HC I [Public Expenditure (Government defeat)]
|Document type:||public statement|
|Document kind:||House of Commons Intervention|
|Venue:||House of Commons|
|Source:||Hansard HC [928/635-53]|
|Editorial comments:||1601-48. MT intervened at cc638-39.|
|Themes:||Parliament, Public spending and borrowing|
Motion made, and Question proposed, That this House do now adjourn.—[Mr. Walter Harrison.]
The Chief Secretary to the Treasury (Mr. Joel Barnett)
The public expenditure plans which we are debating this afternoon, as set out in Volumes I and II of this year's White Paper, are designed to achieve a better balance in the economy—essential after a period of years when expenditure had grown much faster than the economy—and, whilst consolidating the improvements we have made in the social field, to give top priority to industry. This inevitably has to mean a lower priority for other expenditure programmes.
I share the concern of many of my hon. Friends that this has meant that in some fields where we would desperately like to find additional resources we have had to postpone further improvements, and in some cases actually make cuts, although I think it is fair to point out that the changes are made against a background where spending has risen over 10 per cent. in real terms in the last three years. Expenditure on programmes such as social security, housing and health and personal social services still increased in real terms this year.
With the urgent need to move resources into industrial investment and exports and the repayment of debts, those increases could not continue, and in the next two years there had to be cuts in some programmes. I shall want to deal a little later with the major point made by the General Sub-Committee of the Expenditure Committee about the allocation of the cuts. My right hon. Friend the Financial Secretary will deal with matters raised during the debate. But it is right that I should now deal with the point raised by my hon. Friend the Member for Chorley (Mr. Rodgers) and others of my hon. Friends on gas prices. There is a serious underlying question here which the House should consider: how much nationalised industry investment, or public expenditure for that matter, should be financed by borrowing, how much should be financed by taxation, and how much should be financed by the reduction of other public expenditure. Those are the issues we face in considering this problem. 636
It may be helpful if I first give the House some of the facts. The gas industry's debts at the end of 1975–76 stood at about £2¼ billion. In 1974 and 1975 there were heavy losses, of over £40 million and just under £30 million respectively, arising largely from policies of the last Conservative Government, which resulted in total subsidies to the nationalised energy industries and the Post Office of £1,181 million. That is something which I am sure the Leader of the Opposition recognises. I assume that the right hon. Lady supported it at the time.
For a few years there will be a breathing space as regards the amount of capital required by the gas industry, but then there will be some very heavy further borrowing to prepare for the further investment for the gas industry of the Brent field. Therefore, I do not think it unreasonable that we should consider reducing a burden of debt of the size I have described. But any given level of borrowing—£100 million here—must be considered together with the other ways in which one might deal with the matter. The crucial problem is whether to raise tax for it, cut other public expenditure or cut investment in the nationalised industries.
In real terms, gas prices fell between 1970 and 1976 by nearly 20 per cent., compared with increases of more than 20 per cent. in electricity prices and 10 per cent. for coal. That is just one other factor that must be taken into consideration in deciding our priorities on the question of where and how we raise a particular sum of £100 million.
I have noted my hon. Friend's motion. I ask them in return to note the facts I have described this afternoon and to recognise the serious and difficult problem we all face in considering priorities in expenditure. Whichever way we look at those priorities, I am convinced that the broad changes we have made are not only essential for economic, financial and industrial reasons but are right for social reasons, because to continue to spend more than we earn is a recipe for disaster that would eventually destroy the social fabric of our society.
Nevertheless, we know that many of the people whom we represent—[Hon. Members: "Oh."]—whom all of us represent—want substantial increases in expenditure on many public services. They are 637often supported most vocally in particular demands by the same people who demand bigger and bigger cuts in public expenditure in general. Some of the most vocal are not infrequently found on the Opposition Benches. But—and we should not be too surprised—the same people who ask for higher public expenditure invariably also want large cuts in direct taxation. They cannot have both. At present, if we are honest with ourselves, we must admit that our constituents' choice would be for income tax cuts.
Given the growth of public expenditure and the consequential reduction in net take-home pay that there has been in recent years because of low rates of economic growth, I do not believe that it is necessarily to take a populist view to accept that our constituents are right and that there must be a shift in the balance. I should like it to come from higher economic growth, but we should be very foolish to assume that in advance.
Mr. Nicholas Ridley (Cirencester and Tewkesbury)
The right hon. Gentleman has put forward a most important proposition, that tax cuts are preferable to higher public spending at this time. How can those of us who wish to support him in the Lobby in that proposition achieve that object and defend him against those who do not agree with him? How will the matter be determined by Parliament on this occasion?
If I am looking for someone to defend me against my hon. Friends, I am not sure that I should necessarily choose the hon. Gentleman as the ideal person. I leave it to him to decide. Knowing his independence, I am sure that he will make up his mind how to vote this evening after listening to me and other speakers in the debate, regardless of the three-line Whip that there may or may not be on his side of the House. [Interruption.] Opposition Members should not be so surprised. I do not know why they are making so much fuss about a petty procedural point. We shall be voting on the Adjournment tonight. It is not unknown for the House to vote on the Adjournment.
The right hon. Gentleman has repudiated my offer of support. Does that mean that if I now want to vote against him I vote for the Adjournment of the House or against it? Will the 638right hon. Gentleman tell me which way he will vote, so that I know how to vote?
I shall let the House have my views as to how I shall vote a little later. I have noted the hon. Gentleman's independence of his own Front Bench and that he intends to listen and vote in accordance with his conscience and what he thinks is right. I am sure that it will be helpful, and I will not repudiate his support in the Lobby if he wishes to join me there tonight. I will be happy to have him with me, provided that he is there in support of all my policies.
Mr. George Cunningham (Islington, South and Finsbury)
If my right hon. Friend is to argue about this business of the nature of the motion, will he remind the Opposition that more often than not on their Supply Days they table a motion only for the Adjournment of the House and not a substantive motion at all?
I am obliged to my hon. Friend. I am not trying to be difficult with the Opposition. I am sure that they want to get on and debate the serious problems of public expenditure which I believe we are talking about, whatever the motion.
Regrettably, in looking ahead to where we see public expenditure and the economy generally going, we do so after what was in economic terms inevitably a disappointing year, not only for us but for the world as a whole.
Although there were signs towards the end of the year that growth was picking up again, the pace of expansion after the first quarter was generally below the rate needed to increase employment. In many industrial countries unemployment was higher at the end of 1976 than it had been at the beginning. The fall in the sterling exchange rate and the slowing down of world trade during 1976 checked the progress that had been made in reducing the large deficit in our external payments. The fall in the sterling exchange rate, by raising the cost of our imports, cut consumers' expenditure and so reduced activity further. We had to take action to ensure an improvement in our external account and to make certain that industry could obtain the funds it needed on reasonable terms. 639
That was the background against which my right hon. Friend the Chancellor of the Exchequer announced on 15th December a stabilisation programme, extending over two years, to bring the economy back into balance. The reductions in public expenditure plans for 1977–78 and 1978–79 then announced were a central part of this programme. They were painful cuts to make at a time when unemployment was high, but the restoration of confidence was imperative if we were to avoid the danger of a massive fall in employment.
On the basis of that stabilisation programme, we were able to agree with the International Monetary Fund a standby credit of $3,900 million and to arrange a drawing facility with the Bank for International Settlements to protect sterling from the danger of withdrawals of official balances. The transformation in both the external and the domestic financial markets in the last three months has been dramatic. However unpalatable the measures themselves were, there was widespread recognition of the need for them. There can be little doubt that without them unemployment would have been even higher.
I have noted the Early-Day Motion standing in the name of my hon. Friend the Member for Bristol, North-West (Mr. Thomas) and the names of others of my hon. Friends, in which they seem to disagree with our general policy. I also note that they recognise that certain policies we are pursuing are not always in line with what the TUC "Economic Review" recommended, and that is true. But it is equally true that the TUC "Economic Review" also says that
"There was no real alternative to seeking financial support from abroad if the pound was to be protected against continuing downward pressure, the consequences of which would have been even more difficulties on the balance of payments and even more unemployment."
We have won the immediate battle for confidence——
Mrs. Margaret Thatcher (Finchley)
Not in this House.
I am surprised at the right hon. Lady. I thought that she would have been delighted that the pound was stable.640
I am delighted. Therefore, why does not the right hon. Gentleman put his policies to a direct vote in the House?
The right hon. Lady is becoming obsessive. We are debating public expenditure, and we want to debate it seriously. I hope that she will be interested in a serious examination of the problems, which is what I am trying to do.
Mr. Nick Budgen (Wolverhampton, South-West)
Will the right hon. Gentleman explain why, if it is so bad for the pound to fall, we understand that the Bank of England is holding it down?
There are a number of reasons why I think it would be bad for the pound to fall at the present time.
Who is holding the pound down?
Who is holding it down? I am not sure whom the hon. Gentleman has in mind. The pound at present is stable. I find that satisfactory, and I gather that the Leader of the Opposition does as well. I note that the hon. Member for Wolverhampton, South-West (Mr. Budgen) does not.
I believe that we have won the immediate battle for confidence, but we need to create the conditions in which a sustained expansion is possible to bring us back to full employment. I think it is now widely recognised that the present problem of unemployment cannot be solved by reflation of demand of the kind that was used by Governments in the 1950s and the 1960s. The situation in the 1970s is a good deal more complex, and we are all aware of the disastrous lessons of the last Conservative Government's attempt to reflate.
The answer to unemployment must be sought more fundamentally in a continued effort to bring down the rate of inflation and to strengthen the productive side of the economy. It is not something that the Government on their own can produce. Nor is it something that will automatically come about as the North Sea oil flow eases the balance of payments constraint that has never been far away throughout the post-war period. Rather my the answer to unemployment 641be sought in partnership with management and labour, and, since the problem of unemployment is common to all industrial countries at the moment, it must be sought in partnership with other Governments. All this is now, I think, widely recognised and accepted—although not everywhere, I have noticed.
Of course, public expenditure cuts must inevitably entail some unemployment, either directly or indirectly. But we have taken action to offset the impact in the coming year. The employment measures announced in December at the same time as the reductions in public expenditure programmes should provide rather more jobs in 1977 than will be lost as a result of the cuts. I recognise, however, that this is far too narrow a way to look at the relationship between these cuts and unemployment. If we had not taken resolute action to restore confidence and ease the pressures in the financial markets, the effects on employment would have been catastrophic.
I turn now to the question of controlling public expenditure. I know that my hon. Friend the Member for Nottingham, West (Mr. English), the Chairman of the Expenditure Sub-Committee, views these matters seriously, as do other hon. Members. It is no good drawing up elaborate spending plans without the determination and means of ensuring that the planned total is not exceeded. We have that determination, and the introduction of cash limits and the development of the contingency reserve into an operational instrument of control have enabled us to make great strides this year.
The contingency reserve régime is strict. We do not allow additional expenditure to count against the contingency reserve until we are fully satisfied that offsetting savings are not to be had. The cash limits for 19765–77 announced in Cmnd. Paper No. 6440 will be adhered to. Only a very few exceptions are being made.
It would, however, be foolish to pretend that these improvement will guarantee success. Some public expenditure is not so readily controlled. In this context I refer to local authority expenditure. The point is still not always taken that the Government do not have the direct control here that they exercise over 642their own spending. We have, therefore, tried to bring out more clearly than before in Part I of the White Paper the differences in control arrangements and in the extent of the Government's responsibility for management of this expenditure.
Mr. Nigel Lawson (Blaby)
If it is the case that local authority expenditure is much harder to control than central Government expenditure, why is it that in the cuts that the Chancellor sought to make 60 per cent. will fall on local authority expenditure, 30 per cent. on Government expenditure and the rest on public corporations?
I should never have given way to the hon. Gentleman in the middle of the point I was dealing with, which concerned local authorities and the operation of the cuts between capital and current account, on which the Committee of which the hon. Gentleman was a distinguished member reported. We have tried to bring out more clearly in the White Paper the extent of these problems.
An annual rate of growth of 10 per cent. at the time of reorganisation in 1974–75 has been cut to about 2½ per cent. in 1976–77. Given the growth since the war, as most people who know about the problems of local authorities will recognise this is a considerable achievement. As the White Paper points out, over most of the post-war period local authority expenditure has grown faster than public expenditure programmes as a whole. It is right to add that it would be grossly unfair to blame that growth simply on profligate local authorities. Much of the growth came in response to demographic demands and demands for constant improvements in local services. We should remember that a great deal of that demand stems from legislation passed by this House, usually without dissent from those who rush to criticise local authorities.
The situation is now very different. As table 3 brings out, during the last two years total local authority expenditure has declined slightly both in absolute terms and as a proportion of public spending. The White Paper envisages a further small decline during the next two years.
Control in this area is due in no small measure to the excellent work of councillors and officials on the Consultative 643Council on Local Government Finance. I gladly pay tribute to them. They do not enjoy cutting public services any more than I do, but they have recognised the need for this. Their co-operation has made it possible to improve considerably arrangements for monitoring the course of local authority spending. Thus, when returns of local authority budget plans received last spring indicated the possibility of substantial excess spending in 1976–77, we were able to take early action to cut back this overspending.
In 1976–77 also, the cash limits imposed for the first time on most Government grants to local authorities have restricted the addition for pay and price increases and have provided an important new discipline on local spending. For the most part, local authority current expenditure has not been affected by the reductions in programmes announced last July and December. Even so, plans for 1977–78 still involve a small reduction in current spending in constant price terms.
The White Paper that we are debating today is about the Government's expenditure plans in volume terms. For 1977–78, however, we must harden these figures into firm control totals. I shall be laying another White Paper before the House in the near future setting out cash limits on Government expenditure in 1977–78.
Any fair-minded observer will accept that the initiatives we have taken on cash limits and in developing sophisticated new arrangements for monitoring expenditure have brought public expenditure in Britain under more effective control than it has been for many years.
Mr. J. Enoch Powell (Down, South)
Will the Minister tell us how the assumption on the rate of inflation is fed into the fixing of cash limits?
We start from the volume figures in the White Paper and then take various assumptions about the pay and price increases expected in 1977–78. In the case of local authorities, wages are a considerable part of the calculations. We know the major part of the increase because much of the local authority wage increases come into effect in November. That is only a comparatively small item as a proportion of the total increase in 6441977–78. The wages element enters into the addition that one must make for inflation. Some explanation of this has been given to the Select Committee and it will be further enunciated in the White Paper that we shall publish soon.
Mr. Ron Thomas (Bristol, North-West)
Will my right hon. Friend be good enough to tell us the precise figure? He mentioned the inflationary figure that is injected, and wages and salaries. Local authorities are faced with other kinds of purchases. The increases in the prices of those purchases have rocketed in the capital programme.
I apologise to my hon. Friend the Member for Bristol, North-West because I referred to him and his Early-Day Motion when he was absent, but I did not refer to him in any derogatory way.
Because I am fond of him. I would rather have him in the Lobby with me than the hon. Member for Cirencester and Tewkesbury (Mr. Ridley).
The amount allowed for inflation in the cash limits for 1977–78—including those of the local authorities—will be made clear in due course.
Although most fair-minded observers of what we have done so far will recognise that we have done a good job in gaining control over public expenditure, there is no room for complacency. That is why there will be further consolidation during the next financial year. We shall be building on our new controls.
In speaking of those controls, I should like to pay a personal tribute to the work of the General Sub-Committee of the Expenditure Committee, under the excellent chairmanship of my hon. Friend the Member for Nottingham, West. The Committee has been critical, but, most important, it has stimulated us to greater efforts. In its latest report the Committee made some uncomplimentary remarks about the choice of capital and current expenditure. I hope that the Committee members will forgive me if I disagree with their criticism, and I shall tell the House why I disagree.
It is wrong to take such a hard line on the choice between capital and current 645expenditure. It is right to protect pensioners and others who are the least-well-off members of our community. My hon. Friend the Member for Nottingham, West will not disagree with me on that. Therefore, we exclude transfer payments, and that is a major area of current expenditure.
As for the cuts in goods and services, much of the expenditure, as I have indicated—about £12 billion—is not directly controlled. That is to say, it is local authority current expenditure. But not all capital expenditure should necessarily be preferred to current expenditure when the House has hard choices to make in choosing where the cuts in public expenditure should fall. For example, if the choice lies between cutting a road programme or a social programme in order to cut staff, cutting the social programme is the only way in which one can achieve real cuts in staff spending. Personally I should prefer to cut roads. However, I recognise the serious consequences of that and of other cuts in capital expenditure for the construction industry.
Another example is that we all accept that at some point—there may be some differences between us on this—a decision must be taken on the totality of public expenditure. Certainly, on the Government side there is some difference of opinion about the total, but within the total there are difficult choices of priorities. When one has to make cuts, as happens from time to time, one may have to make a decision in cutting Home Office expenditure about whether the size of the police force should be reduced or police buildings should be cut. Personally I should have thought it far better, when one has such a difficult choice, to cut the police buildings and not the size of the force.
There are many difficult choices that one has to make right throughout the whole sphere of public expenditure. It is quite wrong to take a firm line and say that one must cut right across the board or that one must have an equal balance between capital and current expenditure. It simply is not possible to do that when one has to look at all the programmes and make selective decisions. We have not made across-the-board cuts for some of the reasons that I have given.
Mr. Michael English (Nottingham, West)
I take my right hon. Friend's 646point, but the Sub-Committee did not say what he is accusing it of having said. The imbalance has been successive in every series of cuts since those that were first made by Mr. Barber—now Lord Barber—in 1973. The Sub-Committee said that one cannot continue to have such a rate of imbalance.
I take my hon. Friend's point. I cannot speak for what lay behind Lord Barber's decisions on cuts in December 1973 or for any of my predecessors. All I know is that, in the fairly traumatic last three years of expenditure cuts over which I have presided, on every occasion we have examined the problem in the light of the kind of consideration given by my hon. Friend and his Committee and decided what our priorities should be as between capital and current expenditure. We have always looked at the matter in that way.
However, we must also consider the practicalities. Frequently, if one decides that, for example, in the case of local authority current expenditure, one could have made bigger cuts, it may not be possible. Indeed, in local authority current expenditure for 1976–77 we tried to achieve a standstill in expenditure between 1975–76 and 1976–77. I believe that local authorities tried hard to achieve that standstill, but they were not successful for a variety of reasons for which I am not blaming them. To have assumed and taken into account that one could have got even bigger cuts would have meant making a pretty unrealistic assumption.
Mr. Michael Latham (Melton)
Surely the argument is that construction has had a disproportionate amount of the cuts. That was what the General Sub-Committee said. Is it not the case that at present there are nearly 250,000 people unemployed in the construction industry and that their unemployment benefit and the transfer payments being made to them must be very high?
I take the hon. Gentleman's point and share his concern about unemployment in the construction industry. However, I hope that he is not under any illusion. If one had chosen a similar amount on current expenditure, assuming that it could have been made to stick, it would have had unemployment consequences in another area. We must 647remember, when looking at public expenditure, that increasing capital expenditure has consequences for current expenditure as well. Ongoing further current expenditure items arise following capital expenditure increases—for example staff, maintenance costs and so on.
I understand the Sub-Committee's view of the matter. But, looking at it overall, when we look at the hard choice of deciding as between one item of expenditure and another, it is not as simple as to decide that, instead of taking so big a proportion of capital expenditure, we should reduce that proportion and assume that we can get perhaps an across-the-board cut of 5 per cent. in current expenditure generally. It is not as simple as that.
The response to our measures from our friends abroad has generally been encouraging both by their words and by their deeds. The response from the Opposition has, I must admit, been typically irresponsible both in words and in deeds.
In last year's debate on 9th March, the right hon. and learned Member for surrey, East (sir G. Howe), after some pressure from my right hon. Friend the Chancellor of the Exchequer, who was joined in that pressure by the right hon. Member for Down, South (Mr. Powell), as he will recall, told us that his target for cuts was £4 billion. The right hon. and learned Gentleman was asked when he would achieve his target. But he was not too sure. It seemed that we would have to seek enlightenment from another source.
he told us,
"knows how quickly we could achieve it."
That is where we must turn to find how quickly and when and what public expenditure cuts we should get; the ones of which the right hon. and learned Gentleman spoke.
But if the right hon. and learned Gentleman's words were a little obscure, the deeds of his right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin)—a predecessor of mine as Chief Secretary—were very clear. Leading for the Opposition on the Social security (Miscellaneous Provisions) Bill, 648he forced nine Divisions of amendments involving a net cost of £60 million.
Mr. Patrick Jenkin(Wanstead and Woodford)
Come, come, come. Is the right hon. Gentleman aware that on Second Reading I said that if his Government could for the first time produce convincing figures about the earnings rule, we would accept them? And we did.
I note that the right hon. Gentleman is always happy to seek excuses. What I said was strictly true. In Committee he forced nine votes which if they had been carried would have involved a net cost of £60 million. What he is now presumably telling the House is that, if he had carried those votes, he would have moved amendments on the Floor of the House to delete the amendments that had been carried upstairs. It cannot have any other meaning. The right hon. Gentleman should think about what he was doing and should perhaps consult his right hon. and learned Friend the Member for Surrey, East.
One is bound to wonder whether members of the Shadow Cabinet are on speaking terms.
Mr. James Prior(Lowestoft)
Where are the Chief Secretary's right hon. Friends?
I assure the Opposition that my Cabinet colleagues can, with the greatest confidence, leave me to deal with the Opposition.
One is bound to wonder whether members of the Shadow Cabinet are on speaking terms. I want to tell them why. Take the subject of housing. The right hon. and learned Member for Surrey, East was untypically forceful last year when he said that we
"Must be looking much more vigorously and questioningly at the scope for reducing subsidies on housing."—[Official Report 9th March 1976; Vol. 907, c. 288, 286.],
As the right hon. and learned Gentleman knows, I believe that over a period of time there is room for some reduction, but he was typically unforthcoming in not telling us by how much or how quickly or what would be the consequences of the large cuts that he implied.
By contrast, his hon. Friend the Member for Henley (Mr. Heseltine), the Shadow Environment Minister, ignoring the right hon. and learned Gentleman, 649in a recent speech promised huge across the board additions to public expenditure and the borrowing requirement in the housing sphere. I should be happy to quote the whole of the hon. Gentleman's speech, but I shall take just one of his bright ideas which would have cost hundreds of millions of pounds. The hon. Gentleman promised a maximum mortgage rate. Obviously he saw what happened to the Leader of the Opposition when she promised one. The hon. Gentleman talked of an adjustment of the composite rate of tax on building societies as if that would not cost anything. In fact, the cost of reducing the mortgage rate to, say, 9½ per cent., to pluck a figure from the air—the rate suggested by the Leader of the Opposition—would be nearly £600 million gross.
The Opposition's irresponsibility does not stop at housing.
Mr. Michael Latham
will the right hon. Gentleman give way?
I thought that I might have provoked the right hon. Lady the Member for Finchley (Mrs. Thatcher).
Mr. Michael Latham
Surely the right hon. Gentleman took some elementary interest in the point before making it. Does he not realise that it is cheaper to help people into owner-occupation than to build new council houses for them? That was the point made by my right hon. Friend.
I hope that the hon. Gentleman, who appears to understand these matters, recognises that a reduction in the mortgage rate applies to everyone with a mortgage. That means that it would cost approximately £600 million gross
As I said, the Opposition's irresponsibility does not stop at housing.
Dr. Colin Phipps(Dudley, West)
Tell us more.
I shall be happy to do so. If their words have any meaning, the Opposition would substantially increase expenditure on defence, the police, Northern Ireland, agriculture, fisheries, forestry, construction and pensions, to list but a few.
Mr. Patrick Jenkin
Where does the right hon. Gentleman get his evidence 650that we have urged increased public expenditure on pensions?
If the right hon. Member for Wanstead and Woodford is going back on what he and his party previously said on pensions, I note that.
Mr. Patrick Jenkin
The opposition have a policy to have twice-yearly increase in pensions. [Interruption.] Of curse they do. Are they now going back on it? I am interested to note that. I have not noticed anyone else on the Opposition Front Bench deny what I said about any of the progrmmes I have mentioned.
Merely to balance the increase in expenditure promised by the Opposition would require the right hon. Gentleman's cuts in transfer payments and elsewhere to be pretty speedy.
Will the right hon. and learned Member for Surrey, East tell us how he proposed to balance the books, and where and how quickly he would make the cuts of which he talks so freely?
Sir John Langford-Holt (Shrewsbury)
The right hon. Gentleman is quite rightly drawing the attention of the House to the fact that the decisions that the Government make about future activities are based on the figures available to the right hon. Gentleman but not published. In order that I, my right hon. Friends on the Front Bench or anyone else in the House may arrive at meaningful decisions, will the Chief Secretary ensure that all the figures necessary for such decisions are made available to hon. Members, whether they are yet published or not?
All the figures on public expenditure are expressed in very great detail in the current White Paper, which I am sure the hon. Member for Shrewsbury (Sir J. Langford-Holt) has read from cover to cover. I see him nodding. He will no doubt have taken careful note of the observations made on the document by the Expenditure Sub-Committee. He will not need any further enlightenment from me.
The right hon. and learned Member for Surrey, East and his right hon. and hon. Friends invariably seem to relish the prospect of huge and unspecified cuts, about which he talks so freely. Speaking 651for myself and my right hon. and hon. Friends in the Government and on the Back Benches I can say that none of us enjoys the fact that we cannot increase public expenditure for the time being and that we have to cut some expenditure on services which would improve the living standards of many of our fellow citizens. But before we return to a period of further growth in public expenditure we must restore balance in the economy. We do not help those who need improvements in public services by paying for them out of excessive borrowing and at the expense of industrial investment. The action we are proposing in our public expenditure plans is essential if we are to create conditions in which industry can have confidence in the prospect of a long period of sustained expansion.
Our first objective has been achieved. In the financial markets the pound is firm, and our reserves have been rebuilt rapidly. [Interruption.] I am surprised that Opposition Members are not happy about that.
Sir J. Langford-Holt
Is not the right hon. Gentleman aware that when the pound was handed over to his tender care is stood at $2.30 to the pound, but it is now only $1.71? If the right hon. Gentleman took it down to $1 to the pound, he would probably make it go up.
The hon. Gentleman may find that amusing but the reasons for the depreciation of sterling go back to the actions of many Governments. The hon. Gentleman knows it, and Opposition Members on the Front Bench know it.
I am astonished that the stability of the exchange rate provokes such comments from Opposition Members. The fact is that conditions are now stable and the reserves have been rebuilt. Domestically, short-term interest rates have been reduced by four percentage points from the peak reached last autumn and long-term interest rates have gone down by nearly three points. Money supply is under firm control, and generally the financial conditions have been laid for a stronger advance in both output and investment.
Will the right hon. Gentleman give way?652
The hon. Gentleman is a Whip. Why is he intervening?
I am grateful that the right hon. Gentleman is on speaking terms with a Whip on the Opposition side of the House even though he may not be on speaking terms with the Whips on his own side. I am a little puzzled about the right hon. Gentleman's remarks on the exchange rate. When the exchange rate was $1.88, his right hon. Friend the Chancellor of the Exchequer told the House that sterling was undervalued and that he has the assurance of Chancellor Schmidt that this was so. But the exchange rate of now $1.71, and the Government intend to keep it there and prevent it from rising. Can the Chief Secretary explain what his exchange rate policy is? Can he reconcile these statements?
I though that the hon. Member for Blaby (Mr. Lawson) had improved since be went to the Whips' Office, but he seems to have deteriorated again.
The markets decide when an exchange rate is stable. [Interruption.] I am not sure what that noise was. I do not know whether it meant that the Opposition agreed with that comment. We now have some stability in the exchange rate. I am surprised that Opposition Members find it a hilarious matter. I sometimes wish that the House was televised. It would make a very interesting picture to see Opposition Members sitting there giggling at the fact that the exchange rate has stabilised. It is a most interesting situation.
Mr. Keith Stainton (Sudbury and Woodbridge)
They are giggling at the right hon. Gentleman.
I sat opposite the hon. Member for Sudbury and Woodbridge (Mr. Stainton) for a long time in the Finance Bill Committee debates in the past. Things have got worse on the Opposition Benches these days.
Mr. John Nott (St. Ives)
If the markets decide, how is it that the Government have been rebuilding their reserves?
There is nothing strange about that. The hon. Member for St. Iyes (Mr. Nott) understands these things rather better than some of his hon. 653Friends. I hope that the House recognises that this situation will create the kind of stable background against which industry can improve its performance. There can be little doubt that we need improved performance. [Hon. Members: "Hear, hear."] I wonder whether Opposition Members will cheer the fact that our industrial performance has not just been bad in the last three years. As any serious Opposition Member would know, our productivity growth has been two-thirds of the average of major oeCD countries: that has been the case over at least the last 15 years, and there is nothing to be amused at in that. That, unfortunately, is the sad fact that underlies the exchange rate and much that is wrong with our economy. The sooner we recognise that that is the serious problem, and that it is not the fault of any single Government in the last few years, the sooner we can have serious discussion of the problems.
Unless we improve our industrial performance, we shall not be able to command real increases in personal living standards or in public expenditure. Our expenditure plans, set out in the two volumes of this year's White Paper, provide the only real way to achieve financial stability. From such a base we can go for a steady and sustained economic growth out of which we can once again expand and improve public services to the standard, that a decent, humane and civilised society requires. I commend the White Paper to my hon. Friends.