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Public Expenditure

Volume 17: debated on Sunday 11 April 1982

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asked the Chancellor of the Exchequer what proportion of public expenditure was represented by capital expenditure (a) at the latest available date and (b) 10 years previously.

Capital expenditure formed 11 per cent. of general Government expenditure in 1980–81 compared with 22 per cent. in 1970–71. Taking account of price movements, capital expenditure by public corporations was broadly the same in 1980–81 as in 1970–71.

Does my right hon. and learned Friend accept that that shows a rather depressing fall in capital expenditure as a proportion of the total? What is the comparison with our European competitors? Finally, does he accept that, at least as regards certain essential public expenditure, only the authorities—national and local—can carry out that expenditure?

I do not know the comparable figures for other countries. I agree that the figure is depressing. It is all the more remarkable when one considers that the figure, which went down from 22 to 11 per cent. between 1970–71 and 1980–81, went down from 19 to 10 per cent. between 1975–76 and 1977–78.

Is not the major cause of that imbalance between current and capital expenditure in the public sector the enormous increase in expenditure on unemployment benefits and the revenue foregone as a result of massive unemployment? Is it not true that if, let us say, £1,000 million were put into a construction investment programme, the net cost to the public sector borrowing requirement would be less than £400 million? Why do the Government not accept that there should be a shift of this kind from revenue costs to capital investment?

The loss of revenue can have nothing to do with the percentage of resources going on capital as opposed to current expenditure. In my opinion that has little to do with the matter. If the right hon. Gentleman is asking about the causes for the change and the possible contribution of a measure of the kind that he described, I can tell him that the real reason for the change in the proportion is largely the fact that social service expenditure has gone up over a long period. The right hon. Gentleman does less than justice to his own Government in failing to take account of that fact, although it is certainly true that in the years that I mentioned, 1975–76 to 1977–78, the huge fall in actual capital expenditure was the significant component.

May we look forward to early Government action to rectify that alarming trend? Is it not true that, as long as public sector pay is kept firmly under control, it should be possible to do precisely that in areas such as housing, construction and industry?

I agree with my hon. Friend that public sector pay is a key element in the whole equation. To the extent that that is kept down, it is much easier to provide the money that one would wish for capital expenditure.

Given the Chief Secretary's earlier reply that he is not responsible for the level of unemployment, does he accept that there is a connection between the fall in capital expenditure to which he has just referred and the vast army of unemployed construction workers? Does he accept that those men are unemployed not because of the world recession or because they are not competitive with foreign construction workers, but because the Government are not investing in the future of Britain?

That is an entirely false analysis. The overwhelming reason for the present unemployment levels is lack of competitiveness in the past, caused by pay levels rising at a rate wholly inconsistent with increases in productivity. An increase in real disposable incomes of 17 per cent. such as occurred between 1977 and 1980 could not possibly continue without having a major impact on