Skip to main content

Public Expenditure

Volume 975: debated on Wednesday 5 December 1979

The text on this page has been created from Hansard archive content, it may contain typographical errors.

I have selected the amendment in the name of the Leader of the Opposition.

4.19 pm

I beg to move,

That this House takes note of the White Paper on the Government's Expenditure Plans 1980–81 [Cmnd. 7746].
I do not know whether the House will be able to maintain the passion and excitement that was engendered by Scottish angling for the more prosaic subject of public expenditure.

The debate is being held against the general background of a steady and substantial rise in public spending, which has proceeded throughout the post-war period. Earlier this year the right hon. Edmund Dell, speaking at the London School of Economics, commented:
"The structure of government in this country reinforces pressure for high public expenditure and the lack of any constitutional limit on borrowing reduces the pressure on a Government to face up at once to the tax consequences of its profligacy."
Since 1970–71 public spending in real terms has increased by up to 25 per cent., which is a most formidable statistic. The development has been paralleled by the emergence of large, powerful spending Ministeries which have altered the balance within a modern Cabinet and the historic role of the Treasury. I suspect that we shall all look back upon 1958 and the resignations of the entire Treasury team as a watershed in our post-war history. The right hon. Member for Down, South (Mr. Powell) is in the Chamber as a continuing reminder to us of that event. That defeat in that cause was more honourable than the cynical victory that his adversaries secured.

We have lived to regret the fashion for growth in public spending. Once again I turn to the remarks of the right hon. Edmund Dell. He said:
"There are some key economic decisions which it is right for the Chancellor of the Exchequer to take in agreement with the Prime Minister alone, and the level of public expenditure and of public borrowing are among these."
In no sense do I claim any such presumption. The cheerful chuckle of the right hon. Member for Leeds, East (Mr. Healey) tells me how wise I am. Doubtless he would not wish to make such a claim based upon his experience of office. However, let it be understood that we must master public spending or else it will misrule us.

I deal first with the economic background to the White Paper. There is great international uncertainty. One has only to make the observation to get general consent. Hardly a day passes when we are not reminded of the seriousness of the situation in Iran and the expected impact of energy problems upon the economy of the United States. Wherever we look we see growing recognition that there is likely to be a pause in general economic activity and in the levels of world trade.

At home our forecast in the Industry Act for the movement of the domestic product next year suggests a drop of 2 per cent. A smaller drop is expected by the London Business School. The National Institute of Economic and Social Research estimates a modest rise. However, if we consider the spectrum of the various assessments that have been made of the likely progress of the United Kingdom next year, we must recognise that it is one which is not promising—namely, either a modest decline or at best the achievement of something slightly above breaking even.

The political background is provided by the White Paper that was published in January by the Government of whom the right hon. Member for Leeds, East was a member. That White Paper was optimistic in its assumptions about growth in the United Kingdom economy, and that optimism was reflected in public spending proposals. The Labour Government established expectations of public spending that could not be fulfilled. It is against that background that I shall discuss the contents of the White Paper that is being debated.

The White Paper represents a reduction of the spending plans that we inherited from our predecessors of about £3,500 million. Those who wish to explain away that gap have to do so in terms of taxation or in terms of borrowing, with all that that would imply for interest rates.

The theme of the White Paper that I emphasise is stability. The figures that it contains are broadly similar to those that we expect to be the outturn of public spending in the current year and which have been recorded as the outturn for 1978–79. Therefore, for the three years from 1978–79 up to and including 1980–81 we shall have broadly the same order of magnitude in real terms, with consequent effects on the demands that it makes on the revenue raised by taxation or by borrowing.

The second theme is that there should be broad stability between one year and another over the period to which I have referred. The Government have consciously reordered their priorities in public spending—for example, more will be spent on the Armed Forces and on the enforcement of domestic law and order in 1980–81 than in the current year.

Inevitably that has led to criticism, either that the White Paper is too harsh or that it is too lax. The criticism made by Labour Members is that the White Paper is too harsh. I shall consider that. Some Labour Members have chosen to represent the policy as one of savage cuts and a doctrinaire and heartless attack on the Welfare State.

That is confirmed by no less an authority than the hon. Member for Bolsover (Mr. Skinner). The hon. Gentleman speaks with authority as a member of the national executive of the Labour Party.

And I have the full support of my right hon. Friend the Member for Leeds, East (Mr. Healey).

Yes, he has the right hon. Gentleman's support. I admit that that is a formidable partnership. It is formidable for me in the House and frightening for the country.

Their sympathisers in the press have echoed their opinions. According to them, we are slashing expenditure, tearing apart the Welfare State, crippling the Health Service and making a frightening attack on family living standards. That is surprising when the decision announced in the White Paper was to hold the aggregate volume of spending at about the same level as that for 1978–79. That was the last year in office of the previous Labour Government. There is nothing proposed in our White Paper that is anything like the 6 per cent. reduction in spending that occurred in 1977–78 when the Labour Government were in office. Of course, we hear little about that from Labour Members when they are complaining of the allegedly dogmatic and doctrinaire nature of our own plans.

Nevertheless, it is true that certain budgets have been cut against the planned spending for the current year. First, spending has been reduced on industrial subsidies. That is in line with our manifesto commitment. Secondly, spending on the programmes of the Department of the Environment has been reduced by about 4 per cent. Surely there is increasing evidence that housing subsidy and rent control are seriously leading to a distortion in the market and that policies are needed that will ensure greater use of our existing housing stock.

In education, as the number of children in our schools is falling rapidly, some economies can be made without reducing the standard of teaching. The Government's intention is that most of the further reductions should be made on ancillary services such as school transport and school meals, save, as elsewhere, for special provision for the needy. We are also making reductions in expenditure on roads and transport, but, at nearly 3,000 million a year, that will continue to be one of the larger programmes.

As a result of such reductions, local authority expenditure will fall, although not by the same abrupt reduction as occurred two years ago. The planned reduction will be 3 per cent. over a two-year period—less than the cut in current expenditure. My right hon. Friends the Secretary of State for the Environment and the Secretary of State for Scotland have announced that the percentage that we will finance next year will remain the same as for this year.

It has been said that the White Paper is too lax. We envisage a volume of spending in 1980–81 no higher than the amount for last year and that expected this year. This is far from a prescription for massive cuts. It has been criticised for not being severe enough. My hon. Friend the Member for Knutsford (Mr. Bruce-Gardyne) has pointed out that, if sales of assets and changes in the overseas liabilities of nationalised industries are left out of account, public expenditure will still be higher this year than last.

With respect, it is right to include those elements of the expenditure plans in making the comparison. The programme of sales of assets that has been initiated this year, and the further programme envisaged for next year, are destined to contribute towards holding down the public sector borrowing requirement until the longer term effects of our policy changes have worked through. The external financing of the nationalised industries can only sensibly be seen as a whole, as all of it adds to the public sector borrowing requirement. The external financing limits apply to the total requirements of each industry, wherever the money comes from. The Government stand behind the industries in respect of all borrowing. Most of their foreign borrowing is done under exchange guarantees.

My right hon. Friend used the key phrase—"until the longer term effects of our policy changes have worked through." Surely the fundamental aspect of our economic policy is the cut in public expenditure. The White Paper implies that we intend to stabilise public expenditure for the time being. Disguised by the somewhat euphonious phrase that he always uses, my right hon. Friend said that Governent spending will stay the same for the next three years. How can any long-term effect work through unless public spending is significantly cut rather than stabilised?

I am labouring under a slight cold and perhaps my hon. Friend misheard what I thought that I had said. I thought I said that there was a stability and comparability in the public spending for 1978–79, 1979–80 and 1980–81. I did not say that there would be stability in public spending for the next three years as that falls outside the scope of the debate. I will make reference to the later years before I conclude my remarks.

I recall the Chief Secretary telling us on television the other day that he had not been severe in cutting public spending in the next financial year as given in the plans before us today. We have heard much from the Chief Secretary and his colleagues about the need for further cuts next year. Can the Chief Secretary tell the House when they will be announced?

The right hon. Gentleman is an amiable adversary but does not always quote in full context. On that occasion I was being asked whether I had got all I should have liked to achieve. I do not know of any Chief Secretary in history who achieved all that he would have liked to get in negotiations with his colleagues. It was in that context that those comments were made.

I recognise the concern of those who feel that even a stable volume of expenditure could be too high if output fell. The forecast that we published two weeks ago, with all its uncertainties, suggested that the world trade recession and unfavourable United Kingdom competitiveness could be reflected in a fall in domestic output next year. We shall, therefore, need to keep all our policies under review, including our public expenditure plans. The plans that we have published for 1980–81 represent the maximum that the country can afford at present.

Concerning the overall control of public spending, there can be no doubt that this White Paper is the central instrument in the planning of public expenditure. It covers a public spending survey that questions the provision for each spending function, current and capital. Reference was made in the debate on the economy last week by several hon. Members, including my right hon. Friend the Member for Taunton (Mr. du Cann) and my hon. Friend the Member for Bridlington (Mr. Townend) to the importance, within the White Paper discipline, of securing even greater economies. That function of the White Paper and the public expenditure survey will always be the major element in public spending control.

Interest has been shown recently in two other exercises. The first is the Civil Service Department exercise designed to control Civil Service manpower. The second is the exercise now being conducted by Sir Derek Rayner to identify and eliminate waste. My right hon. Friend the Lord President of the Council will be making a statement on Civil Service staff savings shortly. Small further savings wil be made in 1980–81 beyond those already contained in the White Paper. These, and further savings in the later years, will be reflected in the Government's subsequent White Paper.

During last Wednesday's debate, my hon. Friend the Member for Bath (Mr. Patten) made a pertinent point when he said:
"I hope that no one thinks that we can make all the savings necessary out of waste and out of administration without affecting the services. It is living in cloud-cuckoo-land to take that view."—[Official Report, 28 November 1979;Vol. 974, c. 1349.]
That is a healthy corrective. Although I am certain that valuable savings will be achieved by the Civil Service Department, at the end of the day it comes back to consideration of the programmes that will secure savings.

Surely the right hon. Gentleman's admission that the savings cannot just be made from waste, underlies the fact that savings can be made only by cutting deeply into services.

I thought that I had said that, although I put it in rather more felicitous and dispassionate words of my own. That subject does not lend itself to over-emotional language, because it can cloud the nature of the choice that must be made.

In consultation with Sir Derek Rayner, Government Departments are conducting critical scrutinies of particular services and functions. The purpose of that approach is to question the need for those activities and the way in which they are carried out, with a view to securing lasting improvements in the efficiency and effectiveness of Government. That would be a valuable service, but we should be wise not to dramatise what could be the consequences of such important work.

My hon. Friend the Member for Plymouth, Sutton (Mr. Clark) was interested in the future. I carry with me a constant concern and cheerfulness about the future, clouded only by the prospect of a triumph by the hon. Member for Bolsover within the Labour Party, and the subsequent threat that might represent to my otherwise cheerful view of what the coun- try might achieve. I do not regard the hon. Member for Bolsover as in any sense a caricature but as a serious and wholly legitimate contender for political authority in Britain. He is operating inside a party that is assisting rather than repelling him. Many of those who might fight him have taken flight to Brussels or elsewhere. Therefore, those of us who want to save this country, not merely for the traditional values of Conservatism but also for some of the elements of social democracy, know that the fight remains with us.

Finally, there is the general outlook for the years beyond 1980–81. This is even more uncertain. The Government have reviewed the plans published by the previous Government and will be making substantial reductions in them. Our plans for those years will be published in a subsequent White Paper. I cannot at present give the House a date for that White Paper because it has not been decided. We shall publish it as soon as possible in the new year. But the first priority, for operational reasons, was to publish the plans for 1980–81, which we have done a good deal earlier than previous Governments. The plans for the remainder of the Parliament are an important matter over which it is reasonable to take a little time. As soon as a date for publication has been decided, I shall, of course, inform the House.

Can we now take it, then, that the plans for 1980–81 which are in this White Paper are the final plans for that year and that there will not be any further changes?

Very little in this world is final, but certainly the White Paper that has just been presented to the House has been concluded as a consequence of a searching series of bilateral studies. That answer is as far as I am going this afternoon.

For similar reasons, I cannot tell the House today what the content of the next—

I wonder whether it is possible for the right hon. Gentleman and the Government, even at this stage, to reconsider the desirability of publishing five-year forecasts, since the last three years in these forecasts normally bear little relationship to the actual experience and are unhelpful rather than helpful in controlling the expenditure of the first two years. I wonder whether one might reconsider the supposed wisdom of Plowdenism of the early 1960s, which really has done no service to either party when in office.

The right hon. Gentleman makes a very interesting point. Although he refers to the practice as Plowdenism, I think I am right in saying that Lord Plowden did not recommend the publication of forecasts for the later years. I believe that there would be a general reluctance in the House to depart from having these forward surveys, not least because I suspect that, with the development of Select Committees, there would be great concern to be able to discuss and to analyse this kind of information. But I am sure that the right hon. Gentleman will readily understand that there is no settled and dogmatic view on these things.

The experience of the last few years has been such that, if any outside business man were to have made his own forward projections on what the Government said they thought would happen over the next two or three years, he would not have been particularly benefited by it. I hope that as time goes by we shall all have the wit, wisdom and humility to look at these things, to be ever vigilant to see whether we can improve the way in which we proceed, to try to ensure that what we publish is valuable and, if it is not valuable, to question seriously whether it should be published.

Could I press the right hon. Gentleman again on the stages of the White Paper that we are discussing today, and ask him whether he intends in the next month or two to bring forward proposals to reduce the amounts of public expenditure involved? It is pointless talking about four or five years hence if the Minister cannot even look two months ahead. Since the White Paper was published, we have already had a crisis 17 per cent. bank rate. If we cannot even today discuss the White Paper as representing the Government's plan, the House is in great difficulty. Will the right hon. Gentleman give an assurance that he does not intend in the next two or three months to bring forward proposals to reduce public spending still further next year?

I can, of course, give no such assurance. It would be very foolish for anyone standing at this Dispatch Box to try to give such an assurance. I will tell the hon. Gentleman why. The answer was contained in his own intervention, when he said that we have had a 17 per cent. minimum lending rate. If we are in a situation in which factors external to public spending are constantly causing us to reconsider our judgment, of course we cannot say that it is as immutable as the law of the Medes and Persians. I ask the hon. Gentleman to look at the sheer commonsense aspect of it. The White Paper has been the product of very considerable and detailed negotiation, and any amendments or adjustments to it will have to be conditioned by these factors and by the proximity of the period under review.

If the right hon. Gentleman will not answer the last question put to him—and granted that other Labour Members have not responded to his fearlessly treading on the soft ground of social democracy—will he explain, if he argues that a stable level of spending could be too high if output falls, how private output is likely to recover? Private output in this country depends crucially on public spending. It is the rise in public spending which has generated higher output.

The hon. Gentleman makes, in a slightly immodest fashion, an assertion that the expansion of private output depends upon public spending. I very tentatively suggest that I disagree with that analysis. If I were to extend the argument as to why I disagree with the analysis, I should never reach the end of my speech, and the hon. Gentleman and many other hon. Members who wish to take part in the debate would be deprived of the opportunity to do so. But I will tell the hon. Gentleman that I believe that the recovery in manufacturing and commercial output in this country will not come about until there has been a much more encouraging climate for profitable success. I do not believe that that is something which is induced by politicians. I think it is much more likely to happen if politicians stand back. That, I know, is a posture which does not find favour with Labour Members.

I cannot tell the House today what the content of the next White Paper will be. I envisage that we shall be publishing in the White Paper, or by other means, much of the material which has appeared in previous White Papers, including figures for the full five years up to 1983–84. But I do not think that service has been done to the House or anyone else by some of the details in which figures have been published in previous White Papers about events still some four years ahead. Such events are well beyond the horizon of sensible prediction, except in broadest outline. To publish figures in the minutest detail which are subsequently revised beyond recognition is more like black magic than planning.

Having said that, I emphasis that it is not the Government's intention to deprive the House or those outside it of figures likely to be genuinely useful to them. In the meantime, the plans we have published for 1980–81 form the basis of the cash limits for next year. We have announced cash limits for the rate support grant and external financing limits for the nationalised industries. We shall be announcing the remaining cash limits on the normal timetable. It will be right to be rigorous in containing the cost of the public services within these limits.

One thing must be made plain. The extent to which the volume plans can be fulfilled will depend to a significant extent on the pay and price increases incurred by spending authorities. If these are higher than provided for in the limits, the plans will have to be adjusted. This is as it should be. It would be wrong for the Government to exempt the public services from the sort of discipline that the private sector has to accept.

Throughout these past weeks and months, the Government have sought to pursue a policy that strikes a balance for public spending. Such spending is the hallmark of a developed and civilized society, but always provided it is kept in check. Disciplined public spending fulfils an indispensable protective role. It should be our shield against external aggression and domestic lawlessness. It should enable the collective provision of welfare that cannot appropriately be left to individual circumstance. None the less, such a beneficial role can be ful- filled only if its total burden is well within the taxing and borrowing capacity of Government. Britain has enjoyed a steady rise in living standards over the past generation. That should lead to less rather than more dependence on public spending.

The irony is that we have levels of public spending that now threaten the borrowing and tax strategies of the Government. Public spending on a massive scale has become a destabilising rather than a protective element in the State. The trend of past decades must be arrested. That, as I see it, is the central issue in the debate. If the Opposition will not support, or at least acquiesce in, the Government's policies towards public spending, everybody is entitled to ask "Why?" and to be given an early answer. Do the Government's critics seriously suggest that the public sector borrowing requirement could be higher? Or do they think that taxes should be higher? If so, are they willing to accept an extra 8p or 10p on income tax in the next financial year and more the year after? These are the questions for social democrats, no less than for their opponents within the Labour Party.

One thing, however, is certain. The control of public spending is a major task. If the Government cannot undertake it with at least the acquiescence of even the social democrats on the Opposition Benches, the Government will tackle the task alone.

4.52 pm

I beg to move, to leave out from "House" to the end of the Question and to add instead thereof:

"rejects the White Paper on the Government's Expenditure Plans 1980–81, since it will lead to higher unemployment, poorer public services and increasing inflation".
No one in the House will deny now that the proposals in the White Paper will increase unemployment, raise prices and cut the growth of the economy. Indeed, the Chief Secretary did not seek to do so. Nor does he deny now something which he steadfastly denied—as did all his colleagues—during the general election, that they will do so by reducing standards in the public services in a way which is especially damaging to the weaker members of society, especially children, the sick and the poorer sections of the community.

I wish to examine the consequences of these cuts in public spending and then to consider the arguments that the Government have used to try to justify them. Many of these arguments were repeated in slogan form by the Chief Secretary to the Treasury.

It is not easy to be specific about all the consequences, because the Government have deliberately denied us information that all previous Governments have given. The Financial Secretary, at a press conference that he gave on the day that the White Paper was published, justified concealing essential information with his familiar cheekiness. I quote from the Treasury record:
"We could have done that perfectly well. I would just make two points, Peter. First of all, this White Paper is a bonus. Normally you would have to wait until January before you had any figures at all. This is a bonus. And in this, we wanted to concentrate on what we were doing on the path of public expenditure that we projected and not to make comparisons with the previous Government's projections."
Even the breakdown between current and capital expenditure, which is of vital consequence to any sensible discussion of the White Paper, has been hidden from us, and will remain hidden until the second White Paper is published. The Financial Secretary told the press only a few weeks ago that a new White Paper, covering plans for the next three years and giving details of next year's proposals would be published at the turn of the year. Now it appears that it will be closer to Easter before we get it—far too late for anybody in the House or in the country to make use of the information, if he then does provide it. I gather from the remarks of the Chief Secretary that he plans, even then, to deny the House a great deal of the information which has been given in earlier White Papers by previous Governments of both parties.

The one thing that is clear from the White Paper is that the Government have been fiddling the books. The allowance for shortfall next year, for example, is only half as high as in the spending plans which the right hon. Gentleman inherited. Perhaps the right hon. Gentleman will comment on that matter, and give us a chance to comment on his comment when he comes to wind up.

Nevertheless, the Financial Secretary's Christmas bonus, as he called it, is now being unwrapped all over the country—and in many parts of the world—and people are getting some idea of what it will mean precisely for them. First, the effect on jobs. The Chief Secretary let us know last time that the Government had told the Government Actuary to assume an increase in unemployment of 30,000 in the next fiscal year, although he said that that was not necessarily the consequences of the spending cuts. We now have some details to flesh out this bald figure. British Steel is to lose 50,000 workers—a third of its work force. I gather that we are to be told tomorrow that the Civil Service is to lose 50,000 members over the next two years. There could be as many jobs lost in the motor industry as a result of the Government's spending policy towards British Leyland.

We know already that 20,000 school teachers will lose their jobs as a direct consequence of the Government's spending cuts. We are told that 900 miles of British Rail track are to be taken out of service. How many jobs will be lost in consequence of that decision? We hear that there will be severe reductions in the numbers of home helps and Health Service workers all over the country. On top of that, 80,000 mainly young men and women, who would have been kept off the dole queue by the previous Government's job support schemes, are now going to find themselves joining that queue.

Even these few figures which I have been able to announce, all drawn from Government sources, bring the unemployment which is a direct consequence of this White Paper and of the decisions taken earlier this year by the Government to well on the road to the 300,000 which the Government admit will be the increase next year. Meanwhile, evidence is coming from all over Britain to Members of Parliament of nursery schools being closed and hospital wards being shut as the consequences of the Government's decisions come home in misery for ordinary men and women.

Before the right hon. Gentleman comes to the consequences of the sort of settlements that he and his colleagues made on services in the public sector this spring, could he elaborate a little on what he said about British Steel? Is he really asking us to believe that the redundancies announced by the British Steel Corporation are related to the White Paper; and, if so, how? As the target for break-even was set under the previous Labour Government, could he tell us whether, had he been in office, he would have gone back on that target?

The decisions announced by the chairman of British Steel Corporation are a direct consequence of the target set by the present Government for break-even in the BSC as a contribution to the general cuts in public spending to which they have pledged themselves. I see no sign that the Chief Secretary is inclined to dispute that as a fact.

No, I am continuing. I come to the effect of the White Paper on prices. The Chief Secretary admitted in our last debate that there will be a 1 per cent. increase in the retail price index next year as a direct consequence of the White Paper. When we asked him to give us a breakdown of that 1 per cent., he refused to do so on the grounds that he had not the slightest idea of how the 1 per cent. would be made up.

Let me tell the right hon. Gentleman again, on the basis of announcements already made by the Government or on Government authority. Rail fares are to rise by between 20 per cent. and 25 per cent. on 1 January. That is a consequence of the earlier public spending decisions taken by the right hon. Gentleman. We gather that gas prices are to rise by at least 20 per cent., in spite of the colossal profits made by the British Gas Corporation, and we gather that Treasury Ministers are fighting for an increase of 40 per cent. or even higher. School meals are to rise by 25p next summer—an increase of nearly 100 per cent. Prescription charges are to rise by 35p in April next year, making an increase of 350 per cent. since the Government came into power. We know that rents and rates are due to rise next April by anything up to an average of 40 per cent. Indeed, rate increases in many parts of the country will be much higher.

The effects of the Government's White Paper on growth in the economy have already been published in the Government's forecast—a fall of 2 per cent. in gross domestic product next year. If we look at the way in which the impact of the cuts is distributed, we see that the picture is even worse. The Chief Secretary referred to broad stability, but the fact is that some programmes are to rise and others are to fall. In many instances, those programmes which are set to fall—

In a moment—will have intensely damaging and unfair consequences in many areas of direct concern to the people. I remind the Chief Secretary that not one Conservative spokesman during the general election gave any hint of these consequences of the policies to which it appears the Conservative Party had committed itself many years ago. We were told then only of eliminating waste in the public services. We finally had an admission that there will be severe and damaging cuts in services right across the board.

Will the right hon. Gentleman, from his five years' experience as Chancellor of the Exchequer, tell us how accurate his plans were, on what growth rate of the economy they were based and in which of his years as Chancellor he predicted accurately the rise either in prices or unemployment?

The best example is last year—1978–when I predicted an increase of 3 per cent. in GDP. In fact, the increase was slightly higher. I predicted a halving of the rate of inflation. In fact, by mid-year it was down to under 8 per cent., and it was well below 10 per cent. at the end of the year. Last year, which was the last year in which I had the privilege of serving as Chancellor of the Exchequer, my forecasts had a higher level of accuracy than those of any other Chancellor of the Exchequer in recorded history.

I made some mistakes in earlier years. The right hon. Gentleman has already admitted some mistakes even in the past six months. For example, we were led to believe—and the Prime Minister led the building societies to believe —that the increase in interest rates that took place in the summer would soon be replaced by a fall. Instead, there was a further increase of 3 per cent.

No, not now. I shall give way later, because I enjoy exchanging views with the hon. Gentleman, who has an understanding of these matters which the Government Front Bench will envy as the years pass.

Let us look at the distribution of the cuts within the broad stability to which the Chief Secretary referred. Defence spending is to increase by two and a half times the rate of increase planned in West Germany. The Secretary of State for Social Services is reducing the level of patient care in the National Health Service at a time when Germany is spending three times as much per head on social services as we are. How can the right hon. Gentleman justify that comparison?

The right hon. Gentleman is to spend over £50 million next year on assisted places at public schools at a time when he is to slash spending on State education. By increasing transport charges, he will make it impossible for many children in rural areas to get to school. He is undermining the whole system of independent schools, many of which, as I know from my own area, accepted reorganisation into comprehensives on the understanding that they would be able to move children from all over a great city. However, they now find themselves faced with crippling increases in their transport bills.

The right hon. Gentleman is cutting the building of council houses. We are told to expect a fall of 16 per cent. in public sector house-building next year. At the same time as he is selling off council houses at a loss to the Exchequer—a loss which I gather has been calculated by the Department of the Environment as between £2,700 and £8,500 on every property sold by the end of the century—he is reducing help to the elderly and the disabled.

I will give way in a moment. How can the Chief Secretary conceivably claim, or take pride in, a broad stability that covers this type of gross disparity in the treatment of various objects of public spending?

I congratulate the right hon. Gentleman on the accuracy of his forecasts whilst he was Chancellor of the Exchequer. But will he give the House the benefit of his advice and explain why, with all that accurate forecasting, he managed to double unemployment and prices?

The doubling of prices which took place in my first two years as Chancellor of the Exchequer was mainly the consequence of the monetary profligacy of the previous Tory Chancellor in his last two years in office. The Chief Secretary, to his credit, has lever sought to disguise that fact. I know that the right hon. Member for Down, South (Mr. Powell), whose reconciliation with the Conservative Government Front Bench surely gives us hope of better things to come, will agree with me and with his newly-found right hon. Friend the Chief Secretary at least on that matter.

I am grateful to the right hon. Gentleman for his reference to me, but I object to his selectivity in regarding the experience of the first two years of the Labour Administration as due to monetary mismanagement during the previous two years and neglecting to apply the same argument subsequently.

If the right hon. Gentleman compares the growth of money supply M3 in the last two years of the noble Lord, Lord Barber with the slight overrun that took place in my last two years in office, which was less than the overrun in Germany or Switzerland, he will recognise that there is no valid comparison to be drawn there whatever.

It appears that the Government are planning still further cuts in public spending in the next fiscal year. The only reason why the Chief Secretary dare not tell us now is that it would mean revising plans that were published only a few weeks ago. However, he made it clear by the way that he dodged repeated questions by Opposition Members that he is planning yet further cuts in public spending in the next fiscal year. I shall explain to the House why that is so.

There is every sign at the moment of a battle royal developing between the monetarist monomaniacs on the Treasury team and other Ministers whose passion for the new Toryism is to some extent tempered by common sense and even—dare I say—humanity. I hope that I can help those in the Cabinet who are fighting the Treasury team by encouraging the Financial Secretary to answer some of the obvious questions about the Treasury team's policies at the present time. We asked the Chief Secretary to do so last week, but he dodged the issue. He preferred in his winding-up speech to answer questions which had not been asked in the debate, and he did not endeavour to answer them today.

I shall draw on some of the right hon. Gentleman's lapidary pearls of wisdom to see whether we can decide what they mean. He told us in the last debate that he was not a fanatic. He said that his rural childhood had given him an unsophisticated view—

He told us that his rural upbringing had given him an unsophisticated view that Governments must live within their means. He appeared to mean by that that Government spending should not exceed Government revenue. He did not nod quite so clearly at that. Of course, he could not really have meant that, because the White Paper means, as the Government's forecast pointed out—and as the right hon. Gentleman came close to admitting—that the Government deficit, as measured by the public sector borrowing requirement, will be £9½billion next year unless taxes are increased in the next Budget or there are further spending cuts.

With £9½billion as the figure that is implicit in the Government forecast, the Government deficit next year will be £1 billion higher than this.

Oh, I do not think that it is enough. I ask right hon. and hon. Members opposite to think through the consequences of these bar-room slogans.

Bar-room slogans. The London Business School, whose forecasts the Treasury Bench prefers to its own, says that the PSBR next year will be over £11 billion unless further steps are taken in the Budget either to cut expenditure or to increase taxes.

Even if the right hon. Gentleman wants to get down to £9 billion, which will still be a higher PSBR than this year, there will have to be further cuts or tax increases of well over £2 billion in the next Budget. That is the direct consequence not even of the unsophisticated view that the right hon. Gentleman put forward that Governments should not borrow at all but should live within their means, but of the implication of spending and borrowing £9,000 million more than he is planning to raise in revenue.

Even if the right hon. Gentleman gets down to £9 billion for the PSBR, by fiscal measures of one sort or another in the next Budget amounting to £2 billion or more, the borrowing requirement will still be higher in monetary terms next year than this, and probably also higher as a percentage of gross domestic product.

I see that I have support for that view from the sage of Knutsford. I was asked whether I thought that that figure was too high. I do not believe that it is. The PSBR should be higher still, and I shall explain why.

As the right hon. Gentleman knows, much of the increase in the PSBR next year will be due to the depth of the recession in Britain, a recession that has been deliberately deepened by Government policy. To seek to reduce the PSBR still further by deepening the recession further through additional fiscal measures would be completely self-contradictory. That point has been well made by the economist whom the Government have chosen to be their chief economic adviser, Professor Terry Burns of the London Business School. He at least goes so far as to argue that the Government should allow what he calls the automatic regulators to operate in a recession so that the PSBR rises as revenue falls and spending increases on benefits, as a result of the depression itself.

If the Government take that view—and some members of the Government appear to take that view—they must consider, if automatic regulators are allowed to operate, applying discretionary regulators, as other countries do when their output is running far below their capacity. That would offset the loss of demand that is due, for example, to the increase in oil prices, by increasing demand through Government action. That is not a revolutionary view but one that was followed by all Governments in the world during a period—1953 to 1973–in which the world has seen the fastest growth this century.

And the highest rate of inflation.

No. With respect, in the period from 1953 to 1973 we experienced one of the lowest rates of inflation in the world. I ask right hon. and hon. Gentlemen to reflect that once the Government went for deflation as the answer to economic problems, they found that inflation became worse and not better.

There is a serious economic dilemma about the level of PSBR for which we should aim next year. I have some sympathy with the arguments of the right hon. Gentleman and those of Professor Burns about the PSBR, but what puzzles me is that I assume that the right hon. Gentleman accepts that the higher the PSBR goes the higher interest rates are likely to go?

I note that the right hon. Gentleman challenges that. I had assumed that it was more or less accepted doctrine. Perhaps he will expand on how he thinks the PSBR can be allowed to go higher and yet hope to get interest rates down as we all wish?

I am coming to precisely those points. I am grateful for the hon. Gentleman's interruption. He has put his finger on one of the central issues and one of the mistakes in the Government's current economic doctrine. Right hon. Members opposite who are interested in the real problem will agree that the increase in PSBR does not increase monetary growth if the Government succeed in borrowing from private savings outside the banking sector. There is no question about that. We all agree.

In this country we have a high savings ratio. It is still in the mid-teens, whereas, for example, in the United States it is running at a little over 4 per cent. In Japan, which, incidentally, runs a much larger public sector deficit than we have ever run, the savings ratio is as high as 25 per cent. I suggest that we have a savings ratio that has provided a large pool of savings on which the Government can draw if they wish.

I am coming immediately to the question of the impact on interest rates. In the White Paper, the Government try to relate an increase in Government borrowing to an increase in money supply, but they must know that there has been no detectable relationship whatever since 1970.

If I may quote from my experience, for the first three years that I was Chancellor, I kept monetary growth at 10 per cent. when the PSBR was very much higher than it is now in real terms. I also financed the PSBR with interest rates that were only half as high as they are at present.

Right hon. and hon. Members who are interested in the problem—and I hope that they are—must look at the facts before committing themselves to outrageous generalisations, of which even the hon. Member for Horncastle (Mr. Tapsell) may be guilty, although I know we have a great deal in common in my general argument.

I shall give way to the hon. Member for Wolver Hampton, South-West (Mr. Budgen), but I must get on then.

On a point of order, Mr. Deputy Speaker. May we have guidance on why the Shadow Chancellor willingly gives way to one of my hon. Friends, prefacing his—

Order. The Shadow Chancellor's conduct on giving way is a matter for him.

The PSBR in recent years has been modest by historical standards if it is adjusted for inflation. The recent Bank of England paper in which the Chief Secretary showed interest in our previous debate

Why does the right hon. Gentleman give way to some hon. Members and not others?

I certainly shall. The real problem, and the root of all the Government's difficulties—and I have said this in every debate since the election—is that they have fixed a monetary target which is far too restrictive in relation to the rate of inflation that they have produced by their own action. The retail price index will reach the 20 per cent. barrier early in the new year, and wage increases may come out at about 14 per cent., which the Government accept.

It is an extraordinary illustration of the expectations created by this Government that the extremely welcome decision of the National Union of Mineworkers not to proceed with industrial action in pursuit of the miners' wage claim, which guarantees a settlement at over 20 per cent., is regarded as a great victory for the Government's policy.

However, money supply in the next 12 months, as I demonstrated last year, is to be kept to something between 4 per cent. and 7 per cent. It will, indeed, be 4 per cent, if, as all the City experts whom I have consulted agree, one discounts the effect of the corset now that the exchange controls have been abolished.

To try to restrict monetary growth to one-fifth to one-third of the rate of increase in inflation, or one-half to one-third on the Government's own account of the rate of increase in earnings, is to inflict a devastating squeeze on business and to reduce the profitability of business to close to zero. When that is pointed out to the Government, they shot their argument again. In the first page of the astonishing White Paper, they argue that public expenditure is at the heart of Britain's present economic difficulties. What are the facts? Public expenditure in Britain has, for a long time, been well below the average of the European countries which compete with us, both as a percentage of GDP and as a percentage of per capita GDP. As the right hon. Gentleman pointed out fairly this afternoon, it fell. It did not rise over the five years as a whole. That was at a time when output rose between 6 per cent. and 7 per cent.

The Prime Minister produced a new version of that doctrine when she answered a question from myself a few weeks ago. She attributed the whole matter, as did the Chief Secretary, to interest rates. She said:
"if we are to get interest rates down we must get public expenditure down as a proportion of national income."—[Official Report, 13 November 1979;Vol. 973, c. 1150.]
The White Paper guarantees that public expenditure will rise as a percentage of national income next year, as the right hon. Gentleman admitted. Does that mean that interest rates will rise and not fall next year? The Prime Minister's view appears to imply that, although the Chief Secretary has told us that it is his major objective to get the minimum lending rate down.

The whole tissue of the economic argument used by the Government to justify spending cuts is poppycock. MLR is high, not because public expenditure is high, but because the Government have set themselves too restrictive a monetary target and they are trying to achieve that by interest rates alone—in the face of all the evidence that that will not succeed. As the right hon. Gentleman knows, the problem is not public spending; it is lending by the private banks to the private sector. Even after the increase of MLR to 17 per cent., there is no sign of that falling off.

The increasing evidence was highlighted yesterday by the chairman of the Confederation of British Industry's smaller firms council. He said that the big companies will meet the increase in interest rates by loading the burden on to the small companies which supply them, or on to their customers by paying their bills late and insisting on rapid payment of what is owed to them. That will sound the death knell of innovative small business in this country. It will be a direct consequence of the mistaken monetary policies followed by the Government.

The final argument of the cuts is that the Government have to cut their borrowing for public spending because it crowds out private borrowing for investment. That is absolute poppycock, as the right hon. Gentleman knows. In fact, he has said so, as has the Financial Secretary. A few weeks ago, the Financial Secretary justified the abolition of exchange controls on the ground that there is no shortage of finance for private industry. Indeed, that is the case. There is only a shortage of profitable investment opportunities. What will happen to those profitable investment opportunities as a result of the savage deflation and vicious monetary squeeze which is sending profitability to hell at the moment throughout the private sector and reducing return on capital to zero?

Right hon. and hon. Gentlemen on the Treasury Bench must face the consequences of their actions. The CBI expects a big fall in private investment, after two years under the Labour Government in which investment in private manufacturing rose in volume terms each year by 14 per cent. All the Government's arguments for cuts on the scale of this White Paper collapse under scrutiny. They crumble into dust at the first touch. The Government do not really believe them themselves—they cannot do, in the light of the facts that I have put forward. Half of them are not cuts in public spending. If public spending were to have any of the consequences for the present economy which Ministers talk about, those cuts would have to be in the services of public authorities. However, half of the cuts are not cuts on goods and services for public authorities They are new ways of raising money to finance public spending. The sum of £500 million is being raised by the sale of public assets at a loss. About £1 billion is raised by changing transfer payments, by cuts in social benefits, and the increases in charges which will lead to the price increases to which I have just referred feeding straight through to wage increases. That adds a further twist to the inflationary spiral.

The real effect of these spending cuts and the cuts in transfer payments is a shift in the burden of paying for public expenditure from those who can afford it to those who cannot. That is not new Conservatism. It is the old Conservatism writ large. How else can a Government who have pledged themselves to improving the supply side of the economy explain cutting the output of skilled workers by 10 per cent. next year by closing down training centres in the areas of highest unemployment such as Cardiff, Llanelli, Glasgow and Dumbarton? How can a Government who are pledged to improve incentives explain cuts in social service benefits which will drastically increase the number of low-paid workers and pensioners who will find that they are better off to become unemployed? That point was made yesterday by the chairman of the Supplementary Benefits Commission.

I know the right hon. Gentleman to be a fair man—especially at the moment, when he is thinking about his future problems inside the Labour Party. Will he explain to us how he would have financed the increase in public expenditure which he promised the country prior to last May? Would that have meant an increase to 40p in income tax?

The answer in a sentence is that I would not have pursued the restrictive monetary policy to the degree of the present Government, I would not have produced a20 per cent. inflation rate to set against a rate of monetary growth which was well under half of that, and, therefore, I would not have produced inactivity in the economy in the way that the present Government are doing. Therefore, we would have been getting the revenue needed to finance a much higher level of public spending.

I hope that I have shown that the "saloon bar" economics of the Treasury Bench are profoundly damaging to the nation. That policy is skin-deep and it is already cracking under the impact of events. We have not yet had the U-turn. However, what we have seen is that the Government are no longer moving straight ahead but on a sort of arc. Perhaps they are skidding. It will not be long before we see them moving unsteadily down the opposite side of the roadway altogether.

The right hon. Member for Oswestry (Mr. Biffen) will resign if they do.

The present public expenditure levels are incompatible with Government strategy, as they have defined it. It is the strategy that is giving way, not the spending policy, The social values of the present Government are and will remain unchanged. In the long run, they are far more damaging. For that reason, as well, I ask my hon. Friends to support the amendment.

5.28 pm

I listened with great interest to the comments of the right hon. Member for Leeds, East (Mr. Healey). I was particularly interested to hear that, in the terms of the amendment, the Opposition maintain that the White Paper will lead to higher unemployment and increasing inflation. I reject that idea completely. The Opposition have not taken into account the fact that public expenditure is also subject to the laws of diminishing returns.

I remember that fact most vividly from the time when I chaired a local authority committee which spent large sums of money at the time of the imposed IMF cuts.

I remember having an argument in that committee with my Labour opponents, who said that in order to cope with the social problems of increased unemployment in our inner city areas we should increase expenditure to hire an additional 12 youth and community workers. That was laudable and understandable, but what my opponents misunderstood was that in order to fund those additional 12 social workers to cope with the unemployed we would probably have had to raise revenue to the extent where we would have taxed, or by increased rates somehow caused, employers to shed additional labour to pay for it. Therefore, in attempting to solve the problem through increased public expenditure we would probably have added to it.

There is a law of diminishing returns in public expenditure, and I hope that there is some consensus in the House today that we may well have already exceeded that and that the Government are at least trying to come to terms with the problem and are laying the facts clearly before the people.

The key paragraph in the White Paper is contained in the third sentence of paragraph 4, which states:
"to plan for spending which is not only compatible with the necessary objectives for taxation and borrowing, but is also based on a realistic assessment of the prospects for economic growth."
My right hon. Friend the Chief Secretary to the Treasury looked at the posible scenarios, if I may use that much over-used word, for our economy over the next two or three years. He hinted that we may be facing zero growth, and he further indicated that some commentators are projecting a 2 per cent. contraction in our economy over the next 12 months It is, therefore, not surprising that some hon. Members and commentators have criticised the Government for not cutting enough during the current year.

The argument runs that had we cut an extra £1 billion this year we could have avoided the 17 per cent. MLR announcement only a few days ago and that the Government would not have been as vulnerable as they appeared to be when faced with the loss of revenue through the VAT strike and the non-collection of bills from telephone subscribers.

I reject that view. Having lived through this situation as the chairman of a spending committee in a local authority, I know that had the House asked local authorities to cut very quickly, and with very little planning, the first thing that would have happened was that they would have gone for capital expenditure. That is always the easy option. The Opposition amendment talks about the reduction in job possibilities. I believe that the Government have the balance right this time, in that we have held the level this year, which is as much as could have been expected, and that we are looking for a constant level of public expenditure in real terms in the next two or three years. I remember vividly that in 1977–78 local authorities were asked for large sums of money. Six per cent. nationally was the level of cuts. As I have indicated, it was precisely the option of a cutback in capital expenditure that bore the brunt of those reductions.

In broad terms I welcome the section of the White Paper dealing with education. From what is said, one can see that it is possible to cut expenditure without affecting education standards or, indeed, causing wholesale redundancies. The mechanism that will assist us is falling school rolls.

I am obliged to my right hon. and learned Friend the Secretary of State for Education and Science, who has recently given some extremely interesting information in written answers. If we look at the number of teachers currently employed in the profession, we see that the figure is about 500,000–about 470,000 if we exclude the higher education and further education sectors. By the same token, 670,000 non-teaching and administrative staff are employed by our education authorities in England and Wales. I have the figure somewhere of what that represents as a non-teaching staff to pupil ratio. It is highly significant, and the fall has been even more dramatic than the fall in the pupil-teacher ratio.

I think that we should consider a natural wastage programme over the next five years which would preserve the existing numbers of teachers in post but simply allow for a proportional reduction in non-teaching and administrative staff. For example, a modest reduction of about 20,000 full-time equivalents nationally, at an average cost of, say, £5,000 a year, would represent about £100 million, which, incidentally, is the sort of figure that we may consider when discussing free school transport during later stages of the Education (No. 2) Bill. However, that is perhaps a debate that can be held on another day.

When we talk of the quality of education and the quality of our services, the key figure that we should bear in mind is the pupil-teacher ratio. That rep- resents the front line. That is the area about which the Government are rightly sensitive. I am delighted that the fall in the number of teachers that is projected in the White Paper is less than the proportionate fall in school rolls.

Will the hon. Gentleman give an undertaking that the birth rate will not rise within the next 10 years?

No, I cannot give such an undertaking because there are many factors that could complicate the matter. We shall discuss one of them in the next few months—abortion law reform. There are many things that no Chancellor of the Exchequer or Treasury Minister can budget for, but in the education service we have a school career that starts at zero until a child becomes five. Therefore, in that context we have five years to plan. We also have another seven or eight years to plan for that child before the 16 to 19 provisions take effect.

I believe that the education service has the time and flexibility to respond to changes in the birth rate and, indeed, to the structure of the school population. We can have another argument on another day about where resources should be shifted, but my own view is that they should be directed towards the 16 to 19 provision.

I think that I have given way enough, and I indicated to Mr. Speaker that I would not detain the House for more than 10 minutes. Therefore, if the hon. Gentleman will forgive me I should like to continue.

The right hon. Member for Leeds, East used highly emotive language, as many other opponents of the cuts have done. We have witnessed demonstrations and processions. A number of horrific options have been floated and a lot of kites have been flown, many of which have been deliberately and politically embarrassing. Many Labour controlled local authorities have put forward these options knowing that at the end of the day many of them will not be acted upon. I am quite confident that as a result of the implications of this White Paper the schools will still be there, the pupil-teacher ratio will be roughly the same, if it has not even improved, and the savings will have been made simply because the number of pupils will have fallen.

I go even further. As well as political capital being made out of the cuts, I believe that those who are responsible for implementing the reductions in expenditure have chickened out. It is rather like saying to a surgeon "You have something wrong with your big toe, would you mind amputating it?", and he responds "No, I would rather amputate someone else's big toe." We have all suffered from this. I confess my sins because in years gone by I have taken that route. I sincerely hope that in the new climate of this Administration local authorities will come to realise that there is a clear strategy and that they will be able to reduce current expenditure in a planned and rational manner.

When we cut through all the cant, humbug, emotion, demonstrations and politicking, I hope that every ratepayer, teacher and parent will ask three questions of his local education authority. First, what is the total number of pupils who will be educated next year compared with this year? Secondly, what is the pupil-teacher ratio likely to be in 1980–81 compared with 1979–80? Thirdly, what is the ratio of pupils to non-teaching and administrative staff in those same two years? I believe that if we discuss the cuts, the planned reductions—call them what we may—in that context, we shall have a rational discussion and succeed in taking our message to the people of this country effectively.

5.40 pm

One of the consequences of the coming into office of the present Administration is that they have brought into the centre of political debate the tradeoff between public services and taxation.

The will of the people is supposed to have been expressed at the last general election. I have read, as I suppose many hon. Members have, the latest quarterly publication on public opinion. People were asked their views about the level of taxation, and they agreed, by an enormous majority, that taxation levels were too high. They were then asked a mid- dling question about their views on public service cuts. Their response to that question was slightly different. When they were asked what they would feel about taxation cuts if there were cuts in the health and education services, and in one or two other areas, their answers showed that the balance of opinion swung round completely. This is at the heart of the political debate.

We know that people have the right to choose. However, their choice at the last general election was not that kind of considered choice. Those kinds of questions were not put by the Tories. They promised that the cuts would mainly be achieved by eliminating waste. The advantages to the people of a reduction in taxes were forecast as a bonanza.

The Government are now teaching the people the facts of life. The people are about to learn the hard way. The first part of the Government's programme was designed to reduce taxation and increase incentives. The Government said they would reduce public expenditure and that consequently there would be a reduction in the public sector borrowing requirement, with the result that the money supply would be reduced, as would inflation. That was the Government's broad general strategy.

The first part of that strategy has gone adrift. The idea of reducing taxation and increasing incentives has gone. High mortgage rates have seen to that. The way taxation benefits have been eaten up by inflation has also seen to that. The Government are now left with the second part of their strategy, which will go the same way as the first. The Government are trying to reduce public expenditure, the PSBR, the money supply and inflation.

That strategy will not work. The key to limited success in this context will be output. Output will not be maintained, far less increased, by the kind of tax incentives that we have received, when, at the same time, there is a severe restriction on the running of the economy. The restraint on public expenditure, the money supply and the public sector borrowing requirement will lead to bankruptcies. That will not increase output. Output under those circumstances will not be retained even at the present level. The drive and efficiency of the people who it was said would take advantage of tax incentives will not result from Government strategy. Rather, there will be the collapse of a number of companies whose future might have been secure and whose operations would have been to the advantage of the country if this policy had not been pursued.

The Government's obsession with monetarism is most dangerous. Lord Kaldor commented in another place that Germany had double the level of our money supply and Switzerland had four times our level. The Government should not fall for a theory as vague as monetarism. The party of the theorists does not always sit on the Labour Benches, though the Labour Party is supposed to be the party of theorists. Every party has its advantages and disadvantages. The Labour Party's advantages far outweigh its disadvantages, otherwise I would not be standing here, but a disadvantage that we sometimes suffer from is that which results from an excessive dedication to theory as expounded by certain economists.

One past advantage of the Tory Party was that during the nineteenth century, and beyond, it was the party of interest. It eschewed theory. In the matter of monetarism, roles have been reversed, to the Government's great disadvantage.

Does the right hon. Member agree that while, in general, the Tory Party ought to be pragmatic, we have the remarkable advantage that between the end of 1971 and the beginning of 1974 the Keynesian theory was tried to its ultimate limit? It was demonstrated beyond a peradventure that that theory did not work. There is now no alternative but to try monetarist theories.

It is interesting to note that the hon. Gentleman is advancing the reason of desperation. I did not realise that desperation was the motivating force on the Treasury Benches. It seems that, having tried everything else, the Government have now decided, as a last resort, to try any theory that might provide a solution.

In looking for the causes of the problems of the 1970s we have only to see the relationship between the Conservative Government and the people and between that Government and trade unionists. We need to recall how the Government changed their minds so often and printed money on a scale never previously seen. This mish-mash of ridiculous policies was the failure of that Government. It was a sad episode, which many of us wish to forget.

The right hon. Member for Down, South (Mr. Powell), who has left the Chamber to attend a meeting, was looking for a philosopher's stone. It is very much part of the mind of the right hon. Gentleman to look for that sort of solution. We must look for the realities of our present situation. The Chief Secretary to the Treasury seeks to conquer inflation through monetarism. When this Government came into office they increased the minimum lending rate from 12 per cent. to 14 per cent. The reason they gave was that the increase would reduce inflation. A few weeks ago the Government increased minimum lending rate from 14 per cent. to 17 per cent. The Prime Minister said that this was done to conquer inflation. The relationship between monetarism and inflation does not strike me as being so perfect. One can argue for such a relationship working in perverse ways, but if people believe it wilt not work it does not work.

What is the threat of monetarism? It does not affect the trade unions. It is no use trying to threaten Moss Evans, the engineers, or anyone else, by saying that if they obtain pay increases workers will lose their jobs because of the rigid application of monetary theory. The right hon. Gentleman might convince the City of London. The City might believe it, but in this context the trade unions matter most. They will receive the pay increases and produce the level of inflation which—ifoutput is not commensurate with pay—will inevitably result.

The theory of monetarism is untested, though if it were pursued long enough I suppose it might work. What would be the cost in that event to the people of this country? It is not even certain that it would work. In the City of London there are some of the most sophisticated operators in the financial world. I am sure those City experts have thought out the loopholes that can be devised.

The right hon. Member for Down, South says that the excessive PSBR creates the increased supply of money. That is not so. There are other ways, too. If the right hon. Gentleman were to write out an IOU for any reasonable sum, that would immediately create an increase in the money supply. One could discount that IOU to anybody. Indeed, it would operate the other way round; one would make a profit on such a readily negotiable instrument. That would also be creation of money. I am sure that the City of London will have many other ideas that will damage the Government's theories.

However, let us assume that the Government can foresee the actions of the City of London. Those at present on the Treasury Bench do not fill me with great confidence that they will be able to achieve that, but for the sake of argument let us assume that they can foresee the next moves of all the finance houses and other financial institutions and block them in advance, without legislation or whatever might be required. Let us assume that that happens, and that then the economy goes down and down, while the strong trade unions continue to obtain increased wages for their members. The cost to the country would be enormous.

We must also reckon on the political situation. What would happen to the Government? Whose nerve would break first? It is no use proceeding along this road unless it is followed through to its conclusion, where the Government's actions lead to the kind of results that they hope to achieve.

The Government's aim is to conquer inflation through monetarism. They are responsible for very high rates of interest, which I believe cause inflation in many areas, not only because it feeds into the retail price index but because of the feeling in people's minds. Whenever we mention any figure to do with prices, interest rates or similar matters, people feel that inflation is striking at them. It affects their feelings and the ways in which they act.

Conservative hon. Members try to prove monetarism by all sorts of time lags and so on. I was much interested in the written answer to the question asked by my hon. Friend the Member for Grimsby (Mr. Mitchell) about time lags between increases in the money supply and increases in retail prices. Certain people have seen a connection. Looking at those figures, one must be a pretty dedicated proponent of any theory to make anything of them. They go up slightly, but they seem almost to do so at random.

To say that the figures prove anything one must almost believe in the philosopher's stone, which I mentioned earlier. It is like the theory of the plants before Copernicus. The idea was that the sun went round the earth. When people could not prove it, they had to bring in another circle to show that the theory worked. When that was shown not to be right, they produced another epicycle.

Similarly, whenever the theorists on the Conservative Benches fail to show a connection between growth in the money supply and inflation, they introduce a new factor. Instead of talking about cycles or epicycles, they talk about differential time lags. Those are what they contend will make the theory fit the facts.

I have been following the right hon. Gentleman's argument with great interest. Does he subscribe to the view expressed a little earlier by his right hon. Friend the Member for Leeds, East (Mr. Healey) that the price explosion in the early years of the Labour Government was attributable to monetary expansion under the previous Tory Administration?

Part of it was. If I had the printing presses churning out money like mad and I threw money all around the place, there would of course be an increase in the amount spent. But the relationship is a very different matter. If one increases the money supply by X per cent., by how much does inflation increase?

If we doubled the amount of coins that any of us have in our pockets now, that would be an increase in money supply, but I doubt whether anyone's expenditure would be increased in the slightest. If we increased the amount of coins in the pocket of a down-and-out, his expenditure would increase to his new limit. That is about as far as we can go in the argument. The rest of it is something for the economists to amuse themselves with. It is not an argument for practical politicians, who must see results and, if not guarantee them, have a reasonable certainty not only that they will secure them but that they will do so within the time span of the Government of which they are part.

When the Chancellor of the Exchequer started talking about 14 per cent. pay settlements, what was that if not a sign of doubt and uneasiness that the monetary theory was not so perfect? There is not one simple tool for the operation of an economy as complex as the British economy. Anyone who aspires to the position of Chancellor of the Exchequer with such limited insight into the way in which the economy works will be rapidly disappointed and will have to change considerably—and quickly.

I note that today the Chancellor attended a meeting of NEDC. He spoke about it in glowing terms, as if it were a brilliant new way for him to come to terms with the trade union movement. At any rate, this greater contact that the right hon. and learned Gentleman now seems to be accepting will perhaps be of some benefit in improving his understanding of the world as it is rather than as he once thought it to be.

My own view is that we should have done something about the exchange rate. If we are ever to increase our exports and, even more important, diminish our imports, there are only two practical possibilities in a reasonable time ahead. One is protection, which we may be forced to adopt. Conservative hon. Members had better not be too certain that they will reject that if matters become much worse. I should be very reluctant to go along that road.

Because I do not believe that it offers the final solution. One can make it easier for manufacturers in this country to continue to produce. What one will not find it easy to do is to convince them of the advantages of investing. They will know that at some stage their protection will be ended and their investment will prove not to have been worth while. It is the exit path from protection that is the most difficult.

There are a number of areas in which we are not producing the articles that are needed. Only 10 years ago we produced almost everything that we used. There has been an enormous change in our manufacturing industry. At one time we produced virtually everything that we required in the manufactured line. Now there are whole areas that we have abdicated. That means that protection needs to be rather different from the protection that was perhaps thought of at one time.

These arguments do not apply to the exchange rate, which can be a form of protectionism by diminishing the opportunities for imports and improving the possibilities for exports. The difficulty is that with the abandonment of exchange control the task of running a sensible devaluation for any length of time becomes difficult.

I believe that the abolition of exchange control will not last. I note that there is no talk of the repeal of the Exchange Control Act. I am delighted, because the time will come when exchange control regulations must be reimposed. There can be a run on the pound for all sorts of reasons. There can even be the possibility of a Labour Government's coming to power and an anxiety that we shall reimpose exchange control. All these are possible events that will cause a run on the pound and the taking of money out of the country.

The Financial Secretary to the Treasury should not laugh, because it may be he who reimposes the exchange control regulations. He will have to give quite an explanation of the reasons why he allowed such a large amount to go out of the country, to no effect.

We now have it on record from a former Financial Secretary to the Treasury that the prospect of another Labour Government would lead to a run on the pound.

Not at all. Exchange control regulations will need to be reimposed at some stage—in my view in the lifetime of the present Government. It is the present Government who will bring it about.

The Chancellor of the Exchequer has said again and again that there is no alternative to monetarism. He has sounded as if he is trying to maintain his morale and that of the Government. We all know that there are different voices in the Government. Some expected to see results from the present very tight restrictive policies. The results will not be attractive, either to the Government or to the country. We hope that sensible voices will pull back from the brink those who are pursuing the present policy. Their help will be needed before long.

6 pm

I am sure that all hon. Members will agree with the opening words of the second paragraph of the White Paper—

"For a long time now the performance of the British economy has been deteriorating."
There is no doubt that our profitable base has been shrinking. One has only to look at British Steel, British Leyland and British Shipbuilders. Fifteen years ago they were profitable tax paying industries. Now they rely heavily on Government support and subsidy. Opposition Members should remember that for 11 of the 15 years since then a Labour Government were in power. During the same period public expenditure went up at a fair rate, except during the time when the previous Government were under the supervision of the International Monetary Fund.

The White Paper is correct in stating that:
"Public expenditure is at the heart of Britan's present economic difficulties."
As a country, we have been spending more than we have earned. While Governments have increased spending, they have not been able to fund that increase by increases in taxation, although increases in taxation have been heavy. That has resulted in increased Government borrowing, printing money and fuelling inflation.

The Government made an excellent start in the Budget. They reduced direct taxation to provide more incentive, and slashed Socialist plans for increased public expenditure by £3½billion.

Last week we debated the problem of the money supply and the reason for the increase in the money supply figures in October, which caused the Government to raise MLR to 17 per cent. I congratulate the Treasury team on their courageous and decisive action in raising MLR. All hon. Members accept that, if MLR stays at its present rate for a considerable time, it will have serious adverse effects on industry in general, and particularly on small businesses. In order to reduce MLR, we must get the money supply under control. That means bringing Government borrowing down. That can be done only in two ways. Either Government expenditure must be reduced or taxation must be increased. Britain needs higher output.

The White Paper puts the case strongly when it states that:
"higher output can only come from lower taxes, lower interest sates and less Government borrowing".
In order to reduce interest rates and continue our present policy of making further reductions in direct taxation, Government spending must be reduced.

I am disappointed, therefore, that the White Paper only proposes to stabilise Government expenditure in 1980–81, instead of reducing it. Despite all the screams of pain that we have heard from Opposition Members in the last month—and today from the right hon. Member for Leeds, East (Mr. Healey), who almost made us weep with his words about cuts—in broad terms there have been no cuts. We have not been as successful in reducing Government expenditure as the Opposition were when they were under the supervision of the IMF. In 1976 they reduced expenditure by 2½per cent. and in the following year they reduced it by 6 per cent. If we continue along those lines, MLR will remain at this high rate for longer than we can afford. There will be no room in the next Budget, as the Chancellor has indicated, for further cuts in taxation. Indeed, taxes might have to be raised in the Budget. That would be a U-turn in Government policy. I therefore ask my right hon. Friends to look again at the figures for 1980–81, and to come back to the House with proposals for real reductions in Government spending. I was delighted that my right hon. Friend the Chief Secretary indicated in his speech that the figures would be re-examined and that he refused to give any categoric undertakings to hon. Members opposite.

I appreciate the problems of my right hon. Friends in the Cabinet. I was the leader of a large county council, and we fought an election on a programme to reduce expenditure and stabilise rates. We were a united party. Once in power the chairmen of spending committees were quickly pressurised by their officials to fight to prevent any cuts in their budgets. Ranged against those chairmen, who numbered seven or eight, there were only the chairman of the Finance Committee and myself, the leader.

It is clear that whichever party is in power the same situation exists in the Cabinet. The Treasury Ministers are heavily outnumbered by the spending Ministers. I should like my right hon. Friends to know that they have considerable support for their efforts from the Back Benches.

There are a number of areas in which we can reduce expenditure. I do not like the word cuts—it is too emotive. The results would be positively beneficial. First, we could end the indexation of social security payments, other than for old-age pensioners. It is a nonsense when large numbers of workers have to accept increases way below the current level of inflation. Worker sat Chrysler have had to accept an increase of 5 per cent. British Steel Corporation workers have had to accept 2 per cent., but people who are unemployed and who are receiving social security can have a 17½per cent. tax-free, inflation-proofed increase.

Does the hon. Gentleman agree that many Government measures, in particular the increase in VAT to 15 per cent., the increase in transport costs, and the general increase in the cost of other forms of transport, have reduced the differential between the man at work and the man who is unemployed? The man who has to travel to work has to pay more to get there. Equally, the Government's school transport policy means that rural workers will now have to pay enormous amounts to send their children to school. It will therefore be more profitable for such people to be unemployed than to remain at work.

The hon. Gentleman has a point. The Government have tried to improve the position of those at work by taking some 2 million people out of the tax bracket, and by reducing direct taxes. The objection of the hon. Gentleman is that the present policy, far from increasing the gap between those working and not working, is narrowing that gap.

We must examine public service pensions. The inflation-proofing of those pensions will be a millstone around the neck of the country for many years. Nearly half the people in this country have inflation-proofed pensions. The other half, who are in the private sector, have no opportunity of receiving a pen- sion which is protected in that way, because insurance companies will not gamble on the inflation rate.

I ask my right hon. Friends to abolish the Clegg Commission immediately. The right hon. Member for Leeds, East and his colleagues are responsible for much of the increase in public spending and inflation. Last winter they fudged the pay negotiations as a result of the work of that commission. Their policy was "Put off today, and pay more tomorrow". If the leaks that we have heard about the NUT wage claim are true, the effect will be disastrous.

I am sure that Professor Clegg has never taken into consideration the difference between the value of an inflation-proof pension and that of a pension which is not inflation-proofed. An ordinary pension scheme costs 12½per cent. If inflation is running at 10 per cent. an inflation-proof scheme will cost about 40 per cent.

I congratulate the Prime Minister on the magnificent way that she has fought Britain's case for a reduction in our contribution to the Common Market budget. It is heartening that at long last we have a British Prime Minister who will fight for British interests as strongly as General de Gaulle fought for French interests. We could easily save £350 million a year on overseas aid. We were far too generous with our rate support grant. Another 1 per cent. reduction would have been useful.

It is essential that the Government fulfil their manifesto obligations and make reductions in public expenditure in 1980–81. Three benefits will flow from that. First, we shall restore the possibility of cutting direct taxes in order to improve incentive and create more wealth. Secondly, we shall be able to reduce borrowing. Thirdly, we shall go some way towards fulfilling our manifesto commitment to reduce the percentage of GDP taken by the Government.

I have great faith in our Treasury Ministers. At this critical time we are fortunate in having a Treasury team of great courage and integrity, and with an intellectual depth that we have not known since the days of Peter Thorneycroft and the right hon. Member for Down, South (Mr. Powell). I support the Government in their monetary policy. I urge them to implement our election promises by making real cuts in public expenditure and real reductions in taxation. Thereby they will lift a burden from the backs of the British people.

6.11 pm

The hon. Member for Bridlington (Mr. Townend) made an enthusiastic speech. The information in the White Paper is inadequate. I was a member of the Sub-Committee of the former Expenditure Committee and I can tell the House that it is many a day since we have had a White Paper with so little information about, for example, the tax implications and what will happen to the public sector borrowing requirement, which we are told is a key economic indicator in the Government's strategy. There is little information about what will happen to output, employment and inflation. I am disappointed that the Financial Secretary, who served with such distinction on that Committee and who demanded that more and more information should be given in White Papers, should be involved in the presentation of a White Paper which singularly lacks information. I hope that the Government will do better nexttime.

Perhaps it is a question of poacher turned gamekeeper.

But I do not wish to spend time on the technical aspects. I wish to consider the economic strategy behind the White Paper. We are told that the Government's first objective is to reduce inflation. That is a worthy objective. However, the Government have already made three crucial mistakes. First, by switching to indirect taxation and increasing VAT in the Budget, inflation was increased by 4 per cent. Secondly, on the Government's own admission, the charges and cuts in public spending will add several percentage points to the inflation rate. Thirdly, by abandoning incomes policy, except under the disguise of cash limits in the public sector, the Government have disarmed themselves of credible counter-inflation policy in the eyes of British industry.

I shall be told by the Treasury Front Bench that these are short-term measures and that inflation will be squeezed out of the economy by a combination of control of the money supply and progressive cuts in public spending. That is the Government's grand strategy. It is from that, that the expansion of money supply, as we saw in 1972–73, can be a factor in the creation of inflation. We should bear that in mind. The difficulty lies in deciding what is the best measure of money supply. We have also to decide on the instruments of control. These are primitive at the moment. And we have to examine the likely impact of these measures.

I agree with the White Paper that, on the whole, public spending should be kept in line with the expansion in the economy. Clearly, if public spending is expanded fast, particularly when activity is picking up or when the economy is overheated, it can lead to "crowding out" and inflationary problems. However, that does not solve the problem of what the public spending plans should be. It does not tell us about what should be the level of the PSBR. It does not tell us anything about the connection between the level of the PSBR, the money supply and inflation. Yet those connections form the assumptions behind the Government's economic strategy.

There are a number of paradoxes. In a recession it is possible to cut public spending and yet end up with a higher PSBR. That is because reduced activity leads to less revenue and increased unemployment leads to an increased demand for spending. In The Times of 3 December Frank Blackaby—who I know is not the Financial Secretary's favourite economic commentator—explained how, if the rate of earnings is reduced, the PSBR will rise. He argued that if the rate of earnings increases the PSBR will fall. In other words, he said that success means a rising PSBR and failure means a reduced PSBR. That is because of the impact of earnings on revenue and because spending remains the same as a result of cash limits. That is well known. It is bound to influence the level of PSBR.

A further argument came from the hon. Member for Bath (Mr. Patten) last Wednesday, when he quoted Alan Budd, the colleague of Professor Burns of the London Business School, who showed that, because of the lack of investment opportunities in the private sector during a recession, it is possible to combine a high level of PSBR with a stable or reduced money supply.

Those examples show that it is wise, even if one is a convinced monetarist like some Government Members, not to make a fetish of a particular level of public sector borrowing requirement. That is especially true when all the forecasts predict a decline in output and the beginnings of a deep recession in our economy.

I also note that our share of public spending in relation to GNP and the level of the PSBR in relation to GNP is lower than that of any of our competitors. So I hope that the slogan—which I trust was not written by the Chief Secretary—that:
"Public expenditure is at the heart of Britain's present economic difficulties'
will be quickly forgotten.

Even if we were to accept the theoretical case for the Government's strategy—which I do not—Treasury Ministers must ask themselves the following questions. First, how long will it take to work—if it works at all? Secondly, what will the cost be? The Treasury forecasters, who I know are not the best friends of the hon. Member for Blaby (Mr. Lawson), are clearly sceptical about the Government's monetary and counter-inflation policies, for it is only by making the most optimistic assumptions about the current pay round that they are able to see any reduction in inflation in the folllowing year.

Even the most convinced monetarists at the London Business School do not see inflation coming down to single figures until 1982. That is hardly surprising. The gentlemen within the square mile of the City of London may be influenced by the latest M3 figure but that figure will not persuade those who are bargaining and who determine the level of pay in our economy. The level of pay can be influenced only by some form of incomes policy. Indeed the only way that tight money supply and reduced public spending alone will eventually reduce prices is by creating such a deep recession that firms will no longer be able to afford any increases.

Let us consider the cost of such a policy, which is what hon. Members who espouse monetarism must consider. There will be more bankruptcies, fewer new business starts, particularly small businesses, and a long-term scaling back of investment plans. There will be increased resistance to industrial change at shop floor level. We have seen a lot of that already, which is not surprising. The level of unemployment will continue to increase. On the basis of this White Paper the Chief Secretary talks about unemployment rising by 300,000 during the next financial year. He is not talking about possible plans. Therefore the unemployment figures could rise much higher than is presently foreseen.

Living standards and the cutback in public services must also be considered. The policy of squeezing an economy that is already on the way down will reduce inflation only if it grinds the economy to a shuddering halt. That is what monetarism means. And that halt will weaken still further our industrial base. That point was made by my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon). It will also lead to a state of widespread social discontent, which is hardly the ideal background for the industrial regeneration in which we all believe.

The hon. Member for Blaby might ask what is the alternative. Many hon. Members opposite have asked that. With a certain amount of modesty and scepticism, I shall put my alternative. With the present state of economic theory and practice, I do not believe that macro-economic policy by itself will be able to produce the industrial regeneration that is required and reverse our industrial decline. That is much more closely related to factors such as our class-ridden system of education, the low status that we give to management and the style and structure of our industrial relations, which emphasise conflict rather than co-operation.

But if foolish policies such as those advocated by the Treasury Front Bench cause harm and do damage, as I believe they will, sensible policies could at least create the right framework. I say this without any shame: I believe that we need a long-term incomes policy, despite everything that happened last winter and the inherent difficulties. Without an incomes policy the Government are fighting with one hand tied behind their back.

I remind those who are sceptical that inflation was brought down partly by an incomes policy—

It was brought down partly by an incomes policy between 1975 and 1978. If hon. Members are still sceptical, they should consider what is happening in Austria, where there is a low rate of inflation of 2 per cent. Yet Austria has an incomes policy. Germany, Sweden and Norway all have amongst the lowest rates of inflation in the industrial world yet they have incomes policies.

No, I do not. I mean a voluntary incomes policy. We must fully accept the role of Government in industry and the need for Government intervention. We have already seen, with the National Enterprise Board, and with regional and industrial development, that this Government still have an ideological viewpoint. This can also be seen in the White Paper. I hope that the Government will adopt more sensible policies as the situation worsens. They will realise that the only alternative to widespread dislocation and unemployment is some form of Government intervention.

I also say with some sadness that we shall have to consider some form of import control. I do not believe that that is a marvellous thing to do. It is a sign of industrial weakness, and it is a policy of last resort, but I prophesy that during the next two years the Government will have to consider their whole policy on trade and will have to remember their protectionist past.

Like many of my hon. Friends and, I suspect, many hon. Members opposite, though perhaps not those present today, I believe that the Government will make a U-turn in their policies long before 1982. There will be one or two resignations—

Not many, my right hon. Friend says. But I hope that change comes sooner rather than later.

6.28 pm

It is always a pleasure to hear a speech from my right hon. Friend the Chief Secretary. His selective and felicitous command of the English language is, with one possible consistent exception, unexcelled in the House. However, for the first time, there were elements in the content of his speech that made me feel a little uneasy.

The White Paper starts with the assertion, to which the hon. Member for Chester-le-Street (Mr. Radice) referred, that
"Public expenditure is at the heart of Britain's present economic difficulties."
Then, almost immediately we find that the commitment to reducing public expenditure has certain qualifying adjectives attached to it. We heard that public expenditure is to be "arrested" and not reversed. "Arrested" is a fairly broad term. It could mean "brought to a halt in real terms" or "brought to a halt in nominal terms." "Arrested" is nowhere near what we are looking for, what we need, or what we were elected to implement. In the text we read that public spending is to be "stabilised", not reduced. "Stabilised" is a term that is capable of even broader interpretation.

When I intervened on this point in his speech, my right hon. Friend the Chief Secretary was very courteous. He said that the Government might be able to make movements in that direction in the later years of the Administration. That seemed to be very imprecise and slightly ominous because it is in these early stages that it is crucial for us to lay the ground work that will enable the rest of our policies to bear fruit.

I am still concerned that all the assertions about cutting public expenditure seem to be wearing a little thin and gathering an aura of deferment about them while the analysis of our plight—which really depends on the fact that our productivity is so low and is expected to decline by another 2 per cent. next year—is not then followed with the most obvious of all measures which is still available to the Government to correct the situation.

There is a sentence in the White Paper which says:
"higher output can only come from lower taxes, lower interest rates and less Government borrowing."
I know that demand management is very unfashionable these days and that we have rejected it both in Opposition and in Government, but that sentence is really too facile. It has left out the key element of demand which need not necessarily be induced by Keynesian techniques, but can be generated in the simplest possible manner—by controlling imports of manufactured goods into this country.

On every occasion that I have spoken on economic matters in this House I have reverted to this argument. I have also done so outside the House. When I was the guest speaker at the Bow Group conference, I gave a lecture on this topic. I sympathise with my right hon. Friends on the Treasury Bench, but I warned them that I would raise this matter again. In fact I told the Chief Secretary that if he wished he could leave the Chamber and have some tea while I talked about this matter, and I would not be offended. The right hon. Member for Llanelli (Mr. Davies), who has left the Chamber, has also heard this argument.

I do not see import controls as being in the least bit unrespectable. They are totally in conformity with our political traditions. I believe that it is increasingly urgent that we should follow this course and I cannot comprehend the idea that import controls are in some way regarded as a mixture of indecency and heresy enunciated in the same breath. This may be partly because import controls are associated principally with the personality of the right hon. Member for Bristol, South-East (Mr. Benn), who is highly regarded in the Tribune Group. The siege economy aspect of import controls is identified with the Tribune Group. But there is absolutely no reason why we need to have import controls with all the paraphernalia of restriction and direction which is so dear to the hearts of members of the Tribune Group. All we have to do is put up a high tariff wall on the import of manufactured goods.

The advantages of such a course of action are plain. Revenue would be accrued which would enable taxes to be reduced, and the balance of payments would benefit. We do not hear much about that these days, but it used to loom very large in our calculations and it may well do so again when North Sea oil runs low. Also, it would have an immediate effect on unemployment because workers in this country would be making the goods that were formerly made by workers abroad.

The hon. Member invites me to join the Tribune Group. I have already explained that this is the only aspect of that group's policies with which I have total sympathy. What encumbers the logical presentation of this policy, which is the key solution to our troubles, in my view, is that it is so over laden with ideological and doctrinaire fixations which abound in the Tribune Group, that that invalidates it. It should be regarded simply as a traditional and historically correct Tory posture and it should have a great deal to recommend it to my right hon. and hon. Friends.

It is an inalienable political truth that the first duty of a Government is to protect their subjects. They must protect their safety both internally and from foreign enemies, their livelihood, their jobs and their standard of living. The Government have the capacity to do all these things by excluding foreign imports or charging so high a duty on them as to make their importation impractical.

Will my hon. Friend explain what would happen if we began to impose duties on foreign goods coming into this country? How would we expect other countries to behave? Would they not retaliate against us, bearing in mind that we are a world trade economy?

Of course the retaliation argument is always expounded with great facility on these occasions. I would like to know what studies the Government have made about the practicality of imposing import controls. Has the concept of protection ever been looked at by the Treasury? Has the spectrum in which we may suffer retaliation ever been analysed? I believe that there are many sectors in which retaliation would be either impossible or inadvisable.

Will my hon. Friend agree with me and the hon. Member for Chester-le-Street (Mr. Radice) that there have been periods in our party's history when we have espoused protection? Is he aware that this was done at times when we had control over a great empire, and therefore the risks of retaliation were very much less than they are at present?

I have already answered the question about retaliation and I do not accept the facile rejoinder that the retaliation will be on such a scale that we will be unable to carry it. I wonder whether the concept of retaliation has been the subject of proper analysis. Retaliation does not just occur out of spite or pique on the part of the countries concerned. Retaliation occurs on a basis of national self-interest. In the case of certain exports, such as Scotch whisky or Land Rovers, the importers must have them and therefore they will not retaliate—

I have given way an awful lot and I promised Mr. Speaker that I would not take too long. Naturally I am very flattered that my arguments should stimulate the House to such an extent, but I feel that I should put some limit on the number of times that I give way.

I hope that I have established the respectable political pedigree of import controls. I have tried to argue the simple fundamentals of this issue—that it has a beneficent effect on revenue, the balance of payments, unemployment and industrial relations. One could go to the trade unions and point out that the old days of a constricting market were over. One could tell the unions that they had the domestic market and that they would no longer have to worry about demarcation disputes or about the market being run right down. That whole atmosphere will go. Production will rise. Employment will expand. Competition will move in, domestically. Hon. Members have been tactful enough not to mention the argument that the quality of life will wobble a bit because the British consumer will have goods of inferior quality—as he will. The reason why foreign goods are penetrating our markets is that they are superior in price, quality, delivery and servicing. Soon enough, if the articles of faith which Front-Bench Members propound mean anything, the incentives will work. Although goods of inferior quality will be made, other people will say that they can make them better, and probably at the same price. With an assured market and a guaranteed run, competition will play its part behind the tariff wall. Our industry will become more efficient

The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) said that whole areas of our industry were becoming derelict. We no longer have the capacity in some sectors, because firms have been driven out by foreign competition. It should be the duty of the Government, in both fundamental and strategic terms, to create the conditions under which those gaps may be filled again. I am absolutely certain that we shall be forced to do this in the end. It is only a matter of time. The argument of the sibylline books is inescapable here. The longer we put it off the higher will be the cost and the less the ultimate value.

Perhaps I was a little carping about the Chief Secretary's speech. I hope I did not sound so. At least he said that "All our policies will be under review."

I am hoping that in the fullness of time the Government will be able to look again at the questions of protection and the tariff wall. I hope that my hon. Friend the Financial Secretary will say that the Government have examined and considered the subject, although at the moment they have rejected it.

6.42 pm

I rise to quarrel with the consequences and assumptions of this rather inadequate White Paper, which after what we heard today appears to be only provisional. I am not sure as I rise which is the more odd spectacle. Treasury Ministers are doing a high-wire act and saying that there are no real cuts. The Chief Secretary poses as the poor man's or mean man's social democrat. At the same time, the Government are trying to say to their own supporters "We are cutting, like the mad axe man, more selectively"—but perhaps with less sanity. There is that spectacle of the high-wire act by Treasury Ministers and on the other hand the spectacle of Tory backwoodsmen, the lumpen salariat, baying for more and more cuts.

I was surprised that the hon. Member for Bridlington (Mr. Townend) did not proffer the cutting of Humberside county council in the welter of cuts he proposed. That must be the most wasteful and unnecessary county council in this country. Yet it was not thrown on to the bonfire with all the other things, including the Humber bridge.

I agree that the Humberside county council was a very profligate authority in its first four years. It paid the price at the polls and has been a much more efficient and economically run county council since the elections.

The essential point is that it was an unnecessary county council in the first place, as it was based on the doctrinaire reform of local government.

The cuts proffered by Tory Back Benchers and the attitudes taken were based on economic illiteracy and the economics of piggy banks. They have not even reached stage one in that kind of course. The Tories are saying, in the lemming rush towards economic disaster, that there is no alternative. That is the slogan of Government supporters. They say "It must be this way." Those proffering the cuts argued about today and on Wednesday of last week, know nothing of the human reality of the cuts being carried out now, even before we get to the cuts proposed in the White Paper. I refer to the closures of old people's homes in Kent and of nurseries in Oxford, and the waiting-lists that will grow all over the country for painful operations, for which people will be kept waiting at home for longer and longer periods.

Parents living some distance from schools will be taxed on children's meals and transport. There will be a nutritional discrimination against some sections of our society. There will be similar cuts all over the country and in my constituency, in which there is already the spectacle of two homes, one for the handicapped and one for the mentally ill, not being opened because of the cuts. Pathetic economies are proposed, such as reductions in the numbers of "lollipop" men on pedestrian crossings. That is the reality of the cuts proposed by the Government. The reality will be the deterioration in the quality of life for every man, woman and child in the country. That is being proferred by the White Paper on the expenditure plans for 1980–81.

The deterioration will have a lasting effect. Education cuts do not heal. The hon. Member for Coventry, South-West (Mr. Butcher) gave a list of questions. One question that should be asked about education is this: why should we not use the chance of the decline in the school population to improve the standards and the quality of education that we offer to the people? Why was that not on his list of questions?

I complimented the Treasury team on reducing the number of teachers in a far less proportionate sense to the actual fall in the school rolls, so that the pupil-teacher ratio should improve.

That does not accord with the fact of a cut of 20,000 in the number of school teachers in the coming year. However, I am glad to hear that that statement was made.

The cuts are based on deceit and the false prospectus that was held out to the people of this country before the elections, that spending could be cut without pain. It was said that spending could be reduced without making cuts in vital services and the quality of life that public spending brings. That cannot be done. There is no fat there to be trimmed. Certainly there can be no cuts on the scale proposed by the Government. I was glad that today the Chief Secretary admitted, six months too late, that cuts could not be made without pain and reductions in vital services.

Not only are the cuts based on a false prospectus but they are unpopular. A Gallup Poll was carried out in May for a suspect organisation—not for the London Business School, but for the BBC. The question was:
"People have different views about whether it is more important to reduce taxes or keep up Government services such as health, education and welfare—which of these statements comes closest to your view?"
Sixty-eight per cent. opted for keeping up services;26 per cent. opted for cutting taxes. The Government are cutting services when they have not even effectively cut taxes yet.

The cuts are unpopular and unnecessary. They are based on the belief that public spending is wrong. That belief is expressed in the first sentence of the White Paper, which says:
"Public expenditure is at the heart of Britain's present economic difficulties."
Some might say that the problem is competitiveness; some might say that it is an over-valued pound, de-industrialisation or the flood of imports swamping jobs. But no—it is public spending, according to the Treasury team. How can that be? Other countries in this situation devote a higher proportion of their gross domestic product to public spending. I refer to general Government expenditure in competitor countries defined as a percentage of GDP, in 1978. For the Netherlands the figure is 56·7 per cent.; for Belgium, 51·5 per cent.; for Denmark, 48·8 per cent.; for West Germany, 46·8 per cent.; for France, 45·6 per cent.; and for the United Kingdom, 42·8 per cent. There is a far lower proportion of Government spending in the United Kingdom GDP than in that of most of our competitors in the Common Market. Yet for the Government it is the prime and central issue. It is a fallacious belief. Others are devoting far more to it than we are.

We shall see public spending increase as a proportion of gross domestic product because gross domestic product will decline under the Government's policies. We shall be faced with a self-fulfilling prophecy that things will get worse. Public spending for the British people means improvement, betterment and benign provision. It is a vital part of the quality of life. When the economy is depressed, a major drive-force, a major power, for the economy is public spending. It means not only jobs and services but, through the dynamics of construction, more jobs, more growth and more expansion. It creates potential. Public spending creates more jobs than the cutting of taxation. Probably about five times more jobs will be created by spending than by cutting taxation. Therefore, public spending is vital to the quality of life. It is vital to the economy. Jobs are lost and the economy suffers if public spending is cut in the manner proposed by the Government. To cut public spending at a time when the Government are deliberately deflating the economy is disastrous.

After all the months of the mountains labouring, the Government have produced a ridiculous mouse of a White Paper. It could be described as a "Die Fledermaus" of public spending. They are now combining it with deflation of the economy. That is a combination that is disastrous for Britain's long-term economic future. It invalidates the growth hypothesis that led the Government to cut taxes. The object of that exercise was to stimulate the economy, to make it grow and expand. Their purpose was to release the dynamic energy within the economy. How is that compatible with the deflation that we are now seeing?

The hon. Gentleman is offering a simple way out of all our difficulties. If the answer is so simple, why was it not put into effect in 1976 when the then Government cut back on public expenditure? If it is so simple, why has it not been put into practice from 1974 until now? I assume that if that had been done we would have no difficulties. The hon. Gentleman may have a sensible answer. If so, I should like to hear it.

There was a substantial increase of public spending in 1974. Economic activity was kept at a high level. At that time Britain was suffering from a world-wide depression. That depression took inflation and unemployployment to record levels in all other countries. The main method by which economic activity was kept at a high level was by maintaining public spending. A cut in public spending combined with deliberate inflation is disastrous. It invalidates the hypothesis of growth that tax cuts are designed to stimulate. How are we to achieve growth when small business men are crippled by their overdrafts as a consequence of a 17 per cent. minimum lending rate?

Deflation increases spending. Unemployment will probably increase towards the 2 million mark next year. There will not be the mere 300,000 increase predicted by Treasury Ministers. The Government pay about £110 million in benefits for every 100,000 increase in the rate of unemployment. An increase in unemployment of 500,000 means an increase of spending on benefits of £550 million. That does not include the loss of revenue from taxation and the lack of growth and stimulus in the economy which comes from a high level of unemployment. The Government will pay more interest on their borrowings. They are already paying interest rates that are too high. If mortagage tax relief increases, the Government's borrowing requirement increases. In 1978–79 the average mortgage interest rate was 10 per cent. The cost of tax relief was £1,100 million. It increases by £120 million for every 1 per cent. increase in the interest rate. The Government have managed to increase the interest rate to 15 per cent. There will have to be a huge increase of the Government's borrowing requirement to finance that level of interest rate.

Deflation increases spending. It also diminishes the capacity to carry public spending. The Government are tackling the wrong end of the equation by cutting spending. They are creating a self-fulfilling hypothesis. They are deflating the economy and arguing that as a consequence public expenditure must be cut. They are pursuing negative economics.

Why is that being done? What is the psychology behind it? It is an approach to the economy that has more in common with necrophilia than economics if we are to judge by the explanations that are being offered. Are the Government taking this approach because of a world-wide depression? How can that be when a world depression has been triggered by increased oil prices? We are a major oil producer. We are shortly to be self-sufficient. We benefit from the increase in oil prices. Yet we are prophesying a decline when other economies are growing. The German economy is growing by 2 per cent. to 3 per cent. The Japanese economy is growing by 4 per cent. to 5 per cent. Are we leading the world into an economic decline as a result of the economic policies pursued by the Government?

Have the Government adopted their economic policy to fight inflation? I do not understand how their policy can be used in that way. It might be part of a new language called "Howespeak"—namely, to fight inflation by increasing it. Are we to fight inflation by increasing interest rates, which have a major effect in increasing the cost of living? Are we to fight it by increasing VAT, increasing nationalised industry charges, and increasing council house rents? Are all these increases contributions to fighting inflation? Are we to fight inflation by creating fewer resources in the coming year? In the decline that can be foreseen, every unit of production will cost more. The Government are embarked on a course of deflation and that will increase prices.

I am driven to the conclusion that the Government's policies amount to a secret incomes policy, a covert incomes policy. The Government do not dare do what they want and impose a wages freeze. They cannot negotiate with the unions. They cannot get on with the unions. They are creating an incomes policy by placing every negotiating body on the brink of a precipice and saying "Fight the unions or economic disaster lies behind you."

The Government are saying to businesses "Because the pound is overvalued, exports are suffering and imports are flooding in for the same reason. You cannot get much credit and you will have to pay dearly for the credit that you can get. The only alternative is to fight the unions." They are saying exactly the same thing to local government. Their message is "We shall make you free by giving local government greater responsibility." They are saying to local government "We are cutting rate support grant. You must fight the unions." They are saying the same to nationalised industries. The Government's approach amounts to an incomes policy. The Government's role, as they see it, is to stand on the sidelines moralising.

The Chancellor of the Exchequer said last week that monetarism is not enough. The right hon. and learned Gentleman said that the Government have other weapons available to them. That is true; they have. It seems that they will preach and moralise. They will blame the unions for what happens. The public will realise that Government controls run the economy and that what happens is a consequence of Government action and not trade union action. The unions will have no alternative but to press for higher wages. They will be forced to do so in a climate in which the Government are creating inflation. The combination of forces will be disastrous for industry and the economy. That disaster will be a direct consequence of the Government's action.

In the main the trade unions will get that for which they ask. That is their job. They have the interests of their members to protect. Firms will be driven into bankruptcy. Unemployment will increase to about 2 million. The rate of inflation will increase to 20 per cent. and possibly to even a higher level. We shall be taken back to the precipice that we faced in 1974 and 1975 when we were in the grip of inflation. We shall be taken there as a direct consequence of the Government's actions.

There is only one way out of a vicious circle of cuts causing decline and decline causing cuts that descends in the spiral into which the Government are trying to lock us. I shall be interested to hear the escape route that the Government suggest. How will they escape from the circle that I have described? What will be their policy short of a U-turn? They will have to embark on a U-turn at some stage. Their Back Benchers will be faced with the loss of by-elections and they will put pressure on the Government. The pressure from Conservative Members' constituents will be increasing next year. There will have to be a U-turn. Pehaps there will be a reshuffle. Perhaps the Chief Secretary of the Treasury will resign, as he resigned from the Front Bench when in opposition.

If there is not a U-turn, how will the Government get out of the circle in which they have locked themselves? Their only escape, if they have at heart the interests of the British people and not those of the money manipulators of the City, who have always done too well out of the policies of successive Governments, will be to take risks.

The Government have to do two things. First, they have to increase public spending. They have to undertake the kind of increase towards which the Labour Government were looking. They have to do it, if necessary, by increasing taxation. It cannot be shown that there was a direct economic stimulus from the so-called tax cuts earlier this year. If the needs of economic management dictate a tax increase, there has to be a tax increase. The result can also be achieved by borrowing more. We are borrowing a lower proportion of our gross domestic product for central Government purposes than most of our EEC competitors. That is a surprising fact. The first need is to use public spending as a means of boosting the economy and creating jobs, and not to cut it in the way that the Government are doing.

Secondly, the Government must recognise that sterling is disastrously overvalued. Its overvaluation is probably 25 per cent. greater than it was in 1974, and in 1974 we were losing our share of world trade. It was declining then and it will go down horrendously with this present overvaluation. The key to the kind of expansion we require is to be found in reducing the value of the pound, not in keeping it up by means of the artificially high interest rates with which the Government are now backing it.

If the pound does not go down, we shall have a double ruin of our economy. Our exports are suffering as a result of the overvaluation of the pound, and there is a chorus of complaints from every exporting firm in the country about the effects of the overvalued pound. Only Ministers appear not to recognise this. Our exports suffer, and imports come flooding in. What we are doing, in effect, is to use the North Sea oil, a precious and transient resource which should be used for the industrial regeneration of jobs in this country, to eliminate jobs by financing a flood of imports. This is putting people out of work and leading to our industrial ruin. This precious resource, in other words, is being used for the opposite purpose to the one for which it should be used. The only answer, as I have already said, is to reduce the value of the pound.

We have a chorus of criticism from the Government Benches of Britain's performance. Conservative Members complain of over manning, of low productivity and strikes. There is a kind of galloping national inferiority complex that is most manifest on the Government Benches. Conservative Members are prone to criticise the British workers, their fellow countrymen, but the one factor they have left out of account, and which explains so much of Britain's inadequate performance since the war, is the overvaluation of sterling.

We have never, because of that overvaluation of sterling, had the chance to see growing exporting industries, which could stimulate investment, which again could stimulate productivity, growth and expansion—the kind of virtuous growth cycle that our competitors have had. Our troubles arise partly from the overvaluation of sterling and partly because our economy has never been run for steady growth, as have the economies of our competitors. That is the cause of our difficulties, and Conservative Members should turn their attention to it, instead of putting forward a continuous critique of the British worker and British industry.

The Government now have to face the fact that their policies have locked us into a spiral of decline from which there is no answer short of a U-turn or, better still, the kind of strategy that I have advocated. The White Paper is not a prescription for a policy but a symptom of economic decline and of the Government's desperation.

It was William Jennings Bryan who remarked, in the bullionist controversies at the end of the last century, that
"Mankind shall not be crucified on a cross of gold."
I say that Britain must not be crucified on a monetarist cross, whether it is labelled M1, M2, M3 or base.

7.3 pm

Once again, Mr. Deputy Speaker, I am slightly depressed by the fact that these kinds of debates take place with the usual tennis match attitude, in which we swing from one extreme to another, with one side always accusing the other of being wholly wrong, followed by a reciprocal remark from the other side. In dealing with public expenditure, it would be better if we tried to find a more sensible middle position.

The White Paper seems to me to be wholly justified in the circumstances in which it is put forward. I want to deal with both the immediate and the longer-term aspects of public expenditure. With regard to the immediate position, when the Government took office they clearly found that the public expenditure plans were too high for the predicted level of growth of the economy. I do not think that there can be much serious doubt about that. Labour spokesmen have made that point. They have admitted that such cuts would have been necessary had they remained in office. We are on sound ground, therefore, when we say that the White Paper is well thought out and is necessary. I believe that it will have the full support of the country.

There is an element in the White Paper which will, I think, also receive the full support of the country as it becomes subject to wider and wider debate. It is clearly necessary that the new attitude to public expenditure should be continually restated. We have become accustomed, over the years, to taking a fairly profligate or careless attitude to public expenditure, in the sense that we have applied to it disciplines which have been less strong than they should have been. This has had the effect of making the running of the economy more difficult and has also made the public services less efficient and less effective.

It is one of the necessary characteristics of public service—which is not subject to the ordinary disciplines of the market—that there should be an additional discipline, a continuous downward pressure from the political wing of decision-making, in order to keep the lid on the pot. We must insist that everything is justified to a greater extent than it has been in the past.

I accept the point made by my hon. Friend the Member for Coventry, South-West (Mr. Butcher) that the White Paper and the ones which are to succeed it, since they are to be based on a more realistic assessment of what the country can afford, will be highly beneficial to the planning of public expenditure. One of the worst things from which we have suffered in the years since the war has been that when we have let public expenditure grow too fast, reality has caught up with us and we have then made a mad dash to correct the position. All the pressures then fall on capital expenditure and on the things which should not be cut, and we end up with the worst of both worlds. The White Paper has my full support, and I hope that the Government will press on in their desire to apply strong disciplines to public expenditure.

We have been told by my right hon. Friend the Chief Secretary that we are to have the White Paper on the succeeding years of public expenditure some time in the early part of next year. We shall then have to consider what the Government are proposing for those years. In parenthesis, I express the hope, together with the right hon. Member for Down, South (Mr. Powell), that we shall not be too specific. I too served on the General Sub-Committee of the old Expenditure Committee, and as time went on I became less rather than more enamoured of having detailed forecasts of public expenditure, which seemed to be increasingly unreliable.

I have the impression that public expenditure is regarded as the one variable in the game. The public sector borrowing requirement and the desire to keep it down, and the desire to keep taxation down, are the two fixed points. I do not think that that is necessarily right for all time. We may have to go through some stormy patches, during which we may wish to adjust that balance.

I should like, in this respect, to put three points to my hon. Friend the Financial Secretary to the Treasury. First, there is the circular effect of public expenditure cuts at a time when we are getting increased public expenditure as a result of the recession. This point has been made several times in the course of the debate. If our income is being diminished by recession and our costs are going up through debt or social service payments because of the recession, to make no allowance for that in our assessment of public expenditure is a dangerous policy. It is one that could lead us into a spiral that we could live to regret. I do not believe that it would amount to a U-turn, if I may use jargon that I find rather tedious. As I understand the Government's policy, it will be to adapt all the resources of economic management to the circumstances in which they find themselves. In the year or so to come we may have to make that adjustment.

Secondly, the taxation policy which the Government are pursuing is based, rightly in the long term, on the belief that cuts in direct taxation will act as a stimulus in the development of a more vigorous industrial base for Britain. I accept that as a long-term position, but I do not believe that we have yet assessed correctly the speed at which it is likely to be effective. We may face a problem where the linkage between cause and effect—between the cutting of the taxation burden and the beneficial effect on industry—is perhaps longer and more complex than has been assumed.

In those circumstances, I hope that if we are faced with a conflict between the public sector borrowing requirement, taxation and public expenditure we will not always regard taxation as a fixed point. It may be to our advantage to suffer in the short term some increase in taxation in order to meet some of our other requirements.

I do not subscribe to the self-flagellation school of politics. I do not believe that a conversion can be produced by summing up the apocalypse. We may have to take a longer and slower approach to the implementation of our policies if we are to be successful.

Thirdly, on the attitude to public expenditure, we can destroy some of our other policies if we are too rigid. I draw to the attention of my right hon. Friend the Chief Secretary a matter that has been raised twice in the debate, but which I believe needs further airing. Professor Donnison has drawn attention to the matter recently in a newspaper article, namely, the effect of the cuts in public expenditure and the differentials between those at work and those not at work.

It is fundamental to our whole policy that there should be a reward for those who are contributing to the growth of British industry. It is the basis of our taxation policy, of our social services policy and of many other features of our policy. It is of fundamental importance that, when we are reviewing public expenditure, we must look not only at the quantum but at the effect on this element of our policy.

I do not wish to take up too much time, but I was keen to make that point on the future of public expenditure. If we are not dogmatic about public expenditure we can create an alliance between ourselves and the great mass of the British public. There is an understanding that a vast amount of nonsense is talked about public expenditure. Anyone who lives in Lambeth, Manchester or any of the other big spending authority areas knows perfectly well that it is not merely waste in the trivial sense that has been mentioned in the debate, but huge chunks of unnecessary expenditure.

The hon. Gentleman says "rubbish", but we beg to differ on that matter. Huge chunks of public expenditure could be disposed of by better organisation and by not undertaking some of the projects which councils feel they are obliged to undertake, but which other councils get along very nicely without, thank you very much. There is a perfectly good understanding on the part of the British public on which we could build a firm and binding alliance.

The quid pro quo is that we must understand that there is also a high regard for a large level of public services. Although we shall obviously need to spend at a rate that is manageable, I hope that we shall not find ourselves in the position where we believe that there is some dogmatic reason why we are fighting against public expenditure. In the case of public expenditure, let us always make our assessments on the basis of what is a practical judgment of the need and circumstances, and never on the ground of dogma.

7.17 pm

It is always interesting to hear the commonsense remarks and thoughtful speeches made by the hon. Member for Manchester, Withington (Mr. Silvester). I hope that he will forgive me if I do not follow his speech as I wish to restrict my remarks to the responsibilities which the White Paper places on local authorities.

I acknowledge that for many years the House has encouraged the development of social services. Indeed, there are all-Party groups which have been in existence for a long time. They have urged priority consideration for dependants and for disadvantaged groups in our community. I believe, as do many hon. Members on both sides of the House, that that is the correct way for a civilised and compassionate society to proceed.

The Government have embarked on policies which seem to put the whole of that philosophy on the chopping board. The idea that savings can be achieved by good, prudent housekeeping, without at the same time affecting the structure and the quality of the service provided, is wishful thinking. It is wishful thinking because the expenditure of local authorities has, for some time, been under restraint. Opportunities to accumulate financial resources have long since been spent. There is no opportunity for positive discrimination in favour of any one service, which is what the Government are asking for. I say that because the resources appear to be spread thinly over a wide area.

Any reduction in the quality of the services which are at present available to those who are most in need, is bound to result in a reduction in quality. Expectation of life and population changes are giving rise to demands for services of all types. It is nothing new for me to say that people are living longer. We have a population whose age is increasing. For example, in my local authority the adult population is somewhere in the region of 250,000, of whom 45,000 are old-age pensioners. That number is growing each year. Without a corresponding increase in residential care, in support centres of all kinds and in day centre activities, the living standards of many will decline and they will face a bleak future.

I take that point a stage further. There are approximately 1,000 persons in residential homes in my area and mounting pressure for more admissions, largely due to inadequate housing, family problems and family circumstances. Many more wish to have that type of care. There are so many that it is thought futile by my local authority to have a waiting list because only emergency cases can be accepted.

These are the people who are in need. I was interested in the opening remarks of the Chief Secretary because, if I heard him correctly—and I shall read Hansard carefully tomorrow—he seemed to be saying that those in need would not be affected. I hope that in this sense he is right, because the need is great. I speak of my area because I know it best. We have no area of choice for cutting public expenditure.

I turn to the section of the White Paper that speaks of the development of policies designed to help people to help themselves and others. That is proclaimed as if it were some new idea. It is not. The social structure already present acts as a tenuous lifeline with the rest of the community for thousands of needy people—the handicapped, the blind and the elderly—so that they are able to lead as full a life as possible. By helping themselves and others through this mutual support they can lead more active lives and become less of a financial burden on the other services.

I suggest that to attempt to reduce any further this type of service would throw a greater imposition and demand on other services, particularly the more expensive services such as the National Health Service. A growing, ageing population places a heavy strain on local authorities and on voluntary organisations which are already stretched as far as possible. I look upon the White Paper as an attack on the welfare services, for that is what it is in my area. More than that, it is short-sighted, because it is storing up trouble for the future.

The White Paper asks that priority be given to services for children concerned which prevention and treatment of delinquency. In other words, we should try as far as possible to continue community homes for young offenders. Sonic local authorities have already discontinued that type of service. If a local authority, with its newly given freedom of choice, decided not to make that facility available as a method of reducing expenditure, what then would be the Government's position? Where would the cost for that type of service fall? Would it be transferred in total to the Home Office as the responsible department? Many people outside the House are looking for an answer to that question. I hope that the Minister, in his winding-up speech, will make some reference to it.

I refer now to the statement made by the Chief Secretary on 1 November. Referring to allocating between services, he said:
"It will be for the authorities themselves to decide the pattern of their current expenditure in the light of local needs and conditions."—[Official Report, 1 November 1979;Vol. 972, c. 1450.]
I want to turn to some of the prevailing conditions, of which the Government seem to show little awareness, and to some of the social and environmental conditions in many inner urban areas, such as the one that I represent. In 1966 we had the first major local government reorganisation which brought together a number of small industrial towns. That created problems, but we were beginning to cope with them when, eight years later in 1974, we had another major reorganisation and two large urban authorities were amalgamated to form what is the heartland of the industrial Black Country. As a result of that structure, we inherited a multitude of problems dating back to the Industrial Revolution—dereliction, pollution, poor buildings, housing problems and demands by individuals and families for living, leisure and education space that we cannot make available. That has given rise to an environment which seriously detracts from the quality of life and in which it is difficult for children to respond to teaching and to think constructively. Local conditions, such as those that I have tried to described, make the needs and demands of people greater, not less.

In terms of education, which has to bear the brunt of the cuts, an indication of the disadvantaged nature of the area of which I speak is that 102 schools were submitted to the Burnham Committee for consideration for the social priorities scheme and the number designated was the second highest in the country. That is some indication of the deprivation and problems that we face.

Living and working conditions in that type of area are not conducive to the recruitment of teachers. Improvements have been made in the past few years to advance the teacher-pupil ratio. Sandwell is only now half-way up the national league table. Given our environmental conditions, it should be much higher than that. Teacher redundancies are out of the question in an area which is not only heavily dependent on routine curricula, but where compensatory teaching and the quality of teachers are all important and where the ratio in primary schools, although great efforts have been made, is about 1:30.

During the general election campaign I heard a few cries for actual cuts in public expenditure. Many of those speaking on behalf of the then Opposition, whether Back Benchers or people in the public eye and on television, spoke of the need to "tighten up here a little with administration"; "a few more efficiencies there will do the trick";and "trimming down the waste". Those were the phrases that we heard. I wonder whether they were referring to trimming down the education service in my area by making more than 500 teachers redundant. That is the only way that the Government's requirements can be met. That option is not open to my local authority. It is not on to ask it to go that far.

Were those people talking of trimming school transport and school meals? We spend £450,000 on transport—a considerable amount. Half of that sum goes in taking children to special schools within and outside the area. The balance is for taking others to playing fields and swimming baths which are few and far between.

Is it the idea that children with learning difficulties arising from physical, mental or emotional handicap should be put at a further disadvantage when the White Paper talks of cutting transportation? Are children who are cooped up in a highly urban environment—having been born in high-rise blocks and who live their lives in an area not at all like Venice, but which is reputed to have as many miles of inland waterways—to be denied the opportunity of physical education and training?

Cuts of the magnitude expected by the Government are more than trimming. They are axeing a vital service in a most deprived area. I have gone carefully into this matter and taken advice. Any further cuts in the education service would mean a degree of deprivation that would bring it far below the 1974 level. We are not prepared to accept that.

The enormous efforts made by those who are committed to working in such urban areas are now showing some results in the quality of education and academic attainment. As caretakers for the future, there can be no further trimming here, because our future depends on the quality of the education service now.

In a statement on 1November, in answer to a question in relation to the activities of local authorities, the spokesman in another place reassured their Lordships. He said:
"that the whole thrust of the Government's policy in reducing or containing public expenditure is to concentrate aid on where it is most needed, and we have absolutely no intention of departing from that principle."—[Official Report, House of Lords, 1 November 1979;Vol. 402, c. 502.]
The Government Front Bench will be reminded over the coming months and years of that statement—that there is no intention of departing from that principle. It is the one ray of hope that I see in the whole issue.

Some months ago this Government embarked on a strategy that was bound to reduce the living standards of working people this winter and beyond. They are now crusading to reduce the quality of life for people in areas of this country whose needs are the greatest.

7.31 pm

I have a great deal of sympathy with the hon. Member for West Bromwich, West (Miss Boothroyd) in what she said about the care of the elderly in her constituency. My constituency has more than its fair share of elderly to care for. However, I felt that she missed the point in this White Paper and public expenditure White Papers of previous Governments. They all bear the message that while Britain continues to decline economically we do not have sufficient resources to take care of our elderly.

I am sorry that the hon. Member for Grimsby (Mr. Mitchell) has just left the Chamber. Unlike him, I believe that it is no coincidence that during the past 20 years we have seen a steady rise in the proportion of our national income spent by the State, while experiencing an equally steady decline in living standards compared with those of our European neighbours.

In the debate on public expenditure in which I made my maiden speech I referred to the fact that the proportion of our gross domestic product spent by Governments had risen from 15 per cent. in 1900 to 34 per cent. in 1958. In opening the debate the Chief Secretary referred to 1958 as being a watershed year in our economic history, and how right he was. Since that year we have seen the proportion of our gross domestic product spent by the State increase by one-third to today's figure of 44 per cent. However, I wonder how many hon. Members can say, with hand on heart, that the quality, effectiveness and efficiency of our public services have risen by as much, if at all, over that period?

An even more significant figure is that proportion of the working population that is employed in the public sector—about one-third. That figure, added to the number of people otherwise dependent on the State—retired people who depend on State pensions, the unemployed on State benefits, students receiving State grants and people employed in private firms that depend on State subsidies to survive—means that about half of the population rely on the State for an income. That is not the kind of mixed economy that I want to see.

Unlike 20 years ago, many of our European neighbours now do many things better than we do, and the majority of their Governments are spending less of their gross domestic product than we are. That is where I take issue with the figures referred to by the hon. Member for Grimsby. I do not know the source of his figures, but in a survey in The Economist, I find that of the 10 leading European countries we are seventh in our rate of gross national product spending. Why do those countries have more to show for spending less of their taxpayers' money?

There can be few hon. Members who, in their hearts, do not know the answer, although some hon. Gentlemen may be slow to voice it. Government expenditure, associated with high taxation and unnecessary controls, such as licensing, permits, registration and so on, has become so high as to frighten off individual initiative, incentive and private investment, and the entrepreneur has long become an endangered species.

The Government are right in their aim to reverse Britain's decline, to allow families to keep more of what they earn and to tax profits, particularly of small firms, less. I hope that when he replies to the debate my hon. Friend will recommit the Government to their long-term aim of a 25 per cent. basic rate of income tax. Incidentally, that was the figure that Maynard Keynes agreed as about the limit of what is easily borne before inflationary pressures are generated.

Even if the Government had not been ideologically committed to a shift in responsibility from the State to the individual, they would clearly still have had to accept such a commitment, in view of their inheritance, as would a Labour Government. I am sure that hon. Gentlemen understand that in their heart of hearts.

As a result of this White Paper, public expenditure has been stabilised in monetary terms at £70 billion. From now on I believe that that figure must fall. On these Benches we expect that process to be reflected in the next White Paper that we are promised will be published soon, and there is much scope to achieve it.

I welcome the start that this White Paper makes, for example, in giving local authorities greater discretion in asking parents, as opposed to taxpayers, to accept responsibility for feeding their children at school. That principle should be applied in due course to the provision of health needs for the entire family. Some hon. Gentlemen may claim that we cannot expect all parents to be responsible, but it is the fault of Socialist policies and thinking over the past 30 years that a situation has evolved in which parents are no longer encouraged to be responsible. The principle that the State will support people from the cradle to the grave has long applied, and it is patronising and abhorrent to most people who are prepared to look after themselves.

However, that is not the only way in which to achieve Government cuts. There are more nationalised industries to sell off as private companies. For example, I am certain that were our iron and steel industry in private hands today it would not be costing the taxpayer nearly £1 million a day in subsidies. Private management would have been more flexible, resourceful and enterprising in accommodating the effect of the present recession.

With regard to roads, road users as a whole cost the community a great deal less than the money yielded from road taxes, and should we not now consider introducing tolls on selected motorways, as in Europe and as we asked for with regard to certain new bridges and tunnels?

Surely the £5 billion housing bill can be reduced by reintroducing a fair rent scheme, based on the ability of tenants to pay, and better use of school buildings as community centres could eliminate the need for local authorities to maintain quite so many public halls and libraries.

I hope that my right hon. and learned Friend the Chancellor of the Exchequer will use his next Budget to eliminate the nonsense of Alice-in-Wonderland proportions presently applied to 375,000 of our small businesses that have an annual turnover of between £10,000 and £20,000 a year and from which the average cost of collecting VAT, at £70 a business, is more than the average revenue collected from them, at £67 a business. This is an important sector, to which we look to lead us out of this recession and to soak up unemployment, and in my view it deserves to be set free from the legal liability and obligation to register for VAT.

I want the Government to achieve what their predecessors achieved three years ago—that is, real cuts. However, on that occasion I do not recall the constituency Labour parties setting up local committees to monitor the effects of those cuts. Nor do Ire call demonstrations being held outside this place. At that time the right hon. Member for Leeds, East (Mr. Healey), as Chancellor of the Exchequer, did not have his heart in those cuts. A year later he started the spending spree all over again. This time we have a Government who believe in what they are doing and, moreover, who have the mandate to do it.

I hope that it is clear to the House that when the State has control over resources that generates greater inflation, and that when people have greater control in free enterprise that generates greater wealth. Only by allowing the private sector to keep much more of what it produces will the nation acquire a position from which it can afford to look after the elderly and the truly disadvantaged and give the pensioners what they truly deserve. Even though the pensioners have received a record increase from the Government, I believe that they deserve more. Above all, we shall be able to afford to avoid the financial hardship to millions of our work force that will otherwise result from the effects of the new technological revolution when it comes.

7.42 pm

Quite rightly, this is the second major debate inside six weeks on public expenditure. Therefore, on this occasion, I shall confine myself strictly to the White Paper that has appeared since the debate on 24 October.

In the first sentence the White Paper strikes a horridly wrong note. The words are:
"Public expenditure is at the heart of Britain's present economic difficulties."
To Liberals, that is an enormous howler. It is a dangerous assertion with which to start a paper of this sort. The right hon. Member for Leeds, East (Mr. Healey), who leads for the Labour segment of the Opposition, took that view, but he carefully avoided saying what is at the heart of Britain's present economic difficulties. His maidenly reticence was, perhaps, understandable in view of his record. Liberal Members believe that three things are at the heart of Britain's present economic difficulties. Two of them have been there for far too long.

First, we have a political system which imposes on our industry a zig-zag regime; that denies it any stable political environment and exposes it to continuous uncertainty. Secondly, we have an unreformed and highly inflationary pay bargaining set-up which damages productivity, positively fosters restrictive practices and creates an unending series of grievances on the shop floor. Unfortunately, in recent months, we have to add to that list the excessive emphasis on money supply in circumstances in which nobody knows how to measure it properly or how to control it effectively.

Public expenditure is not an enemy of industrial and economic success; it is a condition of it. It is fairly well recognised that this great industrial country of ours, a pioneer in the world of industry, began to lose out to German competition about 100 years ago. At that time, we fell lamentably behind the German standard of education. So it has gone on. For the same reason, we lost out to the French and now we are up against ferocious Japanese competition that is based on an educational system—at any rate, in the technical sphere—which greatly outstrips our own. To suggest that it is sufficient to "stabilise", an ill-chosen word, our educational expenditure, in a fast-moving world, is an extraordinary statement to come from responsible Ministers on the Government Front Bench. It is manifest to those of us who had an urban upbringing—which distinguishes us from some of the Treasury Ministers—that the school leavers of the 'eighties will be required to know and understand much more than the children of the 'seventies have been able to get by on. Stability in education provision will be no service to young people leaving our educational system for industry in the coming decade.

The mobility of skilled labour requires a proper housing stock. The Government's wrecking of our housing stock by selling off council houses to tenants at bargain prices—the best ones—and failing to stimulate any new council building, coupled with the stagnation of the private housing market—created by their interest policies and the Prime Minister's ill-judged interventionist and distortion policies with the building societies—has led to despair among enterprising companies that need to attract skilled labour. In my constituency, there are lamentable examples of developments being held up because of lack of housing stock.

Almost too obvious to mention and, therefore, I will get over it quickly, is the essential nature of a reliable and reasonably fast public transport system. What productivity can be expected from the hard-working people in my constituency on the wet slopes of the Pennines when, all too often, through the deficiencies of West Yorkshire or Greater Manchester metropolitan transport they arrive at work an hour late, having been soaked in the rain while waiting for a bus which never came? Until the Government learn the lessons of South Yorkshire, that a proper public transport system is one of the first duties of a county council, they will not get the full potential out of the shop floor, even though the system places a burden on the rates.

I could go on citing examples of the endless relationship of important aspects of public expenditure to the productivity of the country's work force.

Bearing in mind what the hon. Gentleman says about transport, does he support the Government's proposal in the recent Transport Bill, which will create more competition in the public utility transport companies and overcome the problems that are experienced by his constituents and, certainly, by mine because of the present poor service that is provided?

I shall be brief in my reply to that question. Certainly, I welcome the dismantling of much of the old licensing system. Liberals have opposed it for almost all of my lifetime—virtually since it was introduced.

I welcome competition, but I am afraid that mere competition accompanied by a Scrooge-like attitude to public spending on public transport will not do the trick. That is why I have argued against the panic cuts in transport allocation in the public expenditure White Paper.

When the Financial Secretary replies to the debate I should like to have an updating of the position stated in the second item of paragraph 4 which proudly proclaims the Government's policy to be "to restore incentives". I noticed that that aspect had entirely vanished from the Chief Secretary's speech. Today we heard no more about incentives. We heard nothing about policies that were designed to restore incentives. My simple request to the Financial Secretary is to tell us when replying what has happened to Government policy on incentives. May we please know what has happened as a result of various upsets since this White Paper was written in early November?

As the hon. Member for Manchester, Withington (Mr. Silvester) usefully pointed out in his moderate and thoughtful speech, only this morning Professor Donnison, with all his integrity and his habit of chastising all Governments regardless of party, is reported as uttering certain words. According to a report in this morning's Yorkshire Post, Professor Donnison, when addressing an annual meeting of family service units, said:
"It is a strange paradox that a Government more determined than any of its predecessors to restore incentives to work is following policies which will create the biggest financial deterrents to work yet achieved by any administration in Britain."
That is a formidable charge from one of the greatest authorities who is closely in touch with low-paid people and people on social security. It appears to be a total contradiction of the Government's proclamation about incentives.

As to the generality of the White Paper, in earlier debates my right hon. and hon. Friends and I have never tried to deny the fact that in the mess into which successive Governments have got the economy there must be a cutting down on the projected plans for public expenditure, simply, as hon. Members on both sides have pointed out, because the economic growth is not there to support the previously projected increases. Nevertheless, I still maintain that that is no justification for the panic measures to which the Government have resorted and which, as the Secretary of State for Social Services partly admitted at the end of our previous debate, have produced cuts in the wrong areas.

My party believes that there is enormous scope for reducing public expenditure by a careful and thoughtful attack on the ancient or extremely elaborate structure of government at all levels. I should like to flesh that remark out a little by giving one example at national level and one at local level. Although I am tempted to give many more examples, I shall refrain from doing so.

At national level, what could be a greater denial of the Government's proclaimed thrift, careful scrutiny and so on, than the recent episode of the renationalisation of Rolls-Royce, because that is what has happened? Rolls-Royce, which had been put at a suitable arms length from Government has now been renationalised. What does that mean? Instead of a very small number of NEB experts—because the NEB was run on a small staff indeed, but it knew its business—monitoring the performance of Rolls-Royce with a great deal of expertise, we now have a great army of civil servants from the Department of Industry crawling all over it. But, of course, they do not have the expertise or training to monitor an extremely complicated industrial company in a professional manner.

There are other Department of Industry functions which I would have thought the Government's philosophy would, even by now, have caused to shrink. For example, the whole system of sponsoring industries by the Department of Industry is an enormous nonsense. British Leyland actually went on the rocks while it was being sponsored by a team from the Department of Industry. These catastrophes have happened under the very eyes of large numbers of public servants who were charged with sponsoring industries, but they did not have the training or experience with which to do so.

I give another example of this sponsoring nonsense. The Department is proud, in some ways rightly, of the two wool textile assistance schemes, one introduced by the Conservatives and the other by Labour. But in the plight of the wool textile industry today it is now manifest that neither of those schemes paid anything like sufficient attention to improving the marketing in the industry. All that happened was that a great deal of assistance was rightly given to improving production, but the whole idea of disposing of what had been produced was neglected.

In our view, an NEB maintained at its proper, original level, plus all the admirable work that is done in the National Economic Development Office, is quite sufficient for a large number of industries. A Government who were really intent on economising in the structure of government would have already caused a much greater shrinkage in the Department of Industry than we have seen.

At local level it is again the structures of administration that have been neglected. Among all the thousands of circulars that local government has received from central Government over the last five or six years, none has urged it, pressed it, or given it any incentive to revise its structures and the hierarchy of its staffing. I have had the good fortune to have had my home in Leeds all my life. That is a relatively well governed city, so I am not choosing some extreme example just to suit my case. But in Leeds no attention whatever has been paid to the structure of administration since 1973, when the city was enlarged to encompass 750,000 people. In spite of pleas from certain quarters of the council over the intervening years, the controlling party still refuses to embark on a radical examination of the whole structure which, in our view, could create great economies.

For instance, I invite the House briefly to consider a perfectly ordinary situation that happens throughout the country virtually every day of the week, namely, a serious flooding of some highway. Under the structural system that was introduced as recently as 1973, the situation with regard to a flooded highway is as follows. There are four quite separate and distinct bodies which in certain circumstances can be responsible, and there are seven possible different situations which the flood victims must try to consider before they know who to call in.

In the first place, if the water is not reaching the gullies, if the gullies are blocked, or if there is a stream or watercourse adjoining the road that has overflowed on to it, and if, in the middle of the flood, they can establish that one of those is the cause, they should invoke the district council. I should point out that I am speaking of a metropolitan county area.

If the trouble is a blocked connection between the gully and the sewer, or if the flood is coming from adjacent land which is imperfectly drained, and, having ascertained this in the middle of the night—hopefully, with a full moon—the victims should get on to the county council, which is the responsible body for that type of disaster.

If, however, the trouble is lower down in the sewer itself—when the victims have established that with the aid of divers and other apparatus—the water authority should be invoked. Finally, there are certain instances where riparian owners should be summoned from their homes in order to deal with this situation.

I am not misleading the House by introducing some relic of ancient Jacobite legislation such as the Sunday trading legislation. I am talking about a structure imposed on the country by this House as recently as 1973. It is abominably wasteful in public manpower and requires a vast staff to co-ordinate the disparate fragments of authority which have been introduced since 1973.

Such situations need to be looked at with a ruthless eye and with a Gladstonian resolve to avoid such waste of public money. I conclude, as I have been obliged to conclude in previous debates, by observing that until this Government get down to their basic task which is the introduction of order, justice and fairness in their policy in relation to the allocations of incomes and pay I fear that we shall be having these painful debates for many years to come.

Order. Before I call the next hon. Member may I indicate that six hon. Members have been sitting in the Chamber for most of the day? We have an hour left for the general speeches before the winding up. I hope that those hon. Members who are called will make it possible for every speaker to take part in the debate.

8.1 pm

I shall be brief. The debate, with one exception, has so far been good natured. That demonstrates the feelings of the House about the Government's White Paper.

I am sorry that the hon. Member for West Bromwich, West (Miss Boothroyd) has left the Chamber. She referred to the plight of her constituency. I was conscious of her experience in having fought five constituencies during 20 years and having experienced a swing of almost 8 per cent. against her at the last general election. She will own, as I believe will many hon. Members on the Labour benches, the strength of feeling that brought many new Tory Members into the House after 3 May.

It ill-behoves Labour Members to lambast the Government for their unemployment policies, when the policies of the previous Administration over five years contributed to the doubling of the unemployment figures. When I first took my seat I was surprised at the extent of the damage done to the national economy by the Labour Government. This Government have been faced with rising unemployment, rising inflation, increasing public expenditure and declining industrial output.

The effect of those problems has resulted in a record MLR and the current increase in mortgage interest rates. I declare an interest as a mortgage payer and take exception to being so affected, as do many of my constituents. That problem is a symptom, not a cause of the economic problems facing the country. It is generally accepted that there is a link between public expenditure and inflation. As the former rises, so does the latter.

I welcome the Government's determination to reduce public expenditure and encourage an aggressive revenue contributing private sector. That is right and I shall support such a policy. Much remains to be done, and though I accept that stronger monetary control is a discipline that the country needs, I am aware of the strong residual opposition in local government, and in the Civil Service, to pressures to reduce waste and growing bureaucracy and to eliminate expensive practices. My right hon. Friend the Chief Secretary to the Treasury made the point that, inevitably, there will be cuts in local authority services.

Many local authorities which have previously refused to obey Government strictures and have spent resources as if there were no tomorrow must, surely, be forced to reduce inessential, expensive publicity seeking services, and this should happen in such boroughs as Lambeth and Southwark, and in Manchester. Kent county council has in the last five years behaved in a responsible way. It suffered the bias of the previous Government against the shire counties and in favour of the metropolitan conurbations. The result was that suddenly and severely Kent county council was faced with a tremendous shortfall in income over expenditure. We all know that all Governments have required local authorities to do more, and Kent had to do more with less. It is to the credit of the Kent county council that it succeeded in maintaining services, and it deserves further recognition from the Government for its role in keeping down expenditure.

Those authorities which did not obey Government strictures should be penalised and punished. Those authorities that are closer to the philosophy of Karl Marx than to that of Edmund Burke are well known in the House.

I am concerned about the growth of welfare benefits. I should like to see the financial gap increasing between those who are employed and those who are not. We are all aware of the growth of the black economy. My remarks are not directed against those who are genuinely unemployed and who genuinely look for work and do not "moonlight" at the same time as they draw State benefits. They are the people who have to manage on relatively small amounts. The greatest help should go to those with the greatest need. It is necessary to restore incentives, and it is necessary for the Government to question the need for the annual increase in welfare benefits, especially unemployment benefits, in line with price increases.

It is a strange state of affairs that 1½million people are unemployed and yet there are firms in my own constituency that have had vacancies for skilled, semiskilled and unskilled workers for many months. One big car manufacturer has had 1,000 vacancies at any time during the last two years that it cannot fill and this at a time of high unemployment. Another local employer recently bussed 150 people from Merseyside. They were brought to Kent, feted and shown around. They were shown the houses that they might get and they were offered jobs. To date not one of those 150 people from Merseyside has applied for a job. I make no comment except to put the facts to the House as an example of the lack of mobility and the lack of interest that pervades certain sections of the community.

The Government's plans are proof of their dedication to getting the economy right and of their determination not to be diverted into easy electoral options. We are not alone in our fight against inflation. As The Economist on 1 December said:
"Inflation has clearly speeded up this year: it looks as though OECD countries' consumer prices have been rising at an annual rate of over 10 per cent. in the second half of 1979, the first time they have been in double figures since 1975."
The article continues:
"Today 15 of the 24 OECD countries have had double-digit rises in wholesale prices over the latest 12-month period for which figures are available."
It is only right to stress that our economic structure does not exist in a vacuum, and that it only takes further instability in the Middle East, problems in Central and Southern America and economic decline in the United States to have enormous repercussions on the economy of the United Kingdom and the rest of Western Europe. It is precisely because of that weakness that we are so vulnerable to changes and fluctuations abroad. That is why we need to get the economy strengthened.

I welcome, in general, the increase in defence expenditure.

As stated in the White Paper, the defence programme of £8,062 million represents a 3 per cent. increase over the estimated outturn for the current year. I welcome this increase in general because a free country must always have the right to defend itself, and in particular because over 3,000 of my constituents are involved in defence and military programmes. They, too, will welcome the commitment to increase defence expenditure. It is not only my constituents who will welcome it, but those of my hon. Friends the Members for Seven oaks (Mr. Wolfson) and for Gravesend (Mr. Brinton) and the hon. Member for Erith and Crayford (Mr. Well beloved), many of whom work in my constituency.

I should like to see the Government launch a campaign to enlist the help of ordinary people in reporting to local councillors and Members of Parliament where local authorities are undertaking unnecessary and expensive projects.

Secondly, I should like to see the Government in the short term reduce the school leaving age to 15, to encourage young people to take on engineering apprenticeships. At present they have to start at 16, and they do not want to wait until they are 21 before their articles end. A reduction in the school leaving age of one year, with the provision that those concerned are given academic education as well as an engineering education, would result in the filling of many vacancies in engineering workshops in my constituency.

From table I on page 9 of the White Paper it is clear that the previous Government followed a more similar economic strategy to that of the present Government than we were led to believe by the earlier remarks of Labour Members. In 1975–76 there was an increase in public expenditure of 0·3 per cent. In 1976–77 there was a reduction of 2·5 per cent., and in 1977–78 there was a reduction of 6 per cent. That shows that the commitment to cut public expenditure can be a bi-partisan matter when it needs to be.

I thank you for calling me, Mr. Deputy Speaker, and I assure the Government of my continued support.

8.12 pm

The Government's economic policy, of which their expenditure White Paper and public sector expenditure plans are an integral part, reminds me of a doctor dealing with a patient with a wasting illness. Not only does the first attempted cure fail to work, but it accelerates the illness. The second cure retards the illness and keeps the patient alive, and at least allows him to live a reasonably comfortable existence. Suddenly, when the patient has a short-term relapse, the doctor decides to return to the first attempted cure. Perhaps he hopes that he will be successful with a short, sharp shock—such a common phrase on the Conservative Benches.

The analogy is this. The last time we had a Government as ideologically committed to cutting public expenditure as the cure for this country's economic ills was in 1931, when Members of Parliament had to take a cut in their salaries. Perhaps that will be the next step proposed by the Government. School teachers also had to take cuts in their salaries.

That policy did not work then. It did not increase productivity; it did not raise the general level of economic activity. Our economic problems in the 1930s were solved only by massive public expenditure on rearmament and then on fighting the Second World War.

That is a misinterpretation of what happened in the years 1933–39. What happened was that the private sector spent its way out of recession. The key industry in reducing unemployment was the building industry, which took on a quarter of a million extra people for the private building programme. That is all that we are hoping will happen on this occasion, and I think that it will.

The evidence does not suggest that. I accept that certain areas of the private economy improved during the 1930s. New industries started, but they were slow to come in. The old industries, on which the bulk of the population depended for employment, did not pick up in that period until we had rearmament. Then we had the answer to our economic problems. What frightens some of us is that this Government's aggressive attitude towards the Soviet Union and increases in defence expenditure make us think that they may try the same means again.

My first point is that the present economic policy is old-fashioned, that it did not work in the past and will not work in the future. Secondly, it is grossly insulting to all those who work in the public sector. I hope that the civil servants, school teachers, doctors, nurses and many other people employed in local authorities will note that fact. Even though their jobs may be safe, they are being insulted by the Government, who claim that they are non-productive parasites upon the productive workers in the private sector. That is the underlying theme of this Government's public expenditure policy.

Moreover, those who normally vote for the Conservatives are exactly those whom the Government are insulting most. They are the administrators, the "wasteful" administrators, in the public sector whom the Government are desperately keen to get rid of. Administration in the public sector is kept under pretty tight control. It must be, because the administrators have to work to tight budgets. It is my view that—though unfortunately the private sector is much more secretive, and it is difficult to obtain figures—the numbers in middle management in the private sector have increased over the past 15–20 years just as they have in the public sector. In addition, those people are much more expensive than similar employees in the public sector. They are paid higher salaries and have much larger expense accounts and other perks.

Conservative hon. Members may say that that is a matter to do only with the private sector and those whom it chooses to employ. But who pays for them? The average member of the public pays in the price of the product or service. He pays just as much as if he pays through taxation or rates.

If those administrators were removed, would they look for jobs in the productive areas of industry—in other words, on the shop floor? Of course not. If they can obtain jobs at all, they will look for them in middle management administrative ranges in the private sector. They will become the administration of the private sector, as opposed to that of the public sector. So what is the difference?

What is required is an increase in public expenditure, because it is the only way in which this country's economic problems can be solved. One Conservative Member said that there was no demonstration from the labour movement when the last Government cut public expenditure. I can assure the hon. Gentleman that there were demonstrations, because I marched through the streets of Glasgow against that Government's policies. Many of us thought that our own Government's policies were wrong.

How are we to get British industry back on its feet? We tried the basic principle during 1970–74 of cutting taxes and curbing public expenditure so that people could reinvest in the private sector and build up our industries. That did not happen. The only way that we shall get directed investment into manufacturing industries is through the public purse, and through public control of that investment.

must also change our attitudes and those of Government Members. Public expenditure is not a privilege. It is an investment at almost all levels. The only level on which it is a genuine social service is when it is spent on old age pensioners who have worked throughout their lives. Public expenditure in one area reflects upon long-term public expenditure in other areas.

I shall give an example. Recently one of my constituents wrote to me saying that he was starting a series of football teams for young people from a housing scheme. He complained that the football pitches in the area were inadequate, that they were in a state of disrepair, and that there were no proper changing facilities. I received a letter from the Glasgow district council saying that it could not afford to put those pitches right and to build changing facilities. What will be the effect of its decision? For a short-term saving of a few thousand pounds, there will be long-term public expenditure for the next 30 or 40 years. Those young lads will not continue to play football. They will go back to the streets in an area where there are insufficient facilities. They will commit acts of vandalism. The damage will have to be repaired and paid for out of the public purse. On occasions they will be caught by the police and they will be given the short, sharp treatment proposed by the Government. They will become perpetual criminals and will spend the bulk of their lives either unemployed or in prison at the expense of the public.

My hon. Friend argues that public expenditure is not a cost to the system, but a benefit with the qualified exception of pensions which is a service. However, when a pensioner buys clothes, spends money on food, buys a replacement for a radio or rents a television, the money spent goes to the private sector. Out of every £100 spent in the public sector, £85 goes to the private sector.

I agree with my hon. Friend. It is also considerably cheaper to give old people a pension than to put them into an institution or home.

Education is an investment. One of our basic problems over the past 79 years is that we have failed to invest properly in education. There is a close correlation between the economic decline of the country and its failure to educate its people properly.

In 1900, about 2,000 chemical engineers graduated from German universities. In the same year, 200 science graduates passed through British universities. That difference between higher education in Britain and other countries has continued throughout the century. We still have the lowest proportion of people taking advantage of further education of all the countries in Western Europe or in the industrialised world.

By cutting expenditure on education the Government are eating the seed corn of our future prosperity. If we do not invest in education and ensure that we have a properly educated and skilled population we shall fail to catch up and keep up with the rest of Western Europe and the industrialised world.

Many hon. Members have spoken about the major effects of Government cuts in the public sector. They affect ordinary people, particularly the poor and the weak at the lowest level.

The cuts are cruel. They affect people such as an old man in my constituency who had a stroke in June and who has to attend hospital for physiotherapy. The ambulance which picked him up to take him to hospital was withdrawn. Only after he wrote to me and after I wrote to the Minister was that ambulance restored. Thousands of others must still have to manage without an ambulance service. The cuts are cruel for the weakest in our society. The cuts are unnecessary. When there is deliberate and unnecessary cruelty, there is only one word to use—sadism.

8.26 pm

The history of debates on public expenditure White Papers is somewhat chequered. This is the first time that we have had a short term White Paper with a promise of a further White Paper. In a sense we are debating only the first instalment of what I hope will be a more comprehensive document.

I shall make some broad comments and then refer to specific issues. I do not intend to launch a neo-Keynesian counter-revolution or to advocate U-turns. On the contrary, I intend to reinforce the Government in their determination to cut public expenditure. We need to put the White Paper into a broader context. It is important to stress the central role which public expenditure must play in Britain's economic management.

A false distinction is sometimes drawn between demand management and the control of the money supply. They are two sides of the same coin. I have always been convinced that the control of the money supply is an essential element of economic management. I am a little concerned that the Government may have some difficulties in their policies, as the previous Government had between 1970 and 1974. Then the introduction of so-called competition and credit control policy made money supply figures difficult to interpret. I fear that the same may be true following the welcome change in exchange control.

The central point is that the money supply is determined by the relationship between taxation and public expenditure which together determine the public sector borrowing requirement. If that is not financed by the "non-bank public", the money supply will increase and inflation will be exacerbated. If that happens, and if the equilibrium between taxation and public expenditure is disturbed, inevitably too great a weight is thrown upon the rate of interest as a means of financing that excessive borrowing requirement. That does not simply have a traumatic effect on those who have mortgages; it has an adverse effect on industry, both directly, since it deters investment, and more generally, since it depresses the general level of economic activity. It also tends to raise the exchange rate which, with the effects of North Sea oil, is likely to have a serious effect on our export performance.

For all those reasons, it is essential to achieve the right equilibrium between taxation and public expenditure. It is important not to put too strong a weight on the use of the interest rate in order to achieve a balance between those two factors. If that happens it means that we are not adopting a monetarist policy but an old-fashioned high interest rate, deflation policy. That should not be allowed. I am glad to see that the Chief Secretary agrees fundamentally with that.

I cannot stress too strongly that the White Paper makes no overall cut in the total level of real public expenditure. I pay tribute to the way in which my right hon. Friends in the Treasury have cut back on the excessive increases planned by the previous Government, because they were unrealistic and could never have been fulfilled. However, the Government have not gone far enough.

For the reasons I have just spelt out, it is essential that we have an overall cut in the real level of public expenditure. Without that, we cannot succeed in our other economic objectives, either on taxation or of getting greater industrial investment.

The other matter that gives me cause for concern is that, essentially, this White Paper prunes back public expenditure in certain areas. If we want to control public expenditure in the long term, pruning back is no good. As with a tree which is pruned back, public expenditure will grow back again. The only way to cut public expenditure in the long term is to cut out certain activities altogether, as the Government did with exchange controls. Public expenditure does not then grow again.

Having said what I have about the general totality of the White Paper, I must stress that it is important to continue to push ahead with the utmost vigour with seeking to reduce our EEC contribution. A further White Paper is, of course, expected, covering the period from 1980–81 onwards. I hope that that White Paper will reflect some major policy decisions to get the Government out of certain areas, so that public expenditure really can be cut.

The White Paper has been delayed. I originally expected that it would be produced within the next few days. I understand that its publication has now been delayed until January or February. I hope that that reflects the fact that the Government are making an even bigger effort to control public expenditure.

If major changes are made in that White Paper, we shall have to consider whether some of those changes can be backdated to cover the responsibility of this White Paper. If we are to make some fundamental policy changes in the future, it may be that we can make even bigger cuts in public expenditure in the short run. That is vitally important if we are to reduce the rate of interest, expand British industry and produce the real resources without which it will be impossible for us to fulfil all the commitments that we should like to see in relation to social services, road programmes and so on, which we recognise are valuable in their own right. It is no good having public expenditure too high in the short run if it means that we do not have the resources to do what we wish to do in the longer term.

If we do not cut public expenditure and reduce the high interest rate, the danger is that we shall mortgage the future in a most remarkable way. We shall have the reverse of the old problem of War Loan, of which we are all aware. On that occasion the Government borrowed at very low rates of interest. Our constituents always complain about that. We are in some danger of having a privileged class lending money to the Government at the present high rate of interest for a substantial period of time. There is a danger that the Government will barely be able to afford to reduce the level of inflation because the real burden of those interest charges is too heavy for them to finance. That being so, it stresses the urgency of the need to look at this White Paper again and consider whether more can be done.

The effective control of public expenditure must turn on the cash limit system. It is absolutely essential that we do not adjust those cash limits to accommodate inflationary wage claims. I believe that that is the right approach for the Government to adopt. With the new system of cash limits being integrated with the Estimates, at the end of the day those decisions will come before the House of Commons and not simply be a matter for the Government to decide.

The Government must take a firm line on pay in the public sector. Otherwise, if we have cash limits and inadequate control of inflationary wage claims in the public sector, inflationary wage claims will take resources away from the other parts of the sector covered by those cash limits. In effect, that would be an abdication by the Government of their responsibility to allocate resources on the lines of this White Paper. Therefore, I believe that we need much more detail in the White Paper about the precise relationship, under each heading of the cash limits, between the pay side and the remainder. I hope that it will be possible to supply that information.

It may be that the forthcoming White Paper covering the further period will be a relatively skeletal affair compared with previous Government White Papers. I very much hope that that is not so. We all know the difficulties involved in cutting back public expenditure in the short term. If we do not have clear plans which impose limits on the spending Departments in the longer term, we shall never get public expenditure properly under control. Therefore, I urge the Chief Secretary to ensure that, when the new White Paper is published—and he now has more time than we thought—it spells out the situation in considerable detail. Otherwise we shall be in grave difficulties.

I conclude with a quotation from my right hon. Friend the Chief Secretary. Speaking in the economic policy debate only a few days ago, he said:
"I appreciate that many of my hon. Friends believe that, over the coming years, further savings can be secured in domestic spending."
I would say not in coming years, but next year. He went on:
"These considerations will hear upon the borrowing requirement and the level of interest. The Treasury Bench recognises that high interest rates are a parody of monetarism. The monetary policy that we seek is one in which public spending, taxation and Government borrowing are so balanced that interest rates are struck at a level that enables credit to fulfil its traditional role."—[Official Report, 28 November 1979;Vol. 974, c. 1428].
I believe that fundamentally that is the right policy for the Government to pursue, but I fear that the White Paper, as now presented, is not sufficient to enable us to fulfil that policy. Therefore, I urge the Government to give further thought to ways in which greater economies can be made so that the prosperity of the country can be improved and higher unemployment prevented. We need greater prosperity, less unemployment and a higher standard of living which will, in turn, enable us to get the resources which are necessary, in both the private and public sectors.

8.37 pm

At the heart of this debate is the Government's contention, which was articulated eloquently by the right hon. Member for Worthing (Mr. Higgins), that the only way to control inflation is strictly to control the supply of money as measured by the coins and notes in circulation, plus bank deposits—in other words, sterling M3. The Government believe that this requires a cut-back in the public sector borrowing requirement, which itself requires a cut-back in public expenditure.

Government spokesmen and supporters continue to state this proposition as though it could be stated with the certainty of the law of gravity. But it cannot. It is much nearer the truth to say that the Government are trying to control something which they cannot measure and which, if they could, would not be what they wanted, and which, even if it were, could not be controlled, and even if it could, it would not control inflation.

There are several damaging criticisms which must be made of the underlying theory of Government economic policies which collectively destroy their validity as the firm, single-minded guidelines for action. The first of these, which has not been mentioned and which is certainly a major omission, is that one main source of money supply growth is exempted from real controls, namely, bank borrowing by the private sector. Monetarist policies turn out in practice to be curbs on the public sector. Yet, on purely monetarist principles, the opposite should be the case. In every year since 1972, with the single exception of 1975, bank lending to the private sector has comprised the majority of domestic credit expansion.

Secondly, the Government are inconsistent in leaping to the conclusion that if domestic credit expansion is to be restrained without restraining private borrowing, the public sector borrowing requirement must be cut. Surely this is wrong when only part of the PSBR involves borrowing which increases domestic credit expansion. To the extent that the PSBR is financed by borrowing from individuals and pension funds, in monetarist terms, surely it is harmless and non-inflationary. A major and increasing proportion of the PSBR—no less than 73 per cent. last year—is financed by such borrowing and is therefore irrelevant to the money supply.

Thirdly, it is entirely wrong to refer—as did the Chancellor in his Budget speech and as have Government spokesmen since and again today—to the idea that there is in some sense a right level for the PSBR. There are several reasons for that. One relevant factor is that the PSBR is not large at present, either by historical standards or in terms of international comparisons.

I refer the Financial Secretary to an article in The Economist, which I do not think he could say was in any sense a Left-wing propagandist organ, and which said in July this year that when the slaughter of recession was sounding around the Chancellor next year, he should fill the deflationary gap by raising PSBR to £10 to £11 billion, which would still be less than half the percentage of GNP by which the economy was supported in the last slump.

There is a further more serious reason for not getting carried away by these highly dubious and misleading ideas about PSBR figures. If one adjusts for inflation and financial surpluses and deficits in the main sectors of the economy, according to an interesting recent Bank of England paper, the average Government borrowing requirement for the years 1975–78 was only about £1½billion in inflation-adjusted terms, as opposed to the £8 billion in nominal terms.

That has several extremely important implications. One is that Government policy has been very much less expansionary over recent years than the nominal Government borrowing figures would suggest. Secondly, the Government should realise that the inflation-adjusted borrowing figures provide a much better guide to the financial burden that the Government place on the economy. Thirdly—perhaps the most important point—if the real financial burden of the Government were understood, the myth would be nailed that high Government borrowing figures necessarily mean that the Government are in some sense spending beyond their means and that that must in due course be inflationary. I was interested to read the conclusion of the Bank of England paper, which said:
"The link between the PSBR and the money supply may be relatively tenuous, at least in the short to medium term, as a recent Treasury paper has suggested."
Perhaps it would be salutary if Treasury Ministers would read these considered analyses of their own officials rather than driving through their obsession with the single instrument of economic control which has, in my view, been given attention out of all proportion to its merits.

As the Government are now said to be preparing further public expenditure cuts, it would also be salutary if Treasury Ministers would note that the claims of the public sector on the nation's resources, excluding transfer payments, have already fallen sharply in recent years from 27 per cent. of GDP in 1975–76 to 23½per cent. in 1978–79. That was the biggest fall in Britain's history, apart from the demobilisation years.

I conclude from this that the links between the borrowing requirement and monetary growth, and between monetary growth and inflation, are therefore very far from clear. They certainly do not justify anything like the enormous attention that the Government have slavishly devoted on what they believe, and allege, to be the relationship between them. Indeed the Government reacted as precipitately to the latest month's bad banking figures as Governments of both political persuasions have reacted precipitately to one month's bad trading figures in the past.

The October money supply figures were probably as deceptively bad as the September figures were deceptively good. There were many reasons for that. For example, there was the delayed payment of VAT, the effect of the engineering strike, the financing of a large once-and-for-all tax rebate and the delayed collection of telephone bills.

The Government—one supposes at the behest of the City—over-reacted with what one can describe only as panic, and embarrassingly so. The Government's abolition of exchange controls has effectively disarmed what was one of the main weapons of monetary policy—namely, the banking corset. Despite all the gross weaknesses in monetary theory and practice that together blow out of the water the quasi-religious fervour that the Government have generated about money supply, it is apparent that the Government still hold fast to two main beliefs.

First, the Government believe that a given monetary growth rate will lead workers to expect that the inflation rate will in time fall into line with that rate, that any settlements exceeding that rate will lead to unemployment and that wage claims will be moderated. Treasury Ministers do themselves a disservice by deliberately massaging, as apparently they have done, the economic forecast figures that they have given for next year by insisting that the fall in output will not be so bad and will be 2 per cent. instead of the 3 per cent. or 4 per cent. that the Treasury computer apparently predicted.

The other belief that sustains Government policy is that only actual as opposed to expected increases in unemployment—

The hon. Gentleman has made a serious charge. Is he saying that he thinks Ministers have altered official Treasury forecasts?

It is well understood that the Treasury figures that were produced by the computer were not those that Treasury Ministers found to be acceptable for their own reasons in other regards. It is understood that there was considerable argument and much anguish in the Treasury about the presentation of the figures. Those that have been presented are not those that officials originally brought forward. That is well understood.

The Government still believe that only actual as opposed to expected increases in unemployment will sharply reduce wage settlements. The cost of that level of unemployment, preceded by catastrophic falls in output and investment, will be horrendous. All the evidence so far has been that the private sector does not expand to fill the gaps left by cuts in public spending. If that is the future to which the Government are leading us, and if, as the Chancellor keeps saying, he can see no alternative to that, it is critical that he gives his place to those who can. The British people by their industrial action will make sure that he does.

Order. Before I call the next speaker I appeal for even shorter speeches so that the Chair will be in a position to call all those who wish to take part in the debate before the Front Bench speeches begin at 9 o'clock.

8.49 pm

I hope to astound you, Mr. Deputy Speaker, with my brevity. Therefore, I shall not take up the remarks of the hon. Member for Oldham, West (Mr. Meaner).

I welcome the White paper as a stage in the general education process on public spending and as part of the Government's attempt to bring us back into the realms of reality. It reveals that we may be able to stabilise public spending at broadly present levels in 1980–81. The White Paper suggests, as the tenor of the debate has suggested, that we shall need to be tougher in the years ahead if we are to reduce the burden of public borrowing and further reduce the burden of direct taxation, especially on those with only modest incomes. It is one of my firm ideas that we should seek to do that at the earliest possible time.

I refute the Opposition charges, contained in their amendment, that the White Paper
"will lead to higher unemployment, poorer public services and increased inflation."
Most hon. Members would agree that higher unemployment will be a consequence of the present international recession, a consequence of any excessive wage settlements not covered by increased productivity, and a general consequence of earlier inflationary pressures. Poorer public services are bound to result from the same adverse pressures, unless we can deal with inflation in the way proposed. A given amount of money will probably buy less and less by way of public provisions.

The right hon. Member for Huyton (Sir H. Wilson) pointed out a long time ago that inflation is really the father and mother of all our other problems, including the two mentioned in the amendment. In general, the Government's approach to public expenditure is right and should be sustained over a number of years. I hope that the Government will demonstrate the necessary political nerve to do that. The White Paper is clearly based on realism about our prospects, rather than on fantasy. That is in welcome contrast to the spending plans of the Labour Government and conforms to the commonsense view of thousands of my constituents, who know that they cannot spend money that they do not have.

I urge the Government to take more interest in the composition of public spending as well as in the overall totals. They should not be afraid of making more explicit our Conservative priorities within those totals. I note with pleasure that spending on defence and law and order is to be increased, and in some cases substantially increased. I hope that we can find room for honouring our commitment in full to the National Health Service that we made during the last election.

The White Paper attempts to modify public expectations over a long period of time. It attempts to move from the politics of illusion—in which the right hon. Member for Leeds, East (Mr. Healey) used to specialise—to the politics of reality. As my right hon. Friend the Chief Secretary has often said, we live in a world of low growth, and we shall probably be in that world for some time to come. It is therefore that much more important to adjust our expectations accordingly.

That is why the common sense that is contained in the White Paper needs to be reinforced by other efforts outside the sphere of the Treasury. I think particularly of the National Economic Development Office discussions, and similar discussions with all those in industry—the "social partners", as the Germans call them—that have been taking place today, with the Chancellor of the Exchequer in the chair. I hope that the Financial Secretary will say something positive about that in his reply to the debate.

We all welcome the Chancellor's words about a week ago, and I hope that sufficient progress will be made. Bureaucratic attitudes and practices must be changed, both in Whitehall and in local government. We must convey the idea to all those involved that the public services, which we all value and support, should not be run solely for the benefit of those who work in them but for the benefit of those for whom such services are intended. That cannot be said often enough, or be sufficiently stressed.

As my right hon. Friend the Member for Worthing (Mr. Higgins) has said, we shall have to review the balance between obligatory spending, such as social security payments, and optional spending within the total mix. It is a question of having the political courage to emphasise that there are some forms of spending—particularly capital spending—that are an investment for the future. When considering future capital spending, we should always look at the revenue implications of that spending in local and central Government.

Some years ago, Mr. Deputy Speaker, when you were in a previous incarnation, you may have heard the late Anthony Crosland say that the party was over. That was in the light of the IMF being called in to bring the Labour Government back to reality. During the Labour Government's spree just before the last election they managed to increase public spending on a wholly unrealistic basis—by 6 per cent. in one year—and people once again got the wrong message. The most important single aspect of the White Paper that we are considering tonight is that at long last we are giving the British people the right message—the message of realism and responsibility, which was the slogan at our conference. I think that it will serve well in the coming months and years.

8.56 pm

I refer to paragraphs 26 and 27 of the White Paper, dealing with roads and transport and with housing. Speaking as a representative of the Northern region, I feel that it is nothing short of criminal that at this time we should be talking about cutting the roads programme by £200 million. There is to be a reduction by that figure in central Government expenditure on the motorway and trunk roads programme. It prompts me to ask when the western bypass of the city of Newcastle-upon-Tyne will be started, as promised by my hon. Friend the Member for Gateshead, West (Mr. Horam) so long ago when he was Under-Secretary of State for Transport.

I now turn to public expenditure on housing, on which the White Paper states that
"Capital expenditure will be broadly unchanged between 1978–79 and 1979–80 but will fall in 1980–81 by some £280 million."
That is absolutely scandalous, to say the least. If there is one industry in the country that really depends upon public expenditure, it is the construction industry. The effects of the Government measures set out in the White Paper will be absolutely catastrophic for the construction industry, and nowhere more so than in the Northern region.

I make no apology for speaking on a regional plane in a national economic debate, because the White Paper could well have been entitled "The Crucifixion of the Northern region of England." That is precisely what it will do to the Northern region.

The Royal Institute of British Architects has recently issued figures on commissions in the Northern region for the last quarter. They show a reduction of 14·9 per cent. at a time when commissions nationally have increased by 5·9 per cent. What is happening to the architects today will certainly be happening to the construction section of the industry tomorrow. It takes seven years to train an architect, and in the region we are in a position where many partnerships have fired 25 per cent. of their staff in recent times. After seven years of training, we are throwing architects on to the scrap-heap. What a waste of public expenditure.

Apprenticeships are often talked about and we are all keen to see an increase in opportunities for young people, but builders generally are less willing today to take on an apprentice than ever before in the post-war years, because of the uncertainty of the future as posed in the White Paper.

The construction industry has been the second largest employer in the Northern region of years, but present forecasts, as embodied in the White Paper, show that the work load of today, £600 million, will drop to less than £400 million within three years.

In deference to your appeal for brevity, Mr. Deputy Speaker, I shall now resume my seat, in order to leave two minutes to another hon. Member.

8.59 pm

In the two minutes that I have, Mr. Deputy Speaker, I should like to say what a sad occasion this has been for me. It has been the end of my admiration for the right hon. Member for Leeds, East (Mr. Healey). I admired him in the first phase in which I noted him as Chancellor of the Exchequer for the splendid way in which he converted the Labour Party to monetarism. It was, in the circumstances, a great national achievement. He saved our nation from hyper-inflation. Indeed, it might be said that he perhaps somewhat overdid it.

In fairness to Lord Barber, it must be remembered that Lord Barber started to check the money supply on 16 December 1973. The right hon. Member for Leeds, East continued that trend throughout 1974 and 1975. I much admired him in the conversion that he made in such difficult circumstances. My admiration caused me to be, perhaps, over-indulgent towards him in the second phase of his Chancellorship, when at the end of 1977 and throughout 1978 he let the money supply go and considerably increased public expenditure.

We, as a nation, have suffered greatly from the delay in the coming of the last general election. It may have been good for the present Leader of the Opposition, but the extra six or seven months resulting from the postponment of the general election were catastrophic for this country.

Tonight, I said a fond farewell to my admiration for the right hon. Gentleman. He said today that if he were Chancellor of the Exchequer he would be increasing the money supply. He said that he wished to increase the rate of inflation. He said that he recognised that M3 was now increasing at 14 per cent. on the lowest level, and taking into account commercial bills it is probably increasing at about 17 per cent. But he had the reckless effrontery to say that he would be in favour of not only increasing the public sector borrowing requirement but of increasing the money supply. That is an end to my admiration for him. That is an end to his reputation as a moderate statesmanlike financier.

9.2 pm

I was sorry to hear the speech of the hon. Member for Wolverhampton, South-West (Mr. Budgen). Clearly his love affair with my right hon. Friend has come to an end. At least we are grateful to him for saying that my right hon. Friend has saved this country from hyper-inflation.

I turn to some of the matters raised in the debate. The Chief Secretary was quite right when he said that there was no salvation—if that is the way the Government wish to look at it—in cutting waste. Perhaps the Conservative manifesto might have been drafted a little differently, because the emphasis there, and the emphasis before the election, was that somehow, magically, public expenditure could be reduced through cutting waste and bureaucracy.

The real issues were never faced. They were never faced because, if they had been set out, people would have voted quite differently. On taxation and on public expenditure we have had a dishonest prospectus from the Tory Party.

During the debate, certainly from Conservative Members, there was a feeling that if we could cut public expenditure, interest rates would come down. That seemed to be one of the many justifications for cutting public expenditure. I say again that interest rates are affected by the rate of inflation, not by the level of public expenditure. If inflationary expectations are 20 per cent., interest rates will have to be close to that level. For instance, if interest rates were 10 per cent. and inflation were 20 per cent. there would be massive borrowing from the banks. Everyone would borrow at 10 per cent. with inflation at 20 per cent., and that would push up the money supply. The main determinant of interest rates is inflationary expectations. If the Government think that by cutting public expenditure interest rates will come down, they are living in a dream world. They have been living in a dream world since the Budget.

The White Paper is out of date. It has been overtaken by events. Since its publication Industry Act forecasts show a gloomier prospect than we thought possible when the Chief Secretary made his statement in the House. It is a miserable and a meagre document. It is meagre in content and miserable in the effect that it will have on most people, especially the weakest and the most vulnerable.

We are entitled to know from the Financial Secretary why the Government are not able to produce a normal White Paper with the usual economic analysis, and covering a three or four- year period. Why was it necessary to rush out this White Paper, which has clearly been overtaken by events? I hope that the Financial Secretary will tell us why he is presenting this White Paper when he may have to present another in a few months' time. If the Government are knowingly looking at further cuts for 1980–81–and we have not had any assurance that they are not—it is something of an abuse of the procedures of the House to bring forward and to debate a White Paper when Treasury Ministers know very well that it will not be implemented in 1980–81. I hope that the Financial Secretary will tell us whether there are to be any more cuts next year or whether this White Paper is the last word, at least for 1980–81.

I hope that the Financial Secretary will also make clear that the Government have no intention of breaking the link between retirement pensions and unemployment benefits, on the one hand, and the retail price index, on the other. I asked the Chief Secretary about this matter during the debate last week and he was rather sensitive about it. He got irritated. He thought that I was trying to trap him. I was merely asking for information, as the Opposition are entitled to do. Therefore, I hope that the Financial Secretary will make it quite clear that the Government have no intention of cutting the link between pensions and social security benefits and the retail price index. The Government have already changed the law in relation to earnings. [An HON. MEMBER: "Why?"] Because it affects thousands of people in this country. If a Tory Government were to cut social security benefits in a recession—that is what it will be—we say that would be a retrograde step.

One further cut in public expenditure which will probably not be taking place this year or next year is our contribution to the EEC. The Treasury prudently put the £1 billion into the White Paper and there it stays. Again, I hope that the Financial Secretary will tell us something about that matter, because the Government have approached the EEC problem on the basis of public expenditure. I hope that the hon. Gentleman will tell us what will happen to the £1 billion. Will it stay there? Are we to get some money back? If we are not to get any money from the EEC, shall we suffer further cuts to compensate for it? The Prime Minister failed dismally in Dublin to get any money at all. Are we now to pay the price for that by having larger cuts in public expenditure than would otherwise be the case?

The White Paper starts with the extraordinary statement:
"Public expenditure is at the heart of Britain's economic difficulties."
I do not know the author of that blindingly illuminating proposition, but I should be surprised if it were Treasury civil servants. My guess is that it was either the Chief Secretary or the Financial Secretary. I have been sitting here pondering and trying to work out which of them it was. If I had to choose between the two, which I should not always wish to do, on balance I should guess that it was the Financial Secretary. It has the style of the Financial Secretary—an aggressive a priori statement completely unsupported by fact or argument. Indeed, it is stuck there on its own—a one-sentence paragraph—with no attempt to substantiate it in any way.

As has been mentioned, the figures show that spending on public services in Britain is not excessive compared with our competitor countries. General Government expenditure is probably the best international comparison. For 1979, as a percentage of GDP, the figure of general Government expenditure for France is 46·2, West Germany 46·3 and the United Kingdom 42·7. The EEC average is 46·8 per cent. Therefore, we are below the EEC average.

It is always difficult to make comparisons, but if Treasury Ministers believe that public expenditure is the main cause of our problems and economic difficulties, they will create more problems for the British economy. They must know that the real problems of our economy are low productivity and poor use of investment. Public expenditure has hardly anything to do with it. It Ministers are to act in the belief that the cause of our ills is public expenditure, they will dig an even deeper pit for the British economy than they are digging at the moment.

The Chief Secretary used the word "stabilising" to describe what is going on. He said that this was a policy of stabilising public expenditure. When he was on the Back Benches he would never have used the word "stabilising". His language would have been blunter and more precise. "Stabilising" is a jargon word, to hide cuts in most of the major public services. I hope that the Government will make it clear that they are cutting public expenditure and social services to increase spending on defence and what is called law and order.

It does not seem to be a very precise phrase.

The Financial Secretary, at that famous press conference, is reported as having described the White Paper as a bonus. The British people can do without the hon. Gentleman's bonuses. In public expenditure, monetary policy, for which I gather he is responsible, and exchange controls, for which I also gather he is responsible, we are paying and shall be paying quite a lot for some of his "bonuses". No doubt before long we shall have another bonus in the shape of a change of these plans and those for the next four years.

Our first major criticism of the plans in the White Paper is that the Government's priorities are wrong and unjust. All major decisions on public expenditure involve a decision on priorities, and that should be so in a democracy. However, this Government have clearly shown where their priorities lie. For this Government soldiers are more important than teachers and policemen are more valuable than social workers. Old people's homes, services for the mentally and physically handicapped, libraries, teachers, schools and health care have to take second place to the Tory leadership's basic primeval instincts.

Is the right hon. Gentleman aware of a remark made by his right hon. Friend the Member for Leeds, East (Mr. Healey) when he was Secretary of State for Defence some years ago? As the responsible Minister he argued the need for adequate defence expenditure, and said that without it there would be no hospitals or schools, only ashes.

No one is denying that we need adequate defence expenditure. The question is whether, in a recession, we should cut social services, and whether it is a right use of money and displays a right sense of priorities to spend £250 million at this year's prices on defence. The priorities are wrong.

The Treasury has no control over the £250 million spent on defence. Once the Cabinet sanctions the £250 million, that goes to the Ministry of Defence and that is an end of the matter. I would guess that two-thirds of that money will not go towards what most people call defence. Most of it will go on administration, bureaucracy and new cars for generals and admirals. Only a small proportion will go towards what is generally thought of as defence. If the Government are concerned about waste and want to save money, they should start with the Ministry of Defence. They could then save a large chunk of that £250 million. The Chief Secretary was at pains to point out in his statements on the White Paper that the Tory manifesto contained a commitment to increase defence spending. That was the ultimate justification of the expenditure—that it was in the manifesto.

Like all Tory manifestos, it fell short of the whole truth. It said nothing about the fact that increased defence spending was to be met by higher prescription charges, withdrawing services from the sick and disabled, and cutting education. When we pointed out in our election campaign that Tory plans meant increased prescription charges, it was branded as a Labour lie. At least the British public now know who was telling lies in the election campaign.

I believe that the Government's argument is that the prospects for growth do not justify keeping to the previous Government's spending plans. However, it is not clear why the Government want to cut public expenditure. The Chief Secretary takes the fundamental view that it has something to do with freedom and rolling back the frontiers of the public sector and is not so much about growth. Other right hon. and hon. Gentlemen talk about growth, and the Government are confused in their approach to public expenditure. They are not sure whether it should be based on growth, ideology or a little bit of both.

There will be no growth next year. There will be a fall in output. Leaving aside world recession, the major internal reason for that fall is the fiscal and monetary policy of the Government. They have stopped growth, and cannot wreak vengeance on the public sector, especially the more vulnerable parts, for their own misdeeds. They introduced a Budget in which there was no balance between fiscal and monetary policy, and that is where the real problem starts. They are now caught in a difficult situation because they prevented growth in the public and private sector. There will be no growth in the public sector because ideologically the Government do not believe in growth there. There will be no growth in the private sector because their monetary policies have killed that prospect stone dead.

Since taking office, the Government have been responsible for policy decisions that will increase the RPI by about 7 per cent. Instead of the RPI being about 12 per cent., the underlying rate, the Government, through the Budget, various other proposals and the White Paper, will increase the RPI by about 7 per cent. That means that we shall soon be seeing an RPI of about 20 per cent. Having done that, they intend to impose a monetary target of about 7 per cent.—or perhaps even less—which they will strive to achieve. No other country in the developed world, taking Germany and Switzerland as the main proponents of monetarist policy, has an inflation rate that is three times its monetary target. It is not a sensible way to run a monetary policy.

The hon. Member for Wolver Hampton, South-West has now left the Chamber. I disagreed with him in that I would not advocate what the Germans are doing. Their monetary target is higher than their RPI. I believe that monetary targets should be below the rate of inflation by a few percentage points. However, this Government do not practise sensible monetarism. It is a sort of "punk" form of monetarism. Indeed, I should have thought that Mr. Milton Friedman would not wish to be seen in public with the Treasury Ministers, after what they have done to monetary policy.

There is room for a sensible monetary policy but this Government, having deliberately made inflation worse, having said that they would squeeze inflation out of the system—in fact they have squeezed it into the system—and having tightened the monetary target, will reap the consequent effects on growth and employment. One irony of that is that the Government's economic policies are causing an increase in public expenditure in totally unproductive areas. According to the White Paper, the two largest increases of next year, at this year's prices, will be £250 million for defence and £300 million for social security. Those increases will result largely from unemployment—most of it as a result of the White Paper.

It is a sad commentary on the priorities of the Government that the two largest increases in public expenditure next year will be on armaments and on dole queues. That is what the public expenditure White Paper says. Next year, debt interest will increase by £100 million at today's prices—no doubt, it will be higher after the higher interest rates. In effect, the higher mortgage rate will increase public expenditure. It is tax expenditure but it has the same effect on the Government's revenues. Therefore, we find that, because of their policies, the Government are increasing public expenditure in completely unproductive areas.

By putting up the RPI to 17 per cent. they will make it difficult and costly to fund social security payments and pensions. Of course, all the other social services will have to pay for that. If the Government had forgone the £250 million increase in defence and pursued a more sensible monetary policy, most of the cuts that we are debating tonight would never have happened. Most of the increases are caused by the Government's own decisions. The public sector borrowing requirement would have been no different next year, even if the cuts had not taken place. A more prudent policy would have provided for fewer cuts.

With a more prudent approach towards inflation and with sensible fiscal and monetary policies we could have seen a modest growth in the public and private sectors next year, instead of the misery which will follow the Government's poli- cies. The final irony is that, despite the cuts, there will be a higher PSBR next year. I thought that the reason for the cuts was to reduce the PSBR because, apparently, a high PSBR causes inflation. If we are not to have a higher PSBR I hope that the Financial Secretary will tell us so. I do not ask him to provide figures for next year. It is a difficult calculation and I do not believe that it can be made precisely. However, we should be told whether the Government believe that it will be less next year than this year.

I shall quote from the speech of the Chancellor of the Exchequer in the public expenditure debate on 19 March. This is what he said, lecturing us in opposition:
"Alongside declining money supply targets, the real and money size"—
I hope that the Chief Secretary will note that distinction. Last week, he gave me an answer that indicated that he was concerned with one part only. The right hon. and learned Gentleman continued:
"of the public sector borrowing requirement should also be planned to reduce year on year."—[Official Report, 19 March 1979;Vol. 964, c. 1134.]
Is that the Government's policy? It seems that Conservative Members hope that is. Perhaps the Financial Secretary can tell us whether it is the Government's policy that there should be a real and monetary reduction in the size of the PSBR. How does he see the PSBR next year? Will it be higher or lower? I am not asking for figures, but he should tell the House his views about the PSBR, since this is an important matter.

We do not object to a higher PSBR next year. We agree with the Government's chief economic adviser, who also believes in a higher PSBR. The only difference between us is that in my opinion a higher PSBR next year as a consequence of unemployment is quite unacceptable, but a higher PSBR in order to avoid unemployment is another matter, and we would support that.

Another argument that I am told is raging in the Treasury relates to the publication of monetary and PSBR targets. I hope that the Government will not listen to the hon. Member for Knutsford (Mr. Bruce-Gardyne), who is not present at the moment, and who, I gather, is driving the Treasury to distraction by trying to insist on the publication of a four-year programme for PSBR targets. That makes no sense at all. In fact, it would be like turning a PSBR target into some kind of immutable gold standard and trying to negotiate and navigate the economy in relation to that. It would create further havoc in the British economy. I do not think that even this Government would be so foolish as to publish fixed targets for the PSBR over a three or four-year period. I hope that the Government will not be tempted into doing that.

The White Paper—and the amendment reflects this—does nothing to alleviate the worst problems of the British economy. It will make inflation worse. The Chief Secretary gave a figure of a 1 per cent. increase, but when I asked him to break it down between increased rents, nationalised industry charges and health charges he was unable to do so. I believe that it will increase the RPI by almost 2 per cent. Therefore, that is another twist to inflation. It is another deliberate decision that will put up inflation, whereas the Government should be doing everything possible to reduce the RPI.

The Chief Secretary mentioned a figure of 300,000 for unemployment. Whether that is a natural consequence of the White Paper or not, there will be an increase of about 300,000 in unemployment, probably more. Of course, the White Paper does nothing to improve productivity, because by preventing the growth of British industry it makes our productivity even worse.

None of the problems facing the British economy—inflation, unemployment or productivity—are improved. They are made worse by this White Paper. That makes us wonder why the Government have come forward with the White Paper at all. What good will it do to the economy? It will not reduce the PSBR or interest rates and it will not help employment or productivity. What is its purpose? Why is the Financial Secretary trying to defend this White Paper which is damaging to the prospects of the British economy? If further cuts are on the way, they will merely exacerbate the situation without producing any corresponding growth in the private sector.

Perhaps the greatest condemnation of all is the total disregard of social justice in the White Paper's priorities. I take the example of a farm worker, which is quite relevant for this purpose because the cuts will affect people in rural areas. The Chief Secretary has told us that he is a country boy at heart and that he was brought up in rural Somerset. A farm worker with two children will be worse off by about £9 a week as a result of the White Paper, especially because of the cuts in school transport, school milk and school meals. I do not know how many farm workers Conservative Members have in their constituencies, but perhaps they should explain to them how they can support a White Paper that causes a person whose income is pretty low anyway to be worse off by £9 a week.

The hon. Member for Knutsford wrote an article in the Sunday Telegraph on 4 November in relation to the public expenditure White Paper. The headline was:
"A courageous brake on the gravy train".
Conservative hon. Members should try to explain that to their constituents. According to the Budget a man on £20,000 a year was supposed to be £40 a week better off. This White Paper means that someone as badly paid as the farm worker will lose £9 a week.

What kind of social justice is that? Why does the Tory Party always knock the poorest members of our society? If there are to be further public expenditure cuts, as I think there probably will be, and if income tax rises after the next Budget, which is a possibility, I hope that it rises in the same proportion for everyone. I hope that there are not tax increases for some people while the rate for those on top incomes stays where it is. If, in the Budget, the wealthy get remission of capital taxes—we are told, despite our problems, that this plan is going ahead—the Government will cause a bitterness and resentment that will take a long time to heal.

It is rumored that some members of the Cabinet do not approve of the Treasury approach. They are few, and they are afraid to speak; they are afraid of the Prime Minister's tongue. Perhaps they should take their cue from the President of France and the Chancellor of West Germany, who manage the right hon. Lady quite well. I hope that those few members of the Cabinet get some encouragement, because they must be worried by the Government's Gadarene rush to disaster. I hope that they will speak up. If they do not speak up soon, and if there is not a change soon, it will be too late. The damage that will have been done to the social and economic fabric of this country will be irreparable.

I tell the Government that it is not too late. They can still change. They can increase their monetary targets and reject the silly course of cutting public expenditure. There is little left to cut. There is no more waste to be attacked. Rather than go for more cuts, the Government should concentrate on reducing inflation and getting unemployment down. If they do not do those things they will destroy British industry. There will be little industry left.

9.27 pm

We have had the wide-ranging debate that is customary on public expenditure White Papers. We have had a full range of views from my right hon. and hon. Friends and I have listened carefully to the points that have been made. Many of my hon. Friends called for further economies in public expenditure. I noted their views. One theme was strikingly clear, and that was the support expressed throughout the debate for the Government's policies.

Right hon. and hon. Members in opposition are unaccustomed to such support. They no doubt wish that they had had such support for their policies—that is, if they knew what those policies were. We heard a much greater diversity of view expressed by right hon. and hon. Members on the Labour Benches. That is not surprising.

There was an extraordinarily intemperate attack on what has been described as "monetarism", as if this concept were a strange ideological quirk of the Treasury. My hon. Friend the Member for Wolver Hampton, South-West (Mr. Budgen) pointed out that the right hon. Member for Leeds, East (Mr. Healey) pursued a monetarist policy through most of his period as Chancellor of the Exchequer. Today his right hon. and hon Friends attacked monetarism root and branch.

One of the oddest attacks in the debate came from the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), who was my predecessor as Financial Secretary to the Treasury. He worked himself up into a positive frenzy as he attacked the policy which he supported, as a member of the Treasury team led by the right hon. Member for Leeds, East. Had the right hon. Member been an honest man, he would have resigned instead of suffering in silence during that time and waiting to unburden himself today.

The right hon. Gentleman was also very revealing in another matter. He informed the House that if there were ever a prospect of another Labour Government's being elected there would be a massive run on the pound. At least it was frank of him to admit it.

The hon. Gentleman must not misquote everything that I say. My point was that it would come either from his Government's realising their mistake or the anticipation of the change if we were to come into power.

Those who were in the Chamber when the right hon. Gentleman spoke will know precisely what he said. We shall be able to read in Hansard tomorrow that he said that if there were the prospect of a Labour Government it would lead to a run on the pound.

The other reason why it is so strange to have these attacks on monetarism, as if it were a strange oddity of the present Government's Front Bench, is that it is the ruling economic philosophy throughout the Western world at present. Every Western country is pursuing a monetarist policy—not least the United States. Are Labour right hon. and hon. Members unaware of the measures that Mr. Paul Volcker is pursuing at the Federal Reserve Board in the United States? These are monetarist measures. Throughout the world there is this consensus. The only people who are out of step are the Opposition.

We had a particularly disgraceful speech from the hon. Member for Oldham, West (Mr. Meacher). I am sorry that the hon. Gentleman appears not to be present now. He made two accusations. First, he accused Treasury Ministers of having cooked the books for the forecast, because we did not take the figures straight off the computer. Anybody who knows anything about the subject knows that there is an element of judgment in the figures. There was when the Opposition were doing it. Nobody at the Treasury believes that one takes the forecasts straight off the computer and prints them just like that. Judgment must be applied.

The fact is that we have published a forecast which shows a greater degree of recession—a 2 per cent. drop in gross domestic product—than any of the outside forecasting bodies. It is greater than the London Business School's and much greater than that of the National Institute of Economic and Social Research. The idea that it was propagandist cooking of the books is unworthy of the Opposition.

The hon. Gentleman made an even more disgraceful statement when he ended by appealing to the workers to take industrial action to force a change of policy on the Government. All that I will say to him is that the members of the National Union of Mineworkers show a great deal more common sense and wisdom than he does.

I come to the right hon. Member for Llanelli (Mr. Davies), who asked me a number of questions. I shall do my best to answer some of them. I cannot answer all of them, because his speech was nothing but a string of questions—except his peroration, where he worked himself up into his usual Welsh hwyl.

The hon. Gentleman referred to the National Union of Mineworkers. Does he accept that its ballot signifies the democratic strength that is its basis? The hon. Gentleman also referred to monetarism throughout Europe. Does he realise the dangers for the NUM of his Government's policy on coking coal for the steel industry? Will he explain how Germany can subsidise steel to the extent of £28 a tonne when his Government are closing pits because of the policy?

I should be out of order if I were to discuss German policy on coking coal but I am sure that the House has listened carefully to the hon. Gentleman.

The right hon. Member for Llanelli has shown throughout his speech that his great difficulty is that he cannot reconcile himself to the fact that the electorate rejected him and his policies on 3 May. He now spends his time crying foul.

We put forward our policies before the election. We were elected on those policies. We told the truth. The right hon. Gentleman also said that interest rates are totally unaffected by the level of public borrowing. That is not the case. He must know that, other things being equal, the greater the level of public borrowing, the greater is the level of interest rates. That is one of the major factors behind the need to bring down over a period of time the level of public borrowing.

The right hon. Gentleman asked about the nature of the White Paper.

Is it the policy of the Government to bring down year after year, presumably, the level of the public sector borrowing requirement?

I shall deal with that matter in more detail later.

The right hon. Gentleman asked why the paper was rushed out now. To use his own words, the reason why it has been rushed out now—that was the extent to which I called it a bonus—is that it is a major change of course from the proposals of the previous Government. The cuts are not being imposed in a crisis, as happened with the previous Government when the IMF imposed cuts. It is a deliberate act of policy. That being so, it was sensible to give the local authorities, which have the responsibility for carrying out the policy set down and which have to work within the cash limits, the greatest possible advance notice of the figures. It was sensible, practical and helpful and appreciated by the local authorities concerned.

The right hon. Gentleman asked why it was not a full White Paper. A White Paper dealing with future years will be published in due course. That will carry a great deal more information than is contained in the White Paper for the year 1980–81.

The right hon. Gentleman also asked about our net contribution to the European Community, and how that fitted in with the White Paper. There is a convention in White Papers, as he knows, that the figure put into the White Paper is that based on present policies. Under present policies of the European Community we have to pay this inordinate sum of over £1,000 million in 1980–81. Thanks to the heroic efforts of my right hon. Friend the Prime Minister, we are already well on our way to a substantial reduction. As the right hon. Gentleman knows, my right hon. Friend secured in Dublin the offer of a reduction of £350 million, and she will not rest until she has secured a substantially bigger reduction. That is far more than the Opposition ever secured. They secured a substantial increase in Britain's contribution to the Community budget.

The right hon. Member for Llanelli also made comparisons between Britain's public expenditure and the average in other European Community countries. He must be aware that the healthier an economy is, the bigger the burden of public expenditure that it can bear. Our burden is far too great for us to bear. It is impeding the health and progress of our economy. We must get the economy right first. The right hon. Member for Heywood and Royton (Mr. Barnett) argued that time and time again when he was in government.

It is also claimed that no other country is pursuing a monetary policy under which the target rate of monetary growth is one-third of the inflation rate. That arithmetic is a little curious. The rate of inflation is about 17½per cent. and the target rate for monetary growth is 9 per cent. per annum.

The hon. Gentleman has just committed himself and his Government, in the last change in MLR, to keep the rate of monetary growth next year at an average of 7 per cent., if he is to achieve the target for the last 18 months, and to 4 per cent. after the abolition of exchange controls. The hon. Gentleman must know those are the facts.

I am aware of that. We published that ourselves. The figure for the period from last June to next October is, as the right hon. Gentleman knows, a central point of 9 per cent. per annum.

The monetary growth has been running at 17 per cent. since the Government took over. Therefore, to keep within the 7 per cent. to 11 per cent. limit which was set earlier in the year, we shall have to have an average of only 7 per cent.—or on the other assumption 4 per cent.—in the 12 months to next October. Does the hon. Gentleman agree that that is fact?

The figure will have to be 9 per cent. for the whole period and a little over 7 per cent. from October to October. We have made that absolutely clear. That deals with one particular period alone.

The right hon. Member for Leeds, East is bobbing up and down like a yo-yo. The right hon. Gentleman ended his speech by acknowledging rather ruefully that there has not yet been a U-turn by this Government. I understand his disappointment, because he has been confidently predicting and hoping for one. There has not been a U-turn nor will there be. Of course our policies will take time to bear fruit. We have made that clear all the way along. If right hon. and hon. Members doubt that, I could quote speeches in which my right hon. Friends and I have made that abundantly clear, before the election and after it.

There was an element of hysteria in some of today's speeches by Opposition Members. Some of them gave the impression that everything was all right until 3 May, that there was nothing wrong with our public services, nothing wrong with our economy and that suddenly everything went wrong after that date. A more dispassionate analysis is called for. The House should ask why in the last 15 years—when there has been a Labour Government for most of that time—there has been such a lamentable decline in the standard of our public services, especially in the last five years.

There are three reasons. The first is that we have failed to secure the economic growth upon which the growth of public services must be based. It is essential that our policies are designed to secure in the long term greater economic growth through an improvement in the supply side of the economy. We must not throw money away on public projects when the economy cannot bear that burden of public expenditure.

Hon. Members have been particularly worried about health and social services, and education. Those services have deteriorated because an ever larger share of public expenditure has been taken by cash benefits for social security. That is a fact. It is no use hon. Members blinking at that fact. Table 2 of the White Paper shows that between 1974–75 and today there was no growth in total public expenditure in volume terms. Yet social security, the biggest programme of all, has increased by 36 per cent. or £5 billion at 1979 survey prices. I know that there were some special factors such as the switch to child benefit and so on, but nevertheless there has been a substantial rise in social security to over 25 per cent. of total public expenditure.

That is why, within a flat total for public expenditure, the public services as such have been held back. The people of this country have a choice and they are entitled to make that choice either way. But they must recognise the reality.

As unemployment will rise under the present Government's policy, will not the total of cash benefits rise even faster?

The right hon. Member for Battersea, North (Mr. Jay) should know that unemployment benefit is only a very small part of the total social security cash benefit programme.

There is a third reason—this is a serious matter, because we, too, are concerned about the level of public services—why the level of public services has been so disappointing in recent years. It is what has happened to public sector pay. By that I mean the total pay bill, taking account of the numbers employed. At a time when there was no overall increase in employment between 1973 and 1978, the total number employed in the public sector increased by 9 per cent.

Does the hon. Gentleman intend to cut benefits, because that is the whole burden of his argument?

I said nothing of the sort. What I said was that a choice has to be made. The same pound cannot be spent twice, and if public expenditure on cash benefits increases there will inevitably be less for the public services, properly defined.

Public sector pay is a real problem. Our public expenditure plans are set out in this White Paper. The extent to which those plans can be implemented will depend on economic developments and, in particular, the rate of inflation of public sector costs. That is a statement of fact.

There is no escaping the laws of arithmetic. If public sector costs were allowed to increase beyond the amount allowed for in cash limits and thus increase the public sector borrowing requirement, it could only lead to yet higher inflation. The Government are bound to stop that from happening. That means cutting back expenditure in other ways. It is only by recognising this fact of life that we can reduce inflation and start the process of revitalising our economy.

Again, there is a choice that has to be made. That choice faces spending authorities and wage negotiators throughout the public sector. It is the choice between controlling cost increases—pay is the element of cost most directly within the control of an authority—and controlling the size and quality of public services.

If spending authorities incur cost increases beyond the level provided for in the cash limits, those services are bound to suffer. Wage negotiators in the public sector must realise that they are negotiating about jobs and public services when they negotiate on pay. The higher the settlement the fewer the jobs and the poorer the service.

This analysis is not new. The right hon. Member for Leeds, East will be aware that he told the House clearly on 25 January this year what the relationship was between public services and wage increases. And his right hon. Friend the Member for Heywood and Royton continued to preach this, even after the change of government to his great credit. In an article in The Guardian on 19 June, a newspaper which he is so fond of hearing about, he said—

There is a crucial element in this, and that is the adjudication of the good Dr. Clegg. Would my hon. Friend tell the House how, exactly, we propose to accommodate or control the activities of Professor Clegg and the sort of settlements he is making?

The problems of public sector pay are as I described them, whether they emerge from the Clegg Commission or any other forum.

I return to my quote from the right hon. Member for Heywood and Royton, who said:
"Trade union leaders, Labour back benchers and indeed the whole Labour movement accused me often enough of using cash limits as a means of making cuts…that charge should be levelled at those responsible for breaching the cash limts in the first place."
That is quite right. There is no greater hypocrisy than the complaints and demonstrations by public service unions against cuts which are the direct consequence of pay settlements that they have insisted upon. Last winter they showed a callousness in securing those pay settlements which will for ever remain a blot on the history of the trade union movement in this country.

The laws of arithmetic apply in the public sector as well as in the private sector. They apply to this Government as well as to our predecessors. But unlike our predecessors we shall not seek to put off the day of reckoning in the vain hope that in the meantime the laws of arithmetic will be suspended. The British economy has suffered enough from that sort of irresponsibility. There is no escaping the fact that the more the public services are run for the benefit of those who work in them, the less they can be run for the benefit of the public whom they purport to serve.

One of the themes running through this debate has been the question of an alternative strategy. My hon. Friend the Member for Plymouth, Sutton (Mr. Clark) put forward his well-known views in favour of protection. That view is shared by half the Labour Party. He misunderstands the nature of our problems if he imagines that at the heart of them there is a balance of payments difficulty. That is not the heart, the guts and core of the British economic problem. Protection would do nothing to improve the efficiency of British industry, which is much closer to the heart of our troubles.

As the total inadequacy of the speech of the right hon. Member for Llanelli (Mr. Davies) gave my hon. Friend an extra three minutes, perhaps he will allow me to correct the impression that he gave because he slightly misrepresented the case that I put. If we have a 17 per cent. interest rate and ruthless monetary policies which drive British industry into bankruptcy, foreign imports will take the place of the goods that we no longer make. Protection does not necessarily bring with it all the impediments of Socialism. All we need is a proper Tory policy of import controls.

With great respect to my hon. Friend, I shall now turn to the right hon. Member for Leeds, East. He paid lip service to the need for monetary control, but then he complained that the Government's monetary policy was too restrictive and that the PSBR should be increased. At least he is consistent because now he wants both monetary and fiscal policies to be inflationary. How high does he want the PSBR to be? Higher than £9·5 billion? He quoted a figure from the London Business School of £11 billion. I wonder whether he thinks that is high enough. We have said quite clearly about the PSBR in the Industry Act forecast and I quote:

"The objective for the public sector borrowing requirement in 1980–81 will be determined at the time of the Budget in the light of developments in the economy, and above all of the requirements for meeting Government's monetary target."
In that forecast we made it quite clear that the state of the economic cycle also had a bearing on the public sector borrowing requirement.

Does that mean that it is not the Government's policy that there should be a gradual annual reduction in the public sector borrowing requirement?

During the 1960s the PSBR averaged about 2½per cent. of GDP and never went above 4 per cent. During the 1970s, mainly under the Labour Government, it ranged from 3 per cent. to 11 per cent., of GDP. It is now 4½per cent. We must get it back over a period of time to its level of the 1960s.

The right hon. Gentleman also said that the Government's policies and the policies in the White Paper would cause unemployment. That really is monstrous in view of what I read from this great work "What Went Wrong?", with the picture of the Leader of the Opposition on the front. One chapter, by Francis Cripps and Frances Morrell, who I think are friends of the Opposition, says:
"When Labour took office in February 1974, unemployment stood at half a million. When Labour left office in March 1979 unemployment was 1¼million and was expected to rise to 2 million within two or three years."
That is an example of the hypocrisy of the right hon. Gentleman in even raising the subject of unemployment. There was also hypocrisy in his statement that the Government had been responsible for increasing inflation by raising nationalised industry prices. Has he forgotten what he said in his Budget speech in 1975? He said that increases in nationalised industry prices, far greater than we have indicated, were:
"an essential feature in bringing commercial criteria to bear on the industries' investment programmes."—[Official Report, 15 April 1975;Vol. 890, c. 291.]
The White Paper which he put out as recently as last year on the nationalised industries said this:
"The Government intends that the nationalised industries will not be forced into deficits by restraints on their prices. When help has to be given to poorer members of the community it will be given primarily through the social security and taxation systems and not by subsidising nationalised industry prices."
Let us have no more hypocrisy about that either.

He also claimed, with great panache, that he had succeeded in financing an even bigger public sector borrowing requirement than this one, in a non-inflationary way. Of course he did—by running up massive overseas debts and by stuffing the institutions in this country with so much gilt-edged stock that he made the funding policies of this Government very much harder to carry out.

We all know what is behind the synthetic indignation. What is behind it is the fact, as is shown in the book from which I quoted, that the members of the Opposition are all at odds with each other. They have no policy on which

Division No. 120


[10 pm

Adams, AllenBray, Dr JeremyConcannon, Rt Hon J. D.
Allaun, FrankBrown, Hugh D. (Proven)Conlan, Bernard
Alton, DavidBrown, Robert C. (Newcastle W)Cowans, Harry
Anderson, DonaldBrown, Ron (Edinburgh, Leith)Crowther, J. S.
Archer, Rt Hon PeterBuchan, NormanCryer, Bob
Armstrong, Rt Hon ErnestCallaghan, Rt Hon J. (Cardiff SE)Cunliffe, Lawrence
Ashley, Rt Hon JackCallaghan, Jim (Middleton &P)Cunningham, George (Islington S)
Ashton, JoeCampbell, IanCunningham, Dr John (Whitehaven)
Atkinson, Norman (H'gey, Tott'ham)Campbell-Savours, DaleDalyell, Tam
Barnett, Guy (Greenwich)Canavan, DennisDavidson, Arthur
Barnett, Rt Hon Joel (Heywood)Cant, R. B.Davies, Rt Hon Denzil (Llanelli)
Beith, A. J.Carmichael, NellDavies, Ifor (Gower)
Benn, Rt Hon Anthony WedgwoodCarter-Jones, LewisDavis, Clinton (Hackney Central)
Bennett, Andrew (Stockport N)Cartwright, JohnDavis, Terry (B'rm'ham, Stechford)
Bidwell, SydneyClark, Dr David (South Shields)Deakins, Eric
Booth, Rt Hon AlbertCocks, Rt Hon Michael (Bristol S)Dean, Joseph (Leeds West)
Boothroyd, Miss BettyCohen, StanleyDempsey, James
Bottomley, Rt Hon Arthur (M'brough)Coleman, DonaldDewar, Donald

they can agree. The booklet "What Went Wrong?", which was published by the Institute for Workers' Control, says:

"The political context in which first Mr. Wilson and later Mr. Callaghan drifted further and further into difficulty while the surrounding economic circumstances steadily worsened, is carefully documented in this book."

Indeed it is.

Which half of the Opposition is the Official Opposition? The truth of the matter was pointed out by the former deputy leader of the Labour Party, Mr. Roy Jenkins, in the Dimbleby lecture recently. He said that Labour had become a coalition which locked

"incompatible people and, still more important, incompatible philosophies, into a loveless, constantly bickering and debilitating marriage."

The truth of the matter is this. The Opposition, bitterly divided among themselves on the most fundamental issues of policy and of political philosophy, are now seeking a spurious unity in a sterile and negative attack on the Government's policies, even though the knives that the brothers plunge into each other's backs are far sharper than the Treasury's axe. I commend the White Paper to the House tonight. It is the only policy before the nation—the only policy that will stop inflation.

It is an extraordinary fact that we have heard a great deal about recession and unemployment—very serious matters—in this debate. However, we have heard nothing from the Opposition about inflation, which is the core of our disease and which this White Paper is taking a step to eradicate.

Question put, That the amendment be made:—

The House divided :Ayes 249, Noes 302.

Dixon, DonaldJones, Dan (Burnley)Roberts, Gwilym (Cannock)
Dobson, FrankKaufman, Rt Hon GeraldRobertson, George
Dormand, JackKerr, RussellRobinson, Geoffrey (Coventry NW)
Douglas, DickKilfedder, James A.Rodgers, Rt Hon William
Douglas-Mann, BruceKilroy-Silk, RobertRooker, J. W.
Dubs, AlfredKinnock, NeilRoss, Ernest (Dundee West)
Duffy, A. E. P.Lambie, DavidRoss, Stephen (Isle of Wight)
Dunn, James A. (Liverpool, Kirkdale)Lamborn, HarryRowlands, Ted
Dunnett, JackLamond, JamesRyman, John
Dunwoody, Mrs. GwynethLeadbitter, TedSever, John
Eastham, KenLeighton, RonaldSheerman, Barry
Edwards, Robert (Wolv SE)Lestor, Miss Joan (Eton &Slough)Sheldon, Rt Hon Robert (A'ton-u-L)
Ellis, Raymond (NE Derbyshire)Lewis, Ron (Carlisle)Shore, Rt Hon Peter (Step and Pop)
Ellis, Tom (Wrexham)Litherland, RobertShort, Mrs Renée
English, MichaelLofthouse, GeoffreySilkin, Rt Hon John (Deptford)
Ennals, Rt Hon DavidLyon, Alexander (York)Silkin, Rt Hon S. C. (Dulwich)
Evans, loan (Aberdare)Lyons, Edward (Bradford West)Silverman, Julius
Evans, John (Newton)McCartney, HughSkinner, Dennis
Ewing, HarryMcDonald, Dr OonaghSmith, Cyril (Rochdale)
Field, FrankMcElhone, FrankSmith, Rt Hon J. (North Lanarkshire)
Fitch, AlanMcKay, Allen (Penistone)Snape, Peter
Flannery, MartinMcKelvey, WilliamSoley, Clive
Fletcher, L. R. (Ilkeston)MacKenzie, Rt Hon GregorSpearing, Nigel
Fletcher, Ted (Darlington)Maclennan, RobertSpriggs, Leslie
Foot, Rt Hon MichaelMcMillan, Tom (Glasgow, Central)Stallard, A. W.
Ford, BenMcWilliam, JohnSteel, Rt Hon David
Forrester, JohnMagee, BryanStewart, Rt Hon Donald (W Isles)
Foulkes, GeorgeMarks, KennethStoddart, David
Fraser, John (Lambeth, Norwood)Marshall, David (Gl'sgow, Shettles'n)Stott, Roger
Freeson, Rt Hon ReginaldMarshall, Dr Edmund (Goole)Strang, Gavin
Garrett, John (Norwich S)Martin, Michael (Gl'gow, Springb'rn)Straw, Jack
Garrett, W. E (Wallsend)Mason, Rt Hon RoySummerskill, Hon Dr Shirley
George, BruceMaxton, JohnTaylor, Mrs Ann (Bolton West)
Glibert, Rt Hon Dr JohnMaynard, Miss JoanThomas, Jeffrey (Abertillery)
Ginsburg, DavidMeacher, MichaelThomas, Mike (Newcastle East)
Golding, JohnMellish, Rt Hon RobertThomas, Dr Roger (Carmarthen)
Gourlay, HarryMikardo, IanThorne, Stan (Preston South)
Grant, George (Morpeth)Millan, Rt Hon BruceTilley, John
Grant, John (Islington C)Mitchell, R. C. (Solon, Itchen)Torney, Tom
Hamilton, James (Bothwell)Morris, Rt Hon Alfred (Wythenshawe)Varley, Rt Hon Eric G.
Hamilton, W. W. (Central Fife)Morris, Rt Hon Charles (Openshaw)Wainwright, Edwin (Dearne Valley)
Harrison, Rt Hon WalterMorris, Rt Hon John (Aberavon)Wainwright, Richard (Colne Valley)
Hart, Rt Hon Dame JudithMorton, GeorgeWalker, Rt Hon Harold (Doncaster)
Hattersley, Rt Hon RoyMoyle, Rt Hon RolandWatkins, David
Haynes, FrankNewens, StanleyWeetch, Ken
Healey, Rt Hon DenisOakes, Rt Hon GordonWellbeloved, James
Heffer, Eric S.Ogden, EricWelsh, Michael
Hogg, Norman (E Dunbartonshire)O'Halloran, MichaelWhite, Frank R. (Bury &Radcliffe)
Holland, Stuart (L'beth, Vauxhall)O'Neill, MartinWhite, James (Glasgow, Pollok)
Home Robertson, JohnOrme, Rt Hon StanleyWhitlock, William
Homewood, WilliamPalmer, ArthurWilley, Rt Hon Frederick
Hooley, FrankPark, GeorgeWilliams, Rt Hon Alan (Swansea W)
Horam, JohnParker, JohnWilliams, Sir Thomas (Warrington)
Howell, Rt Hon Denis (B'ham, Sm H)Parry, RobertWilson, Gordon (Dundee East)
Howells, GeraintPendry, TomWilson, Rt Hon Sir Harold (Huyton)
Huckfield, LesPenhaligon, DavidWilson, William (Coventry SE)
Hudson Davies, Gwilym EdnyfedPowell, Raymond (Ogmore)Winnick, David
Hughes, Mark (Durham)Prescott, JohnWoodall, Alec
Hughes, Robert (Aberdeen North)Price, Christopher (Lewisham West)Woolmer, Kenneth
Hughes, Roy (Newport)Race, RegWrigglesworth, Ian
Janner, Hon GrevilleRadice, GilesWright, Sheila
Jay, Rt Hon DouglasRees, Rt Hon Merlyn (Leeds South)Young, David (Bolton East)
John, BrynmorRichardson, Miss Jo
Johnson, James (Hull West)Roberts, Albert (Normanton)TELLERS FOR THE AYES:
Johnson, Walter (Derby South)Roberts, Allan (Bootle)Mr. Ted Graham and
Jones, Rt Hon Alec (Rhondda)Roberts, Ernest (Hackney North)Mr. Austin Mitchell.
Jones, Barry (East Flint)


Adley, RobertBenyon, W. (Buckingham)Bright, Graham
Alexander, RichardBest, KeithBrinton, Tim
Amery, Rt Hon JulianBevan, David GilroyBrittan, Leon
Ancram, MichaelBiffen, Rt Hon JohnBrooke, Hon Peter
Arnold, TomBiggs-Davison, JohnBrotherton, Michael
Aspinwall, JackBlackburn, JohnBrown, Michael (Brigg &Sc'thorpe)
Atkins, Rt Hon H. (Spelthorne)Blaker, PeterBrowne, John (Winchester)
Atkins, Robert (Preston North)Body, RichardBruce-Gardyne, John
Atkinson, David (B'mouth East)Bonsor, Sir NicholasBryan, Sir Paul
Baker, Kenneth (St. Marylebone)Boscawen, Hon RobertBuchanan-Smith, Hon Alick
Baker, Nicholas (North Dorset)Bottomley, Peter (Woolwich West)Buck, Antony
Beaumont-Dark, AnthonyBowden, AndrewBudgen, Nick
Bell, RonaldBoyson, Dr RhodesBulmer, Esmond
Bendall, VivianBradford, Rev. R.Burden, F. A.
Benyon, Thomas (Abingdon)Braine, Sir BernardButcher, John

Butler, Hon AdamHenderson, BarryNewton, Tony
Cadbury, JocelynHeseltine, Rt Hon MichaelNott, Rt Hon John
Carlisle, John (Luton West)Hicks, RobertOppenheim, Rt Hon Mrs Sally
Carlisle, Kenneth (Lincoln)Higgins, Rt Hon Terence L.Osborn, John
Carlisle, Rt Hon Mark (Runcorn)Hogg, Hon Douglas (Grantham)Page, Rt Hon R. Graham (Crosby)
Chalker, Mrs. LyndaHolland, Philip (Carlton)Parkinson, Cecil
Channon, PaulHooson, TomParris, Matthew
Chapman, SydneyHordern, PeterPatten, Christopher (Bath)
Churchill, W. S.Howe, Rt Hon Sir GeoffreyPatten, John (Oxford)
Clark, Hon Alan (Plymouth, Sutton)Howell, Rt Hon David (Guildford)Pattie, Geoffrey
Clark, Dr William (Croydon South)Howell, Ralph (North Norfolk)Pawsey, James
Clarke, Kenneth (Rushcliffe)Hunt, David (Wirral)Percival, Sir Ian
Clegg, WalterHunt, John (Ravensbourne)Pink, R. Bonner
Cockeram, EricHurd, Hon DouglasPollock, Alexander
Colvin, MichaelIrving, Charles (Cheltenham)Porter, George
Cope, JohnJenkin, Rt Hon PatrickPowell, Rt Hon J. Enoch (S Down)
Cormack, PatrickJohnson Smith, GeoffreyPrentice, Rt Hon Reg
Corrie, JohnJopling, Rt Hon MichaelPrice, David (Eastleigh)
Costain, A. P.Joseph, Rt Hon Sir KeithPrior, Rt Hon James
Cranborne, ViscountKaberry, Sir DonaldProctor, K. Harvey
Critchley, JulianKimball, MarcusPym, Rt Hon Francis
Crouch, DavidKing, Rt Hon TomRaison, Timothy
Dickens, GeoffreyKitson, Sir TimothyRathbone, Tim
Dorrell, StephenKnox, DavidRees, Peter (Dover and Deal)
Douglas-Hamilton, Lord JamesLamont, NormanRees-Davies, W. R.
Dover, DenshoreLang, IanRenton, Tim
du Cann, Rt Hon EdwardLangford-Holt, Sir JohnRidley, Hon Nicholas
Dunn, Robert (Dartford)Latham, MichaelRidsdale, Julian
Durant, TonyLawrence, IvanRifkind, Malcolm
Dykes, HughLawson, NigelRippon, Rt Hon Geoffrey
Eden, Rt Hon Sir JohnLee, JohnRoberts, Wyn (Conway)
Edwards, Rt Hon N. (Pembroke)Lennox-Boyd, Hon MarkRoss, Wm. (Londonderry)
Eggar, TimothyLester, Jim (Beeston)Rossi, Hugh
Elliott, Sir WilliamLewis, Kenneth (Rutland)Rost, Peter
Emery, PeterLloyd, Ian (Havant &Waterloo)Royle, Sir Anthony
Eyre, ReginaldLloyd, Peter (Fareham)Sainsbury, Hon Timothy
Fairbairn, NicholasLoveridge, JohnSt. John-Stevas, Rt Hon Norman
Fairgrieve, RussellLuce, RichardScott, Nicholas
Faith, Mrs SheilaLyell, NicholasShalton, William (Streatham)
Farr, JohnMcAdden, Sir StephenShepherd, Colin (Hereford)
Fenner, Mrs PeggyMcCrindle, RobertShepherd, Richard(Aldridge-Br'hills)
Finsberg, GeoffreyMcCusker, H.Silvester, Fred
Fisher, Sir NigelMacfarlane, NellSims, Roger
Fletcher, Alexander (Edinburgh N)MacGregor, JohnSkeet, T. H. H.
Fletcher-Cooke, CharlesMacKay, John (Argyll)Speed, Keith
Fookes, Miss JanetMacmillan, Rt Hon M. (Farnham)Speller, Tony
Forman, NigelMcNair-Wilson, Michael (Newbury)Spence, John
Fowler, Rt Hon NormanMcNair-Wilson, Patrick (New Forest)Sproat, Iain
Fox, MarcusMcQuarrie, AlbertSquire, Robin
Fraser, Rt Hon H. (Stafford & St)Madel, DavidStanbrook, Ivor
Fraser, Peter (South Angus)Major, JohnStanley, John
Fry, PeterMarland, PaulSteen, Anthony
Galbralth, Hon T. G. D.Marlow, TonyStevens, Martin
Gardiner, George (Reigate)Marshall, Michael (Arundel)Stewart, Ian (Hitchin)
Gardner, Edward (South Fyide)Mather, CarolStewart, John (East Renfrewshire)
Garel-Jones, TristanMaude, Rt Hon AngusStradling Thomas, J.
Glimour, Rt Hon Sir IanMawby, RayTapsell, Peter
Glyn, Or AlanMawhinney, Dr BrianTaylor, Robert (Croydon NW)
Goodhart, PhilipMaxwell-Hyslop, RobinTemple-Morris, Peter
Goodhew, VictorMayhew, PatrickThatcher, Rt Hon Mrs Margaret
Goodlad, AlastairMellor, DavidThomas, Rt Hon Peter (Hendon S)
Gorst, JohnMeyer, Sir AnthonyThompson, Donald
Gow, IanMiller, Hal (Bromsgrove &Redditch)Thome, Nell (Ilford South)
Gower, Sir RaymondMills, lain (Meriden)Thornton, Malcolm
Gray, HamishMiscampbell, NormanTownend, John (Bridlington)
Greenway, HarryMitchell, David (Basingstoke)Townsend, Cyril D, (Bexleyheath)
Griffiths, Eldon (Bury St Edmunds)Moate, RogerTrippier, David
Griffiths, Peter (Portsmouth N)Molyneaux, JamesTrotter, Neville
Grist, IanMonro, Hectorvan Straubenzee, W. R.
Grylls, MichaelMontgomery, FergusVaughan, Dr Gerard
Gummer, John SelwynMoore, JohnViggers, Peter
Hamilton, Hon Archie (Eps'm &SEw'll)Morgan, GeraintWaddington, David
Hamilton, Michael (Salisbury)Morris, Michael (Northampton, Sth)Wakeham, John
Hampson, Dr KeithMorrison, Hon Charles (Devizes)Waldagrave, Hon William
Hannam, JohnMorrison, Hon Peter (City of Chester)Walker, Rt Hon Peter (Worcester)
Haselhurst, AlanMudd, DavidWalker, Bill (Perth &E Perthshire)
Hastings, StephenMurphy, ChristopherWalker-Smith, Rt Hon Sir Derek
Havers, Rt Hon Sir MichaelMyles, DavidWall, Patrick
Hawksley, WarrenNeale, GerrardWaller, Gary
Hayhoe, BarneyNeedham, RichardWalters, Dennis
Heath, Rt Hon EdwardNelson, AnthonyWard, John
Heddle, JohnNeubert, MichaelWatson, John

Wells, Bowen (Hert'rd &Stev'nage)Wickenden, KeithYounger, Rt Hon George
Wells, John (Maidstone)Wiggin, Jerry
Wheeler, JohnWilliams, Delwyn (Montgomery)TELLERS FOR THE NOES:
Whitelaw, Rt Hon WilliamWolfson, MarkMr. Spencer Le Marchant and
Whitney, RaymondYoung, Sir George (Action)Mr. Anthony Berry.

Question accordingly negatived.

Main Question put:

Division No. 121]


10.15 pm

Adley, RobertDurant, TonyKaberry, Sir Donald
Alexander, RichardDykes, HughKimball, Marcus
Amery, Rt Hon JulianEden, Rt Hon Sir JohnKing, Rt Hon Tom
Ancram, MichaelEdwards, Rt Hon N. (Pembroke)Kitson, Sir Timothy
Arnold, TomEggar, TimothyKnox, David
Aspinwall, JackElliott, Sir WilliamLamont, Norman
Atkins, Rt Hon H. (Spelthorne)Emery, PeterLang, lan
Atkins, Robert (Preston North)Eyre, ReginaldLangford-Holt, Sir John
Atkinson, David (B'mouth East)Fairbairn, NicholasLatham, Michael
Baker, Kenneth (St. Marylebone)Fairgrieve, RussellLawrence, Ivan
Baker, Nicholas (North Dorset)Faith, Mrs SheilaLawson, Nigel
Beaumont-Dark, AnthonyFarr, JohnLee, John
Bell, RonaldFenner, Mrs PeggyLennox-Boyd, Hon Mark
Bendall, VivianFinsberg, GeoffreyLester, Jim (Beeston)
Benyon, Thomas (Abingdon)Fisher, Sir NigelLewis, Kenneth (Rutland)
Benyon, W. (Buckingham)Fletcher, Alexander (Edinburgh N)Lloyd, Ian (Havant &Waterloo)
Best, KeithFletcher-Cooke, CharlesLloyd, Peter (Fareham)
Bevan, David GilroyFookes, Miss JanetLoveridge, John
Biffen, Rt Hon JohnForman, NigelLuce, Richard
Biggs-Davison, JohnFowler, Rt Hon NormanLyell, Nicholas
Blackburn, JohnFox, MarcusMcAdden, Sir Stephen
Blaker, PeterFraser, Rt Hon H. (Stafford & St)McCrindle, Robert
Body, RichardFraser, Peter (South Angus)McCusker, H.
Bonsor, Sir NicholasFry, PeterMacfarlane, Nell
Boscawen, Hon RobertGalbraith, Hon T. G. D.MacGregor, John
Bottomley, Peter (Woolwich West)Gardiner, George (Reigate)MacKay, John (Argyll)
Bowden, AndrewGardner, Edward (South Fylde)Macmillan, Rt Hon M. (Farnham)
Boyson, Dr RhodesGarel-Jones, TristanMcNair-Wilson, Michael (Newbury)
Bradford, Rev. R.Gilmour, Rt Hon Sir IanMcNair-Wilson, Patrick (New Forest)
Braine, Sir BernardGlyn, Dr AlanMcQuarrie, Albert
Bright, GrahamGoodhart, PhilipMadel, David
Brinton, TimGoodhew, VictorMajor, John
Brittan, LeonGoodlad, AlastairMarland, Paul
Brooke, Hon PeterGorst, JohnMarlow, Tony
Brotherton, MichaelGow, IanMarshall, Michael (Arundel)
Brown, Michael (Brigg &Sc'thorpe)Gower, Sir RaymondMather, Carol
Browne, John (Winchester)Gray, HamishMaude, Rt Hon Angus
Bruce-Gardyne, JohnGreenway, HarryMawby, Ray
Bryan, Sir PaulGriffiths, Eldon (Bury St Edmunds)Mawhinney, Dr Brian
Buchanan-Smith, Hon AlickGriffiths, Peter (Portsmouth N)Maxwell-Hyslop, Robin
Buck, AntonyGrist, IanMayhew, Patrick
Budgen, NickGrylls, MichaelMellor, David
Bulmer, EsmondGummer, John SelwynMeyer, Sir Anthony
Burden, F. A.Hamilton, Hon Archie (Eps'm &Ew'll)Miller, Hal (Bromsgrove &Redditch)
Butcher, JohnHamilton, Michael (Salisbury)Mills, lain (Meriden)
Butler, Hon AdamHampson, Dr KeithMiscampbell, Norman
Cadbury, JocelynHannam, JohnMitchell, David (Basingstoke)
Carlisle, John (Luton West)Haselhurst, AlanMoate, Roger
Carlisle, Kenneth (Lincoln)Hastings, StephenMolyneux, James
Carlisle, Rt Hon Mark (Runcorn)Havers, Rt Hon Sir MichaelMonro, Hector
Chalker, Mrs. LyndaHawksley, WarrenMontgomery, Fergus
Channon, PaulHayhoe, BarneyMoore, John
Chapman, SydneyHeath, Rt Hon EdwardMorgan, Geraint
Churchill, W. S.Heddie, JohnMorris, Michael (Northampton, Sth)
Clark, Hon Alan (Plymouth, Sutton)Henderson, BarryMorrison, Hon Charles (Devizes)
Clark, Dr William (Croydon South)Heseltine, Rt Hon MichaelMorrison, Hon Peter (City of Chester)
Clarke, Kenneth (Rushcliffe)Hicks, RobertMudd, David
Clegg, WalterHiggins, Rt Hon Terence L.Murphy, Christopher
Cockeram, EricHogg, Hon Douglas (Grantham)Myles, David
Colvin, MichaelHolland, Philip (Carlton)Neale, Gerrard
Cope, JohnHooson, TomNeedham, Richard
Cormack, PatrickHordern, PeterNelson, Anthony
Corrie, JohnHowe, Rt Hon Sir GeoffreyNeubert, Michael
Costain, A. P.Howell, Rt Hon David (Guildford)Newton, Tony
Cranborne, ViscountHowell, Ralph (North Norfolk)Oppenheim, Rt Hon Mrs Sally
Critchley, JulianHunt, David (Wirral)Osborn, John
Crouch, DavidHunt, John (Ravensbourne)Page, Rt Hon R. Graham (Crosby)
Dickens, GeoffreyHurd, Hon DouglasParkinson, Cecil
Dorrell, StephenIrving, Charles (Cheltenham)Parris, Matthew
Douglas-Hamilton, Lord JamesJenkin, Rt Hon PatrickPatten, Christopher (Bath)
Dover, DenshoreJohnson Smith, GeoffreyPatten, John (Oxford)
du Cann, Rt Hon EdwardJopling, Rt Hon MichaelPattie, Geoffrey
Dunn, Robert (Dartford)Joseph, Rt Hon Sir KeithPawsey, James

The House divided: Ayes 301, Noes 232.

Percival, Sir IanShepherd, Richard(Aldridge-Br'hills)Vaughan, Dr Gerard
Pink, R. BonnerSilvester, FredViggers, Peter
Pollack, AlexanderSims, RogerWaddington, David
Porter, GeorgeSkeet, T. H. H.Wakeham, John
Powell, Rt Hon J. Enoch (S Down)Speed, KeithWaldegrave, Hon William
Prentice, Rt Hon RegSpeller, TonyWalker, Rt Hon Peter (Worcester)
Price, David (Eastleigh)Spence, JohnWalker, Bill (Perth & E Perthshire)
Prior, Rt Hon JamesSproat, lainWalker-Smith, Rt Hon Sir Derek
Proctor, K. HarveySquire, RobinWall, Patrick
Pym, Rt Hon FrancisStanbrook, IvorWaller, Gary
Raison, TimothyStanley, JohnWalters, Dennis
Rathbone, TimSteen, AnthonyWard, John
Rees, Peter (Dover and Deal)Stevens, MartinWatson, John
Rees-Davies, W. R.Stewart, Ian (Hitchin)Wells, John (Maidstone)
Renton, TimStewart, John (East Renfrewshire)Wells, Bowen (Hert'rd & Stev'nage)
Ridley, Hon NicholasStradling Thomas, J.Wheeler, John
Ridsdale, JulianTapsell, PeterWhitelaw, Rt Hon William
Rifkind, MalcolmTaylor, Robert (Croydon NW)Whitney, Raymond
Rippon, Rt Hon GeoffreyTemple-Morris, PeterWickenden, Keith
Roberts, Wyn (Conway)Thatcher, Rt Hon Mrs MargaretWiggin, Jerry
Ross, Wm (Londonderry)Thomas, Rt Hon Peter (Hendon S)Williams, Delwyn (Montgomery)
Rossl, HughThompson, DonaldWolfson, Mark
Rost, PeterThorne, Neil (Ilford South)Young, Sir George (Acton)
Royle, Sir AnthonyThornton, MalcolmYounger, Rt Hon George
Sainsbury, Hon TimothyTownend, John (Bridlington)
St. John-Stevas, Rt Hon NormanTownsend, Cyril D. (Bexleyheath)TELLERS FOR THE AYES:
Scott, NicholasTrippler, DavidMr. Spencer Le Marchant and
Shelton, William (Streatham)Trotter, NevilleMr. Anthony Berry.
Shepherd, Colin (Hereford)van Straubenzee, W. R.


Adams, AllenDouglas-Mann, BruceJanner, Hon Greville
Allaun, FrankDubs, AlfredJay, Rt Hon Douglas
Alton, DavidDuffy, A. E. P.John, Brynmor
Anderson, DonaldDunn, James A. (Liverpool, Kirkdale)Johnson, James (Hull West)
Archer, Rt Hon PeterDunnett, JackJohnson, Walter (Derby South)
Armstrong, Rt Hon ErnestDunwoody, Mrs. GwynethJones, Rt Hon Alec (Rhondda)
Ashley, Rt Hon JackEastham, KenJones, Barry (East Flint)
Ashton, JoeEllis, Raymond (NE Derbyshire)Jones, Dan (Burnley)
Atkinson, Norman (H'gey, Tott'ham)Ellis, Tom (Wrexham)Kaufman, Rt Hon Gerald
Barnett, Guy (Greenwich)English, MichaelKerr, Russell
Beith, A. J.Ennals, Rt Hon DavidKilfedder, James A.
Benn, Rt Hon Anthony WedgwoodEvans, loan (Aberdare)Kinnock, Neil
Bennett, Andrew (Stockport N)Evans, John (Newton)Lambie, David
Bidwell, SydneyEwing, HarryLamborn, Harry
Booth, Rt Hon AlbertField, FrankLamond, James
Boothroyd, Miss BettyFitch, AlanLeadbitter, Ted
Bray, Dr JeremyFlannery, MartinLeighton, Ronald
Brown, Hugh D. (Provan)Fletcher, L. R. (Ilkeston)Lestor, Miss Joan (Eton & Slough)
Brown, Robert C. (Newcastle W)Fletcher, Ted (Darlington)Lewis, Ron (Carlisle)
Brown, Ron (Edinburgh, Leith)Foot, Rt Hon MichaelLitherland, Robert
Buchan, NormanForrester, JohnLofthouse, Geoffrey
Callaghan, Rt Hon J. (Cardiff SE)Foulkes, GeorgeLyon, Alexander (York)
Callaghan, Jim (Middleton & P)Fraser, John (Lambeth, Norwood)Lyons, Edward (Bradford West)
Campbell, IanFreeson, Rt Hon ReginaldMcCartney, Hugh
Campbell-Savours, DaleGarrett, John (Norwich S)McDonald, Dr Oonagh
Canavan, DennisGarrett, W. E (Wallsend)McElhone, Frank
Cant, R. B.George, BruceMcKay, Allen (Penistone)
Carmichael, NeilGilbert, Rt Hon Dr JohnMcKelvey, William
Carter-Jones, LewisGolding, JohnMacKenzie, Rt Hon Gregor
Clark, David (South Shields)Gourlay, HarryMaclennan, Robert
Cocks, Rt Hon Michael (Bristol S)Graham, TedMcWilliam, John
Cohen, StanleyGrant, George (Morpeth)Magee, Bryan
Coleman, DonaldGrant, John (Islington C)Marks, Kenneth
Concannon, Rt Hon J. D.Hamilton, James (Bothwell)Marshall, David (Gl'sgow.Shettles'n)
Costain, A. P.Hamilton, W. W. (Central Fife)Marshall, Dr Edmund (Goole)
Crowther, J. S.Harrison, Rt Hon WaiterMartin, Michael (Gl'gow, Springb'rn)
Cryer, BobHart, Rt Hon Dame JudithMason, Rt Hon Roy
Cunliffe, LawrenceHattersley, Rt Hon RoyMaxton, John
Cunningham, George (Islington S)Haynes, FrankMaynard, Miss Joan
Cunningham, Dr John (Whitehaven)Healey, Rt Hon DenisMeacher, Michael
Dalyell, TamHeffer, Eric S.Mellish, Rt Hon Robert
Davidson, ArthurHogg, Norman (E Dunbartonshire)Mikardo, Ian
Davies, Rt Hon Denzil (Llanelli)Holland, Stuart (Ľbeth, Vauxhall)Millan, Rt Hon Bruce
Davies, Ifor (Gower)Home Robertson, JohnMitchell, Austin (Grimsby)
Davis, Clinton (Hackney Central)Homewood, WilliamMitchell, R. C. (Soton, Itchen)
Davis, Terry (B'rm'ham, Stechford)Hooley, FrankMorris, Rt Hon Alfred (Wythenshawe)
Deakins, EricHoram, JohnMorris, Rt Hon Charles (Openshaw)
Dempsey, JamesHowell, Rt Hon Denis (B'ham, Sm H)Morris, Rt Hon John (Aberavon)
Dewar, DonaldHowells, GeraintMoyle, Rt Hon Roland
Dixon, DonaldHuckfield, LesNewens, Stanley
Dobson, FrankHudson Davies, Gwilym EdnyfedOakes, Rt Hon Gordon
Dormand, JackHughes, Robert (Aberdeen North)Ogden, Eric
Douglas, DickHughes, Roy (Newport)O'Halloran, Michael

O'Neill, MartinSheerman, BarryWainwright, Edwin (Dearne Valley)
Orme, Rt Hon StanleyShore, Rt Hon Peter (Step and Pop)Wainwright, Richard (Colne Valley)
Palmer, ArthurShort, Mrs RenéeWalker, Rt Hon Harold (Doncaster)
Park, GeorgeSilkin, Rt Hon John (Deptford)Watkins, David
Parker, JohnSilkin, Rt Hon S. C. (Dulwich)Weetch, Ken
Parry, RobertSilverman, JuliusWellbeloved, James
Pendry, TomSkinner, DennisWelsh, Michael
Penhaligon, DavidSmith, Cyril (Rochdale)White, Frank R. (Bury & Radcliffe)
Powell, Raymond (Ogmore)Snape, PeterWhite, James (Glasgow, Pollok)
Prescott, JohnSoley, CliveWhitlock, William
Race, RegSpearing, NigelWilliams, Rt Hon Alan (Swansea W)
Radice, GilesStallard, A. W.Williams, Sir Thomas (Warrington)
Rees, Rt Hon Merlyn (Leeds South)Steel, Rt Hon DavidWilson, Gordon (Dundee East)
Richardson, Miss JoStewart, Rt Hon Donald (W Isles)Wilson, Rt Hon Sir Harold (Huyton)
Roberts, Albert (Normanton)Stoddart, DavidWilson, William (Coventry SE)
Roberts, Allan (Bootle)Stott, RogerWinnick, David
Roberts, Gwilym (Cannock)Strang, GavinWoodall, Alec
Robertson, GeorgeStraw, JackWoolmer, Kenneth
Robinson, Geoffrey (Coventry NW)Summerskill, Hon Dr ShirleyWrigglesworth, Ian
Rodgers, Rt Hon WilliamTaylor, Mrs Ann (Bolton West)Wright, Sheila
Rooker, J. W.Thomas, Jeffrey (Abertillery)Young, David (Bolton East)
Roper, JohnThomas, Dr Roger (Carmarthen)
Ross, Ernest (Dundee West)Thorne, Stan (Preston South)TELLERS FOR THE NOES:
Ross, Stephen (Isle of Wight)Tilley, JohnMr. George Morton and
Ryman, JohnTorney, TomMr. Joseph Dean.
Sever, JohnVarley, Rt Hon Eric G.

Question accordingly agreed to.


That this House takes note of the White Paper on the Government's Expenditure Plans 1980–81 [Cmnd. 7746].