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Autumn Statement

3.30 pm

The Chancellor of the Exchequer (Mr. Norman Lamont) : With permission, Madam Speaker, I should like to make my autumn statement.

As usual, the main public expenditure figures and the full text of the Industry Act forecast will be available from the Vote Office as soon as I sit down. The printed autumn statement will be published next Wednesday, after which there will be a full debate in this House.

Following the announcement that I made in my Budget, next year the autumn statement will be brought together with our proposals for taxation in one annual Budget statement. This is, in my opinion, a long overdue reform. For one final year, however, I shall bow to tradition and leave my Budget proposals until the spring. But this autumn statement will also be the first occasion on which the Treasury's economic forecast will be presented alongside others. Two weeks ago, I announced my intention to establish a new panel of independent forecasters. That will be in operation for next year's Budget ; but in the meantime, the forecast that I am publishing today will include some details of how the Government's own economic forecast compares with the view that other organisations have taken. I am sure this change is sensible and will be welcomed, in the House and outside.

This year's autumn statement has been drawn up against a background of continuing recession at home and renewed weakness abroad. Despite exceptionally low interest rates, confidence in the United States remains depressed. Industrial production has fallen sharply in Japan, and the countries of continental Europe face the prospect of continuing high interest rates and a marked slowdown in Germany. It is not surprising, therefore, that here in Britain, the recovery which nearly all forecasters expected at the time of the Budget has still not become established.

There has been an encouraging increase in retail sales, but the housing market remains depressed and confidence has taken a severe blow from the turmoil in the foreign exchange markets that led to sterling's suspension from the exchange rate mechanism.

Against that difficult background, a strategy that brings renewed confidence and a return to growth is more essential than ever, but the Government have no intention of engineering a short-lived boom that would lead swiftly to higher inflation and higher interest rates. Our objective is sustainable, long-term growth and our strategy to achieve that is based on three clear principles. First, with the pound floating, a completely new framework is required for monetary policy. Interest rates are now set according to British monetary conditions--to meet the target that I have established for inflation. Underlying inflation will be kept within the range of 1 to 4 per cent., and our aim is to get it down to the lower half of that range by the end of this Parliament. Low inflation is the key to sustainable growth and a lasting reduction in unemployment.

I have set out clearly the indicators that will guide our assessment of how far we are on track to meet our inflation objectives. The exchange rate, asset prices and the growth of narrow money are all taken into account. Today, I can

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announce the monitoring range that I intend to use for the broad measure of money, M4. For the second half of this financial year, that range will be 4 to 8 per cent.

Madam Speaker, as I have explained to the House before, in the past few months of our ERM membership, monetary policy was tighter than was actually needed to deliver our inflation objective. It is crucial that monetary policy should not be so lax that the private sector faces higher inflation, but nor should it be so tight that money demand is inadequate.

Outside the ERM, I have been able to rebalance policy by cutting two percentage points off interest rates. That, in itself, will provide a significant boost to the economy, without re-igniting inflation. Despite the fall in the exchange rate, I expect underlying inflation to be below 4 per cent. by the end of next year. In common with most economic forecasters, I expect gross domestic product to rise next year, by about 1 per cent., following a fall of a similar magnitude in 1992.

My second principle is that there must be an appropriate balance between fiscal and monetary policy. Above all, public spending must be kept under firm control. The Government therefore put in place last July a clear medium-term strategy for the control of public spending, designed to ensure that public expenditure declines as a share of GDP over time. The new system is based on a top-down approach. Clear and affordable limits are set for the total level of public spending, and the Government can then settle their priorities through a process of collective discussion--involving first a new Cabinet Committee, and then the full Cabinet itself.

The third key principle of the Government's strategy is that the best way to increase the long-run growth rate in the economy is to make markets work better, so we will be pressing ahead with our policies on privatisation, deregulation, cutting out waste, and keeping the tax burden on companies and individuals as low as we can. We must also fight for the interests of British business in world markets, and provide them with the best environment in which they can compete and succeed. In the short term, that means securing a successful outcome to the GATT round.

Low inflation, tight control of public spending, open markets, competition, and a vigorous supply side policy--those are the principles of the Government's strategy, and they provide the right framework for economic growth. I do not believe that Governments can spend their way out of recession. It is individuals and companies in the private sector that are the engine of economic growth. But that does not mean that, once the right economic framework is in place, the Government's task is complete. The Government too are investing for the future, in the nation's infrastructure and the development of human capital. As I said in my Mansion house speech, the Government have also been looking at specific policies to ease the path to recovery. I shall be announcing later in my statement a series of measures to rebuild confidence, to help industry and strengthen the economy.

Taking account of those measures, I expect the public sector borrowing requirement in the current year to rise to about £37 billion. Of course, that is high, but borrowing is bound to rise in a recession ; and it would be damaging to seek to prevent it from doing so at this moment. As the economy recovers, it is absolutely vital that borrowing is

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brought back towards balance. We have made an excellent start today with a tight overall settlement for public spending.

Much of the recent increase in the PSBR reflects the rapid growth in expenditure on social security benefits, and that has also damaged the financial position of the national insurance fund. In normal circumstances, it would have been necessary to raise national insurance contributions, to reduce that shortfall ; but, given the current weakness of the economy, I do not believe that this would have been appropriate.

Accordingly, while the upper and lower earnings limits and the thresholds of the bands for the employers' contribution will be indexed as usual, the rates for national insurance contributions will remain unchanged. I have agreed with my right hon. Friend the Secretary of State for Social Security that the fund should receive a Treasury grant to make up the shortfall.

Let me now turn to the Government's public spending plans. In this survey, the priority was clear. It was vital to put the needs of the economy first. Therefore, within a tight overall settlement, we have sought, wherever possible, to protect programmes, especially capital programmes, that will promote recovery and Britain's longer-term prospects.

At current levels of borrowing, the amount we have to pay in debt interest is rising rapidly, diverting billions of pounds a year away from spending on services. Against that background, the Cabinet decided in July to set a remit for the public spending round which would keep expenditure under firm control. That remit had two elements. For next year, we set ourselves the objective of sticking to existing cash plans. For the three survey years as a whole, our aim was to hold the growth of the new control total down to 1.5 per cent. or less, to keep the overall rate of growth in public spending to a rate below that of the economy as a whole.

Although our target for next year of £244.5 billion allowed a real increase of 4.5 per cent., the pressures for more spending have been intense, and we have had to consider carefully whether the original targets were achievable. However, I can now announce to the House that we have indeed achieved our target. The planning total for next year will be £244.5 billion. As a result of certain definitional changes, I should warn the House that the number which actually appears in the printed document will be slightly different. It will, in fact, be some £2 billion lower.

I can also announce that the new totals for 1994-95 and 1995-96 are fully consistent with the remit agreed in July. Despite the pressures that have emerged since the summer, the real growth in the new control total over the next three years will average just under 1.5 per cent. a year, half the rate of growth over the last three years. I am sure that my right hon. and learned Friends will welcome the meeting of the remit ; and let me at once pay tribute to my right hon. Friend the Chief Secretary for his skill, perseverance and hard work in making his achievement possible.

To meet our objectives, we have had to look very carefully at every single programme, and particularly at current spending. The biggest single budget is, of course, social security. Indexing social security benefits in the coming year would cost £2.5 billion. If we are to protect capital spending, it is to areas of current spending such as social security that we must look first. I can tell the House

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that, despite the many claims on the available resources, the Government have been able to meet in full their commitment to index pensions and other benefits.

The other major claim on current public spending is public sector pay. The earnings of public sector staff have risen on average by 20 per cent. over the last two years, compared with just 13 per cent. in the private sector ; but, if the gains in competitiveness from the recent fall in the exchange rate are not to be lost, it is vital that all employees keep tight control over their pay bills. The public sector cannot be sheltered from the difficulties faced by the private sector, where pay awards are now the lowest in a generation. I have therefore decided that, in the coming year, pay settlements in the public sector should be restricted to a maximum of 1.5 per cent. This, of course, is consistent with a lower growth in total pay bills. The aim must be to keep the growth in pay bills in each area of the public sector as low as possible.

The restriction will apply to the whole of the public sector and related bodies without exception, regardless of whether pay is negotiated, recommended by review bodies or subject to formula calculations. It will apply to all offers made from today, although formal offers already made will be honoured. The Government will in due course bring forward a resolution on Members' pay, consistent with this policy, but I can tell the House that Ministers will receive no increase at all.

Given the overall objective of restraining the growth in public spending, this survey has involved some difficult decisions. If some items are to be increased, it inevitably means that others must be cut back. Our tough decisions about public sector pay will lead to savings for other programmes and services of some £1.5 billion a year. As I say, that will permit higher levels of service to the public, and higher capital programmes as a result. None the less, in some programmes we have made reductions in the base lines which were set out last year ; but, in many of those cases, expenditure still remains on a rising trend. What is more, the progress that we have made on inflation will help to ensure that reductions in base lines are consistent with continuing improvements in public services. Even so, individual programmes have faced searching scrutiny, and hard choices have had to be made. Over the next few years, defence expenditure will continue to fall in real terms. The benefits of the "Options for Change" review will be secured, and some further savings, consistent with the policies which underlie it, will be made. The legal aid budget is a demand- led programme that has been putting immense pressure on public finances. The Lord Chancellor is announcing changes to restrict its growth, and they are fully reflected in the survey.

At a time when tight control over public spending is needed at the national level, it is clear that the same discipline should be applied at the local level. Central Government support for local authority revenue expenditure in England will therefore rise by 3.7 per cent. next year, and the total standard spending by 3.1 per cent. In addition, there will be a special grant of £539 million in England, to help local authorities to meet their new responsibilities for community care.

This settlement should be fully adequate to meet local authorities' requirements. The proposals assume that local authorities implement in full our policy of pay restraint. Provided that they do this, the savings made will enable them to ensure proper provision of services without exerting upward pressure on the council tax. The

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Government will not hesitate to use their capping powers as necessary. My right hon. and learned Friend the Secretary of State for the Environment will be making a full announcement later this month. Full details of the new plans for local authorities in Scotland and Wales, and for other programmes, are being made available separately.

The population-related formulae which largely determine changes to expenditure provision more generally in Scotland, Wales and Northern Ireland have been updated. Expenditure plans for the territories will be announced by their respective Secretaries of State at a later date.

At the time of the general election, the Government made it clear that education and health would be among their key priorities for the longer term. Rising spending in these areas is fully justified, not just in terms of immediate needs, but as a contribution to the country's human capital.

The education programme is therefore planned to rise to a level £1.5 billion higher in 1995-96 than the equivalent spending this year. There will be some important changes over this period. The proportion of children staying on at school beyond 16 is expected to go on rising. The Government are providing for a higher proportion of school leavers to take up YT places. We shall finance a sharp increase in the number of students attending further education or sixth form colleges--25 per cent. up over the survey period. At the same time, we have earmarked enough finance to maintain the present record level of participation of young people in higher education. All this is an important investment in our young people which will improve the quality of the country's human capital and benefit the economy in the longer term.

There will also be increases in the level of real resources provided to the national health service in each of the next three years. Spending in the NHS will rise by nearly 3 per cent. in real terms next year, compared with this year's plans. That means an increase of over £1.9 billion.

This is a very tight settlement overall. At the beginning of the spending round, there was widespread speculation that the Government would take the easy way out, by letting current spending rise and cutting capital spending instead. But what we have done is to take the tough but necessary decisions to put the needs of the British economy first.

Restraint on current spending has made it feasible to provide more protection to capital, and we have done so across a whole range of programmes. Next year there will be a significant increase in the volume of road building. We have maintained the national roads programme at a time when construction prices have fallen. Our new plans will ensure that in real terms, compared with 1979, we will have a doubling next year of the combined capital spending of British Rail and London Transport. Next year health capital spending in England alone will be at the record level of nearly £2.1 billion. The new plans should more than deliver our election commitment to provide through the Housing Corporation 153,000 homes over three years. One major project for which we have expressly reserved provision is the Jubilee line extension. Subject to satisfactory completion of negotiations, the line will be able to go ahead. This will create many thousands of jobs and give an important boost to the construction industry.

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The Government have taken seriously their pledge to do what they can for capital spending, but there is yet more that can be done. I said in my Mansion house speech that I was examining ways to increase the scope for private financing of capital projects. Obviously, the interests of the taxpayer have to be protected, but I also want to ensure that sensible investment decisions are taken whenever the opportunity arises. I am now able to announce three significant developments.

In the past, the Government have been prepared to give the go-ahead to private projects only after comparing them with a similar project in the public sector. This has applied, whether or not there was any prospect of the project ever being carried out in the public sector. I have decided to scrap this rule. In future, any privately financed project which can be operated profitably will be allowed to proceed. This should be widely welcomed, particularly by the construction industry.

Secondly, the Government have too often in the past treated proposed projects as either wholly private or wholly public. In future, the Government will actively encourage joint ventures with the private sector, where these involve a sensible transfer of risk to the private sector. We may be prepared to consider such an approach, when the time arises, for projects such as the east-west crossrail, the central Scotland fastlink, the Birmingham western orbital road and perhaps also the channel tunnel rail link. Thirdly, we will allow greater use of leasing where it offers good value for money. As long as it can be shown that the risk stays with the private sector, public organisations will be able to enter into operating lease agreements, with only the lease payments counting as expenditure and without their capital budgets being cut.

In addition, British Rail will be allowed to lease some £150 million of new rolling stock in the next three years. The new leases will be undertaken with a view to developing the leasing market for rolling stock, which will facilitate privatisation.

In addition, my right hon. Friend the Secretary of State for Transport will publish a Green Paper early next year on the scope for motorway charging. If, in the light of consultation, the Government decides to proceed with charges for inter-urban roads, this would create significant new opportunities for private finance. As a possible transitional step, private contractors might be invited to design, build and operate roads, for which they would receive payments from Government relating to the use of their roads. Money contributed by the private sector under these arrangements will not contribute towards public spending : it will represent additional resources in the area concerned.

Those changes are only the beginning. I have asked my hon. Friend the Financial Secretary to carry forward and develop our policy in this area, encouraging the private sector to bring forward proposals and to help us identify any obstacles which frustrate its success. Many of the measures that I have announced so far today will take time to have their full effect. I therefore propose to introduce a supplementary package of time- limited fiscal measures. These will be aimed at sectors of the economy which have been hardest hit by the recession, helping to rebuild confidence and so foster recovery.

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Housing and construction have faced particular difficulties in the past two years, but home buyers now have some of the lowest mortgage rates since 1978. The Government have responded in a number of other ways, most recently with measures to help those with negative equity who wish to move. Today, I propose to go further.

The overhang of empty properties in the owner-occupied sector is holding back activity in the housing market. I therefore propose to make available an extra £750 million to be used before the end of this financial year to buy up some of these properties. I hope that the Housing Corporation will be able to achieve a substantial contribution on top of this from private sector lenders. Scotland, Wales and Northern Ireland will introduce parallel measures. This measure, even without additional contributions from the private sector, should reduce the overhang of empty properties that has been holding the market back by more than 20,000 over the next few months, so providing a stimulus to activity. It will also increase the available stock of subsidised housing by a similar amount and make a real contribution towards housing families in need.

Many hon. Members are aware of the representations by many local authorities to persuade the Government to relax the rules on local authority capital receipts. Many local authorities have accumulated a stock of these receipts, rather than use them to pay off debt, as the Government advised. That remains the Government's view, and I do not intend to reward those who have ignored it.

I propose, however, to allow a time-limited relaxation of the rules governing local authorities' use of their future capital receipts. The existing rules allow them to spend only 25 per cent. of housing receipts and 50 per cent. of other receipts. With certain exceptions, local authorities will now be entitled to spend all the capital receipts that they realise between tomorrow and the end of December 1993.

This measure is expected to stimulate extra capital spending by local authorities of over £1.75 billion in the next three and a half years. The Government hope that local authorities will make early and effective use of the additional spending power before the end of this financial year across the range of local authority capital programmes, including housing, education, schools and roads. Any receipts which are not spent this year or next will provide an on-going stimulus to house-building and construction in 1994-95 and 1995-96, as well. The availability of the extra receipts will be taken into account in distributing credit approvals between local authorities. In that way, virtually all local authorities should receive some benefit. There will be separate measures for Scotland, Wales and Northern Ireland. The reduction in the exchange rate has offered immense opportunities to exporters, but our exporters of project equipment and other supplies which require medium or long-term finance rely heavily on the guarantees provided by the Export Credits Guarantee Department.

I now intend to make available a further £700 million of ECGD cover and to ease some of the constraints on cover for individual countries. That will enable our exporters to compete more effectively in the increasingly difficult situation that they now face. I am sure that the measure will be widely welcomed by the engineering and capital equipment industry.

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I have also considered the position on capital allowances. It remains my view that the reform of business tax by Lord Lawson in his 1984 Budget was the right one. Low tax rates and a broad tax base provide the best framework for the medium term. However, in the present circumstances, I am prepared to allow some changes which should help to bring forward private sector investment.

Accordingly, for a limited period of 12 months, I propose to raise from 25 to 40 per cent. the allowances available in the first year for investment in plant and machinery, excluding cars. I also propose to introduce an initial allowance of 20 per cent. for spending on new industrial and agricultural buildings for which contracts are placed before 31 October 1993 and which are brought into use before the end of 1994. That will help the construction industry. I propose to legislate for those changes, with retrospective effect to 1 November, in the next Finance Bill.

I have one final measure to announce. The motor industry lies at the heart of British manufacturing. In recent years it has seen a renaissance, with large increases in inward investment. However, the recession has brought a more difficult climate. I have considered what might best be done to help. Of course, any action in this area will have to be paid for in my next Budget by higher motoring taxes after 1992-93.

I have decided nevertheless to continue with the tax reform begun in my last Budget and to abolish car tax altogether from midnight tonight. That will mean a saving of about £400 on a typical family car. This measure will require a simple Bill, which I shall bring forward shortly. It will provide a direct boost to the motor industry and will, of course, benefit business more widely. I am sure that it will be warmly welcomed.

The measures that I have announced today should provide an immediate boost to confidence and welcome relief for some of the most hard pressed sectors of the economy. Taken together, they will add some £4 billion to borrowing over the next three years, but with no increase to the PSBR over the medium term. These measures come on top of the Government's new spending plans for the next three years and the proposals that I have announced to liberalise the rules on private finance.

Finally, there is the significant relaxation in monetary policy since Britain left the ERM just two months ago. Britain already has the lowest interest rates in the European Community ; and the pound is trading at a level that gives British industry a sharp competitive edge in foreign markets.

That relaxation of policy has been possible because of the dramatic progress that we have made in getting inflation down ; and it is precisely because our inflationary prospects remain excellent that today I can go further.

Alongside the tight public expenditure plans that I have announced, I believe that it is appropriate now to make a further reduction in interest rates. The Governor and I have agreed that the Bank will tomorrow set the minimum lending rate at 7 per cent. That reduction is, in my judgment, fully consistent with the Government's inflationary objectives.

Today's reduction takes British interest rates down to their lowest level for nearly 15 years ; it means that our interest rates have been cut by fully eight percentage points over the last two years ; it takes a further £1 billion off

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industry's costs on top of the £9 billion fall in interest payments that we have already seen ; and it will provide further help to all those with mortgages.

British business now has the opportunity that it has been looking for--to bring the country out of recession ; to increase sales, expand production and invest for the future. Industry can now seize the new opportunities, safe in the knowledge that the Government are playing their full part.

We have a new monetary framework that will deliver low inflation over the medium term. We have a new system for controlling public spending that will deliver annual spending increases which the country can afford. We have new spending plans, which protect the poorest in society and offer hope, help and opportunity by switching resources to programmes that support the long- term prosperity of the country.

We have the lowest interest rates in the European Community, and we have a carefully targeted set of measures designed to lift confidence and get the country back to work. This is a clear and comprehensive strategy. It is a strategy for growth. I commend it to the House.

Mr. Gordon Brown (Dunfermline, East) : Will the Chancellor first tell the House and his Back Benchers and then tell the country what he did not tell us in his statement--that, as a result of the publication of his documents today, unemployment will continue to rise ; the balance of payments will continue to worsen ; as a result of the underfunding of the health service, waiting lists and queues will grow ; low-paid workers such as nurses and home helps will face even greater poverty ; overseas aid budgets will be cut ; and, despite the welcome interest rate cut today, for which the Chancellor has long been pressed by the Opposition, business bankruptcies will unfortunately continue to grow?

The Chancellor's detailed figures, which he did not share with the House, confirm that Britain is bottom of the league in the European Community for growth, investment, output and employment. Yesterday the Governor of the Bank of England admitted Britain's image as a second-rate economy. The truth is that, having been driven by events to signal a change of policy against his will, the Chancellor has not only failed to admit the scale of the mistakes of the past but has failed to measure up to the extent of the problem which the country faces. He has failed to give us an economic and industrial strategy for the future.

With regard to the credibility of the Chancellor's forecast this afternoon- - [Interruption.] Conservative members will have to listen, because it is the Opposition who are speaking for the country, and about the need for change. Will the Chancellor confirm that national output, which last year he told us would rise by 2 per cent., has fallen by 1 per cent.? He promised us that consumer spending would rise by 2.5 per cent., but it has not recovered at all. Will he confirm that, according to the Government data in the report, investment, which he said would rise by 1.25 per cent., has fallen by 2 per cent.? Will he further confirm that manufacturing output, which he said would rise by 3.25 per cent., has fallen by 1 per cent., that exports, which he said would rise by 6 per cent., have risen by less than half as much, and that unemployment,

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which he told us last November would be at 2.4 million, has risen to almost 2.9 million--half a million more men and women than he predicted--as a result of his mistakes?

What credibility does the right hon. Gentleman have when virtually his entire economic forecast of last year has been proved wrong? Can he give us one good reason why we should believe anything that he says this afternoon, when not only his forecast but his economic policy has collapsed? Were not the Conservative Members who cheered and waved their Order Papers at the Chancellor this afternoon part of the group who cheered and waved their Order Papers at him a year ago, when he promised that we would stay in the exchange rate mechanism, that he would not devalue, that the exchange rate was at the centre of his anti-inflation policy, and that he would reduce

unemployment--and when he promised a recovery which he has failed to deliver?

The Chancellor is being dragged by public opinion into accepting some of the measures which we proposed, and which he used to call fake remedies. Only a few weeks ago, his colleagues ridiculed export credit help as being unnecessary in a free market. In April, he himself described investment incentives as phoney measures, which would not be used, and his Housing Minister said only a few weeks ago that the release of capital receipts was fools' gold.

Will the Chancellor not accept, however, that, although he has been driven part of the way by the pressure upon him, through lack of conviction he has failed to adopt the full recovery programme necessary to bring the economy out of slump? He has failed to accept the employment measures and the industrial strategy that Britain needs--the essential direct construction measures which would lie at the heart of any recovery programme.

Is it not true that not one penny of the £5 billion in capital receipts which local authorities have amassed will be released as a result of the Chancellor's proposals? He is allowing local authorities to spend in a year when there will be very few council house sales. Is it not the case that, apart from the Jubilee line, which he has reannounced for the umpteenth time today, he has not announced one capital investment project in London or in the rest of England, or in the nations of Scotland, Wales and Northern Ireland? Is not the proof of all this the figures which have emerged from the autumn statement details? The combined total of all the Chancellor's proposals for the private and public sectors leads him to predict that investment will grow by only 0.25 per cent. in 1993, and that growth in the economy will be only 1 per cent. The result of that is inevitable--thousands more face unemployment.

When unemployment has today risen for the 30th month running ; when male unemployment is worse than at any time since the 1930s ; when, inevitably, unemployment will rise for a 31st, 32nd and 33rd month and more under the Chancellor's proposals, will he agree that, by his failure today to direct action against unemployment by taking up the new employment programme that we proposed, which would create jobs and rebuild Britain, he has failed to understand that, while unemployment continues to rise, and the fear of unemployment continues to rise, the confidence necessary to get the economy moving will not return?

In that context, is it not a disgrace that, when we face the single market, the industry budget of the President of

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the Board of Trade is to be cut by 32 per cent. by 1994-95 and that the training and employment budget of the Department of Employment is, according to the figures that we have seen, to be cut by £200 million? Is not the great recovery programme being launched on the basis that the training budget between 1987 and 1995--the whole Department of Employment budget--is being cut by the Government by £2, 000 million?

What possible help can cuts in Department of Employment and DTI budgets be to reduce unemployment or ensure recovery? Is it not a tragedy that, while a few of the richest in the world made millions as a result of speculation, millions of the poorest in the world face starvation as a result of further cuts in the overseas aid budget--£75 million by 1995?

Will the Chancellor explain why he is setting an inflexible ceiling on public sector pay, breaking all agreements with review bodies, tearing up quite specific promises and making home helps, nurses and other low-paid workers the scapegoats for his economic failures? Will the Chancellor explain specifically why that is being done when the Prime Minister said :

"heavy central control, uniform, rigid and monolithic pay structures will mean difficulties over recruitment and retention of particular skills, mean staffing problems and put the public services at a very severe disadvantage"?

Given that the Chancellor has also announced new road taxes from next year, does that include road pricing? When there are 1 million children in school classrooms built before the first world war ; when two thirds of hospital wards are hangovers from the days of charity hospitals ; when roads need repair and when the rail infrastructure needs not a pilot scheme, but proper and sustained-- [Interruption.]

Madam Speaker : Order. I ask the House to settle down. Our fellow citizens are watching the debate on television. If the House were to realise the number of letters that I receive each day from people outside this place about the poor behaviour here, I am sure that there would be order on both sides of the House.

Mr. Brown : When there are nearly 1 million people on health service waiting lists--and people outside this place will be interested to hear what the Government are doing--why will health service spending not keep up with the needs of demography and technology? Why is the transport budget being cut by £270 million in one year? Why is local authority expenditure down £0.5 billion in a year? Why are the Government assuming that rents in local authorities will rise by 9 per cent. in a year?

How can the Government justify breaking yet more election promises that all public spending programmes in detail would be upheld? Those breaches of promises can only add to unemployment, prolong the recession, damage long- term efficiency and hit hardest the poorest and weakest in our community.

Is it not the case, in looking at the autumn statement as a whole, that having abandoned the unemployed, having abandoned the low-paid with the abolition of wages councils, having hit the sick and disabled by underfunding the health service, having made nurses and home helps pay the price for the Government's mistakes over public spending, and having promised a recovery that they have singularly failed to deliver after all the promises before and after the election, there is now no one left for the Government to betray? The election having been fought

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on the issue of trust, is it not the case that the country will never trust these men, these Ministers or the Conservative party again? Is it not also the case that the fresh start which the country needs is a fresh programme of measures under fresh leadership?

Mr. Lamont : I appreciate that it is very difficult to respond to statements quickly, but that was a pretty feeble showing by the hon. Gentleman. The programme contains a reduction in interest rates, a boost to private sector investment through increased capital allowances, £1.8 billion of capital receipts available to help the construction industry, and a boost to the motor industry by the abolition of motor tax. How he can say that that will add to unemployment I cannot understand. The only explanation for the hon. Gentleman's view is that he believes, wrongly, that employment comes from Government spending. It does not : it comes from the private sector. That is the mistake that the Opposition always make. The hon. Gentleman again, I am afraid, was wrong in many of the points that he made about the individual programmes. For example, on aid there are cash increases in the next few years, not cash cuts. On health, the programme shows that spending is rising each year. We shall be able to finance increased throughput, increased treatment of patients and an increase in activities of 2.5 per cent. a year. What the hon. Gentleman looks at are the actual money numbers, but the health service is very much an employer of labour. The fact that we are putting a limit on public sector pay means that services can be improved with less money. That is the point. The hon. Gentleman thinks that the only way to improve services is with money rather than with efficiency and with having a limit on wages.

The hon. Gentleman referred to the budget for the Department of Employment. Again, contrary to what he says, there will next year be a real increase in that budget. The training and enterprise councils' budget will remain virtually intact. [ Hon. Members :-- "No."] It will be 99 per cent., to be precise.

The hon. Gentleman talked about the performance of the British economy, referring to how disappointing the outturn had been and how forecasts had been wrong. As always, he talked about the British economy as though no other country had any problems with growth. He seems to be unaware that in five out of the past six months Germany has seen unemployment rise, and that in six out of the past seven months it has seen industrial production fall. The hon. Gentleman seems to be unaware that in Japan industrial production over the past year has fallen by over 4 per cent., that in Germany it has fallen by over 3 per cent., that in Italy it has fallen by over 3 per cent., and that in Canada it has fallen by over 2 per cent. That is the difficult climate in which we are competing. That is the difficult world background to the autumn statement. That is why we have given a special boost to help exporters and to help industry at this time. The hon. Gentleman referred to forecasts and made much of the fact that recovery had not appeared. May I remind him that it was not just the Government and the Treasury who were forecasting recovery? At one time, even he and his hon. Friends were saying that there would be a recovery. His right hon. Friend the Member for Islwyn (Mr. Kinnock), the former Leader of the Opposition, accused me last autumn of creating a pre-election boom

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and said that the recovery had been managed in order to create conditions for an election. Indeed, an official fund- raising letter from the Labour party at the time explained :

"Interest rates are dropping just in time to create a pre-election boom."

The hon. Gentleman talks about consistency. Let us remember the consistency of his party's policies. What did the Opposition propose at the election?-- the biggest increase in taxes on incomes since the war. I remind the House that after the election the Leader of the Opposition stood by his party's policies and said :

"I strongly defend these proposals."

A few days ago, the shadow Chancellor said :

"Further tax increases at this time would be a mistake." Who are the opposition to talk about consistency? Who are they to talk about forecasts? Everything that they have said has turned out wrong.

Mr. Terence L. Higgins (Worthing) : I congratulate the Chancellor on an extremely imaginative package, and welcome his acceptance of the idea suggested by the Select Committee on Treasury and Civil Service that a number of the measures ought to be time-limited to avoid a resurgence of inflation later. Will he make it clear to the foreign exchange markets that, given the degree of deflation in the economy, the amount of stimulus that he proposes is sensible and is likely to reinforce his view on the exchange rate, and that the package is likely to restore confidence and to be welcomed by the country?

Mr. Lamont : I am grateful to my right hon. Friend. When he was Chairman of the Treasury and Civil Service Select Committee, he often emphasised the need for and the appropriateness of time-limited measures. That is a part of the package that we have put forward today. The measures that we have announced are prudent. As I have explained, they do not add to medium-term borrowing and have only a short-term cost.

I agree with what my right hon. Friend said about exchange rates. I have consistently made it clear that I believe in a strong exchange rate, and that remains my position.

Mr. A. J. Beith (Berwick-upon-Tweed) : Will the Chancellor confirm that he is maintaining capital spending levels and not providing a large boost? Although the abolition of car tax and the capital allowances will significantly help some sections of industry, when set against the loss of spending power for the lowest-paid people in the public sector, the total effect is unlikely to give anything like the boost that he needs. How can it make sense to ask local authorities to sell land if they want to engage in capital expenditure when the market is at rock bottom?

Instead of a pay freeze for Ministers, would it not have made sense to put them on performance-related pay, so that, if these measures do not work, they will not get paid at all?

Mr. Lamont : The key requirement must be to control borrowing. I had hoped that I had spelt out clearly and frankly to the House the need to control public borrowing. That has to be done by one means or another. I am surprised that the right hon. Gentleman seems to think that that can be evaded. It cannot be avoided--we have to

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face up to it--and there must be restrictions either on current or on capital spending. This year we have decided to restrict current spending to protect industry, especially the construction industry. I remind the hon. Gentleman that I have also cut interest rates today, on top of the 2 percentage points reduction in interest rates in the past six weeks. There has also been considerable depreciation in the exchange rates. That is a considerable loosening of monetary policy, which confirms the outlook for British industry.

On the hon. Gentleman's final point about the prospects for sales, our estimate of £1 billion is based on a cautious assumption compared with the past, and with what local authorities have been able to sell.

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