billion of RPE. That means it has gone to those who work in the public sector.

The Chief Secretary to the Treasury (Mr. Joel Barnett)

Get the figures right.

Mr. Ridley

It depends how far back we go. As the right hon. Gentleman has not got the figures right, why should I?

That large chunk of RPE has meant that wages have increased, offices have multiplied and motor cars have become more plentiful for those who work in the public sector. Those increases have come about much faster for those in the public sector than for those in the private sector. That is what RPE means.

We now have debt interest of £113 per head in the current financial year. That brings me to the excellent speech of my hon. and learned Friend the Member for Darwen. We see a new form of Socialist transfer payment. It is to be tranferred to future generations. How has that come about? The Chancellor says that the debt burden has become so onerous because he has succeeded in reducing the rate of inflation.

That was his new point this afternoon. The right hon. Gentleman said "When the rate of inflation was going up, I could borrow by giving the borrowers a negative return. Ha, ha, was that not clever? Now the rate of inflation is not going up, I have to pay them some sort of return." What an immoral point of view to start with! The right hon. Gentleman takes pleasure in borrowing at a negative rate of return. It is still negative because, at present rates of inflation, the return on gilt-edged is negative even if one does not pay tax. But the right hon. Gentleman is wrong, because if the rate of inflation had still been accelerating, he would have had to borrow more as he would have had a higher public sector borrowing requirement. The right hon. Gentleman cannot get away from it in that way.

It is not true that the burden of debt interest is greater because inflation is falling. If inflation were rising, it would not be £7½ billion by 1980. It might be far more. The Chancellor knows perfectly well that, with a higher rate of inflation, we should have a higher debt interest to look forward to than the figures in the White Paper.

What else have we got for our 20 per cent. increase in public expenditure? We have a higher subsidy for coal, gas and electricity per head. The Government have been doing sterling work in trying to reduce it, but in the current financial year it is higher than it was last year.

We have a Post Office loss of £350 million. We have a Giro loss of £29 million, which will be greatly increased by a Bill which is at present going through the House. We have a loss of £60 million for the Crown Agents. Is it true that we have a loss of £30 million by the National Freight Corporation? What is the loss on steel, on the railways and on the National Enterprise Board? What is the cost of nationalising the shipping and aircraft industries, oil and community land? That is where the money is going. It is going on losses in the public sector.

Not long ago there was the Communist Party Congress in Russia and the wretched Mr. Polyansky was asked to leave the Politburo because of the failure of the Russian grain crop. Mr. Polyansky was the Minister of Agriculture. Who will leave this Government as a result of the failure of their industrial policy in the public sector? Somebody's head must surely roll. We have had a go at the Secretary of State for Industry and managed to get £1,000 knocked off his salary. Now we want his head. We want him to go as a token sacrifice to the failure of the Government's industrial policy in the public sector.

Mr. Healey

Am I right in recalling that the failure of the Conservative Government's industrial policy led to the sacking of the hon. Gentleman himself?

Mr. Ridley

It was a good cause.

Mr. Healey

It was the cause.

Mr. Ridley

I should like to quote one of the reasons why perhaps I found myself in disagreement with the last Government. This article in the Midland Bank Review, describing the German inflation of 1920, states: Efforts were made to increase revenue by higher taxes, and in the financial year 1920–I it could be claimed that the ordinary items in the Budget were in balance. Nevertheless this did not provide for massive sums which were being paid out for such items as subsidies on food and housing—rents were more or less nominal after 1920—for deficits on the Post Office, the railways, and other government undertakings". That has a familiar ring. I must confess to the Chancellor, as he interrupted me, that I was never happy with the Conservative Government's policy of limiting the prices of nationalised industries. But when will he get back to a state where the public sector will be profitable, if it ever is again?

Lastly, there was an adage when we were young to the effect: look after the pennies and the pounds will look after themselves. I suppose that, converted to 1976 survey prices and adjusted for the relative price effect, that would now read: look after the millions and the billions will look after themselves.

Here are some examples. Aid for Mozambique is put at £15 million. The Lord President of the Council's private Think Tank for the devolution unit is costing £325,000 a year. The 5 per cent. price scheme with the red triangle—which the right hon. Lady the Secretary of State for Prices and Consumer Protection is putting in the shops—is costing £915,000 for printing and publicity. The right hon. Lady's Department itself is costing £3.2 million. Agency staff employed by the Government account for £8.1 million. What is the cost of the vehicle licensing computer nonsense at Swansea? Whose head will roll for that?

The costs of running the Inland Revenue and the Customs and Excise have nearly doubled since this Government came in. There are 80 more public relations officers and press officers employed by the Government since 1973. The cost of the Government car pool has risen from £1 million to £1.5 million. If matters of this sort had not been dealt with so extravagantly, the Government would have been assisted in endeavouring to keep within their Budget.

What have we to show for this expenditure? We are becoming a nation of traffic wardens, of social workers, of tax collectors, of enforcement officers and of public sector nannies. That is what we are getting for our money.

There is, therefore, a two-fold charge to be made against the Government concerning public expenditure. First, they have squandered our money on Socialism, on extravagance, with slovenly control of public expenditure. Secondly, and more importantly, there is the charge that 60 per cent. is too high a proportion of gross national product—and so, incidentally, is the figure to which the right hon. Gentleman wishes to reduce it. But will the Home Secretary resign because the figure has reached 60 per cent? He said he would quit. He said it was too high, but will he quit? I very much hope that he will, because it is time that the sensible, moderate people in the Labour Party took their responsibilities seriously.

Many hon. Gentlemen have dwelt on the tax implications—the increased income tax of £335 per family which is being paid since the Government came to office. We are told that there is now to be a further "manageable" increase of 2p to 6p in the pound. I am worried about the effect on industry and on private investment of this threat to increase taxes.

If there has been one theme running through the debate upon which nearly everybody has agreed it is that the only way out is to have increased private sector investment, which will first take up the unemployed and later take people out of the public sector and put them into productive employment in industry. That is the one theme upon which the House has been united today. It has come even from the speeches of hon. Gentlemen below the Gangway opposite. But, much more powerfully and much more convincingly, it comes from the speeches of my hon. Friends.

If we are to do this, we have to change the tax system. We have to reduce the spiteful element in the taxes which have been brought in by the Government. Not only must we make room for investment. We must reverse the engines of Socialism, which has thought it right to penalise investors, those who make capital profits, those who have higher salaries, and those who wish to earn more by harder work. This is where we have gone wrong, and we can put things right only by dealing with these aspects. But it has become more difficult to do this.

It is because of the record of this and past Socialist Governments that confidence that there will be security for industrial investment and for the results of hard work is at a low ebb. The Government have to find a way of giving some sort of guarantee of good behaviour, of an intention to avoid the Socialist claptrap and nonsense which they talk both inside and outside this House if they are to get the firm foundation on which industrial expansion in the private sector can take place.

I do not believe that to transfer part of the public sector back into the private sector would cause the slightest unemployment. I give two examples. The first is that in 1975–76 the expenditure on trade, industry and employment in the White Paper is £2,681 million. In the same year, the yield from corporation tax is estimated to be £2,125 million. In other words, we are subsidising industry net to the extent of about £500 million. We are told that the White Paper is just an illustration of what the Government have in mind.

I give another illustration. What happens if we cancel corporation tax, cancel the trade and industry expenditure and, incidentally, cancel the Department of Industry at the same time? It is not possible, but I have a feeling that that £2,000 million would be spent better by the people who earn it than by the people in Millbank Tower.

Perhaps that is what is wrong. Perhaps we have too many nannies all trying to take away our money and telling us how they can spend it better. Perhaps we have reached the point where the Labour Party has to realise that Socialism has brought us to a sticky, sticky end.

My second example is from housing. We are subsidising housing to the tune of between £3,000 million and £4,000 million a year. There are two ways that a sum of that kind can be found. It can be found either out of taxes or out of rents. The result of changing the mixture as between so much from taxes and so much from rents, is not to cause unemployment, though it may redistribute the burden slightly as between those who live in the houses and those who do not. That is possible. That is politics. But to say that those two changes, which I use illustratively only, will cause unemployment is one of the biggest lies ever.

The truth is that in increasing the share which the public sector has taken from 50 per cent. to 60 per cent. of the gross national product the Government have increased unemployment to 1.3 million. It cannot be so both ways. If we reduced the share from 60 per cent. back to 50 per cent., we could not increase unemployment, too. It is a total misconception. There is no connection between increasing or decreasing the share that the public sector takes and the level of unemployment. So the conclusion is that this White Paper is a fraud, and it means that Socialism has failed.

9.33 p.m.

The Financial Secretary to the Treasury (Mr. Robert Sheldon)

For a one-night stand, that was the kind of performance that we have come to expect and to enjoy from the hon. Member for Cirencester and Tewkesbury (Mr. Ridley). I am not sure whether this is positively his last performance. We shall have to wait and see. I am sure that the decision will lie in hands which are rather close to him at present.

Like many right hon. and hon. Members, I have attended every public expenditure debate since they first began some years ago. Following the establishment of the present Expenditure Committee, we have seen the changes which have come over these debates with the introduction of the six Sub-Committees of the Expenditure Committee.

I do not think that any of us can be surprised that the Expenditure Committee has not met with the enthusiasm that many of us wished upon it when it was first set up. But tonight we have seen the first full-scale debate on public expenditure that we have had since its initiation. It was along the lines that those who served on the Procedure Committee had in mind when they made their first recommendations seven or eight years ago. My hon. Friend the Member for Ashfield (Mr. Marquand) and my hon. Friend the Member for Berwick and East Lothian (Mr. Mackintosh) played their part on the Procedure Committee in setting up this method for the examination of public expenditure.

Today, we have seen at least the first part of the problem which they foresaw and the problem of public expenditure generally. That relates to the totality of public expenditure—how much we are spending in public expenditure as a whole—and we have had discussions about this. What we have not had to anything like the same extent is a discussion on the range of public expenditure—the choices and the element of decision-making between the different programmes.

When we first set up the Expenditure Committee, with its General Sub-Committee, its Trade and Industry Sub-Committee, its Environment, Defence and External Affairs, Education, Arts and Home, and Social Services and Employment Sub-Committees, our hope was that it would be the means whereby the priorities of expenditure as reflected by hon. Members would be conveyed to the Government through the Sub-Committees and through debates in this House.

We all know that that has not occurred. Members of the Expenditure Committee have only themselves to blame when they complain that the expenditure patterns in the White Paper do not correspond with their own priorities.

When the Expenditure Committee was first set up I expected that it would be a means of establishing these priorities. I believed that if they did not succeed there the pressure groups which are growing in number and strength throughout the country would use the Sub-Committee dealing with the subjects in which they were interested as avenues of communication to express their views. Through the Sub-Committees they could have expressed their views to Members of the Expenditure Committee and finally to the House.

That has not occurred. The blame for that lies not with the Government or the Opposition but with the 50 or so members of the Expenditure Committee. They have not taken advantage of the system, which was designed to meet the objections and the problems that we all foresaw. What is wrong is not the ideas which were accepted by the Labour Government at that time. They willingly accepted the abdication of certain rights and privileges which Governments have always had and gave them to the Back Bench Members. The fault lies with those Back Bench Members who did not take up the challenge and opportunity given to them.

Mr. English

My hon. Friend is absolutely right, but I hope he will get the facts straight. This suggestion was put forward to the Sub-Committee Chairmen of the Expenditure Committee. Only three wished to do what my hon. Friend is suggesting. The majority did not. Members of the Committee were not divided by party.

Mr. Sheldon

My hon. Friend is my successor as Chairman of the General Sub-Committee—[An HON. MEMBER: "And a good one."] I am delighted to hear it. The point I am making is that I and my hon. Friend the Member for Nottingham, West (Mr. English), as Chairmen, tried to get the Sub-Committees to take this on, if not as their whole area of operation at least as part of it. I was sad, not so much because they did not devote all their time to this type of examination of the priorities that should be established in public expenditure, but because they did not even regard it as one of their areas of public interest.

Mr. Victor Goodhew (St. Albans)

Is the hon. Gentleman saying that the Government accept no responsibility for the extent of public expenditure? Is he blaming the Committee for any mistakes that may have been made? That certainly seems to be the way in which he is beginning his speech.

Mr. Sheldon

The hon. Gentleman has drawn different conclusions from what I have been saying, that the means of assessing public opinion generally, the opinion of Members of this House in particular, and of certain hon. Members with particular interests also, is available and was not so used.

Mr. Nicholas Winterton rose

Mr. Sheldon

I am afraid part of my time was taken, and perhaps I ought to make some further progress. We have the first choice—the choice as to the total amount of public expenditure, on which we have had a very good debate today. We had the second item, which was the way in which public expenditure ought to be allocated between the various options open to the country; and there was a third, and if I may say so, a bogus one, put forward by certain hon. Gentlemen opposite which relates to the kind of expenditure on nationalisation which, again, is not public expenditure in quite the same way. It is not expenditure that we plan, year upon year. I gladly concede that it has had its effect on the public sector borrowing requirement and so is an important constituent of our particular problems, but it is not in the same situation as public expenditure generally.

As for the choice between programmes—a matter that greatly interested me—the most important aspect of the debate was that one hon. Gentleman had the courage to declare his views on the priorities. I understand that the pressure of time and your particular consideration, Mr. Speaker, for not having lengthy speeches prevented us from hearing from the hon. Member for Blaby (Mr. Lawson) how, if at all, his views differed from those of the Bow Group. I assume that his views were not at all at variance with those of the Bow Group. As least, we saw that in the housing sector there would be an increase in the rents of council houses, on my estimate, from about the present £4 or £5 per week to about £7 per week. I do not want to go further into the question of the Bow Group. I only say that it presents on paper one solution to the problem of the way in which cuts can be made of the kind that has been suggested. I understand the problem of Opposition Members, but I also understand the responsibilities one has to acquire so as to present a convincing explanation for an alternative policy.

Mr. Goodhew

You are the Government.

Mr. Sheldon

The hon. Gentleman must appreciate that when it comes to criticising choices one really cannot criticise the kind of choice the Government make without at the same time putting the alternative choice before this House. My hon. Friend the Member for Luton, West (Mr. Sedgemore) was faced with this problem of choice. He faced it courageously and bravely, and the point was repeated by my hon. Friend the Member for Liverpool, Walton (Mr. Heffer). He faced the central problem and came to one conclusion that can stand on its own without qualification.

He said that in his view—and everybody has to form his own assessment on this matter—the man on average income is prepared to pay more tax. I respect his judgment on that. The only point that I would make is that on this his view and mine are different. I go round my constituency and speak to people on this subject, because it is as important to me as it is to my hon. Friend. I come across views that are rather different; but if he were able to convince the House that the average income-earner was prepared to pay more tax so as to receive more benefits by way of public expenditure, the rest of his argument, so far as it applies to an increase in the level of public expenditure, would be more acceptable than I personally happen to find it.

I say one thing: it is easier to increase public expenditure when there is a high level of growth in the economy. One thing that has to be borne in mind when talking of Sweden, Germany and one or two other countries is that it is easier to get an expanding level of public services within the context of a high-growth economy than it is to do the same thing with the rather lower levels of growth that we have. Although I understand what my hon. Friend was trying to say, I believe he would be prepared to agree that these problems are greater for us, for the reasons I have given.

I believe that the running of the economy is even more important than public expenditure. During the time of the last Conservative Government the running of the economy was in my view more important than the tax reform measures which the Tories were busily introducing. I spoke in this way on many occasions, as one who was interested and involved in tax reform. I noted that at a time of critical importance for our economy the Conservative Government amused themselves with tax reforms while initiating the greatest levels of inflation we have ever known. They brought in VAT and the imputation system of corporation tax. These were all measures that interested me, but they were on a far lower level of importance than that occupied by the need to run the economy successfully.

The tragedy for the then Chancellor and the Treasury was that the Conservatives concentrated on these matters. What I see as a possibility is that in the same way as the Tories concentrated on tax and fiscal matters in the past, if the country was unfortunate enough to have another term of Conservative Government we might find that they would concentrate on public expenditure and achieve only minor cuts—they would be foolish to expect to do more—while missing opportunities to bring about the much more important changes now occupying the mind of the Treasury.

We have an Opposition who were once dedicated to tax reform and who now seem to be dedicated to cuts in public expenditure. What they need to ensure—I hope they will take this little piece of advice from me—is that this does not remain their main or sole economic policy. They should bear in mind some of the industrial problems we are facing and which the Treasury is tackling.

Mr. Lawson

This is a debate on the public expenditure White Paper. The Financial Secretary's main contribution is to say that public expenditure is not occupying the mind of the Treasury. He says that Ministers in the Treasury have their minds on other things. This may be news to the Chief Secretary. It may also alarm people outside the House. Perhaps the hon. Gentleman would like to put the record straight.

Mr. Sheldon

There is no need to correct the record. This is a most important aspect of the economy but it is not the only one. My hon. Friend the Member for Luton, West quoted Wynne Godley as saying: It is more important to get control of the economy right than to become neurotic about the control of public expenditure. That should summarise our views on these matters. Of course it is of critical importance to get control of the economy right, but there are other matters affecting the economy, particularly the problems of manufacturing industry, that are even more worthy of our closest consideration.

The difficulties my hon. Friends have spoken of, affecting low levels of employment, concern the control of the economy. Controlling the economy today is quite a different matter from what it used to be in the early post-war years, or during the 1960s. The problems of high levels of inflation and public sector borrowing requirements remove from the Treasury the fine controls it once had.

Perhaps I may quote from the 1944 White Paper. This is the essence of the Keynesian argument which can still be valid today, although some different assumptions have to be fed in. The White Paper said: Action taken by the Government to maintain expenditure will be fruitless unless wages and crises prices are kept reasonably stable. This is of vital importance to any employment policy, and must be clearly understoood by all sections of the public. If we are to operate with success a policy for maintaining a high and stable level of employment, it will be essential that employers and workers should exercise moderation in wages matters so that increased expenditure provided at the onset of a depression may go to increase the volume of employment. This is what it is all about. As long as one is not resorting for so long to deficit financing, one can engage in a certain deficit in order to increase the volume of employment; but this is not possible in the same way today, with the current high level of the public sector borrowing requirement. We have to reduce the levels of inflation and the public sector borrowing requirement so that we can return to that kind of control over the economy which we once had and still need.

There has been some comment on how far the increased expenditure was foreseen. I have some information for hon. Members. As the Treasury evidence to the General Sub-Committee of the Expenditure Committee made clear, we have to take account of major events between publication of the expenditure planned for 1974–75 in Cmnd. No. 4829 of November 1971 and the publication of the out-turn figures some years later. These events included a reflation of the economy, the oil crisis, accelerating inflation, a major cut in public expenditure and a new Government with rather different priorities. If all these events could have been anticipated, I am sure the Opposition's 1971 plans would have been different.

The Treasury has given the Expenditure Committee a full analysis of the changes in the figures and there is no need for me to repeat them. If any hon. Member wishes to pursue this point, the figures are set out in Volume 2 of the Committee's First Report for 1975–76.

Sir G. Howe

I apologise for interrupting the hon. Gentleman, who is reading a closely spaced typescript, but he did invite hon. Members to pursue the point with which he was dealing. When will he be courteous enough to answer some of the points raised in the debate?

Mr. Sheldon

The right hon. and learned Gentleman will recall that I have already dealt with the points raised by the hon. Member for Blaby and my hon. Friend the Member for Luton, West. We waited with great interest for the alternative cuts of the right hon. and learned Member for Surrey, East (Sir G. Howe). We discovered they were to total £4,000 million for 1976–77, but the right hon. and learned Gentleman did not seem sure when they would be introduced. Perhaps he would wait until the end of the financial year before deciding on the cuts. Perhaps he would choose another opportunity to make clear his position.

Treasury forecasts have been questioned in the debate. There is a widely-held belief that we have forecasting techniques much more superior to those available elsewhere.

Mr. Ridley

Who thinks that?

Mr. Sheldon

I am delighted that the message of the Chancellor of the Exchequer has now been accepted. He has no crystal ball, and the views that he puts forward and the projections made in the White Paper are not to be regarded as the sort of forecasts which some hon. Members believe them to be.

The hon. Member for Cirencester and Tewkesbury drew attention to the growth and use of resources table, and tried to draw inconsistencies from it. He could draw those inconsistencies only because he believed the table to be in the language of Holy Writ and, therefore, subject to no argument. The figures are only projections. The attempt to work them into the rôle of rigid forecasts is wholly mistaken and unsustainable.

I have compared the success of Treasury forecasts with the success of National Institute and London Business School forecasts. They are all on a par. There are some occasions when we have been more successful with estimates of GDP and some occasions when the London Business School has been more successful. These figures, of their nature, can only be predictions and cannot be used for examining several alternatives for the years ahead.

My hon. Friend the Member for Norwich, South (Mr. Garrett) referred to the room for investment. That is of crucial importance. I accept that for those of a sceptical turn of mind there is no direct connection between allowing room for investment and guaranteeing to the House the nature of the investment that will take place. On the other hand, I ask my hon. Friends to accept that if there is not room for investment in our manufacturing industry, that investment can never be made; it will have been pre-empted by public and private consumption. The necessary condition for that investment is that room be made available in the spending patterns in both public and private spheres.

Mr. Ridley

Would the Financial Secretary like a blackboard and chalk to explain this to his hon. Friends?

Mr. Sheldon

I do not think that I need reply to that comment.

The important aspect is that at the end there must be that investment. There are several divisions engaged in bringing industrial expertise to bear within the Treasury, headed by Alan Lord, a Second Permanent Secretary. That may seem of little interest to the hon. Member for Blaby and others, but that has never happened before. The Chancellor of the Exchequer and industrial policy have never been as close as they are today. This is an important innovation, with profound consequences for our manufacturing performance and the understanding of it.

The hon. Member for Blaby asked me to reduce public expenditure this year. He also gave reasons for not reducing public expenditure, including world recession and unemployment. Those are two of the reasons. It is true that the world recession was lower than was expected. The hon. Gentleman said that it was at its lowest in April. He had the knowledge at that time, and he knows when there is a trough in the industrial cycle. That kind of information is given to very few of us. The hon. Gentleman suggested that tax cuts would have made matters worse. We should have had cuts in taxation without corresponding cuts in public expenditure. Public expenditure changes take a long time to put into effect. The General Sub-Committee—

It being Ten o'clock, the debate stood adjourned.

Debate to be resumed tomorrow.

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