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If ever an increase in spending were needed, it is needed now. That is a typical counter-cyclical investment ; one pours money into training when the economy is down, so that when it revives one has a properly skilled work force who are capable of taking advantage of the revival.In my constituency, there is great concern about the effects of cuts in employment training. Employment training courses have been cut from one year to 26 weeks. Mr. Bill Wood, the vice-chair of the association of training organisations in my area, has said : "The whole thing is a shambles The unemployed people are just the fall guys."
Growing redundancies have meant that many people who need retraining, on ET, no longer fall within the Government's guarantee of access to training, and many unemployed people will receive none. The recession also means that there is much less opportunity for work experience placements, which have almost dried up in my constituency. Since 1989-90, there have been constant cuts in the basic rate of funding for each training week. That is supposed to be replaced by output-related funding, but only a quarter of trainees in Norwich complete their full entitlement of training to gain recognised qualifications, so they do not qualify for output-related funding.
Most trainees have special needs and cannot reach the vocational qualifications, on which funding depends. They have special needs, which are simply not recognised by the funding of training. In other words, training schemes are being cut and fewer people are being trained. Training programmes should be a high priority for public spending, and the Government are not giving them that priority. When the recession ends, we shall be in the more competitive world of 1992, and our workers will be much less equipped to face the challenges from our competitors.
The Government's attitude to training is folly, but it is part of a wider folly. The Department of Trade and Industry budget, in the first year of this programme. loses 20 per cent.--£250 million in real terms--in 1991-92, when support for industrial innovation is needed more than ever. Government spending on education is to fall by 5 per cent. in real terms in the same year--1991-92. Education spending has fallen from 5.5 per cent. of gross domestic product in 1979 to 4.6 per cent. of GDP in 1990. What a thing to have to admit at this time, when we need skilled workers and properly educated young people. Instead of doing that, the Government are cutting and cutting the education budget.
Last weekend, I attended the court of the univeristy of East Anglia. The vice-chancellor made it clear that standards would have to fall because, with no increase in funding, there would have to be another 8 per cent. or so increase in the number of students. Apart from being useless from a management point of view, these departmental reports are useless in every other way.
It is amazing that the Treasury has never caught on to how to organise management information, even though budgetary control was invented in 1919. One would have expected that by now we should have had a budgetary control system that would give the results of Government spending, compared with the objectives. The departmental reports show a fundamental neglect of public investment
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in training, industry and education--just the programme areas in which we need to invest for our future if we are to remain in the first rank of European nations.6.10 pm
Sir Ian Lloyd (Havant) : I do not intend to take up immediately the points made by the hon. Member for Norwich, South (Mr. Garrett) but I listened with great interest to what he had to say about this series of reports. The first issue that I wanted to raise was exactly that--their sheer weight, size and cost.
First, however, may I refer to something that the hon. Member for Derby, South (Mrs. Beckett) said ? She referred to the whole philosophy of cuts. I cannot help but reflect on the fact that on almost every occasion in recent years when we have held debates such as this, the definition of the term "cut" has become more and more complex, difficult and political. If a child's £1 pocket money were raised to £2, he would probably regard that as an increase both in money and in real terms. If, however, he went home and said that his little friend Frederick had got an increase of £2 in his pocket money, he would probably regard his own increase in pocket money as a cut in real terms. I believe that that sort of psychology is being bruited about for political purposes. It is reasonable that that should happen in a political debate.
My right hon. and learned Friend the Chief Secretary put his finger on the most important subject that can be discussed in this debate : that all this points to the need for quality and effectiveness in public expenditure. As he said, there is no escaping the difficulty of such decisions, but they must be better informed.
There are two aspects to that better information, one of which I shall summarise briefly. Trained statisticians know--there are many thousands of them in Government service, and thousands of them in industry--that many of the figures bruited about in economic debates concerning employment, unemployment, gross national product, and so on are subject to what are known as statistical limits of error. It is a very precise and well defined term. What it means is that we cannot rely on such aggregates in the case of something like gross national product, where we are talking about £560,000 million and that figure being accurate to, plus or minus, about 5 per cent. If my arithmetic is correct, 5 per cent. of £560,000 million is something like, plus or minus, £28 billion. All the figures, therefore, that try to conclude that there will or will not be £20 billion available in the near future and that it will or will not be allocated in this way, should be subjected to the most cautious qualification. I turn to the main matters that have arisen in the past and that will continue to arise concerning the vast and almost
incomprehensible question of public expenditure. They give rise to what I believe to be three dangerous myths. The hon. Member for Norwich, South touched on this, because he is interested in parliamentary scrutiny. First it is a dangerous myth that Parliament at the moment continues to be an effective controller of the public interest when it comes to expenditure. Secondly, there is the growing impact of the pervasive but unrealistic myth of so-called underfunding--again, something on which there are many political views. Thirdly, perhaps the most serious misconception of all is that a pound redistributed via the fiscal and social security system is equal in value and public merit to a pound denied, for example, to basic science or
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fundamental research, technology transfer, the recognition and encouragement throughout our society of excellence, and the public's perception of its real interest. I suggest that these are very different values.May I begin with a visible and physical illustration of what I mean by Parliament's inability to control public expenditure, to which the hon. Member for Norwich, South referred? In voicing it, I do not wish for a moment to denigrate what I believe to be the immense and continous effort of the Chairmen and members of the Public Accounts Committee and the Treasury and Civil Service Select Committee on the subject. They do extremely valuable work. In fairness, however, it ought to be added that much of that work is done by the overworked Clerks who serve those Committees.
Here is the record--20 volumes. I believe that the hon. Member for Norwich, South has added a few more volumes to that number. I worked it out that they amount to 1,400 pages, costing over £200. They were published a couple of weeks before the Budget and they set the pattern well ahead to 1993-94. I imagine that I was not alone in being appalled, if not surprised, when my right hon. Friend the Leader of the House announced that they could not be discussed before the Budget. This, he implied--correctly- -was for next year's Budget and beyond--tablets not of stone but of software and printers' ink. Some assiduous Members--doubtless many of them are much more assiduous than I--may since publication have read from cover to cover one or two of these reports. Some of them may have written to the Minister concerned expressing critical or constructive views on the detail. Those views will vary widely. Moreover, what is regarded as constructive in this House will also vary widely. None the less, that is our task. Some hon. Members may rest content with a wet towel, a stiff brandy and the 122- page summary that costs about £17. If any hon. Member has read the lot and written to several Ministers, I should gladly give way to his or her intervention. This is part of the massive information overload that is generated by a system that probably went beyond the control of any single individual or any institution--certainly of this place at about the time of the first world war.
What do we control, if anything, here? I suggest that for this House it is a very eclectic choice. We grumble about the total expenditure of particular Departments and suggest, according to our political preferences, that defence should give way to health, or social welfare, or vice versa. We tend to exhibit--as I shall doubtless do in a few minutes--particular predilections for particular projects or forms of expenditure. We also have furious discussions about the distribution of expenditure between central and local government, and even more furious discussions about the major boundary between public expenditure as a whole and private expenditure. We look on it as a residual that should be either increased or reduced.
Inevitably and very properly, with a Budget of this size we concentrate on waste and abuse. We are often well informed by bodies such as the Public Accounts Committee and the Audit Commission about outstanding examples of waste and abuse. We read in the national press this morning of one example : a ship which should have cost £27 million, but ended up costing about £70 million. That was a vast increase in cost and a waste of resources.
These are familiar and well-trodden paths. Anybody who has been a Member of Parliament for some time could easily write the speeches on either side of the argument.
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What, then, do we not do that is both desirable and practicable? I believe that the limits are very severe. They are the limits of time, comprehension and the sheer volume of data. Within those limits, however, I should like there to be a much more critical analysis of the expenditure boundaries between Departments. These are the great no-go areas of public and political debate--certainly of parliamentary debate.We should not wait until overclaims--there will never be underclaims--are settled behind closed doors by a so-called Star Chamber committee consisting of Ministers whose experience and dedication to the public interest are supposed by definition to confer on them an objectivity which overrides political, personal, or vested interests. It may in some cases well do so, but it asks an awful lot of any human being. As I have argued in a letter to the former Prime Minister, and subsequently to my right hon. Friend the Chief Secretary, the House should be represented on that committee, and the arguments between the claimants should be known outside the so-called inner circle.
Although the House receives nothing like the analytical and statistical support which is supplied to the United States Congress by the congressional budget office and by the general accounting office--we do not have anything like those large, substantial organisations which serve not the federal Government but Congress--Parliament must ask itself whether it can justify its present impotence when any Government of any party can say to us in effect, "Take it or leave it."
Under our system, as opposed to that in the United States, we have to live with a paradox. I have discussed this before. We have both to sustain the Government in power constitutionally and monitor their claims on and disbursement of the public purse. When that proportion hovers between 40 per cent. and 50 per cent. of gross national product, now well over £200 billion--I think the figure is £270 billion and rising--we should as an institution be much less squeamish about defending an expenditure of, say, £10 million which had the effect of improving national performance by a mere 1 per cent. That would be £5 billion of GNP, or £2 billion of public expenditure. A figure of £10 million, for example, added to the budget of this place would be very badly spent if we could not see an improvement in national performance of that order of magnitude.
As I see it, that will need two things, neither of which will be popular. It will require Governments of all parties to concede that the divergence between constitutional theory and practice is now too great. The House has an obligation and a responsibility which it is not discharging. A great deal more than lip service is required. It requires Parliament to equip itself with a far more powerful and pervasive engine of analysis and inquiry.
The hon. Member for Norwich, South mentioned the inadequacies of these volumes. I think that this is the first time that I have seen a bilingual public document, with 124 pages in Welsh. I wonder how many people will read the Welsh issue. An example of waste is that all the maps and diagrams are duplicated. That is a minor point, but it should not happen. The more major points which the hon. Gentleman made relate to public scrutiny. We require a far-reaching change in what might be described as our political culture.
The second is much more difficult and will go against a much deeper grain. It requires all of us, some of us, or a considerable number of us, to accept that our primary
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responsibility here is to examine, monitor and, where necessary, modify the performance of Government. Policy must become our preoccupation. We must concentrate on policy--that difficult area of government--rather than on all the minutiae which increasingly dominate the life of the average Back Bencher, rushing back to his constituency to deal with dogs, pavements, drains and quarrelsome neighbours.It will be argued vigorously that the assiduous Member can do both. Some undoubtedly do ; they are very assiduous indeed. That such a Member can, by working 70 hours a week, combine the role of policy maker, performance auditor, local ombudsman and welfare officer, is a suggestion which I find difficult to accept. I will be convinced by that argument when hon. Members, challenged as I challenged them earlier, rise to say that they have read the whole of the public expenditure analysis and papers, and have made active and effective representations to Government on matters which they consider of outstanding significance. That day is quite a long way off.
Mr. John Garrett : I have a great deal of sympathy with what the hon. Gentleman says. I believe that we should be better resourced, so that we could examine more closely the spending programmes and policies of Government. Unfortunately, the hon. Gentleman and I have a problem--that none of the Select Committees has ever ventured beyond the one-off examination of the occasional policies of a Department. None of them has ventured into examining the management of the Departments for which they are responsible. None of them has ventured into examining the expenditure of the Departments for which they are responsible.
Furthermore, we now know from the recent report of the Select Committee on Procedure that none of them thinks that it needs more staff. In other words, most of our colleagues have narrowly defined their role on the matters about which the hon. Gentleman is talking. The hon. Gentleman may tell me how he and I might attempt to change the culture of this place.
If the hon. Gentleman is so concerned about the load on hon. Members--he listed the constituency matters with which a Member may have to deal--why does he think that so many of his colleagues have outside employment as well?
Sir Ian Lloyd : As to the work of Select Committees, I was not aware of the collective view on resources to which the hon. Gentleman has referred. I thought that there was a general view that they could do with a little more in the way of resources. Certainly that would have been my conclusion at the end of a 15-year stint as Chairman, first, of the Sub- Committee on Science and secondly, of the Select Committee on Energy. They need not a dramatic increase but a significant increase. I thought that our dedicated Clerks were from time to time grotesquely overworked. It was the limit of their capacity, as well as the reading time available to Members, which often determined that we could not extend our scope from the one or one and a half inquiries which we undertook to something which had come up and which should perhaps have demanded our immediate attention.
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From my immediate experience in that area, I cannot accept that we never looked at management. We regarded our primary responsibility as an examination of policy. We examined the estimates carefully. There were a number of debates on the Floor of the House in which some aspects of the estimates of the Department of Energy were crucially and critically examined. I would certainly argue that that responsibility of Select Committees should continue. The hon. Gentleman and I share the view that it should be enlarged and reinforced.I do not think that that is necessarily an argument against what I was driving at earlier, which is that the House as a whole, this great institution of Parliament, should no longer present itself to the country, as we are inclined to do, as, in Bagehot's terms, controlling the public purse. We do not. We elect a Government which may control the public purse in ways which, depending on our political views, may or may not please us, but the House does not do so. I do not believe that that is a necessary condition. It is a condition which has grown, partly because of the reasons that I have given, such as the enormous information overload, and also because of the political culture which I described earlier, which suggests that we should keep ourselves busy in other ways and keep ourselves out of the hair of the Administration. I am not talking in a party political sense ; I have seen that across the board.
In regard to underfunding--a concept beloved by the hon. Member for Walsall, North (Mr. Winnick), who, I am sorry to see, is not in his seat-- we are all familiar with this pervasive and meaningless euphemism. Every one of the 20 documents describes underfunding. The third world is underfunded. Aid to the third world is underfunded. Every charity that I know could easily disburse twice its income. Most companies could invest twice their available capital or make good use of a substantial additional tranche of working capital. The world's richest communities--we must include ourselves, as well as north America, western Europe, Scandinavia and possibly parts of the middle east--cannot meet all the claims on their vast but limited resources.
Needs, as the eminent American economist Kenneth Boulding said, are always defined in such a way as to outstrip supply. If we were to redistribute the entire wealth of all incomes above a national average and capital over, say, £50,000--ignoring the destructive effect of such policy on wealth creation--the funds made available would be swallowed up in a short time by underfunded institutions or communities in a few months at the most.
Inflation generates a wide perception of underfunding, and politics has much to do with perception. Inflation is a process which is designed, and certainly has that effect, to leach value out of currency and ultimately to match demand and supply at the higher price. One of the most pernicious modern practices in the realm of public expenditure--it is especially apparent in local authority budgets--is to forecast an amount for inflation and to include a substantial amount in the budget for it. In biological terms, it is the equivalent of injecting the patient with a live virus. I should like to see that practice proscribed, although I concede that, at least in the transition period, it would pose immense difficulties. But what a discipline it would impose, even if it gave rise to procedural difficulties. My understanding of such matters may be limited--most of us have a limited understanding of some area of life--but for
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a quarter of a century, I have watched the relentless and inexorable way in which the political system has sought to outwit the economic reality and, time after time, has fallen flat on its face. That is why I deplore any attempt by any party, now or at any time, in government or out of government, to put large tranches of public expenditure up for auction, as it were.We know that an annual rate of inflation of 1 per cent. in the United Kingdom is as clear a sign as we can have that our gross national product of £560 billion will be £5,600 million--1 per cent.--short in real terms of what we have, as a nation, collectively produced. Moreover, it is not a problem that can be solved by taxation, even assuming a zero effect of high taxation on output. The last time that I looked at the figures, about 4.3 million people earned more than £15,000 a year. Their total income after tax was £79 billion, of which £23 billion had been paid in tax. If that tax figure were doubled to £46 billion--or 58 per cent. of the total--it would hardly cover the annual expenditure of one of the major spending departments. I remind the House of the figures : £60 billion for the Department of Social Security, £22 billion for the Department of Health, £22 billion for the Ministry of Defence, and, lastly, although not on the same scale, £6.7 billion for the Department of Education and Science.
I shall now deal with the science budget. I mention the Department of Education and Science because it is important to relate the total of £6.7 billion, of which just less than £1 billion is for science, to the total figure of £217 billion. Government-funded civil science as a whole, allowing for the research and development undertaken in the other Departments is--I am being generous in taking the upper limit of the Government's figure--not more than £3 billion, although many would argue that the figure is much lower.
Civil science is the most crucial area of national expenditure. First, it influences the structure and much of the content of our wealth-creating system 15 to 20 years ahead. Secondly, there is in my experience no way to compensate for failure in this area in the type of society in which we live --it is increasingly technological and science based. Thirdly, our principal competitors have clearly recognised that fact. I draw the House's attention to the conclusion reached by the Natural Research Council of the United States in a fascinating paper entitled "Science, Technology, and the Future of the U.S.-Japan Relationship". It concludes :
"Each country"--
the United States and Japan, both super-powers in science and technology--
"must tap into the expertise of the other. In the future, neither country will have the resources to support large research projects in all fields."
The paper goes on to state that, from a United States political perspective --I suggest that it is equally valid and true from our political perspective--
"the need to integrate objectives across policy areas is now apparent. It will be necessary to combine scientific, economic, and security goals in pursuit of the national interest."
It continues :
"A top priority for the United States should be to expand the flow of technology from Japan A prerequisite is for the United States to maintain and expand leadership in at least enough fields of science and technology to ensure that both countries will continue to be players'--sometimes rivals, sometimes partners, but both on the front line."
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That applies 100 per cent. to western Europe, and therefore it applies even more to us as part of western Europe. That is what our competitors think about the subject.Fourthly, scientists are among the most gifted and important individuals in our society, and, like entrepreneurs, they have a high potential mobility. One pound withdrawn from a leisure centre's budget may stop someone swimming tomorrow or next year ; a pound withdrawn from a crucial experiment or from work on microbiology or on ion implantation could mean that in 10 years, a virus such as AIDS gained mastery of the human race or that an industry abroad will set levels of quality and performance which we cannot match because our perspective was too short and we did not do the right things at the right time, which is now.
I do not argue that science in the United Kingdom is underfunded, because that is not a justifying criterion. I have condemned that as a criterion-- everything is underfunded. I am arguing that a system that allowed us to shut down a key nuclear research facility for £8 million while we spent £156 million last year on new leisure centres is a system that does not encourage us to make a rational allocation of national resources. To put it another way, it is not only not encouraging us, but actively discouraging us from making such a rational allocation.
The analysis in the statistical supplement of expenditure trends per head is most revealing. The totals are £2,431 per head on public expenditure in the United Kingdom, of which £1,426 a year is spent on health and social security and £421 on education and science. Out of that total, approximately £20 per head is spent within that Department on civil science and approximately £60 per head on all Government- funded research and development. The expenditure total for all Government Departments brings that figure up to £103 per head and, as I understand it, that includes the funding of our universities. I argue that that figure is relatively and absolutely too low. The thrust of the activity is declining and is seen to be declining by the science community. I know that the science community is a beneficiary and is arguing a case that it believes to be vital to its own interests, but there are times when one must be able to discount the special pleading and say that there is something behind that pleading which is in the national interest. It is the height of folly to ignore or to treat with apparent contempt reports such as that by the Lords Select Committee on the science budget.
I argue that there is no real science budget. The table on page 49 of the general paper is a classic example of what has been described as the fallacy of aggregates. For example, an elephant weighing one tonne plus one mosquito weighing one ounce give an average weight of half a tonne and half an ounce. That is totally meaningless, and I need go no further.
Evidence that the science budget is an orphan within the Department of Education and Science is provided in the analysis of a recent issue of New Scientist, which suggests that, in its attempt to meet its 1992-93 cash limit, the Department of Education and Science is arguing that
"the science budget would have to accept larger cuts than the rest of the education budget even though it has already reached the point when it can no longer support existing commitments".
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It is suggested that my right hon. and learned Friend the Secretary of State"will have to choose between schools or science."
That is a desperate state of affairs.
I hope that my right hon. and learned Friend will be able to deny that report completely on two grounds. First, research and development is not an alternative to education but a fundamental part of its structure and the basis of the education that a society such as ours will require in the 1990s and the next century. Indeed, it is what we require now, and we do not have enough.
Secondly, any nation that allows its science to depend on the financial crumbs from the educational budget table is a nation that has its priorities wrong. Research and development should be the first and not the last claim on a nation's resources at any time--not least in a recession-- and I am confident that, if there is unavoidable stringency, somewhere along the vast front of public expenditure--a planned £217 billion-- savings of one tenth of 1 per cent. could be found, without pain to fund an additional £217 million on the science budget.
In its admirable analysis of the issue, the House of Lords Committee reached the following conclusion :
"It is incomprehensible to us that a whole area of UK science should have to be precipitately abandoned as part of a series of crisis measures and we roundly condemn the policies and practices which have put so much at risk."
So, most regrettably, do I.
Secondly, the Committee concluded :
"Research Councils are now being required to make choices about scientific endeavour which are too big to be left to Councils-- the research councils- -
"alone without political guidance as to what is required of the science base in the context of present spending plans."
The Lords Committee suggests that the Cabinet Committee on Science and Technology, over which I believe my right hon. Friend the Prime Minister presides, should involve itself in the public expenditure survey for science, as it was set up specifically to deal with "science matters across Government". I agree.
Let me reinforce my judgment with three graphic illustrations, all of which come from a German Government document, the "Report of the Federal Government on Research 1988". Unfortunately, technology does not permit me to display my illustrations on a screen for all hon. Members to see, but I think that they will be able to understand the thrust of my remark. My first example concerns the table dealing with research and development expenditure and scientific performance level. Britain's performance is indicated by a yellow arrow in the bottom left-hand corner. The red arrow represents Japan's performance. Far up, in the right-hand corner, a green line shows the performance of the United States. Great Britain's performance is shown as starting well but then declining. Japan's performance is shown as overtaking us very rapidly indeed.
My second example comes from the table in the same document on research and development expenditure and technological performance level. Japan's performance is represented by a red arrow and is shown to have climbed to the roof. It is followed by that of Germany. Great Britain is again in the bottom left-hand corner of the picture, as is France. My illustrations come from
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completely unbiased information published by the German Federal Government, whose statisticians have no axe to grind in any sense. The third chart to which I shall refer shows the shares of Ministers in research and development expenditure of the federal court. We have no Minstry of science and technology but Germany has a federal Ministry for Research and Technology and that Ministry's budget occupies a large area at the bottom of the chart. The federal Ministry of Education and Science, on the other hand, occupies a narrow band. The Ministries of Economics, Defence and so on account for the rest of R and D expenditure.The sum within the discretionary spending of Dr. Riesenhuber, the Minister, is equal to the total Government-funded civil R and D in the United Kingdom. I know that the place is larger, but my point is that we lack that coherence and cohesion. The documents illustrate a singular point. Nowhere in our documentation have I seen a statement that matches that of Dr. Riesenhuber or graphs from which such a stark and compelling conclusion can be drawn.
The third example is, in my judgment, the most significant, as it reveals the size and scope of the Federal Ministry for Research and Technology, with a budget of DM 7.6 billion by comparison with that for education and science. In 1988, its budget alone--DM 7.6 billion was almost equal to the whole of Britain's Government-funded civil research and development.
There is the key to the Germany's future and to ours and to the survival of western Europe. We will have no excuse if, in 10 years' time, someone consults Hansard and says, "We were told this not once but many times and we did nothing. Now it is too late and Britain's scientific pre-eminence-- and what tremendous
pre-eminence--has over it the sign RBC'--ruined by complacency." Newton's biographer, Sir David Brewster, referred to an "elaborate document" in which Sir Isaac Newton--who, I remind hon. Members, was twice a Member of the House--recommended
"the systematic endorsement of science".
Sir David wrote :
"Were the British Parliament to try this question at its bar, and summon as witnesses the wisest of their race, what name, or what constellation of names could countervail against the High Priest of Science when he proposes to rebuild its temple upon a broader basis and give its arches a wider span and its domes a loftier elevation!" I wonder what Sir Isaac Newton would have to say today.
6.47 pm
Mr. A. J. Beith (Berwick-upon-Tweed) : I do not know whether Sir Isaac Newton would have been called, given that our debate has been going on for well over three hours and we have heard only five speeches so far. No doubt he would have made a compelling point and followed the hon. Member for Havant (Sir I. Lloyd) in underlining the need for investment in science. To hear his speech, however, we should perhaps have had to make rather more rapid progress. The style and character of the debate have changed markedly since we heard some rather bad-tempered exchanges not from the Front Benches but from the Back Benches. I rather enjoyed the Chief Secretary's jokes and I thought that the hon. Member for Derby, South (Mrs. Beckett) made a most stirring and effective defence of her proposals on national insurance contributions. She put her
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case extremely well. Those who contributed to the somewhat bad-tempered atmosphere of the proceedings have since left for tea, and we may not see them again.There is an air of unreality about much of the debate. Much of the earlier part of our proceedings was based on the mistaken and disproven belief that Governments can predict with reasonable accuracy what will happen to public expenditure under their stewardship and that potential Governments can predict with reasonable accuracy what resources they will have and what they will do with them. Political parties have to set out plans and work out costings to show that it is at least theoretically possible to do what they propose. But things never work out like that, and Governments have an amazing incapacity to know what will come next and predict at all accurately what effects it will have on public finance.
I could give a number of examples. Take the Government's decision to offer incentives to people to contract out of the state earnings-related pension scheme. That move was much more powerful in its consequences than the Government had bargained for. I leave aside entirely the question whether it was a good or a bad thing, but national insurance contributions were reduced by almost £2 billion more than expected. That is a pretty big hole to make in any budget. Similarly, the poll tax affair ended up in local authorities spending and borrowing much more than the Government had forecast in 1989-90--by a figure of around £2 billion. That is already up to a fifth of what the Leader of the Opposition thinks he can safely predict we will get from increased growth and therefore be able to spend in various ways.
Governments get things amazingly wrong. Let me give another example. In 1989, the Red Book forecast a cumulative public sector debt repayment of £19 billion for the ensuing three years. Now the Government forecast a cumulative borrowing requirement of £19 billion for the same three years--in other words, a difference of £38 billion from the amount originally indicated. That is an enormous divergence. I do not blame the Government particularly for it, although I blame them in the sense that the factors are a response to a recession that they should not have caused in the first place. One of the necessary responses is to allow automatic stabilisers to take effect and to engage in more borrowing. But this means a huge divergence--a divergence larger than the amount that the Leader of the Opposition expects will be available for various purposes.
When we turn to the figures about which the Leader of the Opposition talked we have again to make growth assumptions. In some respects, those assumptions are less ambitious than the growth assumptions that the Government make. The Government have forecast that in the latter years of their forecast period--the equivalent of another Parliament--the growth rate will be 3.5 per cent. That is much above the level envisaged even by the Labour party. But actual growth figures rarely correspond to what is forecast.
Mr. Nicholas Budgen (Wolverhampton, South-West) : There is irony in the exchanges in which people say, "We can provide more growth than you can." For at least the past 40 years--year in, year out--the British economy has grown at 2.5 per cent. per annum. One side tells us that the raw-blooded capitalism of the nation has been released by the Tories ; the other side tells us that compassion, decency
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and fairness have been released by the socialists. It seems that the British people, on the whole, treat both claims with complete indifference and have continued to increase their GNP at a rate of about 2.5 per cent. per annum.Mr. Beith : There is much in what the hon. Gentleman says. However, he is averaging growth figures over a period. We are now in a recession and do not have that kind of growth. But there is indeed a great deal of well- justified scepticism around.
Mr. Nicholas Brown (Newcastle upon Tyne, East) : Let us follow that argument to its logical conclusion. If growth averaging 2.5 per cent. has been a feature of Governments of both complexions over the past 40 years-- the compassion from our side following periods of Conservative government-- surely the hon. Member for Wolverhampton, South West (Mr. Budgen) is saying that it is about time the Labour party came to power and played its part in the cycle.
Mr. Beith : No, it is the turn of the Liberal Democrats. It is time we had a chance to do what we can with the limited growth that the nation is able to achieve. We have certain proposals that we believe would improve the chance of increased growth. However, I shall state the case no more ambitiously than that.
I was analysing some of the assumptions that are made in all these arguments, and I pointed to the Government's growth figures. But let me underline something else : that the Government's own forecasts are nothing like sufficient to achieve the 20p income tax target that the Government have frequently set. No wonder the Chancellor has started to back-pedal. On the basis of the figures that we are debating today, he certainly cannot achieve that target. But it is also rather strange for the official Opposition to say that, if they come to power, the 5p cut will not take place, as they will spend the money in certain ways. But the 5p is not there. It is not available in the projected revenues that the Government have put before us. Even allowing for the inaccuracy of those figures, it is unreasonable to assume that we could confidently arrange to spend the money at some time in the future.
The Government say, "Never mind. We have managed the economy so well that we have achieved massive increases in expenditure on the services about which everybody is most concerned." They have, for example, increased real- terms expenditure on the health service more markedly in the past few years than in earlier years. Indeed, there were cuts in earlier years, but recently--particularly in the last couple of years--the Government have sought to achieve a real-terms increase. But even that figure has to be regarded with some caution. If one examines what is involved, one sees that it does not allow for the higher inflation that the national health service experiences in its costs than is to be found in retail price figures. This is based partly on increases arising from sales and efficiency improvements, some of which cannot be projected continually into the future. One cannot go on selling surplus property ; eventually one runs out of property to sell.
The increase does not take account of the growing numbers of people in the age groups in greatest need of health care. In that respect, a per-head figure would be more relevant. Nor does the increase take account of the pressures of new technology on the health service. It is perfectly reasonable for the Government to point out that,
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in the last couple of years, they have achieved real-terms increases, but they might just mention these other points at the same time, for they help to explain why, down in the hospital ward, things do not seem like that at all. In the case of cleaning standards, food standards, the number of nurses on duty and night staffing, many hospitals could tell a tale of stringency and of people working in extremely difficult conditions. The explanation lies in the inability of these increases to match the problems that I have described. Another unreal feature of the debate on public expenditure is privatisation revenues. If there were to come into office a party that insisted that it would cease all privatisation currently taking place, would introduce no privatisation of its own, and might even renationalise some of the privatised industries, something would have to be done about the £5,500 million for each of the next five years represented by privatisation. In Government accounting, that counts as negative expenditure. In other words, all the money that the Government, in their forecasts, propose to spend has subtracted from it the money expected to come in from privatisation. That has to be taken into account. The official Opposition do not intend to engage in a great deal of privatisation--indeed, quite the contrary--so they cannot simply assume that they have £20 billion to add to what the Government have already spent, unless they subtract a figure for this revenue.The speed at which we shall get revenue is itself in doubt. It will depend on such things as when the Government decide to sell off the remaining British Telecome shares. The income from that sale will be very substantial, but we do not know when it will come. There are many uncertainties in that area, but what is certain is that the existing public expenditure forecasts must be reduced by the amount of privatisation revenues that one assumes a Labour Government would not seek in any way to obtain.
At a time of recession and unemployment, it is deeply disturbing that, in all these Government figures, the Department of Employment and the Department of Trade and Industry are conspicuous for spending reductions. Surely investment in education and training is necessary if growth is to be produced. Training and education are not particularly inflationary. We do not generate inflation by increasing the training programme. It is a very sensible type of investment in which to engage during a recession and at a time when there are inflation worries. But the Government have cut training expenditure at times when it was most needed. A year or so ago, they even argued that they could afford to cut training investment because unemployment was falling. By the same mistaken logic, they could at least give themselves an excuse to make substantial increases in training expenditure now.
We argue that expenditure on training and education is a precondition for increased growth, for the production of the sort of dividend that other politicians are looking for opportunities to spend. Training is not one of the things that can be paid for after the growth has been achieved. We cannot afford to wait. I maintain that we shall not get the levels of growth that are necessary unless we have a more skilled work force. That is why we argue that, if it should be necessary to add a penny to the rate of income
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tax in order to provide an adequate training and education programme, we should be prepared to do so. We hope that it will not be necessary, but we are certainly not prepared to say that there would be no increase in taxation in any circumstances--even if the training and education needs could not otherwise be met.There are other areas of expenditure that will have to depend on the achievements of growth and the buoyancy of revenue. The kind of improvements in social benefits and in the health service that my right hon. and hon. Friends and I--and I assume, the official Opposition--would like to see will depend on achieving a successful economy and sustainable growth. Some expenditure--particularly expenditure on training and education--has to be undertaken in order to achieve growth. The public should not believe any party that claims it will never cut taxes, or which pretends that it can improve underfunded services while reducing taxation. I believe that the public probably realise that.
6.59 pm
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