EDUCATION EXPENDITURE
In a letter today (Wednesday 7 March) to Mr Roy Hattersley MP, about education expenditure, the Education Secretary, Mrs Margaret Thatcher says:
“In your letter to Patrick Jenkin of 20 February you raised a number of points about the growth of educational expenditure. You have also alleged that I gave inaccurate information during the Debate on 19 February. This is a serious charge which I categorically rep udiate.
“If you and your colleagues are talking of inaccurate information I have no alternative but to remind you of the errors in your own speech which have largely contributed to the muddle and confusion which has subsequently arisen.
“When you first referred to an average annual growth rate of 5.4 per cent since 1958 (Hansard, Col. 58) you gave no indication of its nature or source. I asked whether it was a cost or a volume figure. You stated it was a cost figure ( “the most accurate index it is possible to calculate” ). Information available only after the de bate revealed that it was in fact a volume figure.
“When I tried to clarify the issue by referring to the cost figures on page 17 of Cmnd. 5178, providing for a 5 per cent growth in educational expenditure between 1972/73 and 1976/77 you insisted (col. 60) that the correct reading of the increase was 3.3 per cent. You were wrong; the latter is a volume figure.
“When you sought (col. 59) to compare the present Government's estimated rate of growth in the gross domestic product (which you put at 5 per cent although Table 1.2 of Cmnd. 5178 referred to alternative assumptions of 3.5 and 5 per cent) with the future growth in educational expenditure in volume terms of “little more than 3 pe r cent” , you were wrong in comparing dissimilar figures. The Patrick JenkinChief Secretary has explained that comparisons of this kind can only usefully (and fairly) be made in cost terms; the right figure to use for educational expenditure is 5 per cent.
“Against this background it is surprising that you should tax me with laying inaccurate information before Parliament. [end p1]
“If, as you also sought to do, a comparison is to be made between past and future growth rates of expenditure it is probably right to make it in volume terms. You have chosen to take an average over a long period from 1958. On that basis, the average growth rate may well have been of the order of 5 per cent, as you say, but I would draw you r attention to what the Chief Secretary says on this point. The rate of growth in education expenditure was highest in the first third of the period (5.5 per cent in 1958–64), was substantially lower in the middle third (4.5 per cent in 1964–70) and, as projected, will be only marginally lower in the last third (4.3 per cent in 1 970–71 to 1976–77). The plain fact is that the reduction of growth rates has been a continuing trend and the largest part of it occurred before this Government took office. The idea, given currency in the press, of a sudden 30 per cent cut back as a consequence of the White Paper is a travesty of the facts. In any event, as the Chief Secreta ry also explained, there is no reason why any particular service should have a constant, let alone an infinitely increasing, rate of growth. Any responsible analysis of the appropriate level of expenditure must be based upon the needs of a service coupled with the policies for its development and improvement. You seem to me to be very near, certai nly in your letter to the Times newspaper, to be arguing a case for predetermined levels of expenditure without reference to what needs to be done, while the Opposition Green Paper sought to outline what should be done but without any reference to the cost. I believe that either way this is utterly irresponsible.
“I much regret that what should have been a positive and constructive debate on the policies in the Education White Paper has descended, to this sterile exchange of percentages. This is the more irrelevant since the White Paper itself makes clear that most of the policies outlined in it can only mature in the second half of the decade and t herefore beyond the period surveyed by Cmnd. 5178. I write this letter for two reasons only. First, to repudiate your allegation that I misled the House of Commons. I do not believe that at any point in my speech during the debate or in my interventions I gave any figures that can be challenged for accuracy. My Parliamentary Under-Secretary of Sta te had the difficult task of dealing with a figure which was not what you said it was. If there has been any misunderstanding on this point I think you have only yourself to blame. My second purpose in writing is to suggest that we should return to a discussion of the real policy issues which Parliament and the education service must face.
“The case for calling the White Paper “A Framework for Expansion” rested not upon the percentages or even the rising cost but upon the fact that the policies it advanced will provide, among other things, nursery education for two new age groups, higher education for another 300,000 or so students and an additional 145,000 teachers w ith improv ed in- servic e traini ng. On any readin g the educat ion servic e will be both expand ed and improv ed as a result of the White Paper. These are the things that really matter . In view of the public intere st in this discus sion I am releas ing this letter to the Press. ”
CH IEF SECRET ARY'S REPLY ON EDUCAT ION EXPENDITURE
In a letter today (Wedne sday 7 March) to Mr Roy Hatter sley MP about educat ion expend iture, MrPatrick Jenkin, ChiefSecretary to the Treasury, says:
“Thank you for your letter of 20 February about the figures you used in the Education Debate on 19 February when discussing the rate of growth of the education service. My comments are as follows.
“With respect, there seems to be some misunderstanding about the difference between constant price figures “in volume terms” and “in cost terms” . As you say, the volume series shows “whether the scale of the provision of a particular service is being increased or reduced and by how much” ; and, as you imply, this is a very useful series to have. But if one wants to compare the rate of change in an individual service with the rate of growth of the economy as a whole, so as to express the expenditure on the service as a proportion of national output, I suggest that the volume series is not an appropriate one to use. This is because within the total of GDP, the price of some goods and services tends to rise faster than average and the price of others to rise slower than average. The education service, like most public expenditure programmes, is in the former category; nationalised industries' capital expenditure for example, is in the latter.
“What this means is that if both education and nationalised industries' capital expenditure were to increase by x per cent a year in volume terms during a period when GDP also rose by x per cent a year, one would find that as time went by education expenditure would gradually become a larger proportion of GDP and nationalised industries cap ital expenditure would become a smaller proportion. That is why it is necessary to adjust the volume figures for trends in relative price movements to produce the constant price expenditure series “in cost terms” ; that series corresponds to a current price series with the effect of general inflation removed.
“It is therefore the 5 per cent prospective growth rate (not the 3.3 per cent or 3.4 per cent) which is relevant for the purpose of commenting on the proportion of GDP which education expenditure is likely to absorb in the future. As you know, 5 per cent was the figure which the Secretary of State for Education and Science used duri ng the Debate and it is also the figure shown in Table 1.1 on page 8 of the Public Expenditure White Paper. It compares with the alternative rates of growth of GDP of 3.5 per cent and 5 per cent, assumed in the discussion of the future demand on total resources on pages 9 and 10 of the White Paper. To compare growth in volume terms with gr owth of the GDP as a whole is misleading because it does not compare like with like. [end p2]
“However, I would go further and cast some doubt on the significance of a comparison between the growth rate for a particular programme and the growth of GDP. I do so because there is no necessary relationship between the two. The relationship between the forecast growth of GDP and the acceptable level of public expenditure as a whole is in itself a fairly complicated matter. Within the totality of public expenditure, different programmes will grow at different rates reflecting a wide variety of factors which determine demand for the services in question, and decisions by Government on relative priorities. I would like to suggest that a more significant measure is the place occupied by a particular programme within the total of public expenditure. Here, as the Secretary of State has previously said, education has grown from about 10 per cent of total public expenditure in the early 1960s to 13 per cent now; on present projections it would reach over 14 per cent by 1976–77.
“This takes me to the discussion, earlier in your letter, of the comparison between past and future rates of growth in education expenditure. It is important to be clear whether the comparison is being made in cost terms or in volume terms. When the Secretary of State asked you during the Debate to explain your figure of 5.4 per cent fo r the past annual growth rate since 1959, you replied (Hansard, Col 59) that this was in cost terms. It was on this footing that the Parliamentary Secretary based his later comments on this topic. It now seems, from what you say about the source of this figure, that it is intended to represent past expenditure in volume terms, i.e. with no implied element of relative price effect.
“I think you are probably right in wanting to base comparisons between one period and another on the volume series since, in a sense, this measures the service that the clients get rather than the cost to the taxpayer and the ratepayer. When looked at in this light, the figures show a steady slowing down in the average annual rate of growth ever since 1958. The figures on our calculations are as follows: