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investment. That is what the Labour Government did.

[Interruption.] I think that the right hon. and learned Member for Monklands, East said, "Wicked." I did not quite catch the word he used. There is nothing wicked about it. It was simply incompetence which led the Labour Government into that position.

I must tell the right hon. and learned Gentleman and his colleagues that a successful economy can do something else that an unsuccessful one cannot. [Interruption.] I was intrigued to hear about interest rates. Purely by chance, 10 years ago today, the bank rate increased to 14 per cent. because the Labour Government could not control credit. I do not need to be told about interest rates.

A successful economy can repay debt. An unsuccessful economy cannot do that. The stock of Government debt has built up virtually without interruption since the war, reaching £171 billion two years ago. As a result, this year we will pay £18 billion in interest on that debt. That is equivalent to over 10p on the basic rate of income tax. That is dead money for today's taxpayer. It does not build roads or railways, improve the National Health Service, education or defence. It simply pays the interest on past debts.

Our policy on that debt is clear. We will maintain a balanced budget. However, we are going further than that. We are repaying debt. As my right hon. Friend the Chancellor of the Exchequer set out in the Autumn Statement -- [Interruption.] If the hon. Member for Durham, North-West (Ms. Armstrong) would like to intervene, I will of course give way.

Ms. Hilary Armstrong (Durham, North-West) : Will the Chief Secretary to the Treasury tell us about the redistributive effect of repaying the national debt in terms of the poor from the rich?

Mr. Major : I am not sure that it was wise to invite the hon. Lady to make an intervention.

As my right hon. Friend the Chancellor set out in the Autumn Statement, in the last fiscal year we repaid £3 billion and in the current year we expect to pay a further £10 billion. That is equivalent in two years to one twelfth of the outstanding stock of debt which has built up over the past two centuries. This is the largest sustained debt repayment for over a generation, which is of relevance to the hon. Lady's question. It also means that the debt interest projections in the White Paper fall from £17 billion in the current year to £15 billion in 1990-91. Our reduced debt burden will be available, therefore, either to improve services or to reduce taxation, or indeed to further reduce debt.

One of the most striking changes over the past 10 years has been the dramatic fall in public expenditure resources spent on the nationalised industries--hon. Members should note that I said, spent "on" the nationalised industries, not spent "by" the nationalised industries--on improving services or new capacity. The fact is that since 1978-79 the total external finance required by those industries has fallen in real terms by nearly £5 billion. That means a saving to public expenditure which we have available to reallocate to other higher priority programmes.

Those savings have come about as a result of the transformation in the performance and productivity of the nationalised industries, which has been dramatic. In aggregate, today's nationalised industries have increased

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their productivity by an average of 7 per cent. a year in recent years. Last year they made a profit of £ billion. The White Paper forecasts a larger sum this year.

What is surprising is that the Opposition tend to describe those savings as cuts. In a debate last month the hon. Member for Dunfermline, East criticised cuts in spending next year on industry and energy programmes. To do so yet again is completely to miss the point on why spending by the taxpayer on energy next year is lower. The answer is above all because of the improved performance that I have just described. For instance, the electricity industry will generate more internal resources so that it can at one and the same time repay more borrowing next year than this, and invest £200 million more--a point which the hon. Gentleman did not mention last month. That is not a cut in investment. The hon. Gentleman has not acknowledged it ; he clearly did not understand it and I hope that he will now acknowledge it. In any event, what he said on that issue in the debate on the Autumn Statement was wholly misleading. Spending on industry will also be lower next year, but not because of so-called cuts. The reduction is the result of the fact that Rover will no longer be a drain on the Exchequer now that it has been successfully restored to full and profitable private ownership.

Mr. Stuart Holland (Vauxhall) : With a Honda badge on it.

Mr. Major : The hon. Gentleman had an extremely expensive education. I am not sure that it was money well spent. I, alas, did not have an extremely expensive education. I had the undoubted privilege of paying taxes in order to keep the hon. Gentleman at a university for many years. Frankly, I would like my money back. Over the last decade the taxpayers coughed up over £3 billion for Rover. From next year the need will have gone. No doubt the Opposition will describe that as a public expenditure cut as well. The position on employment is similar. Spending by the taxpayer is lower. But that reflects the longest period of falling unemployment since the war. That fall too has led to savings in unemployment benefit of over £1 billion a year over the next three years. That clearly illustrates the savings which result from the success of our economic policies. Indeed, the fall in unemployment illustrates dramatically the contrast between our policies and those of the Opposition. They said that we should spend more to reduce unemployment ; in fact, we are spending less because we have reduced unemployment. There is a clear distinction.

Over the years in the public expenditure debates we have had many lectures from the Opposition on the case for higher public expenditure. Their old, favourite theme is that more public spending is the only way to reduce unemployment. What has happened? Unemployment has fallen by over 1 million and for 29 months in succession. And not just in the south-east. In the past year unemployment has fallen in every region, and has fallen fastest in Wales, the west midlands and the north-west. The rate of unemployment is now lower than that of France, Belgium, the Netherlands and Canada. And the number of people in work is at the highest level ever, even after excluding those on community schemes and training

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programmes. It could be done only by public expenditure, the Opposition said, yet we have done it without boosting public expenditure but by creating an enterprise economy that is generating 1,000 new net firms a week. When did that happen under their public expenditure plans when the Opposition were in government? When unemployment benefit spending falls as a result, the Opposition no doubt will yet again point to cuts. If those are cuts, they are cuts which we are proud to secure, and I hope and expect that there will be more of them.

The Government who knew about cuts were the last Labour Government. Between 1973-74 and 1974-75 they increased spending by 12 per cent. in real terms. Inevitably the brakes had to be slammed on, the International Monetary Fund appeared and spending was cut by 8 per cent. in real terms. Although Opposition Members have still not learnt it, the fact is that control of public spending is a fundamental part of a credible economic strategy. It is inescapable, as every Government in every country must eventually recognise.

Mr. David Lightbown (Lords Commissioner to the Treasury) : Even Russia.

Mr. Major : "Even Russia," says my hon. Friend. Even the Politburo is ahead of the Opposition in learning that lesson. Purely by chance I want to quote to the Opposition from Tass :

"Bearing in mind the great difficulties in financing public expenditure, and the growing budget deficit, which leads to unbalancing the country's economy, the Government requires drastic measures to reduce public expenditure and cut down capital investment".

What an echo of the 1970s for Tass to understand what the Labour party did not. The Government of the Soviet Union understand. Perhaps the Opposition Treasury team should follow their colleagues who deal with foreign policy and go to Moscow to get up to date with Socialist thinking-- [Interruption.] For an intelligent man, the hon. Gentleman is very loud. As for us, we need no such advice. We know that economic disaster is the inevitable result of unsustainable growth in spending. Allowing public expenditure to grow inexorably is easy. Saying yes to every pressure group is easy. Forgetting about priorities or affordability is easy. It is plain wrong, but the Opposition do not understand that. Such recklessness inevitably brings a fearful reckoning, as it did for them. That is the legacy which we inherited and which we firmly rejected.

We believe the first economic duty of government is to safeguard the value of the currency ; to protect the taxpayer and to be prudent and responsible with the nation's finances. Those principles are at the heart of our management of public expenditure. The plans in this White Paper are sustainable and affordable. They select priorities and they rest on a sound and strong economy. They are the right way ahead, and I commend them to the House.

4.57 pm

Mr. John Smith (Monklands, East) : I beg to move, to leave out from "House" to the end of the Question and to add instead thereof "regrets the continuation of inadequate investment in public services, in the infrastructure, in education and training, in research and development, and in the regions ; urges the Government to end its dogmatic insistence on reducing the level of public expenditure as a proportion of national income ; and condemns the Government's failure to invest in the nation's essential public services, which further

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exacerbates the already seriously unbalanced economy, and will do nothing to bring down the level of unemployment, reduce the growing North-South divide, or improve the capacity constraints which currently impair the nation's economic performance."

In the first debate since I have returned from my illness, may I be permitted not only to thank the Chief Secretary for his kind remarks but to take the opportunity to express my appreciation to right hon. and hon. Gentlemen in all parts of the House for their warm good wishes and encouragement, expressed to me so generously and frequently during my illness and since my return. I should also like to thank my hon. Friend the Member for Dunfermline, East (Mr. Brown), who was precipitated into undertaking my responsibilities at short notice and who showed his calibre and courage by a relentless and most effective critique of the Government's economic policies. Returning to these debates, I am struck by how little has changed. The Chancellor certainly has not changed. He is as bulky as ever, even if things have changed a little on this side of the Dispatch Box. The balance of payments deficit is worse. Interest rates are even higher, causing, as a direct result of Government action, savage increases in mortgage payments which have wiped out for several million, by a factor of several times, any tax benefits which they got from last year's Budget. Inflation keeps rising and is heading towards 7 per cent., having doubled in about a year.

Mr. Julian Brazier (Canterbury) rose --

Mr. Smith : I shall give way to the hon. Gentleman, because he may keep bobbing up if I do not.

Mr. Brazier : I am grateful to the right hon. and learned Gentleman for giving way. Will he tell the House how many letters he has received from his constituents complaining about the rise in mortgage rates? I have received only one, and my constituents enjoy average living standards.

Mr. Smith : The hon. Gentleman's intervention says a lot about him and his relationship with his constituents. If it is true that the hon. Gentleman has received only one letter about the increase in mortgage rates, in a week or two he will be singing a different tune. He will receive a pile of letters from his constituents when they realise that he has expressed no concern about the increased burdens that they now have to shoulder.

I have received a substantial number of letters and have had time to read them carefully. What is more, I agree with what they say. The writers complained volubly that they were told that they would receive substantial tax cuts as a result of the Budget, but instead received monthly mortgage increases of £38, £50 or £60 which are several times what they were supposed to receive as a boost to the supply side. I hope that, when the hon. Gentleman receives the avalanche of letters that I trust his intervention will provoke, he will read them carefully and pay attention to the needs and desires of his constituents.

There is not much change between the Government's approach to public expenditure as revealed in the Autumn Statement that we debated some months ago and how it appears in the White Paper that we are debating today. Their attitude has three main characteristics. First, they continually make the dogmatic assumption that the amount of public expenditure, as a proportion of national

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income, should be consistently and constantly reduced. Secondly, they consistently seek to mislead in their presentation of statistics. Thirdly, they almost invariably have the wrong priorities.

Another feature has been revealed by the Chief Secretary's response to my intervention earlier. The Government clearly enter into commitments without fully understanding what they are doing. The Chief Secretary was asked a straight question about the cost of subsidising private medical services by giving tax relief to pensioners who use them. He said that he did not know, and that it would depend on demand. That means that it is open-ended. The Chief Secretary to the Treasury, who is responsible for controlling our public finances, has agreed to a change in our taxation system without knowing the consequences in terms of public expenditure. [Interruption.] If that is an example of the Chief Secretary's prudence, it is not one that we wish to emulate.

Mr. Major : The right hon. and learned Gentleman clearly does not realise that it is a tax incentive and does not concern public expenditure.

Mr. Smith : The Chief Secretary has made an even more interesting point. He knows perfectly well that to give a tax incentive such as that-- to people who are already using private medical services--means a loss in another direction. The revenue will receive less money. There is little intrinsic difference between giving people a tax subsidy and giving them an absolute grant. The two are the same in terms of public expenditure. I do not know whether the Chief Secretary thinks that it does not matter, but it will matter to many people who will say, "Why should I pay taxes when I use the National Health Service to subsidise others who use private medicine?" I hope that the Chief Secretary receives a few letters from his constituents about the reply that he has given to the House.

It is not good enough to proceed in this way. When the Government announce such important chages, the costs and implications should be clearly stated to the House. When the Chief Secretary, of all people, cannot answer a simple question directly, it says a great deal about the way the Government approach the House.

We had to listen to quite a lot of lecturing from the Chief Secretary, who seems to find public expenditure White Papers exciting bedtime reading. He seems to think that Opposition Members regularly read Tass reports. In the previous debate, Pravda was quoted, and in this debate Tass. I am not surprised that Treasury Ministers prefer alternative sources to the Treasury's own statistics. That is a matter of taste for them, but it is not a taste that Opposition Members share. We are more sceptical about Pravda and Tass than the Treasury Ministers.

The first major difficulty about the Government's approach to public expenditure is that they assume that it is necessarily good constantly to drive it down as a proportion of gross domestic product. A leader in the Financial Times of 16 November 1988 tackled the matter very well. It was headlined : "Risk of public squalor". The Government's approach was described by the leader writer as follows :

"the simple-minded assumption that a reduction in the share of GDP that goes on public expenditure must be a success' is indefensible."

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That was what the Chief Secretary kept telling us throughout his speech, yet the Financial Times thinks it is indefensible. The leader continues :

"It is quite unlikely, for example, that parents would regard their ability to pay for a cheap holiday on the Costa del Sol as adequate compensation for the Government's refusal to spend more on their children's education."

That is a sentiment that many of my constituents--whether or not they write to me--would share. The leader goes on :

"Public spending cannot be intrinsically bad"--

that is a view that we would all share--

"and its reduction as a share of GDP cannot be intrinsically good."

One would think that was mere common sense.

"In a number of cases public spending ought to rise substantially faster than national income."

Perhaps even the Government would agree with that.

"Success in the management of public spending consists in providing people with services of the quality and quantity they would demand if they had the choice. If the Government is unable to give them the choice, it should not disguise this failure in a cloud of rhetoric about successfully reducing public spending to its lowest share of GDP for 20 years."

I imagine that all reasonable hon. Members would agree with that. The approach to public expenditure should be simple. Claims should be assessed on their merit and necessity. If they are meritorious and necessary, the money should be spent. To confine public expenditure within a necessary and constantly declining proportion of GDP is a very wrong-headed approach.

Mr. Ian Taylor (Esher) : Conservative Members are finding it difficult to follow the right hon. and learned Gentleman's reasoning. Is he objecting to the fact that public expenditure is actually rising? The percentage of GDP has clearly confused him. The GDP has been rising at an extremely fast rate under this Government.

Mr. Smith : I understood clearly what the Government were saying, as did the Financial Times. I repeat to the hon. Gentleman, who cannot have been listening, that the Government constantly make the proposition that it is desirable and meritorious to reduce public expenditure as a percentage of GDP. I challenge that assumption : there are occasions when we may want to increase the amount of money spent, and when it is justified, it should be done.

Mr. David Shaw (Dover) : Will the hon. Gentleman say why page 7 of the Autumn Statement shows that general Government expenditure under the Labour Government fell from 48.25 per cent. of GDP to 43.25 per cent.? Even the last Labour Government thought that GDP expenditure, as a percentage, ought to fall. The key point was that the gross domestic product did not grow enough under the Labour Government.

Mr. Smith : If I had asked someone to make a helpful intervention in my speech, I would have written that question for the hon. Gentleman. It shows clearly that the last Labour Government assessed public expenditure needs according to the individual case made and did not keep to a constant proportion. [Interruption.] It is clear in this case--I hope the hon. Gentleman will try to comprehend--that the Government are always saying that it is desirable constantly to reduce the percentage. Why on earth is it desirable to do so? The trouble is that the

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Conservative party has a deep-seated prejudice against public expenditure. It aims to squeeze public expenditure whatever the economic circumstances, and trumpet the fact when it can do so. The Government say that their objective is to hold the rate of growth of public expenditure below that of the economy. There used to be another rationale for that. The rationale given by the Chancellor of the Exchequer and others, in the earlier years of the Government, was that we had to cut public expenditure to avoid the crowding out of savings, which forced up interest rates. We have had a few years of the Government's policies, and recent events may have dented this analysis somewhat.

British interest rates are now the highest of the major industrial countries, after the Government have had their way with public expenditure for nearly 10 years as the Chief Secretary was boasting, and the personal savings ratio has fallen dramatically, from almost 14 per cent. in 1980 to under 2 per cent. today. So much for the theory of crowding out. No wonder ; perhaps the Chief Secretary, who constantly wants to intervene, could tell us whether the Government still believe that the crowding-out theory obtains in the circumstances of today.

The Government have none the less been operating under the assumption that there ought to be such a constant reduction. They fight shy of putting the case for public expenditure-- [Interruption.] Now that the Chief Secretary has received the latest information from today's report from Tass, I shall give way to him if he wishes to communicate it to the House.

Mr. Jacques Arnold (Gravesham) rose --

Mr. Smith : I have hardly developed this point, so it is difficult to give way on it. But I shall give way to the hon. Gentleman if it will allow me to get on with the debate, and then perhaps I can proceed with my speech.

Mr. Arnold : Is not the right hon. Gentleman yet again confusing the difference between net and gross? Is there not a considerable increase in gross savings which is offset by the vast increase in home ownership, and therefore do not two rights very much make a right?

Mr. Smith : I shall be dealing with those matters later, but the hon. Gentleman should have a better sense of topicality, and intervene at an appropriate point.

The Government constantly fight shy of putting the case for public expenditure ; it is always presented in terms of savings in public expenditure. Public expenditure is a crucial element in the proper development of our economy and society. If we do not have necessary and sufficient public investment, at least at the level of growth overall, the economy's key public services are likely to be diminished, overstretched and under-resourced. In any sustained economic expansion, the growing demands of society, and the private sector in particular, will increase, and the public sector will be called upon to provide more.

If growth is unbalanced, as we would argue, and public investment is neglected, then the result will be bottlenecks that choke the opportunity for sustained expansion. The public squalor that I fear is occurring in some instances will strangle private affluence. Exactly these errors have been made by the Government, who have pursued the goal of reducing public expenditure below the overall level of growth in the economy. Public expenditure is running at

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only about 7 per cent. below the GDP growth par. A deliberate strategy of under-investment and neglect will result in this country being burdened well into the 1990s.

I take, for example, expenditure on transport, and especially roads, to which the Chief Secretary drew attention. The right hon. Gentleman said that an increase of £240 million will be made in the next financial year. We welcome the extra funds, but we recall that, over the past five years, investment in roads has fallen by 4 per cent. while the growth of traffic has averaged more than 25 per cent. and motorway use has increased by more than 60 per cent. That is a classic example of public investment failing to grow in parallel with increased demand.

Against such an investment shortfall, it is hardly surprising that the CBI recently demonstrated that Britain has the most congested road system in Europe ; that this congestion alone costs an estimated £5 per household per week ; and that the overall costs of distribution in the United Kingdom are about £40 billion in a year. The cost of road congestion should have been eased by public investment. The case for such investment should have been self-evident, and should have been undertaken years ago, before congestion became the major economic and environmental problem that it is today. But the Government's obsessive public expenditure squeeze has denied the road system of the resources that it needs. When Labour left office in 1979--I hope the Chief Secretary will listen to this- -investment in transport amounted to £5.4 billion in real terms, as against the £4.8 billion that is planned by the Government for the next financial year. Labour's investment performance in roads similarly compares favourably with that of the Government, as is helpfully revealed in the White Paper's report on the Department of Transport, one of the documents to which the Chief Secretary has referred.

In a new departure, perhaps even a breakthrough in the Government's presentation of facts, the Treasury has published a chart on page 17 of the White Paper relating to the Department of Transport, which analyses the road maintenance condition between 1977 and 1987. The chart usefully plots the progress of maintenance for local and national roads. It shows a sharp improvement in the maintenance standards achieved for both sectors until just after 1979, followed by a dramatic decline thereafter.

Most helpful of all, the chart is bisected by a line ; above the line it is marked "better" and below the line it is marked "worse". I am happy to confirm that, according to the Government's own document, published as part of the White Paper on public expenditure, we see that road maintenance was constantly above the line during the period of the Labour Government and almost always below it during the time of the Conservative Government. If we are in any doubt about its meaning, the chart helpfully says "better" on the top and "worse" at the bottom.

I am sure that is what the Chief Secretary had in mind when he said he loved to read these documents when he was trying to get to sleep. I recommend, if he is dozing tonight and finding it a little bit difficult to drop off, that he looks at charts showing the better and worse positions.

I congratulate the Department of Transport--perhaps even the Treasury is responsible for this--on this newly adopted approach to presentation of Government statistics. I very much hope that other Departments will follow the Department of Transport's lead. Perhaps the Department of Trade and Industry's monthly trade figures

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could be similarly improved, perhaps with trade surpluses appearing above the line and marked "better" and trade deficits appearing below the line and marked "worse". That might make our debates more illuminating, as well as entertaining.

Even when the Government revert to the practice of being economical with the truth, the White Paper cannot conceal the continuing decline in public investment. Even on the Government's preferred definition of public sector capital spending, which includes defence, the White Paper reveals a decline of investment in real terms of 0.5 per cent. in the next financial year. By 1992, capital spending in the public sector, excluding the privatised electricity and water industries, will have been cut by £800 million in real terms. That is found in table 22.1.11, at page 22 of the Supplementary Analysis and Index attached to the White Paper.

The older definition of gross domestic capital formation which, in line with the national accounts excludes defence equipment spending, is declining in real terms in every year from 1984 to 1985, until 1991 to 1992. The truth is that Government spending on the nation's infrastructure, defined as gross spending on capital formation by central and local government, excluding defence expenditure and capital grants, has not increased at all under this Tory Government in real terms today. It is more than 50 per cent. below the level of the mid-1970s, and is planned to fall by 9 per cent. in real terms between now and 1991.

Those figures show all too clearly the Government's dogmatic hostility to the public sector. They are a recipe for stagnation and decline in living standards and in economic efficiency. I hope that the Government will understand this point, if none other made during the debate--that under- investment in the public sector harms the supply side of the economy. In the next decade, the country will face enormous challenges. After 1992, it will have to compete successfully with other countries in Europe for the single market, and with the rest of the world, including Japan, for the global market place, in which our industries must thrive and survive.

If we are to pay our way in the world and live within our means--we hear little about this from the Government--we must tackle the huge £14,000 million balance of payments deficit that is the result of Government policies, which is the major economic obstacle facing this nation in the years ahead. We must ensure that we are equipped to supply the demands of the domestic and overseas markets. If we are to enjoy a genuine supply side miracle, that will need public investment. We must invest in education and training, in research and development, and in the regions--using public resources where the market has failed to provide adequate investment, and where Tory claims of success are absurd.

I note that the Chief Secretary, both in his documents and in his speeches, refers occasionally to priority areas. I assume that, by implication, the other areas do not receive priority. The right hon. Gentleman never refers to education and training, to research and development, or to regional development as priority areas. That is because they are all classified as non-priority areas, in terms of the Government's record and of their current viewpoint.

Education and training are the most important priority of all. Investment in education enhances the nation's most precious resource--the knowledge and skills of our people. From the nursery to the university, our country is failing to invest. It is one of the meanest providers of pre-school

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education for the under-fives, and there is inadequate provision all the way through secondary and tertiary education. Government education expenditure has dropped from 5.5 per cent. of gross domestic product in 1978-79 to 4.7 per cent. in 1989-90. That underspend is reflected in the levels of educational attainment, which are falling below those of other major industrialised countries.

Work undertaken by the National Institute of Economic and Social Research reveals that the average British student leaves compulsory education with a level of attainment in mathematics that is as much as two years behind the average German or Japanese student in the same age group. While almost half of British children leave education at age 16, in Japan and North America, 95 per cent. and 80 per cent. to 90 per cent. of children respectively stay in full-time education until age 18.

Mr. Major : Whose fault is that?

Mr. Smith : Most people would say that a Government who have been in power for 10 years might take a little of the responsibility. Despite that poor performance, the Government plan to give less cash for local schools next year--even as primary school enrolment is increasing. They will make £9 million less investment in our universities. It is not surprising that a British brain drain is now enriching American universities and colleges.

Mr. Major : That is nonsense.

Mr. Smith : The Chief Secretary should attend some of the debates in this House. If he had been here to listen to Tuesday's debate, he would have heard startling evidence about the brain drain of highly talented academics, who are leaving this country for the United States.

Mr. Dennis Skinner (Bolsover) : But he is really worried about Professor Walters returning here.

Mr. Smith : Yes, I can understand why the right hon. Gentleman does not welcome every person who travels in the opposite direction, back to this country. Nevertheless, he should show a little regret that some of our most talented people, whom we trained, are leaving for other countries because they are denied the facilities they need in Britain.

Sir Peter Hordern (Horsham) rose --

Mr. Smith : Perhaps the hon. Gentleman will allow me to finish this part of my speech. If I did not receive so many sedentary interruptions, I could perhaps deal with his more polite intervention.

The Committee of Vice-Chancellors and Principals reports that 36 per cent. of key professorial posts in Britain are vacant. On Tuesday, my hon. Friend the Member for Blackburn (Mr. Straw) informed the House, in a debate that escaped the Chief Secretary's attention, of the scale of teacher shortages. By 1995, there will be a 5 per cent. shortfall in mathematics teachers, a 14 per cent. shortfall in physics teachers, and an 18 per cent. shortfall in chemistry teachers. How shall we manage to man science-based industries unless those problems are tackled by the Government?

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Sir Peter Hordern : The figures from the National Institute of Economic and Social Research review that the right hon. and learned Gentleman quoted made a deep impression on many people--but I believe that that review was written three or four years ago, and described a period during the mid-1970s, when relevant comparisons were made with West Germany, France and Japan. The figures that the right hon. and learned Gentleman gave, and the comparisons he made, relate entirely to a period of Labour government.

Mr. Smith : My understanding is that those figures aptly describe the present situation. If that were not so, the hon. Gentleman would make the point that matters have improved since the period to which he refers, but I note that he does not seek to do so. Everyone who has studied the subject knows perfectly well that this country is neglecting the education of its young people.

That is seen also in skills shortages and training. A shortage of teachers means a shortage of developing skills. Today, British industry is dogged by the Government's failure to invest in human capital. The nation is crying out for skilled workers, but the Government propose cutting training support. Spending on youth training schemes will decline by £25 million next year, in cash terms, and by £150 million in 1991-92.

The Chief Secretary's defence is that the number of people involved is dwindling--but when there is a falling number of entrants, surely that is the time when extra resources can be used to upgrade the scheme. We know that, in many ways, YTS has not been a good investment--now is the opportunity to make it such for the nation. Support for employment training will be cut by 4.5 per cent., or by £50 million in real terms. Training for those at work will also decline--even though the Government spend only 2 per cent. of their training budget on improving the skills of people at work. It is almost unbelievable that a major industrialised country expresses its priorities in those terms. How on earth can we transform the British economy, reduce our trade deficit, and meet the challenge of 1992 with such an appalling record of under-investment in training? On a number of occasions, the Chancellor of the Exchequer has told the House that training is a matter for industry, not Government. He has told Select Committees and others that British industry's record of training is lamentable--so the people on whom he placed responsibility for training are, according to his own evidence, failing to discharge that responsibility. If industry is not meeting that responsibility, should not the Government do so? But they say, "Sorry, it is not our responsibility. It is the responsibility of industry." What happens in that pass-the-parcel situation is that people do not get trained. That is disastrous for those who fail to acquire skills, and it is an even more disgraceful waste of our most important economic resource--the skills of our people.

Skills shortages are a major constraint on industrial capacity. Company after company reports bottlenecks due to skills shortages. In the area of information technology, for example, science-based industries are crucial in promoting British business and in increasing our success in world markets. However, the IT industry is hard-hit by skills shortages and lack of training. The report of the Select Committee on Trade and Industry published last November estimated that 30,000 vacancies exist in the IT sector, which is equivalent to about one tenth of the

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industry's total work force. Despite that, British IT training is far inferior to that of our European competitors.

In Britain, only 1 per cent. of payroll costs are used for in-service training, against the best practice of 4 per cent. to 5 per cent. in the rest of Europe. That is a classic market failure. The responsibility for training was placed on the market, but it is not being discharged.

The Government's response is to persist with the dogmatic view that training must never be a Government responsibility. That is reflected in the public expenditure White Paper, and it is one of the many reasons why its proposals are wrong. They will lead to a loss of competitiveness, a loss of market share, and an increasing trade deficit. Indeed, the IT industry now suffers a serious trade deficit. It was £2.2 billion in 1987--the worst figure in the last 10 years. This is one of the major components in our serious balance of trade deficit.

In research and development, under-investment is matched. The United States of America, Japan, Germany and France have all increased their R and D to GDP ratios, while in the United Kingdom the ratio has declined. The result is that British domestic patent applications rose by only 3.4 per cent. between 1979 and 1986, compared with 8 per cent. in France, 7 per cent. in the United States, and 93 per cent. in Japan. Yet the public expenditure White Paper shows cuts in the value of non-defence scientific and technical research of 8.5 per cent. over the next three years. Clearly this is another of the non-priority areas for the Government.

But there is regional development as well. Just as short-sighted is the Government's investment in the regions. This Government have presided over the most massive divide between north and south. We now have an overheating economy in the south, while the north is being deprived. We have a society which is congested in the south, while there is too much space in other parts of the country. We see the costs both for the people who live in the south and for those who live in the north.

It is not good enough to say that there is the occasional town in the north --whether Harrogate or Edinburgh--that is better off than some parts of the south. The statistics are blindingly clear that there is a growing and massive divide between the economic opportunity of those in the south and that of those in the north. [Interruption.] Then it is even worse than I thought. I thought I might have to make a case that the Government should do something about it ; I did not think I would have to labour to prove that there is a difference between the north and the south. All the people who have lived in the north know about the difference in terms of economic opportunity. Yet the White Paper reveals the Government's antipathy towards regional policy. That is why the cuts in the value of expenditure in Scotland amount to £230 million, and why there are freezes in spending in Wales and Northern Ireland, and more cuts in regional industrial support to the extent of £30 million. I know that the Chancellor does not like getting these facts, but we do not often get the opportunity to put them to him so directly, and I hope that the result of his listening will be that he might realise that some of his non- priority areas are absolutely at the heart of Britain's capacity to overturn the trade and balance of payments deficits. In addition to these problems for the supply side, which is at the heart of our economic problems, there is the quality-of-life aspect of public spending. Our quality of life

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