House of Commons Hansard Debates for 7 May 1992

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Members, not unusually, are wrong. If we take borrowing requirements excluding privatisation receipts, the fair basis of comparison-- [Interruption.] That is the only sound basis of comparison, as the former Prime Minister who talked about selling off the family silver reminded the Conservative party. On this comparable basis, the borrowing requirement in 1978-79 was 5.4 per cent. of GDP. Next year, 1992-93, it is set to be 5.8 per cent. of GDP. So much for the prudence of the Conservative party.

Mr. Tim Smith (Beaconsfield) : The hon. Lady has been a little selective in her use of statistics. Perhaps she will remind us of the figures for public sector borrowing in 1975-76. Were they not 9 per cent. of GDP then, and would not that be £60 billion at today's prices?

Mrs. Beckett : The hon. Gentleman is referring to the centre of the lifespan of the last Labour Government, and I cannot recall whether his figure is right for 1975-76 or for the following year-- [Interruption.] There is no need for Conservative Members to get so excited. I am making a minor point, and I cannot remember the year to which the figures apply. Unlike Conservative Members, I believe in using accurate statistics. I cannot recall from memory whether the hon. Gentleman's figure refers to 1975-76 or to 1976-77. That is the only point I am making, but I shall return to the hon. Gentleman's observation, such as it was, later.

I remind the hon. Member for Beaconsfield (Mr. Smith) that the last Labour Government left a borrowing requirement lower than the one that they inherited from the previous Conservative Government under the premiership of the right hon. Member for Old Bexley and Sidcup (Sir E. Heath), and in the course of the lifetime of that Labour Government they were hit by a fivefold increase in the price of oil. Nothing comparable has happened to this Government. The only problems that they have had were created by their own incompetence, as the hon. Gentleman is aware, and they still have a bigger borrowing requirement than the one that we left, which was smaller than the one that we inherited.

Mr. John Marshall : Will the hon. Lady confirm that, over the lifetime of the last Labour Government, the average public sector borrowing requirement was 6.5 per cent. of GDP, which is higher than that proposed for the current year?

Mrs. Beckett : We inherited the consequences of the Barber boom. The hon. Gentleman should read the speeches by Sir Geoffrey Howe and by Mrs. Thatcher, both of whom are no longer Members. They both acknowledged that we inherited the inflationary and other consequences of the Barber boom. Perhaps the hon. Gentleman is not well enough informed.

As I have said, we left a lower borrowing requirement than the one that we inherited. We were hit by a recession caused not by our actions but by world economic conditions. The Government have a higher borrowing requirement than the one that they inherited from us.

The impact of the recession is felt in reduced tax receipts from every source--income tax, corporation tax and indirect taxes--and in increased expenditure on support, whether for the unemployed or for the other consequences of recession such as increased deficits and the decreased activity of organisations such as British Rail. The latest figures suggest that every unemployed person

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costs about £8,500 in lost Exchequer revenues as well as direct costs. As unemployment is 1.5 million higher than the figure that we left in 1979, that cost alone is about £14 billion. It appears that, far from seeking to alleviate, to counter, the impact of the recession, the Government are merely absorbing its impact, which is all the greater because of their past incompetence.

The Chief Secretary spoke about the overall path of the economy under the Government's stewardship. There, the picture is even more alarming. The figures for the Government's programme contain a cumulative total of unrepeatable revenues of some £205 billion in 1991-92 figures. The Government received £109 billion of revenue from North sea oil and gas, £52 billion in privatisation receipts, £31 billion from council house sales, £8 billion from other local government sales and £5 billion from other central Government sales. None of those asset sales can be repeated, and they have all helped to make the Government's public expenditure programme rather better than it might otherwise have been. Those huge sums have made up for losses due to our appalling growth record, which has averaged 1.7 per cent. over the Government's years in office compared with the historic trend rate of growth of 2.5 per cent., and that has cost us about £50 billion in lost output over those years.

Before and during the election, the Government claimed that they had delivered increased public expenditure, reduced taxes and a balanced budget. The Chief Secretary claimed that again in his speech. He also repeated the Government's claim that they would do all that again if they were re-elected. As I have said, during the Government's term of office, growth increased by an average of 1.7 per cent. a year. The exclusion of privatisation receipts, which is the only way to measure how the Government have used the resources available to them, shows that public expenditure has grown by an average of 1.3 per cent. per year. There has been a steady squeeze on public sector funds, and the Gracious Speech and the speech by the Chief Secretary confirm that that squeeze will be continued. The Government have expressed the intention to spend less than the country can afford.

Mr. Ian Taylor (Esher) : The hon. Lady's lack of credibility on public expenditure is not only that she would have given up all the benefits to the Exchequer from further privatisation proceeds, but that she would also have given up the access to private capital that those companies now have to spend. For example, in the water industry that figure is £30 billion, which is equivalent to the whole of the public sector borrowing requirement. What would the hon. Lady have done about that, having closed off the access to private capital?

Mrs. Beckett : The hon. Gentleman talks about our giving up all the benefits of privatisation revenues. I am sure that at least he is well aware that some privatisation revenues are still due to come in. They will come in and accrue to--

Mr. Taylor : There was a £9 billion hole in the Labour party Budget.

Mrs. Beckett : I assure the hon. Gentleman that he should not go by the figures that have been invented, as the Chief Secretary fairly admitted today, by the Conservative party. Apart from the fact that it is not true that we did not

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continue to receive some revenues from the privatisations that had already been undertaken, the right hon. Gentleman talked about access to private capital. If he had spent any time studying what the Labour party said as opposed to that which was said by the Conservative party, he would be well aware of our intention to mobilise private capital to help to implement many of the projects that we believed, and still believe, would be worth while.

The consequence of the policy of squeezing public expenditure to less than the country could afford can be seen in the autumn statement in supplement table 8.3. The table shows clearly--the Chief Secretary referred to the levels of asset sales and of investment in the public sector--that, even if we take into account all asset sales, public sector investment in 1991-92 was lower in real terms than in 1978-79. That is despite the fact that even slow growth has given us an economy that is 22.6 per cent. larger.

That is the record of which the right hon. Gentleman boasted. The consequences are evident from figures such as those that are set out in the autumn statement and from the state of housing, schools, hospitals and transport. Nothing in what the Chief Secretary said this afternoon shows how this can be remedied and services improved, when the Gracious Speech and his speech suggest that the squeeze will continue.

The Government's response so far has been to mount diversions--for example, to promote opt-out schools and hospitals. They have introduced changes in organisation instead of increased funds, but in their earlier stages accompanied by the increased funds that the Government said were not needed for the sector overall to ease the path of the changes. How can that increased funding go on being provided when more and more schools and hospitals opt out and when public spending is to continue being squeezed? It is being squeezed not because the funds are necessary for some other reason but, as the Chancellor of the Exchequer told the Select Committee when he was Chief Secretary, to allow room for further cuts in taxes. I know that the Secretary of State for Social Security is due to reply on behalf of the Government this evening, and I congratulate the right hon. Gentleman on his new post. Billions of pounds of his budget have been wasted in a programme to which the Chief Secretary referred. It is designed to persuade people to take the risk of taking out personal pensions, to accept the risk of taking all the responsibility for their own retirement income on their own shoulders. Apart from the enormous risk, there is less value for money for the individual because of the higher charges and costs that have to be paid.

In addition, as the Audit Commission has stated, there is great cost to the Exchequer. That cost arises to some degree because at present there is still a fallback or a bolthole, and that is returning to the state scheme. I hope that the right hon. Member for St. Albans (Mr. Lilley), in his new capacity of Secretary of State for Social Security, will give the assurance sought on so many occasions from his predecessor, which is that the bolthole will not be closed. I hope also that the right hon. Gentleman will say that those who are tempted by Government propaganda and Government bribes to take out what the Government call a "pension of their own" will not be left high and dry on their own without the fallback of the Government scheme when that becomes in their personal interest. One of the effects of the squeeze on public finances has been the greater and greater squeeze on the poor. I refer to some of the missing millions who are not mentioned in the

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Queen's Speech and whose numbers will be greatly swelled in the decades ahead unless the Secretary of State for Social Security gives the assurance that I have sought. Millions of unemployed people saw their income cut by the social security changes of 1988. Their freedom, choice and opportunity--all words that are used in the Gracious Speech and in the Prime Minister's description of it--are still being reduced under a Government who claim that freedom of choice is their philosophy.

Millions of the homeless and millions of those who are carers are likely to find their task more difficult under the Government's public spending programme. So, too, are the rising numbers of 16 to 18-year-olds and women who are seeking a place in the labour market. Inadequate public services will make their task more difficult. The social security system over which the right hon. Gentleman will preside does not reduce dependence ; it fossilises it. It is geared still to a society of 40 years ago of a man in full-time employment with the same firm for more than 40 years, with a dependant non-working wife and children with easy access to jobs and training. That is the pattern that our social insurance scheme reflects, and it fits neither the work pattern nor the family pattern of today. With the Government's desperation to cut costs at all costs, the present scheme traps those whom it should sustain with dignity when there is no choice or support towards reduced dependence when choice appears. Conservative Members are often heard to suggest that there are individual alternatives to a social insurance scheme, which pool costs and which offer cover to all. I shall remind them of a case that received only a small amount of publicity just before the general election, when a young woman took the advice of Conservative Members. Fearing that she might lose her job, which was only a temporary contract, she took out private insurance to sustain her mortgage for at least a year while she found a suitable job with pay rates that would enable her to keep her home. She wrote of her shock on discovering that unemployment benefit regulations, changed by the Government, meant that benefit depended on her willingness to take any job after three months, no matter what the financial consequences. That condemned her to lose her home, because the rates of pay she was required to accept would not enable her to meet her mortgage bills.

That woman took the advice of Conservative Members. She did precisely what they had urged on those faced with the danger of repossession. What they offered in advice with one hand, they took away with the other through small-minded social security cuts. They did that because they said that it was not work that was lacking for the unemployed, but the incentive to take any work--no matter how damaging to long-term unemployment prospects or immediate personal circumstances. So much for choice. The effect on that woman's life and the lives of many others in similar circumstances is a consequence of the Government's ideological dislike of any social insurance scheme, combined with the cost pressures imposed by their economic incompetence.

When we consider any aspect of the Government's expenditure plans, we must feel considerable doubt about their promise to improve public services. Their commitments show promised increases of £19 billion in general Government expenditure over the years of the public

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expenditure plan. They show too--again the Chief Secretary mentioned it today--a reduction in the public sector borrowing requirement, over the years of the plan, to £6 billion by 1996. That requires a turnround of a further £22 billion, so that, just in the years of the plan, total resources of almost £42 billion at 1992-93 prices will be required, without allowing room for any tax cuts.

The revenue projections for the years of the plan suggest available increases of just £21 billion. The hon. Member for Esher (Mr. Taylor) asked me about a potential hole in the Labour party's plans. Perhaps he would care to say something about the hole in the Government's published plans--£20 billion at the very least.

Sir Thomas Arnold (Hazel Grove) rose--

Mrs. Beckett : This is a courageous man.

Sir Thomas Arnold : The hon. Lady was a Minister in the last Labour Government. Does she believe that we should be spending our way out of recession?

Mrs. Beckett : According to the Government, they are spending their way out of recession, although I would argue that they are simply relying on the impact of recession on public finances. As the hon. Gentleman may recall, we have proposed a recovery package to help this country out of recession. We have proposed measures, which I shall discuss later, for health and education, which we believe would help to alleviate the impact of the recession. That, however, is not the policy of the hon. Gentleman's Government.

I repeat that the Government's projections suggest that they have a hole in their budget of £20 billion. In fact, measured against the claims that they make for policy, the hole is larger than £20 billion, because, as the former Chief Secretary helpfully explained to the Treasury and Civil Service Select Committee, on the Government's own definition balancing the budget does not mean merely removing the borrowing requirement. He made it plain that the Government would require to do more than that if they were to justify their claim to balance the budget. In his evidence to the Select Committee on 25 November 1991, he said :

"The fact is that nothing has been done in this public expenditure round"--

the one that we are discussing now--

"which makes it impossible to return to a balance, indeed throw up a surplus, at the height of the next cycle."

He went on further in his evidence to make it plain that it was the Government's intention, and part of their definition of balancing the budget, to build up a surplus. Therefore, on their own definition, the Government have more than £20 billion to find if they are to balance the budget.

Mr. Campbell-Savours : They might want to privatise the House of Commons.

Mrs. Beckett : I do not think that anyone would pay much for that. The third clear objective was restated in the Queen's Speech--further cuts in taxes. It is a myth that in the past cuts in income tax resulted in a lower tax charge for the majority of families. I was interested to hear the Chief Secretary repeating again today the argument put from the Conservative Benches which, taken to its logical conclusion, would imply that, if we did not charge any

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income tax at all, our revenues would be at an all-time peak. However, I do not think that the Government push the argument that far.

The Chief Secretary referred to the Opposition's lack of understanding, as he put it in his courteous way--that we did not know that reducing tax rates resulted in increased revenues. Perhaps I should gently point out to the Chief Secretary that a substantial body of evidence suggests that, far from it being reduced tax rates that produce the increased revenues, it is the enormous increases that people on the topmost salaries have paid themselves over the years, so that, even with a reduced tax take, they are paying larger contributions. That has also been sustained during the recession. But for ordinary families, for the majority of families, the cuts in income tax under the Government were almost balanced by increases in national insurance contributions, and were wiped out totally by increases in other taxes--increases in the rate of VAT, the 13 new areas of spending to which VAT was applied and the poll tax, to which I have already referred.

But that, we know, is all behind us. During and before the election campaign, a change of policy was clearly identified. During and before the election, the then Chief Secretary, the Chancellor and the Prime Minister himself were as clear as crystal on the point, and it is important to put it on the record in the House. I remind the House what they promised. They promised no increase in VAT rates, no spread of VAT to areas where it is not now charged and no other new taxes or charges. We mentioned the possibility of school fees or tutorial fees for students, fees for visits to the general practitioner, means-testing of the basic state pension or child benefit. All were denied in terms by the representatives of the Conservative party. They were explicit that none of those developments would occur. The former Chief Secretary and the Chancellor told us clearly that there was no need at all for any such measures. They said that their figures were all in the public domain--all in the autumn statement--that they all stood up to scrutiny and that their promises would all be delivered.

The Labour party made a number of proposals for tax and spending changes. Those which arise from our tax changes are clearly beyond the reach of what the Government can offer. We offered the restoration of the cuts in the training budget still being undertaken in a recession ; a new scheme for the unemployed and for skills training, particularly for women ; support through the tax system for manufacturing industry and for research and development for which industry is calling ; and the phased release of capital receipts for local authorities, not just to stimulate construction but to provide homes and to save money on bed and breakfast costs.

The Labour party called for a fresh look at the possibility of leasing rolling stock so that British Rail can provide decent trains as well as an improved service and so that Britain's manufacturing industry can survive and prosper. We offered new resources for health and education services. Those were all dependent on our tax plans, and were all a stimulus to counter the recession.

Some of the changes that we proposed are still within the Government's grasp. The money for more city technology colleges could still go to fund nursery places, which would give a better start to far more children and the chance of greater independence to many women.

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The subsidies for private health insurance could still be switched to help cancer victims. The poll tax could still be abolished. So could the 20 per cent. contribution, and student loans. All that would save money, and I commend those actions to the Chief Secretary.

As the Government may be looking to make savings apart from the overall figures that I gave, the Chief Secretary may recall an article in The Guardian, later backed by independent commentators, suggesting a deficit on current spending for the first time since records began. For that reason alone, the Chief Secretary should forget all the nonsense that the Conservatives churned out during the general election campaign, to the effect that Labour had nothing to offer, and look again at the many sensible proposals that we made for redirecting the public expenditure programme.

There is no doubt that at the heart of the Government's re-election campaign were three clear and simple pledges, which the Chief Secretary repeated today, and which are contained in the Gracious Speech. As to the promise to maintain and to improve public services, the autumn statement, judging from the words of the former Chief Secretary, is the nearest thing to be written on tablets of stone since Moses came down from Mount Sinai. We are assured that there will be no cuts in the public spending programme that was put before the electorate during the general election, and that what was offered will not be eroded--as was the case after the last general election. The other two promises were to balance the budget--not just reduce borrowing but provide new services--and to make cuts in income tax while not increasing other taxes or inventing new taxes.

In the election campaign, the Conservatives said that they could do it all. The autumn statement supplement offered the Government's credentials and bona fides. That was the platform on which they fought the election, and on which victory was secured.

The Chief Secretary accused us today of leading with our chins in this debate, and said that the autumn statement and the figures that it contains, along with the election result, were an endorsement of the Government's reliability. There is no doubt that the public accepted the Government's assurances that they could deliver better public services, a balanced budget, tax cuts, and no increased or new taxes. The Conservatives are not the first people in recent years to promise all those things to an electorate. Now they must deliver. 3.37 pm

Mr. Tim Smith (Beaconsfield) : I congratulate my right hon. Friend the Chief Secretary to the Treasury on his appointment. It is notable that that post was established by Harold Wilson as recently as 1964, reflecting the growth in public spending since the war. In 1964, public spending accounted for 35 per cent. of gross domestic product. That is the target at which we should aim.

I was pleased to hear my right hon. Friend's remarks about the importance of containing public expenditure and of obtaining value for money. I wish him well in the forthcoming public spending round, which we all know will not be an easy one. I congratulate also my hon. Friends the Financial Secretary and the Economic Secretary on their appointments. They both bring special

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expertise to the Treasury. We now have in place an extremely competent Treasury team. I wish all of them well in managing the economy over the next few years.

We on the Conservative Benches attach great important to that aspect, as do the electorate--as was seen in the result of the recent general election. The Government's competence to manage the economy was the principal factor that led people to vote Conservative in such large numbers on 9 April. Listening to the hon. Member for Derby, South (Mrs. Beckett), I was struck by how few lessons she appears to have learnt from the election result. I wonder whether she actually listened to what anyone said to her during the election campaign. Is it not extraordinary that the Labour party should try to lecture us on the importance of fiscal rectitude? Of course we all understand the importance of containing the public sector borrowing requirement ; of course we all think that £28 billion, or £32 billion, is too high a figure for next year--although it can be justified at a time of deep recession. It is preposterous, however, that the hon. Lady of all people, given her record, should lecture us on the importance of such matters.

I am always struck by the way in which people assume that whatever is happening at the present time will continue apace for ever and a day. After all, only four years ago we had a public sector debt repayment of £15 billion, and at the time some people told us--perhaps rather too enthusiastically and with too much optimism--that, if we carried on in the same way, we would be able to repay the whole of the national debt by the year 2000. I never supposed that that would happen ; but, on the other hand, I do not suppose that we shall have a public sector borrowing requirement this size for every year between now and the year 2000.

We all know that the public sector borrowing requirement is the difference between two very large figures, and we all know that public spending and the income from revenue are directly affected by the state of the economy. Although we want the figure to be reduced as quickly as possible, we all understand why we have a PSBR of this size at present.

The hon. Lady, of course, said nothing about Labour's manifesto, with its long list of public spending commitments for which she was responsible. I am sorry that she left the Chamber so quickly--

Madam Speaker : Order. I ought to inform the hon. Gentleman and the House that the hon. Member for Derby, South (Mrs. Beckett) has apologised to me, and let the hon. Gentleman know that he will also receive an apology. The hon. Lady has a long-standing engagement.

Mr. Smith : I am most grateful to you, Madam Speaker. I would have expected nothing else from the hon. Member for Derby, South, who is always most courteous in regard to such matters.

The hon. Lady was responsible for the many public spending pledges in the Labour manifesto. The people asked, understandably, where the money would come from to pay for all those pledges. If Labour Members cannot answer that question--and it has never been answered--what is the point of putting all those pledges into their manifesto?

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I am also struck by the fact that, although people tell opinion pollsters that they are prepared to pay extra taxes to fund extra public spending, that is never entirely borne out in the results on polling day. I suspect that what most people want--it is an entirely understandable aspiration--are lower taxes and higher public spending. Only the present Government, on the back of economic growth throughout the 1980s, actually delivered that and only the present Government are capable of delivering it in the future.

Ms. Hilary Armstrong (Durham, North-West) : I am very interested in what the hon. Gentleman has said. Can he now, on behalf of his party, commit the Government to meeting all their public expenditure pledges and reducing taxes?

Mr. Smith : The Government's position is set out very clearly in the "Autumn Statement", covering the next three years. The hon. Lady does not need to ask me that question ; she will be able to see the position for herself if she obtains a copy of the "Autumn Statement" from the Vote Office. My personal view is that something that has been successfully achieved during the 1980s can be achieved again.

Ms. Armstrong : It has not been achieved.

Mr. Smith : The hon. Lady says that it has never been achieved, but income tax was cut from 30 per cent. to 25 per cent. at a time when public expenditure was rising and the public sector borrowing requirement was falling. If it has been done before, it can be done again, and it will be done again when the economy starts to recover.

Mr. Skinner : When will that happen?

Mr. Smith : It will happen during the 1990s. The hon. Gentleman knows very well that no one can be sure precisely when such things will happen, but I am confident that it will come about.

I welcome the commitment in the Queen's Speech to sound finance and budgetary discipline in another context. The paragraph about the European Community states that, as part of the United Kingdom's presidency of the Council, the Government will

"promote sound finance and budgetary discipline."

I believe that the need for that is urgent and that we are well placed to do it.

On many occasions, the European Community Court of Auditors has produced reports that are highly critical of spending in the Community, particularly on the common agricultural policy. I hope that the Government will take measures to see that we have effective mechanisms, just as we have in the House with Select Committees, including the Public Accounts Committee, to ensure that public spending in the Community means that taxpayers throughout the Community get value for money.

I welcome the statement in the paragraph dealing with the overseas aid programme which says that the Government

"will continue to press creditor countries for a further reduction in the official debt of the poorest countries."

My right hon. Friend the Prime Minister is to be congratulated on the initiative that he has already taken. The Government have been leading the way. I hope that, over the coming months, it will be possible for the Government to persuade other western countries to cancel entirely the official debt of the poorest and least developed

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countries. It is not just a moral issue ; it involves our economic interest as well as that of the poorest people in those countries. I attach the greatest importance to that commitment.

I welcome the strong statement in the Queen's Speech--it may be the first for some time--in which there is an explicit reference to price stability. We are told that the

"Government will pursue, within the framework of the exchange rate mechanism, firm financial policies designed to achieve price stability.

For too long we have been satisfied with low inflation. It is good news that today we have low inflation and that inflation is containable. However, it is nearly a quarter of a century since we had one year in which the United Kingdom had stable prices. I am glad that the Government have committed themselves firmly to the objective of squeezing inflation out of the system altogether. It is inflation that destroys jobs, undermines savings and business confidence and negates economic growth.

Mr. Mark Wolfson (Sevenoaks) : In support of his point, does my hon. Friend agree that within the ERM our European competitors--in this context, I mean competitors rather than partners--are likely to be more successful in containing inflation than they have been in the past and that, to maintain our competitive position and jobs here, it is even more important than ever that we squeeze inflation out of the system?

Mr. Smith : I agree with my hon. Friend. That is borne out by recent experience in Italy and, particularly in France since they joined the ERM. Although the experience has been painful, it has been worth while. We have seen inflation across the Community fall as a result of ERM policies.

United Kingdom membership of the ERM is only 20 months old and the benefits of that membership are now showing through strongly. One of the most underrated benefits is the fact that it brings about exchange rate stability within the Community. It means that people who trade within the Community--after all, the majority of our trade is now with other Community countries--are able to forecast the exchange rate in currency transactions with a degree of certainty that did not exist before. That is good news for British industry and British exporters.

The key point is that the ERM provides an external discipline that ensures that we bring inflation down and keep it down. We have brought down inflation and underlying inflation--output prices are at record lows--and as a result, when we believe that it is prudent to do so, we can bring down interest rates. I welcome the fact that my right hon. Friend the Chancellor felt able to make a further cut of 0.5 per cent. on Monday. We have now seen interest rates fall by 5 per cent. since their peak in October 1990 when, not coincidentally, we joined the ERM. That is good news for us. Also, I hope that when Treasury Ministers feel that it is appropriate, we will be able to move to the narrow bands of the ERM. Perhaps that will be possible when sterling has traded for a reasonable time within those bands. That will reinforce our commitment to the ERM and facilitate the further lowering of interest rates.

The Queen's Speech also refers to the convergence criteria in the Maastricht agreement. I welcome the Government's commitment in the medium term to complying with the convergence criteria, which relate

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principally to inflation, interest rates and fiscal policy. Because of the Government's prudent handling of the economy, there should be no difficulty in meeting those criteria. For example, the criterion on official debt stipulates that such debt must be no more than 60 per cent. of GDP in total. The United Kingdom level is far below that, whereas that of, say, Italy, is far above it.

I welcome the fact--although it is largely attributable to the Labour party leadership election--that we are to have a debate on public expenditure at this stage in the parliamentary year. That debate normally takes place after the publication of the White Paper. Today we have an opportunity to comment on public expenditure in the next spending round, which is about to start.

I suspect that my right hon. Friend the Chief Secretary will start his discussions, especially with the Department of the Environment, quite soon. All the discussions on the next public spending round will start soon. In this debate we shall be able to express our views on public spending in 1993-94.

In that context, the first thing to say is that it is clearly vital to contain the overall level of public spending. That is the easy part. We can all say that, and then we go to my right hon. Friend and tell him which part of public spending should be increased, because we have a special interest in that subject. I do not suppose that my right hon. Friend receives very many recommendations on which areas of public spending could be reduced.

The first stage in the process is the announcement made at the end of July on local authority spending--the local authority settlement for 1993-94. That is an important settlement, because next year will see the introduction of the council tax and of care in the community, and the transfer from the social security budget to local authority budgets of that amount of social security spending which is attributable to care in the community.

I hope that at that time it will be possible for my right hon. Friend to identify the sum which is notionally being transferred from the Department of Social Security to local authorities, so that local authorities have a clear idea how much it is. I am prepared to forecast now that whatever that sum is local authorities will say that it is insufficient--but that is not my point. The point is that the sum should be clearly identified. From April next year, local authorities are to be given substantial new responsibilities under care in the community. That means that we shall have to examine the standard spending assessment in relation to social services. Some counties, including my own, which manage to contain total spending within the standard spending assessment still have difficulty with social services. My hon. Friends know what pressures there are on social services budgets--and those pressures are likely to increase rather than to decrease following the introduction of care in the community.

I fully support what my right hon. Friend the Chief Secretary says about securing value for money in public spending. That is what the citizens charter is all about--value for money and quality service for the customers of the Government's services.

Another factor on which I am sure that my right hon. Friend will agree with me--although he did not mention it--is the introduction of the Government agency programme. We now distinguish clearly between policy advice and policy execution, which means that we are in a position to give better value for money to customers of

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Government services. I hope that that programme will be developed further--especially in the Departments in which it has not yet been introduced--so that eventually all civil servants and officials working in policy execution will be working for agencies with considerable independence of management. That is how we shall get better value for money for all our taxpayers.

3.53 pm

Mr. Frank Field (Birkenhead) : I begin my contribution in a similar vein to those we have heard this afternoon in congratulating you, Madam Speaker, on your appointment. I then wish to develop a speech that is rather different from those I have heard so far.

There are at least two ways to cover a canvas : the broad brush stroke can be applied or a far more detailed brush can be applied to the canvas. I wish to adopt a more detailed approach in taking up two themes that have already, rightly, dominated the debate : incentives, and the issue about people controlling their own lives. I want to develop those themes with the small brush approach, thinking of individuals in my constituency and, as a result of joint canvassing, in the constituency of my hon. Friend the Member for Wallasey (Ms. Eagle).

I speak at the beginning of a Parliament when the Labour party has lost four elections in a row. I do not belong to the school that believes that, with one more small heave, we shall be on the Treasury Benches. In terms of our percentage of the vote, our turnout was worse than it was in 1935. In responding to speeches, we have the double job of performing our role as the Opposition and trying to convince the Government to change policy when that is desirable, and of beginning a rethink of policy ourselves in a build-up to the general election five years hence. I want to begin that task this afternoon.

I hope that before long we shall be seen as a tax-cutting party, not because we just want to beat the Government at their own game, but because it is vital if we are to build real incentives for those at the bottom of the pile.

We have heard much about public expenditure, about its restraints, and about the difficulties of balancing the increased provision of first-class public services with the Government's objective of cutting taxation. What we have not heard about in the debate--I hope that we shall hear a lot more about it--is the growth of the other welfare state, the tax welfare state. It is now so generous that it omits from taxation more than half of all personal income. We should now begin to set out a stall to commit ourselves to phasing out those tax handouts. That cannot be done at a stroke because people have made major commitments, such as buying pensions or their own homes, and their budgets would be split asunder if such measures were carried out at a stroke.

However, there could be commitments over the life of a Parliament to phase out some of the major tax benefits. I pick out two. If we or the Government were committed to phasing out mortgage tax relief and the subsidies that go with the acquiring of pensions, by the end of a Parliament we could cut the standard rate from 25p to 18p in the pound. I believe that that is right for a number of reasons. It is right because we should cease to be paternalistic--believing that only if we bribe people shall we get them to

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buy houses or provide pensions. They will do that if they have enough income with which to do so because they are good things to buy.

Such a change is also right because it would create a level playing field for savings. One now has to be almost certifiable to save in any way other than buying one's own home or pension, given the extent of the tax subsidies. Such a change is right because it achieves the goal of cutting the standard rate. I think of the standard rate especially as it affects low-wage earners in my constituency and in Wallasey where the difference between 18p and 25p per pound of tax paid is very important.

One of the policies that I hope we shall press on the Government is to be genuinely non-paternalistic and to be genuine about seeking major cuts in the standard rate of tax. I want to achieve the objectives I have outlined and I take seriously the question that we often mouth in this Chamber--I wonder how seriously we take it--when we look at the wage slips of the low- paid workers in our constituencies and see how crippling some of those contributions are.

I congratulate the Secretary of State for Social Security on his post, and I am glad that he will reply to the debate. I link my plea to another plea about caution, although having an open mind about the targeting of benefits. It is no longer good enough for us to mouth all those phrases which, in a very comfortable way, we have uttered in the Chamber over the past three or so Parliaments. The recipe is not to the liking of the electorate. That does not mean that we will desert all our positions, but it means that we have to rethink from first principles again. Therefore, I am not against opening up the debate, as some Conservative Members have put it, about universal provision and targeted provision, but I wish to make a plea before we jump too quickly or carelessly into the debate, because we could with one hand tend to undo the good that the other hand may do. I refer again to a typical constituent of my hon. Friend the Member for Wallasey and myself. He works a considerable time when work is available and picks up nearly £40 in family credit. He is grateful for that family credit--he makes no bones about it ; the family would not survive without that payment. However, he is well aware of what we in the Chamber call his marginal tax rates--the amount that is taken in income tax, the amount that is taken in national insurance contributions, the loss of family credit as his earnings increase, and other deductions as well on housing benefit.

Therefore, when we talk about the nice, easy move from universal provision to selective or targeted provision, we must think of what we are doing to people at the bottom of the pile. Although, sadly, we now have an underclass--perhaps there will be other debates in which I may develop that theme--large numbers of other people are poor simply because, by their own efforts, they cannot get a job or there is no job to have. For example, in the Wirral a new Sainsbury store is opening. The company took pages in our free press to advertise just before the election. For every job that was advertised, however skilled, a breadwinner with two children would still earn a low enough wage to claim family credit.

Employers are adapting to the means-tested assistance that is being given. They are becoming dependent on that form of Government support, and our constituents are being trapped in it. They have to think whether they get another job or work longer hours, given what their

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