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Column 188and schools--although I know that in my constituency school roofs are leaking and walls are covered with fungus. Some of our utilities are also not being looked after. We are asking future taxpayers to pick up this generation's bill, and that cannot be right. I know that the Chancellor of the Exchequer receives many calls for investment, and it is always difficult to know the rate of return on long- term investment, however advantageous it may appear. In this instance, however, we are talking about disinvestment, and the longer that we wait to tackle it seriously, the more the British people will suffer from the consequences of our inaction.
Mr. Patrick Ground (Feltham and Heston) : I welcome the fall in Government debt interest which is reflected in the White Paper. I was pleased to hear my right hon. Friend the Chief Secretary to the Treasury refer to the large reduction in the national debt in the past three years, and the resultant saving of some £3 billion a year in debt interest.
The fall in interest is all the more remarkable when one considers the extraordinary rise in Government debt and debt interest in the 12 years up to 1986. Under the last Labour Government, between 1974 and 1979, the national debt doubled from £40 billion to £80 billion and from 1973-74 to 1979-80 the cost of servicing the national debt more than trebled.
The figures in the White Paper reflect the fact that it took the present Government more than a parliament to reverse the trend of Government borrowing and to start upon modest repayment. The table on page 25, in chapter 21 of the White Paper, which is adjusted for inflation, shows how the increase in expenditure on Government debt interest started to crowd out and choke other forms of public expenditure.
By 1985-86 debt interest had grown to equal the size of the education budget, and to be almost on a par with the defence budget. Debt interest constituted a sum equal to five sixths of the expenditure on health services and social services and to some 40 per cent. of the expenditure on social security. The figures, which are adjusted for inflation, show a decline of £4 billion in the figures since 1985-86, from £20.6 billion a year to £16.6 billion, and that is a change which I welcome.
Looking back over the course of British history, and studying the pattern of Government borrowing and debt servicing, it is clear that the period of history which immediately preceded the change was an exceptional period in the peace time performance of a British Government. I welcome the fact that that period now appears to have changed. I hope that the pattern of repayments will continue with a substantial repayment of the debt in the coming Budget. I hope that, when Ministers consider the Autumn Statement and the policy for the coming year, they will take a prudent fiscal stance.
I remind the Minister of what is said in the first report of the Treasury and Civil Service Committee concerning the effect of sales of Government and local authority assets. The Committee warns : "privatisation proceeds and other asset sale receipts give an exaggerated impression of how tight the fiscal position is. Privatisation receipts contributed £4.2 billion and local authority capital receipts provided another £5.3 billion to the budget surplus."
The Committee remarks :
Column 189"although the fact that the government's finances are in surplus is a sign of fiscal tightness, it does not necessarily mean that it is tight enough, when related to the private sector deficit and the balance of payments deficit."
Therefore, when we consider the present situation, and the favourable reversal that the Government have achieved, there is a strong case this year for maintaining a substantial repayment of debt to bring down the level of interest payments for the future. I believe that such a policy is prudent, sensible and constructive for sensible decisions about public expenditure, which will permit sensible growth of public expenditure where that is needed. It is also fairer to future generations not to saddle them with an increasing burden of debt.
It is time--as we are considering the White Paper--to look back over a period of 15 years of British history, and perhaps a few years before that, and to say that we welcome the fact that a period of heavy Government borrowing is coming to, or has come to, an end. We welcome the fact that lower debt interest payments by central Government are likely and may make more room for increases in various Government expenditure programmes. I hope that that approach is not necessarily partisan to the Conservative Benches, but is a policy of prudence which can commend itself to many other hon. Members. We have learnt from bitter experience the effects of
ever-increasing public debt. It creates overcrowding in the budget and ridiculously high interest payments.
Mr. Matthew Taylor (Truro) : The background to any debate on public expenditure is inevitably the general economic circumstances that the country has to face. It is not possible to debate public expenditure divorced from that. We know that considerable economic difficulties lie at the Chancellor's door at present. One of those difficulties is the considerable trade deficit--a record deficit--which a Government that came into office talking about turning round our competitiveness should not have to consider. They can hardly be pleased to have to do so.
There is also the background of the problems that the Government have encountered with inflation--problems that are not entirely caused by outside forces. They can be laid, in no inconsiderable part, at the Government's door.
Whatever the reason, it means that when we consider the figures given in the documents, and by the Minister, in regard to planned increases in expenditure, we can anticipate that inflation over the coming year is likely to bite severely into the kind of increases in expenditure of which Ministers like to boast. I do not believe that economic forecasts that interest rates and inflation will fall, which the Government are currently basing their plans on, are credible. The Government's plans also assume that inflation for the coming financial year will be 6.5 per cent., and that inflation will be down to 3 per cent. by September 1991. That is wholly unrealistic in the circumstances that the Government face.
If we consider the impact that inflation has on expenditure plans, we find that they will be rapidly eaten away by any realistic estimate of what inflation is likely to be. If inflation is higher than the estimated figures, we may hope that Ministers will respond by increasing planned public expenditure. Yet the Chief Secretary to the
Column 190Treasury made it quite clear that he did not believe that budgeting for inflation was an adequate way of proceeding. What he meant was that, irrespective of inflation, these are the kinds of expenditure targets that the Government intend to implement. I do not believe--and I do not think that in their heart of hearts most hon. Members believe it either--that those inflation targets can be met, so we can assume that the real expenditure increases of which the Government boast will not be met either.
Part of the answer to all this, in my view, is that the Government must abandon the dogmatic approach to reducing public expenditure as a proportion of gross domestic product. In an economic downturn, it is extremely difficult to meet such targets. Indeed, the Government appear in part to have acknowledged this, because this year, excluding the proceeds from privatisation, they are allowing for a slight increase in the percentage of GDP going into public expenditure. It is right, in my view, for spending to increase in that way at present. Indeed, I believe that it needs to increase further, but, if they are going to allow for that--and I will come later to some of the areas in which I believe that is necessary-- a tight budget in other ways is needed, given the inflation problems about which I have already talked.
The Government need to do a number of things in terms of their overall economic strategy to make possible the kind of expenditure increases that I advocate. One is that in their economic policy making they need to give far greater certainty than they have as yet to the markets. The Government attempt to do that through interest-rate strategy. They say that they will do what is necessary with interest rates to create ground rules and certainty of that kind. But I believe not only that that is an inadequate tool but that it is not using the range of tools that are and should be available to Ministers.
I believe that the kind of economic restraint and certainty that could be provided through much more rapid progress towards joining the exchange rate mechanism is one way of tackling that. A second way, in our current economic circumstances, would be to make it quite clear that further cuts in income tax are at present ruled out. If we were to adopt that kind of strategy and, particularly, to join the ERM, we would have to make compensating fiscal changes. I believe that we can do that by tackling some of the clear anomalies within the tax system, including the higher rate relief on mortgage interest rates and abolition of the ceiling on national insurance contributions, both of which unfairly help the rich.
Once we have done that, we can start to look at how the long-term impact of Government expenditure targets and restraints is affecting the economy and the kind of changes we can make on the supply side--changes that should be in the documents that we are debating today.
One of the difficulties in debating this matter is caused by the changes which the Government have included in their papers separating central and local government expenditure, for political reasons which the House finds easy to understand--although, given poll-tax capping, I doubt that the idea that the poll tax should introduce greater accountability to local government is really effective, as I believe the Government have ultimately acknowledged. Nevertheless, we can understand why Ministers might want to do it.
Column 191The problem is that, looking at the papers, it is impossible to get an accurate idea of what the Government think will happen in terms of expenditure on many important areas of the infrastructure and public services, because this becomes obscured by the complication of the local government system of assessing what expenditure should be, what the Government think it should be and what it actually will be.
Even so, if we consider some of those areas we can expose some of the weaknesses in the Government's plans. I start with education. Whether we put people first, or perhaps believe that in order to help people the priority must be to put the economy, business and incentives first, education is fundamental to this country's future. It gives an unrepeatable opportunity to young people. By and large, they cannot go back in later years to make up for shortfalls now. So it is one of the crucial areas for any politician, who must look at the quality of what is provided.
Last week's report of Her Majesty's schools inspectorate has met political flak in the Chamber. Different interpretations of it have been spun across the Floor and it has been the subject of political argument. But there is no doubt that, whatever the proportions may be, it tells of staff shortages, buildings in a poor state of repair and inadequate provision of books and equipment. Those problems, as I know very well from the situation in my part of the country, relate especially to primary schools ; and education for the youngest people is something that education scientists would say is crucial to the prospects of young people as they grow up.
The education expenditure paper shows that the increase in cash terms in central Government funding is from £5,748 million to £6,590 million, while local authorities are expected to spend £15 billion this year. This is inadequate for the task of tackling the problems. Teachers' salaries will not rise sufficiently to deal with the problems of low morale and, especially, teacher shortages. It cannot be acceptable, whatever one's political view, to continue to have historians teaching physics and English teachers trying to teach maths for lack of qualified staff.
The local authority associations, not all of them by any means Opposition dominated, say that the education spending assessments for local authorities will leave a shortfall of some £800 million--a shortfall that is reflected at present in the estimates of what will be required in poll tax. If it were not so reflected, a cut of some 3.5 per cent. in spending on education would be required. This is reflected also in the debates in council chambers, including the debate today in Cornwall county council, about how to balance the need to keep the poll tax as low as possible so that people can afford it with the need to push it as high as possible to meet the spending requirements of the education system.
The December Adjournment debate that I was privileged to initiate allowed me to point out the special needs in my own area. The hon. Member for Clwyd, North-West (Sir A. Meyer) talked about similar problems in his area. Cornwall's schools need some £100 million to be spent on them to bring them up to the minimum standards laid down by the Education Act 1981. The allowance for capital expenditure from the Government is less than £10 million a year. We are moving backwards in Cornwall in terms of the state of repair of our schools. There are still 50 schools with outside toilets and 50
Column 192schools without the necessary school halls, and we have schools that in many other respects fall short of the minimum required. I asked the Minister of State, Department of Education and Science what we should do about it. Would the Department allow us to spend the extra money, our money, needed to bring our schools up to standard? Her reply was not that the Government would allow us the money but that they were reviewing the standards. All hon. Members should be aware that when Ministers debate the specifics they are not talking about meeting the needs of the children and providing the things that parents are demanding for their children ; they are talking about cutting, changing and reviewing the standards they have themselves laid down. That is the reality behind the expenditure proposals. No matter what Ministers say, tossing about percentages and talking about cash in real terms, the reality is that in many cases our schools are going backwards in terms of facilities. There have been cuts in training and the privatisation of training provision was announced today. Again, public expenditure falls short of the real needs that are often presented to us in our surgeries and when we visit businesses, particularly small businesses. Such businesses suffer most from high interest rates as they are unable to negotiate the best discounts and are always on the edge of their borrowing limits. At the same time, they are being hit by the uniform business rate and revaluation, which hammer particularly small, local high street traders. They cannot distribute the costs around a large plc or make up for loss of profit in the high street by higher profit in manufacturing. The Minister has the ability to tackle those problems.
Small businesses suffer most from the lack of Government training initiatives. Of course, bigger businesses can and should be encouraged to take on some of the burden. One of the most distressing things to happen in the past 10 years has been the disappearance of many apprenticeship programmes which have been replaced by Government-funded and less-adequate YTS programmes. Cuts in Government expenditure hit smaller businesses which are in no position to train people or to do anything to tackle the skills shortages. Surely it should be a priority for Conservative Members who claim an interest in the needs of businesses to tackle the skills gap that is being addressed far more adequately in our nearest competitor nations in Europe and elsewhere.
I do not agree with the Minister that public investment crowds out the private sector. The lack of a basic infrastructure and a skilled work force crowds out private sector investment because businesses do not have the public sector background against which they can make that investment work.
We are told that spending on the National Health Service will increase by £2.4 billion, or 3.4 per cent. in real terms. Yet the White Paper assumes that Health Service pay and prices will increase by only 5 per cent. It is predicted that if inflation runs at 7 per cent. in the next financial year and wages in the Health Service reflect that, as I suspect they will, the health authorities could have a £37 million shortfall. That brings us back to the old argument between the reality of cuts and Government claims about increased expenditure. Of course both are true, but that will not solve the problems of overcrowded hospitals and morale in the Health Service.
Column 193We also lack the price information on inflation in the Health Service that would allow us to make a judgment about what is happening. We do not have information about demographic and other changes that are affecting our Health Service. It would not be difficult or expensive to tackle some of the problems that our constituents face. There are still long waiting lists for operations, despite the Government having announced programme after programme. I do not need to elaborate because hon. Members on both sides of the House are only too well aware of the problems that their constituents face in getting operations and medical care within a reasonable time. All too often Ministers know the cost of something but not its value.
I do not apologise for using the opportunity to raise a local example. Cornwall's first air ambulance, in my constituency, is not funded by the health authority or by the Government ; it is funded entirely by public subscription. It costs about £30,000 a month and an enormous effort has been put into paying for it. We were proud of the fact that it was the first air ambulance. People came from other parts of the country to look at it. Some of those people were from the Daily Express . They went back to London and announced in the Daily Express that they were launching the first air ambulance in the country. That was a surprise to us as we thought we had already done that and they had had a look at it. They had splash coverage in the Daily Express, but what really got our goat was that through a series of parliamentary questions we discovered that the Government were not only supporting it but were putting £50,000 a month--more than the total cost of Cornwall's air ambulance--into the Daily Express programme.
No matter how much we asked and how hard we tried to find out why that difference should occur, the reeking suspicion remains that Ministers do not treat public services as a priority ; they do not recognise the value of what the public have done in Cornwall, but consider only the politics and the publicity content. Therefore, the Daily Express came out far ahead of the people of Cornwall.
Mr. Lilley : When I tried to intervene earlier, the hon. Gentleman had just said that Ministers know the cost of everything. Unfortunately, that is not so ; we do not know the cost of the Labour programme or of the Liberal programme, although we know the value of both. Does the hon. Gentleman propose to cost the pledges that he has implicitly made today and his party has made repeatedly or, as with the Labour party, is there a line of small print saying, "You will never get it ever"?
Mr. Taylor : I am sympathetic to the Minister's criticisms of the Labour party, but he knows that in previous elections the Liberal Democrats undertook some difficult work in costing our programmes and we shall do precisely that in future. The Minister should accept that that is harder to do in opposition than in government, but nevertheless we intend to produce answers in subsequent elections, as we did in the last election.
Mr. William O'Brien (Normanton) : Returning to local support and local initiatives to help people who need treatment and assistance from the Health Service, will the hon. Gentleman bear in mind that local organisations have to raise funds to maintain local hospices? In my constituency people are working hard to raise funds and have approached the Department of Health for assistance, suggesting that perhaps the Secretary of State for Health should match pound for pound the voluntary subscriptions to help fund the hospice service, but we are miles from achieving that principle. The assistance that local organisations receive from the Government is miserable. Will the hon. Gentleman comment on the hospice service?
Mr. Taylor : I support what the hon. Gentleman has said about hospices. They work on the same principle as the parent-teacher associations, which put in enormous efforts. What bites them is not that they have had to put in such great efforts but when the money they raise gradually stops being a top-up and becomes part of the essential service. That really hurts people.
Despite the Government's talk about percentages, real terms and the rest, the reality is more than apparent. More often than not it is reflected when hon. Members talk about individual cases. The White Paper represents missed opportunities. We need a change of tack, and that is motivating many people throughout the country to believe that the Government are coming to the end of their natural life. 6.59 pm
Mr. Alistair Burt (Bury, North) : I always find that these debates take place in a somewhat unreal atmosphere. Opposition Members furiously conceal Government expenditure in order to produce some imagined sleight because they would like more money spent elsewhere. Increasingly, they furiously conceal their future public expenditure plans, either because they have none or, more likely, because they dare not reveal them. Quite naturally, they conceal their past record, rather like the offender who believes that time has lapsed on his conviction under the Rehabilitation of Offenders Act 1974 and that it is rather naughty to mention it.
I congratulate the hon. Member for Derby, South (Mrs. Beckett), who is my neighbour in Norman Shaw, on making a good speech. It was beautifully enunciated, but weak on policy. Should Glenda Jackson become an hon. Member, she will find that no one speaks from the Dispatch Box with clearer diction and more properly than the hon. Member for Derby, South.
The hon. Member for Derby, South used the analogy of a house when considering the Government's economic policy. Had she used the analogy of a house during the period of the Labour Government between 1974 and 1979, she would have given the picture of a house falling down, with severe subsidence, a "For sale" notice on the front, a foreign buyer giving the caretaker a list of demands to carry out and subversives busy underneath continuing to undermine its foundations. If she had produced the analogy of a Labour house in the future, she would have given not the picture of a house but, like foreign holiday
Column 195brochures of a few years ago, an artist's impression. The British public, like the tourist of a few years ago, would find only a chap saying, "Sorry, we are too busy. Come back when the house is built." To add to the air of unreality, Conservative Members have sometimes concealed public expenditure for quite different reasons, but we no longer do so.
There is something touchingly biblical about the Government's modesty--of the left hand not knowing what the right is doing--but that can be alarmingly counterproductive. Although all too often it is not recognised by the general public, our public expenditure record is very good. The prospects that were all outlined by my right hon. Friend the Chief Secretary to the Treasury make the opportunities better still.
No one seriously believes in the blank cheque argument any more, except perhaps the hon. Member for Derby, South and her hon. Friends. Priorities, rightly, must be preferred, and the Government's honest determination to put those facts before the people is to be commended.
Our perceived attitude to the public sector has cost us dear in the mind of many people. I think that we should be unequivocal. Some services are well provided by the public sector, and will continue to be so. Those who work in public service are to be commended for the difficult jobs that they often must do and, in many cases, for the excellence with which they do them. It is a genuine outrage to suggest that Conservative Members believe differently.
The Government's overall stance is correct. They are right to prioritise, which is why I welcome the further emphasis that has been placed on the National Health Service, with spending rising from this year to next by £2.4 billion, or 5.5 per cent. in real terms. However, mere recitation of those figures becomes tedious and unreal to constituents, so let me briefly mention what the Government's record over the past few years has meant in tangible and practical form to my constituency and health authority. Consultant medical staffing has increased by about 35 per cent. over the past five or six years. Money has been earmarked to support those doctors, and the new posts will lead to reduced waiting lists and to the introduction of services that previously were not available in Bury. Nursing staff has increased from 875 in 1979 to over 1,100 now. Capital spending since 1979 has run at about £19 million. That is not just a figure, because it has produced at Fairfield general hospital a new children's ward, a new children's out-patient department, a new ante-natal clinic, a new catering department, a new sterilising department and a new ear, nose and throat out-patient department. Developments from April 1989 onwards show a new ENT theatre costing almost £500,000, a major upgrading of an orthopaedic theatre and the provision of additional wards for the elderly at Bury general hospital. Those are not just figures ; they are tangible services that are now available in my health authority. That is what public expenditure on the Health Service has meant in Bury.
Curiously, over the past 12 months a new group has formed in my constituency, called the Bury Health Services defence campaign. I am at a loss to work out quite from whom it is defending the National Health Service. It cannot be from me or from Ministers, who have provided more nurses, doctors, buildings and services over the past decade. I believe that it is working to defend us from a severe attack of a Labour Government, because a previous attack was serious indeed. They cut nurses' salary, capital
Column 196expenditure and total spending on the Health Service in my constituency by 2 per cent. between 1974 and 1979, compared with the growth of 19 per cent. over the past decade under this Government. I therefore look forward with confidence to future expenditure on Health Service provision in Bury, secure in the knowledge that the Government properly dispense care through efficiency and competence, whereas care under Labour Governments, mouthed uselessly all too often, is not provided and is threatened by mismanagement and over-heavy union control.
I am in a position to reveal a great truth to the House. The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) made passing reference to traffic problems and to cones on our motorways. There is much mystery about from where those cones come. Do they multiply among themselves in the dead of night? Do they appear, like Santa Claus and Labour party policies, from fairyland? No, I can reveal that the world's best cones are made in my constituency by a firm called Swintex, under the guidance of a chap called Harry Houghton. They are the best cones in the world. They are beautifully made and have improved substantially over recent years. They are more fluorescent and more stable, and, if properly used in traffic management control, they can make a significant contribution to road safety. The next time that hon. Members pass those traffic cones, they should curse them not ; they should think only that they are yet another good product from Bury and rejoice in the safety that they bring to the roads as necessary road repairs are carried out. I welcome the projected increase in overseas development aid from £1,430 million in 1990 to £1,750 million by 1993. The aid budget is planned to increase by about 22 per cent. in cash terms and, we hope, by about 9 per cent. in relation to domestic inflation. I make a particular plea to Ministers for an increase in the share of that aid for southern Africa, particularly for South Africa.
It is not sufficiently widely known how much Britain has achieved for black South Africans over the past few years. South Africa is much more a mixture of first and third world than people realise. Rural poverty is extensive, and apart from the obvious inequalities between blacks and whites, which must be addressed by the future South Africa, much work will ultimately need to be done in rural areas to improve health, education and economic standards. Anyone who has visited rural Africa will have been touched by the scenes at the sides of roads in the early morning or in the afternoon of children from poor homes managing to struggle to appear in some form of school uniform. Such is the value of education that great effort is made. I have visited South Africa twice in recent years on a Christian basis and have seen some of the work that the Government have done for the black community of South Africa and for Mozambiquan refugees in the area of South Africa known as Kangwane, under the fine leadership of chief Minister Enos Mobusa.
Many people in South Africa believe that the changes currently taking place there have much to do with internal changes of attitude as a result of years of patient work for peace and reconciliation by Christians and others across all races. Put in that context, the equally patient work undertaken by Britain, either directly or via voluntary agencies, deserves some credit. Together with our uncompromising message of hostility to apartheid, which
Column 197has been personally delivered by our excellent ambassador, Sir Robin Renwick, who is highly regarded in all South African circles, that work has been helpful in changing attitudes for the best. What sort of work do we do among black South Africans that is so valuable? Between 1987 and 1992 this country will have provided over £30 million in support of the black people of South Africa. We provide help and assistance for students, the seed corn of the future of South Africa.
This year we are providing for 90 undergraduate awards in Great Britain, 60 undergraduate awards in South Africa and 250 postgraduate awards in Britain. In total, including those who continue their studies from earlier years, Britain will be financing about 1,000 black South African students from 1991.
Rural schools and squatter camps have also been assisted. There is a project in Johannesburg called Women for Peace, a non-racial organisation with branches across South Africa. It aims to break down barriers between races. The Women for Peace building in Alexandria, the black township nearest the centre of Johannesburg, was opened in 1988. Britain contributed 30,000 rand, the majority of the construction costs and a number of sewing machines. The building is used for typing and sewing lessons, craft lessons for the handicapped, and supplementary lessons for school pupils, and is available for general community use. The building has proved so successful that Women for Peace is in the process of extending it. That is an example of what Britain is doing in South Africa through public money. The further development of South Africa is the key to the future of the continent. It could be an engine of change for the countries around it, with immense benefits accruing to all. That is why it is important for our programme for black South Africans to be continued and intensified.
I have given two examples, one at home and one abroad, of the good that can come from public expenditure. There are other examples of the good that has been done under Conservative rule in Britain. Public expenditure must not become so large as to distort the economy. We have had examples of that in the past and, frighteningly, we have had a foretaste of what might happen in the future. The Labour party cannot get away with what it has said about its public expenditure policy. We will not accept a blank cheque. But if public expenditure is not to grow and distort, neither should judicious public expenditure wither on the vine. We have much of which to be proud in our public expenditure policy. We should proclaim that loudly, correct what is wrong and protect this country from the financial disaster that would befall us all if the Labour party was ever to take office.
Mr. Denzil Davies (Llanelli) : Earlier in the debate the hon. Member for Clwyd, North-West (Sir A. Meyer)--who is not now in his place, and I make no criticism of that--referred extensively to the economy of Wales, to the Secretary of State for Wales and to his own constituency. He waxed lyrical about the economic situation in Wales, and it might be wise if, at the outset of my remarks, I were to put the record straight.
Column 198Income per head in real terms in Wales has fallen over the past 10 years. It is lower now than it was in 1979. It is also lower in Northern Ireland. The other regions of Britain have just about maintained their income per capita. The gap between Wales and Northern Ireland is now narrower than it was in 1979. We have low incomes, high unemployment, much part-time employment, a run-down social infrastructure and run-down social services. That puts the record straight.
The Chief Secretary, as always, did his best this afternoon. He tried to pretend at the outset that he did not like public expenditure, but went on to say that it was a good thing. We are again debating an expenditure White Paper produced by a Government who do not really believe in public expenditure. In the last 10 years the Conservatives have hacked, cut, sliced and nagged away at public expenditure with the exception of expenditure on the armed forces and the police.
When the Conservatives came to power, they were imbued with the ideological belief that public expenditure was bad, and they took the same view of the trade unions, the dreaded public sector borrowing requirement and high taxation. They claimed that public expenditure was at the root of all our problems, especially inflation and economic decline.
Mr. Tim Smith : The right hon. Gentleman cannot be allowed to get away with the suggestion that we have cut public expenditure. The Autumn Statement shows that in 1978-79, real-terms expenditure was £164.8 billion. I believe that the right hon. Gentleman was at that time a Minister at the Treasury. Next year, the year that we are debating, it will be £191.7 billion, so it has increased substantially in real terms.
Mr. Davies : Yes, a great deal has been going into unemployment and social security payments, due to the problems that the Government have caused. But on matters that are crucial to our infrastructure, such as education, training, research and development and trade and industry, there have been cuts in public expenditure.
When the Chief Secretary discussed research and development, he said that we spent a higher percentage than Germany and Japan. But that is so only because the right hon. Gentleman included the figures for military research and development. He went on to say that we spent more than the Americans on civil research and development. Of course we do, because they spend more than us on military research and development. The fact remains that all areas vital to our economic infrastructure have suffered cuts time and again under Conservative rule.
A Government who did not have such ideological hang ups about public expenditure would have used the marvellous opportunities of the 1980s--low international inflation and massive surpluses, approaching £85 billion, from oil revenues--judiciously and prudently to build up our economic infrastructure to enable us to compete in the more difficult years of the 1990s and the turn of the century. Instead, spending on almost every item--education, training, support for industry and civil research and development--has been cut over the years.
Column 199Education expenditure has fallen from 5.5 per cent. of gross domestic product in 1978-79 to 4.8 per cent. in 1988-89. Only 35 per cent. of people in Britain between the ages of 16 and 18 stay on in full-time education and full-time training. The figure for France is 66 per cent. In other words, during 10 years of Conservative rule, with the most favourable economic climate that any Government have had since the war, that is all that our Government have been able to achieve.
Consider the figures for trainees qualifying in craft, engineering and technical subjects in Britain compared with France. Last year, 27,000 youngsters qualified in Britain, whereas 80,000 qualified in France, three times as many. How on earth is Britain to compete with the French and the Germans--even with the Italians--in the 1990s when the amount we spend on training is so meagre?
Instead of planning for the future and using correctly the £85 billion or £87 billion of oil revenues, the Conservatives threw the lot into an unfettered marketplace and allowed the money to be redistributed in that way, instead of using it to improve the economy. One need not be a financial wizard to appreciate what the market did with those billions of oil surpluses. They went, as always in the British economy, to those areas of the marketplace that have dominated the economy since the war and have caused so many of our problems. They did not go into manufacturing. Indeed, manufacturing investment has been slow in growing since 1979. Service sector investment has grown in the past 10 years while about one third of our industry has been destroyed.
In the first instance, the money went into residential and commercial property. The Prime Minister preaches financial rectitude. She has encouraged enormous borrowing to enable people to acquire residential property. At the height of the boom it was possible to borrow three and a half times one's income from banks and many building societies to buy a house or flat. It was also possible to borrow 100 per cent. of the valuation. That did not happen 10 or 20 years ago. In France, Germany and other European countries Governments would never have behaved with such profligacy as the British Government have behaved in encouraging such borrowing. The shadow Chief Secretary, my hon. Friend the Member for Derby, South (Mrs. Beckett), mentioned M4, one of the monetary indicators which I do not think the Government have adopted. They have adopted all other monetary indicators and then abandoned them. M4 includes building society activity. Over the last 10 years, M4 has increased by at least 15 per cent. every year. The increase has been far greater than any other productive potential or power of the economy. As a result of the boom, asset values, house prices and the value of residential property increased, and people started to borrow on the basis of their value. They borrowed and they bought more goods which had to come from abroad because British industry, having been decimated by the Government to a considerable extent, could not produce the goods. The supply side was not there to produce the goods that people wanted because they had the money to buy them. Then money poured into commercial property. Insurance companies and pension funds are still collecting people's contractual savings. It must be said that over the last 10 years people in employment have had a substantial increase in their real incomes and wages. The Government
Column 200cannot take credit for that. I accept that some of the increase resulted from increased productivity in manufacturing industry, but most did not. In fact, most of the economy is now a service economy which does not know the meaning of productivity and which is not subjected to the same competition as manufacturing industry. The increased earnings and increased contractual savings went into the pension funds and insurance companies. With their incestuous and sometimes unhealthy relationship with developers and with the bureaucrats in some of the larger town halls, they poured money into the shopping malls, marinas, B and Qs and Great Mills. Money poured into places that were selling goods from abroad. After 10 years of the Tory Government, the economy could not produce the goods that people could buy with the money they borrowed or earned.
I think that it was Napoleon who said that the English were a nation of shopkeepers. They are. Perhaps the Welsh are, too. At least in Napoleon's time the English and perhaps the British had the wit, the art and the skill to produce the goods that they sold in their shops. We are still a nation of shopkeepers but unfortunately we cannot produce the goods that our people want. We have to go abroad for them ; hence the massive balance of payments deficit. The other area to which the money went--surprise, surprise--was the good old City of London. Ten years ago the City of London was the most open financial economy, if that is the right description, in the world. Any bank could come in ; anyone could set up in the City. It was far freer than Frankfurt. The Germans do not seem to need a large stock exchange, yet they have a massive balance of payments surplus ; they can keep inflation down and they have high public expenditure. Compared to the City of London, Frankfurt is a small stock market. So is Paris, and the French have done much better than we have. Ten years ago we had an open financial market but the Government have opened it up even more ; they have made it even freer and competition is even more unfettered. They did it in many ways. They removed the reserve asset ratios established by the banks. There was freer borrowing from banks, with no problems from the old Bank of England asset ratios. Then the Government relaxed, and released almost immediately, exchange controls ; the former Chancellor did that when he was Financial Secretary. Of course, exchange controls had to go in the end because of the rules of the treaty of Rome. But why did the Government do it suddenly? Why did they not do it gradually, as the French did? The French lifted one control after the other. They kept an eye on the economy to make sure that when they lifted controls they did not damage the real economy. The Germans did the same, as did other countries. Why did we overnight completely abandon exchange control? We did it, causing a boom and the inflation from which we are suffering.
Mr. Norman Lamont : If the right hon. Gentleman has read the autobiography of his boss, the former Chancellor of the Exchequer, he will recall that in that book the right hon. Member for Leeds, East (Mr. Healey) described how he considered abolishing exchange controls and explained clearly why he thought it necessary. That was when the right hon. Gentleman was a Treasury Minister.
Column 201Mr. Davies : I concede that exchange controls had to be abolished. I also appreciate that the treaty of Rome made us abolish exchange controls, whether we agreed or disagreed with them. But exchange controls did not have to go overnight.
Mr. Davies : Whatever my boss wanted, my view is that they did not have to go overnight. We could have followed the experience of the French and the Germans and relaxed them gradually, but that was another instance of opening up the financial community completely.
Mr. Robert Sheldon : If my right hon. Friend the Member for Leeds, East (Mr. Healey) had abolished exchange controls overnight, I can tell everyone in the House that he would have had a resignation on his hands.
Mr. Davies : The reserve asset ratios had gone ; exchange control had gone. Then we had the big bang which broke down many of the traditional barriers, financial and ethical, in the City. Again, nobody cared. Those barriers had to go. Over the last few years we have had takeover after takeover, merger after merger. Nobody cared about the company. The only question was, who owned it? No economic analysis was made of the consequences of the takeover.
The irony is that, despite all this, the Chancellor is not getting much money out of foreign investment. Money went abroad. The Central Statistical Office is scrabbling around trying to find £100 million to help reduce the massive balance of payments deficit. I have not looked up the figures, but I would not be surprised if the amount of money remitted to Britain in income and dividends is not that much greater than the amount remitted when we had exchange controls. I may be wrong. Despite all that has happened, the money remitted is going down every month. Perhaps that is an indication of the confidence that the financial community has in the Government.
The flow of money into property, wages and earnings, and the City has created the position with which we are faced. A prudent Government--the word "prudent" is used all the time by Chief Secretaries--would have used some of the £85 million to build our economic infrastructure, and to improve training, education, and civil research and development so that we could compete with the French and the Germans in 1992.
A future Government will pay a heavy price for this Government's profligacy. The Government like to talk about financial rectitude. Future Governments and the public will pay a heavy price. Of one thing we can be certain : the Tory party will pay a heavy price at the next election.
Mr. Allan Stewart (Eastwood) : I am accustomed to hearing some fairly neanderthal speeches from Scottish Labour Members, but some parts of the speech of the right hon. Member for Llanelli (Mr. Davies) made them sound like models of progressive realism. We heard a great deal of Welsh rhetoric about cuts. When it comes down to it, my understanding of the right hon. Gentleman's definition of a cut is when a spending programme is reduced as a percentage of gross domestic product. I point out to the right hon. Gentleman that gross domestic product has
Column 202gone up from £173.4 billion in 1978-79 to £517 billion in the current year. That is why the Government could increase expenditure in real terms on key programmes.
It is a pity that none of the Opposition Members who have spoken recognised the force of the arguments of my hon. and learned Friend the Member for Feltham and Heston (Mr. Ground), who pointed to the crucial importance of public sector debt repayment and the fact that that enables the Government to increase expenditure on priority areas without risk to their overall policy.
Like other hon. Members, I congratulate the hon. Member for Derby, South (Mrs. Beckett) on making her first speech in her present Front-Bench position. I do not criticise her for not giving way to me earlier as she had very fairly given way to a number of my hon. Friends. I now have the opportunity to ask the hon. Member for Newcastle upon Tyne, East (Mr. Brown) whether he will answer the simple question that I would have asked his hon. Friend. Apart from defence, is there any expenditure programme that the next Labour Government would reduce? [ Hon. Members :-- "Come on Nick!"] I shall be happy for the hon. Gentleman to answer.
The Opposition have three approaches to public expenditure. First, there is the approach of the hon. Member for Brent, East (Mr. Livingstone). In The Guardian on 2 October he said :
"We have to say now what we are going to spend and where the money is going to come from."
That is a proper and honest approach. Secondly, there is the approach that might be described as the "nudge, nudge, wink, wink to the pressure groups" approach. The hon. Member for Kingston upon Hull, East (Mr. Prescott) said that transport needed
"public money on a grand scale".
Every Opposition Member who speaks on the Health Service says that expenditure must be increased on whichever aspect of the Health Service is being discussed. The education spokesmen say that student grants must be increased and social services spokesmen say to the pressure groups that social services expenditure must be increased. The third approach might be described as the "Monklands amendment". The right hon. and learned Member for Monklands, East (Mr. Smith) goes around quoting as a pillar of fiscal rectitude--