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The real question that faces the House--although it faces both the Opposition and the Government, it is more urgent that the Government face it--is how to bring an unbalanced economy back into equilibrium without endangering our long-term economic prospects. We have the difficult task of slowing down the economy, reducing inflation and shifting resources from imports to exports without clobbering output and investment, undermining productive potential and increasing unemployment.
It is already clear that the Government's over-reliance on high interest rates has damaging side effects. As we can see only too clearly in our constituencies, high interest rates are influencing the current wage round. That is not a theoretical concept or a matter of how the retail prices index is calculated, as the former Chancellor of the Exchequer, the right hon. Member for Blaby (Mr. Lawson), used to say. It is a simple matter of bread and butter. If the Government increase interest rates, the cost of mortgages inevitably rises. Given the almost universal use of mortgages in Britain to finance house purchase, that inevitably feeds into the cost of living and so into pay bargaining. That is one of the unpleasant side effects. The other is the impact on investment. Already there are signs that the welcome investment boom of the past two years is dying away. Faced by contracting domestic demand and the high cost of borrowing, about which we have heard from people who should know, investors--particularly small businesses--put off investment decisions. The Chancellor of the Exchequer is well aware of that. If we are to reduce inflationary expectations and improve the prospects for investment, it is essential to bring down interest rates as soon as possible. That is why we need a new policy initiative.
Many of us accept that we should join the exchange rate mechanism. No one argues that membership is a panacea. However, at this stage of the economic cycle, it would give
Column 789us several crucial advantages. That brings me to the question that the hon. Member for Richmond and Barnes (Mr. Hanley) asked. The experience of several other countries which are members of the ERM, particularly France, shows that membership provides a useful counter-inflationary discipline. If business men and trades union negotiators are assured that there will be currency stability, there is less incentive for inflationary pay increases. To that extent, membership is counter-inflationary.
At the same time, membership of the ERM would allow Britain to bring down its interest rates. There is little doubt that one of the prices that we have paid for an independent monetary policy has been higher interest rates than those of our European competitors. As my right hon. and learned Friend the Member for Monklands, East said, if we joined the ERM at a competitive rate it would also help on the balance of payments side. As several hon. Members have said, the Prime Minister has imposed conditions on our entry into the ERM. It is clear that she is unwilling to join. She has even persuaded Treasury Ministers who ought to know better that we cannot join the ERM until our inflation rate improves. The trouble with that is that it is a chicken-and-egg argument. The Prime Minister says that we cannot join the ERM until our inflation rate comes down, but until we join it our inflationary prospects are unlikely to improve. We are in a cleft stick.
I fear that under present policies we shall continue to stagger along with inflation which is higher than that of our competitors, a record balance of payments deficit and higher interest rates than most of our competitors. We shall be very much the sick man of Europe, as was said earlier, and I believe that we need a change of policy.
Mr. Radice : I am afraid that the same is true at the end of the 1980s. That is why we need a change of policy. If we are to square our present inflationary circle, keep investment up and bring the economy back into balance without harming our productive potential--as we are doing now- -our early entry into the ERM is entirely necessary. 6.45 pm
Mr. Tim Yeo (Suffolk, South) : I enjoyed the analysis of the economy which the hon. Member for Durham, North (Mr. Radice) has just given, but I hope that he will forgive me if I do not respond to his remarks. Instead, I should like to refer to the speech of the right hon. and learned Member for Monklands, East (Mr. Smith). The right hon. and learned Gentleman enjoys a well-deserved reputation as a formidable debater, and his performance this afternoon was characteristically entertaining. However, it suffered from the same omissions as were apparent from his speeches in the four or five debates on the economy that we have had since the summer recess. We all understand why the right hon. and learned Gentleman does not wish to refer to the record of the Government of which he was a member. I trust that my right hon. Friend the Chief Secretary to the Treasury will not accept any strictures on inflation from a member of a
Column 790Government who even in their best year could not reduce inflation to the present rate, which we regard as unacceptably high. What I found more significant in the right hon. and learned Gentleman's speech was his reluctance to say anything about his party's policy. He may be reticent because he does not believe that he will ever have the chance to put those policies into practice. Whatever the reason, it may be instructive to the House to explore Labour policy more deeply.
During the debates on the economy before Christmas the right hon. and learned Gentleman made great play of his enthusiasm for entering the exchange rate mechanism of the European monetary system. Try as we would, my hon. Friends and I could not tease out of him any clue about the right level of sterling for entry into the ERM. I now understand why he was so reluctant to or could not answer that straightforward question--it was his adherence to what I might call a traditional Labour party source of advice. In October the right hon. and learned Gentleman told my right hon. Friend the Member for Blaby (Mr. Lawson) :
"He should listen, to the advice that he received from ... the annual conference of the Trades Union Congress."
That remark was a timely reminder of who would run the British economy if the Labour party ever returned to power. The right hon. and learned Gentleman deserves the gratitude of the House and the country for giving with such candour and courage an early and open warning of his dependence on his party's paymasters.
Unfortunately, the annual conference of the Trades Union Congress did not appear to have a clear view about the ERM. At TUC conferences motions and debates about crucial matters such as lesbian rights and reform of the blasphemy laws are perfectly routine, and I am sure that the House will be relieved to know that the right hon. and learned Gentleman has such a valuable source of advice on those topics. However, the TUC conference does not appear to have a clear view on our entry into the ERM.
In 1988 the annual conference of the TUC staged a debate on Europe which was opened by no less a personage than the President of the European Commission. Thereafter, the comrades did not make a single reference to the exchange rate mechanism in the entire debate, nor did the motion that they were debating refer to the exchange rate mechanism. I am sorry to say that the verbatim transcript of the proceedings of the 1989 TUC annual conference has not yet reached the Library, but I dare say that that is a source of some relief to the Labour Front Bench. However, I have scrutinised the daily reports in the Financial Times, a newspaper that can be relied upon to cover any reference to the exchange rate mechanism given that in September of last year it was such a topic of controversy--
Mr. Terry Fields (Liverpool, Broadgreen) : On a point of order, Mr. Speaker. It is not often that I get to my feet on a point of order, but I have scoured the pages of the Order Paper and have read the Orders of the Day and the notices of motions. Although the topic before us is fairly wide -ranging, covering the Government's economic policy and the amendment tabled by my right hon. Friend the Leader of the Opposition, in the past five minutes, since the hon. Member for Suffolk, South (Mr. Yeo) has been on
Column 791his feet, all that I have heard has been an exposure of Labour policy--as he sees it--and of the TUC policy, but no reference to what is on the Order Paper.
Mr. Yeo : I am most grateful to you, Mr. Speaker, because that is exactly what I am trying to do. The majority of hon. Members who have spoken have referred to the exchange rate mechanism. I am merely trying to tease out of the right hon. and learned Member for Monklands, East a little more about his attitude to this important and highly relevant subject.
Once again, it seems that in 1989 the delegates at the TUC's annual conference did not have the exchange rate mechanism at the top of the agenda--
Mr. Smith : The hon. Gentleman is clearly in need of some education. I do not know what he reads or how he gets his information, but I advise him that I was at that TUC conference as an observer of an interesting debate on the exchange rate mechanism. The conference passed a resolution that Britain should join the ERM. That is a fact. Will the hon. Gentleman now proceed on the basis of facts rather than on these ridiculous surmises, all of which are wrong?
Mr. Yeo : On the contrary, the surmises were based on the assumptions that I have set out clearly. In 1988 I studied the verbatim transcript of the TUC proceedings. In 1989 I was forced to rely on newspaper accounts, which I have scrutinised--
Mr. Yeo : I can tell the right hon. and learned Gentleman that unfortunately the Financial Times did not carry any reference to the debate to which he refers during the whole week of the TUC conference--
Mr. Yeo : All right, I am happy to acknowledge that there was a debate and I am grateful to the right hon. and learned Gentleman for pointing it out. I am glad for his sake that he has a source of instruction on which he can act on this crucial subject because, under pressure from my hon. Friends, the best that he could come up with on the exchange rate mechanism in our debate last October was that entry to the ERM will be effected
"at the right and appropriate rate for the success for British industry."-- [ Official Report, 24 October 1989 ; Vol. 158, c. 684-85.]
That piece of waffle could easily have come straight from the lips from the Leader of the Opposition.
Mr. Yeo : Another aspect of Labour party policy is its enthusiasm for an industrial strategy for manufacturing industry, which is another subject on which we have heard a great deal this afternoon. If that phrase means anything, it presumably means that the Labour party favours increased investment. The question that we must ask is,
Column 792where will that investment come from? Not from the poor old private investor, I fear, whose plight under a future Labour Government would be even worse than under previous Labour Governments. Under Labour, individual investors would find their capital gains taxed at income tax rates of up to 59 per cent.
Mr. Radice : The hon. Gentleman has been referring to my right hon. and learned Friend the Member for Monklands, East and to what he said about the exchange rate. I remind the hon. Gentleman that when the Chancellor appeared before the Treasury and Civil Service Select Committee, he said, on exchange rates :
"As to the judgment as to what is or is not a firm exchange rate, that is a matter which one has to consider as and when necessary". I repeat that that was what the Chancellor said. It is clear, is it not?
Mr. Yeo : The Chancellor has made his support for entry into the exchange rate mechanism under the proper conditions perfectly clear to hon. Members and to the public at large. I fully support his views. I hope that with the skilfully managed depreciation of the pound over the past three months, we have now arrived at a level for sterling that is appropriate for British entry into the exchange rate mechanism. That is my view.
The Labour party proposes that the individual investor should also lose his current modest annual exemption for capital gains, or that at the very least it would be substantially reduced. The income that individuals receive from their investments in manufacturing industry would in future be subject to an extra deduction, which would be equivalent to the deduction of national insurance contributions on earnings. Launching a double- barrelled attack on investors' income and capital gains is hardly the best way to promote investment in manufacturing industry. Indeed, there are only two possible explanations for this attack. The first is that it was launched on the advice of the TUC. The second is that the Labour party is looking forward to a return to the bad old days when men in Whitehall found how difficult it was to pick industrial winners, at great cost to the taxpayer and the country.
The final aspect of the Opposition's policy that is relevant to the debate- -
Mr. Speaker : Order. I have been listening carefully. I have a suspicion that the hon. Gentleman's case would have been admirable last Friday, but he must now relate his remarks to the Autumn Statement and to the Opposition's amendment.
Mr. Yeo : I am most grateful to you, Mr. Speaker, for that guidance. Obviously, I am concerned to relate my remarks closely to the subject under debate, but since the Autumn Statement is the document that shows the balance between revenue and expenditure, any proposals to alter the revenue -raising taxation of this country are relevant to a discussion of the Autumn Statement.
It is clear that the Labour party is desperate to raise the rate of personal income tax. We understand that the top rate would be increased to 59 per cent. and that between that and the existing basic rate of 25 per cent. would be other rates, higher than 25 per cent. Many taxpayers who are currently paying a rate of 25 per cent. would pay substantially more in taxation.
Equally damaging is Labour's pledge to abolish the upper earnings limit on employees' national insurance
Column 793contributions. That would hit hard and indiscriminately at everyone earning £325 per week or more--a figure that is not much above the rate of average male industrial earnings, if overtime is taken into account.
Let me turn--no doubt to your relief, Mr. Speaker,--to the Autumn Statement, three features of which, unfortunately, have not received the attention that they deserve. The first and most important feature of this year's Autumn Statement is that public spending is rising in real terms. As my right hon. Friend the Chancellor said at the start of the debate, substantial extra sums of taxpayers' money are being allocated to health, transport and higher education, to name but three of the areas that are receiving additional resources. That increase in spending is wholly welcome. I am sure that there is overwhelming public support for applying a share of the nation's growing wealth to improving the quality of vital public services. However, there is nothing new about that trend. Since the Government came to power, public spending has risen by 16 per cent. in real terms--a fact which, like so many others, contradicts the beloved Left-wing myth of Government cuts. Furthermore, while there is plenty of room for debate about how far Government decisions can affect the rate of inflation, economic growth or productivity, there can be no doubt that one aspect of the economy that is exclusively under the Government's control is the amount of public expenditure. This year's Autumn Statement is a further confirmation of the Government's clear and deliberate intention to improve and expand public services. The second feature of the Autumn Statement is that that increase in spending is soundly financed. From time to time in the past, this country has suffered from Governments who have embarked on spending sprees paid for by borrowing. It is only a few years since the nation's debts were spiralling upwards at such a dizzy rate that the British Chancellor had to go cap in hand to the International Monetary Fund as though Britain was some third-rate, debt-ridden banana republic.
Today there is a different and happier story to tell as the whole of this year's public expenditure will be covered by revenues received from taxation. Indeed, those revenues will be sufficient to repay a substantial amount of the very debt that this Government and this generation of taxpayers inherited from their irresponsible and profligate predecessors. Repayment of debt lightens the burden on future generations so that resources that might have had to be used to pay interest become available to train more teachers, to pay more doctors and so on. That sound basis for the expansion of public services and expenditure also deserves a warm welcome.
The third, equally welcome, feature of the Autumn Statement is that it shows that the proportion of the nation's wealth being consumed by Government spending is now down to under 39 per cent.--the lowest level for more than two decades. That is one measure of the admittedly gradual progress that the Government are making to get off people's backs.
Those three central features of the Autumn Statement--more spending, soundly financed spending, and a smaller state grab of the country's production--are worth spelling out because in recent economic debates, and even today, they have tended to be overlooked. The fact that
Column 794that treble has been secured at a time of steady falling personal and corporate tax rates makes the achievement all the more remarkable.
In the 1970s, the economic decision-making process was one of agonising between whether we should cut spending or raise taxes. In the early 1980s, that changed to a choice between whether to increase spending or to cut taxes. Even if 1990 has to be a year without any cuts in taxation, I am confident that later in the decade we can look forward to higher spending and lower taxes. For that reason, I commend the Autumn Statement to the House.
Mr. John Garrett (Norwich, South) : I wish briefly to talk about the Autumn Statement. Therefore, I shall not be following the remarks of the hon. Member for Suffolk, South (Mr. Yeo) as for much of the time I could not understand the points that he was making. It was as though he was rehearsing an address to the Primrose League in some village hall this weekend, and trying to frighten the good ladies with tales of Socialism-- red in tooth and claw--that is about to come over the horizon in his part of Suffolk.
The main point of interest in the Autumn Statement was the Government's forecast for 1990. Although every year is one of transition, clearly the Chancellor forecast a change in our economic performance for next year. Therefore, it is right that we should examine the credibility of some of those forecasts. All Chancellors are haunted by their forecasts within a few years, but I expect this Chancellor to have a nasty turn this mid- summer.
What struck me most about the public expenditure part of the Autumn Statement was the inadequate allowance for the relative price effect in the National Health Service--the tendency for Health Service costs, as a result of the high level of staff in total costs, new medical equipment, and the rising costs of drugs, to rise faster than the retail prices index. In the Select Committee on the Treasury and the Civil Service report it was pointed out that in 1988-89 cost inflation in the National Health Service was well above the RPI, at about 10 per cent. When the Chief Secretary gave evidence on that question to the Committee, he said :
"When you take account of income generation and cost improvements in the National Health Service, we will see an increase in patient care and quality of service".
That does not seem to be much of an offer. He therefore assumed that unquantified revenues--because they cannot be quantified yet--and cost cutting, also unquantified, would come to the rescue of underfunding. I thought that to be a dubious assumption, and so did the Committee, which concluded :
"Because of the high inflation of Health Service costs the increases may not allow the improvement of services that the published figures imply."
In the public expenditure White Paper, which will be published in the near future, we should look for real evidence of increased output from the NHS as a result of the so-called increased inputs, which are clearly exaggerated as a result of the relative price effect. The Chief Secretary and I have been interested in improving the output figures from public expenditure programmes for a long time. They have improved, but the crucial point when this year's National Health Service programmes are presented is to show the extent to which revenues and cost cutting have made a contribution to the improvement to service. At the end of the day, we must show what the
Column 795outputs were, what happened to the waiting lists, the number of operations carried out and the relative costs. We want more sophisticated output indicators to test the validity of what the Chief Secretary alleges will be the increase in Health Service performance.
As I tried to point out to the Chancellor during his speech, that is not the only area where there is a differential cost. The Low Pay Unit points out that when the retail prices index rises by 7 per cent., the cost of living for pensioners, those on benefits and those earning low pay is about 10 per cent. because they have a different pattern of expenditure. Therefore, benefits that relate only to the retail prices index and not earnings--as they were under a Labour Government--continually chip away at their standard of living. The basic things that those people buy, such as housing, food and clothing, rise in price relatively quickly compared with the pattern of expenditure of the middle class.
In his economic forecast, the Chancellor modestly said that 1990 would be a less easy year. However, table 2.12 in the summary of economic prospects shows zero growth for 1990. In anywhere else in the world that would be a recession. The United States Treasury description of a recession is nil growth in two consecutive quarters. We have a forecast of virtually nil growth in four consecutive quarters.
The hon. Member for Berwick-upon-Tweed (Mr. Beith) and my hon. Friend the Member for Durham, North (Mr. Radice) pointed out that we have the phenomenon of a dramatic fall in inflation in three years' time. That is like pursuing the Holy Grail or the Hound of the Baskervilles across the Grimpen Mire--it is always slightly out of reach. For the past six years the Government's medium-term forecasts have each forecast inflation at 3 per cent. in three years' time. The outturn has usually been 7 per cent. or more. As those forecasts have never been achieved, I am not sure why the Government bother to make them. In 1985, the forecast for 1988 was 3 per cent., but the result was 7 per cent. In 1986, the forecast for 1989 was 3 per cent., but it was 7 per cent. This year's Autumn Statement leads us to believe that inflation will fall from 7.7 per cent. in 1989 to 5.5 per cent. in 1990 and to the magic figure of 3 per cent. in 1991.
In December 1989, inflation was 7.7 per cent.--the highest figure since 1982. That was characterised by what the CBI called a series of inflationary own goals. The CBI quoted as inflationary "own goals" the poll tax, the business rate, the level of income tax and the continuing forcing up of utility prices--above all, gas, electricity and telecommunication prices, in order to stuff those companies for privatisation and enable them to make a return to their shareholders.
As the Treasury and Civil Service Committee said,
"repetition in the face of failure has not added credibility to this forecast."
That, I think, is a very modest all-party way of putting total disbelief in this chimera of the 3 per cent. inflation rate which is continually vanishing over the horizon.
We also have a forecast of a dramatic improvement in the balance of payments deficit from over £20 billion--I think the outturn was getting on for £22 billion in 1989--to £15 billion in 1990. Presumably this is a result of nil growth. If there is nil growth in the economy, imports are that much less and therefore the balance of payments deficit improves, but it is a tough way of improving the balance of payments deficit for those on low pay. Even at
Column 796this level, it is still 2.75 per cent. of GDP, which will be the largest relative balance of payments deficit in the Western world. We have had a running dispute during these years of mounting trade deficits as to whether it matters. It used to matter a great deal. Then, when balance of payments deficits began to get into double figures in billions every year, Government spokespersons said that it did not matter anyway as it was funded by capital inflows, and it would be all right on the night.
I liked some of the remarks of the chief economic adviser to the Treasury on this matter. He said--modestly, I thought--that no one is ever comfortable with a deficit this size. He said that under pressure, I am told. He also said that, given a choice between this deficit and a smaller one, he would choose a smaller one. I found that very reassuring from somebody paid to advise the Chancellor on economic policy. He then said that he expected the deficit to be self-correcting. He is no doubt right, in that deficits of this order are unsustainable in the long term, but the question is with what kind of cataclysm it will correct itself. We have dropped the term "soft landing" nowadays, I understand. We simply hope that --
One of the advisers to the Treasury Committee has said that if it proves self-correcting
"it may only be because the private sector eventually reacts very abruptly- -leading to a recession as companies slash investment, employment and stocks."
The truth of the matter is that investment is falling and certainly industry is rapidly destocking at the moment. So some would say that the recession is well under way already. There was an increase in business failures of 10 per cent. in 1989, and the regional figures are quite interesting : an increase of 17 per cent. in the south-east, 18 per cent. in the DTI's east region and 22 per cent. in the east midlands. What this tells me is that all those new and under-capitalised companies that have sprung up in the enterprise society in the relatively prosperous regions have been hit by interest rates and have gone out of business ; and, of course, shortly they will be hit by the unified business rate. In those regions, the increase in that rate will be exceptionally high, as we know.
In Norwich, a 160-year-old clothing company, the last remnant of our clothing industry in the city of Norwich, has recently gone out of business, making 450 people redundant--people whose skills are not easy to utilise nowadays in that city. The owners actually quoted high interest rates as the reason for their going out of business.
Mr. Roger King : The hon. Gentleman has mentioned that businesses have failed and he has laid the blame on high interest rates. Clearly he has never run a small business, because a business can fail for a vatiety of reasons--the wrong product, the wrong quality, the wrong many things. So he cannot say specifically that interest rates have caused the problem. He also commented on the situation in Norwich, where, as I understand it, there is almost full employment and companies such as Norwich Union are taking people from the schools into their business because they are so short of staff. While it is a tragedy for any business to close, manufacturing and the commercial sector constantly regenerate themselves.
Column 797Mr. Garrett : I have run several small businesses, and quite successfully. I was saying that the reason for the collapse of that particular business was given by its owners as high interest rates. I did not pick that out of the air ; it was what the employees were told, and those employees are now redundant. Of course, small companies go out of business for a variety of reasons. I suppose that bad management is the usual one. But what we are discussing now is the high level of interest rates in relatively small
under-capitalised companies which have embarked on business with a relatively high level of debt, as many such businesses do, as the hon. Gentleman should know.
Since I first represented it the city of Norwich has been transformed from a manufacturing city to one which is largely based on financial services and retailing. I am not saying that there is anything specifically wrong with that, but it gives a very unbalanced local labour market if people with manufacturing skills cannot find jobs, as in the case of the machinists from the clothing company I cited. We want a balanced economy in the city I represent, just as we want it in this country. The loss of our footwear industry and of much of our electrical, manufacturing and engineering industry has been disastrous. It is true that Norwich Union is offering school leavers jobs, and that is all to the good, but it leads to an unbalanced local labour market and economy.
In the area I represent we see failures and redundancies spreading, as they usually do at the beginning of a recession, throughout the building and double-glazing industries and, lately, in retailing, as interest rates bite harder and the property market dries up. So we are getting into, first, low growth, then no growth and then recession.
I do not see any vision in this Autumn Statement, any looking ahead of the kind referred to by my right hon. and learned Friend the Member for Monklands, East (Mr. Smith). We do not see any long-term strategy, and it seems to me to be the duty of a Government to produce a long-term strategy for those things that only the Government can deal with--research and development, education and training, communications infrastructure and transport. For example, the share investment in GDP in Britain is below the EEC average, at 18 per cent. compared with 20 per cent., and it is falling further. The share of manufacturing investment in GDP has fallen by a quarter in the past decade. Our expenditure on research and development per employed person is well below EEC levels, and Government expenditure on civil research and development is also lower. We have seen the closure of a number of very important sources of civil research and development in this country--in the food industry, for example--in recent months.
In the last decade expenditure on education and science as a percentage of GDP has fallen and we are a poorly educated and trained nation compared with our competitors. We have half the number of 16 to 18-year-olds in full -time education and training--35 per cent.--that there are in France and Japan. We have half the number of school leavers reaching university entrance level that are doing so in France and Germany. There is a whole series of studies by the National Institute of Economic and Social Research which shows the damage done to our industry by the lack of training of shop floor workers and supervisors ; and of course the Government have announced further cuts in education and training for 1991-92. It always surprises me that the Conservative
Column 798party seems to think of education and training as some kind of burden on the economy rather than as an investment which provides the wealth of the future.
When I went to school we had textbooks. At the schools my children have gone to they have work sheets, which are substitutes for textbooks, simply run off by the teacher and handed round the class. They do not have books. That is the result of progressive cuts in education. About 29 per cent.of our schools need major refurbishment because they are not up to the physical standards required. The Autumn Statement is really a statement of hope that we are not yet tipping over into recession, whereas the Government's figures show that we are well into one. They admit their mistakes of last year when tax cuts fuelled an import boom, but simply hope that interest rates will choke off demand when it looks as if the adjustment is already leading to rising numbers of bankruptcies and mortgage foreclosures. The Government are not laying the foundation in investment, research and development, education, training, transport and communications that we need if we are to be competitive in 1992 and the following years.
Mr. John Townend (Bridlington) : Listening to the hon. Member for Norwich, South (Mr. Garrett) makes me believe that the Government are achieving a better balance in the economy. East Anglia has been a prosperous part of the country and has boomed. I come from the north, where we have suffered restructuring and many problems, yet there are no signs of recession there.
The city of Hull, which borders my constituency--some of the eastern suburbs are in my area--is booming in a way that it has not boomed for 25 years. Enormous development is taking place there, not only in retail and leisure but in manufacturing, and since the ending of the national dock labour scheme the port is beginning to take off. The container terminal that was left idle is once more working and an extra 1 million tonnes of goods will be going through the port next year.
I always listen with interest and respect to the hon. Member for Durham, North (Mr. Radice) when he addresses the Treasury and Civil Service Select Committee. He speaks with the erudition and moderation that one would expect of a Wykehamist, so when my hon. Friend the Member for Richmond and Barnes (Mr. Hanley) asked him to say what changes in economic policy the Labour party would make, I waited for the answer with bated breath. It appeared that his only change of policy would be to join the ERM now. I found that intriguing because his right hon. and learned Friend the Member for Monklands, East (Mr. Smith), the shadow Chancellor, has always been careful not to say that. He will join it only when the time is right.
Mr. John Smith : I would not wish to claim credit for having a policy which said I would join when the time was right. The hon. Gentleman has it wrong because that is the Government line. I have explained that we would join on the basis of the four conditions that I set out fully in our debate on the subject. I am concerned for the hon. Gentleman's political good health. He should sort out the difference between the Government and the Opposition because that is basic to our debates.
This year's Autumn Statement shows how successful the Government have been in controlling public expenditure since 1985-86. Table 1.1 shows that expenditure in 1985-86, at 1988-89 prices, was £188.7 billion and that in the current year, at constant prices, it is below that. In the same period, the percentage of GDP going on public expenditure fell from 45.3 to 38.3 per cent.
That has been a remarkable achievement. It is the lowest level of Government spending since Lord Wilson of Rievaulx was in office in 1967. The Government are to be congratulated on that magnificent achievement, and particularly the Chancellor for his work when he was Chief Secretary to the Treasury.
I detect, if not a change in policy, a slight easing of Treasury control. That worries me, for the Government are proposing a real increase in spending next year in general Government expenditure of £4.3 billion, and £3.8 billion in the following year. The GDP percentage is set to rise for the first time since 1984-85 by 0.25 per cent., and in the following year it is projected to fall by only 0.25 per cent.
Those figures disguise the true increase in departmental spending. As table 1.12 shows, the real increase next year is £8.7 billion, excluding privatisation, and the figure is that high because of the reduction in debt interest. That is worrying because there is always pressure on the Treasury from the spending Departments and I get the feeling that that pressure is beginning to have some success. That is dangerous for the Government because for every extra £1 billion expenditure, there is less opportunity for a £1 billion reduction in the tax burden on industry and business or the individual. Expenditure in the current year on the EEC has doubled, from £1 billion to £2 billion. However, many people in this country would take the view that the benefit to the United Kingdom from the Common Market has doubled in the last year.
Overseas aid has increased to £1.7 billion. That expenditure contributes directly to our balance of payments deficit. Without doubt, whatever one's feelings--one has a feeling of compassion for many of the countries involved--much of that aid is wasted by incompetent, Left-wing Governments who are inefficient and are causing much of their nation's poverty. In many cases, they have been trying in vain to implement Socialist-Marxist policies, copying eastern Europe, when such policies are now clearly seen to have failed and are being rejected.
Expenditure on the arts has gone up to almost £0.5 billion. I am not opposed to expenditure on the arts, but I am worried by the fact that a high percentage of it is spent in the south-east of England and benefits upper-middle class yuppies. Little of it is spent in the north of England to benefit my constituents. We need a change of emphasis in that expenditure.
Opposition Members will welcome the fact that spending on social security is going up by £2 billion, over 10 per cent. I am surprised that the increase is so high because, with the consistent reduction in unemployment month on month, one would have thought that there would have been some saving.
The cost to the nation of broken marriages and one-parent families is increasing annually, so I welcome