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Points of Order

3.30 pm

Mrs. Ann Taylor (Dewsbury) : On a point of order, Madam Speaker. I wish to raise an important point of order about a serious matter the leaking by the Secretary of State for Education of part of the statement that is to be made by the Chancellor this afternoon. This is the first occasion on which we have had a unified Budget with announcements on expenditure as well as taxation. Clearly, any announcement on expenditure can be taken as an idea of the revenue to be raised by the Chancellor. Such an indication has been given by the Secretary of State for Education by way of a press release this morning [Interruption.]

Madam Speaker : Order. The hon. Lady must be heard if she has a point of order.

Mrs. Taylor : Although this press statement makes bogus claims about increases in Government expenditure on education, along with cuts in student grants, it is an official statement by a Minister of the Crown on the unified Budget.

That is more serious than just a discourtesy to the House : it is a clear breach of Budget security, and has been acknowledged as such by both the Department for Education and 10 Downing street. In view of this, I wonder whether the Secretary of State for Education has asked to make a personal statement to the House, because clearly he should resign.

Madam Speaker : I have not been informed by the Secretary of State that he seeks to make a statement today. I have, however, had an opportunity to look at the document that has been referred to. It is an account of the expenditure plans of the Department for Education for 1994- 95. The premature release of such information, ahead of the unified Budget statement and an associated parliamentary answer, does not have the gravity of the pre-release of tax proposals that are to have immediate effect.

It is nevertheless a most serious discourtesy to the House to disclose such information before it has been made available to Members. I most strongly deprecate what has happened, and I trust that all Departments will take note of what I have said, and that they will take steps to see that they prevent anything similar from happening again.

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Mr. Andrew Faulds (Warley, East) : On a point of order, Madam Speaker. [Interruption.] Listen, you berks. [Interruption.]

Madam Speaker : Order.

Mr. Faulds : Thank you, Madam Speaker. In view of the comments that you have just made, that the House should be properly treated, is it not now incumbent upon the Secretary of State whom you have commented upon to make an apology to the House of Commons ?

Madam Speaker : What I have said stands and will be reported in the Official Report . We shall now move on. With permission, I shall put together the seven motions relating to statutory instruments.

Statutory Instruments, &c --

Motion made, and Question put forthwith pursuant to Standing Order No. 101(3) (Standing Committees on Statutory Instruments, &c.).

Legal Aid (Scotland)

-- That the draft Advice and Assistance (Assistance by Way of Representation) (Scotland) Amendment (No. 2) Regulations 1993 be referred to a Standing Committee on Statutory Instruments, &c.

That the draft Advice and Assistance (Financial Limit) (Scotland) Regulations 1993 be referred to a Standing Committee on Statutory Instruments, &c.

Town and Country Planning (Scotland)

-- That the draft Town and Country Planning (Fees for Applications and Deemed Applications) (Scotland) Amendment Regulations 1993 be referred to a Standing Committee on Statutory Instruments, &c.

Town and Country Planning

-- That the draft Town and Country Planning (Fees for Applications and Deemed Applications) (Amendment) Regulations 1993 be referred to a Standing Committee on Statutory Instruments, &c.

Court of Session

-- That the draft Maximum Number of Judges (Scotland) Order 1993 be referred to a Standing Committee on Statutory Instruments, &c.

Insurance Companies (Accounts)

-- That the draft Companies Act 1985 (Insurance Companies Accounts) Regulations 1993 be referred to a Standing Committee on Statutory Instruments, &c.

That the draft Insurance Accounts Directive (Miscellaneous Insurance Undertakings) Regulations 1993 be referred to a Standing Committee on Statutory Instruments, &c. [Mr. Patnick.]

Question agreed to.

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Budget Statement

Mr. Deputy Speaker (Mr. Michael Morris) : Before I call the Chancellor of the Exchequer, it may be for the convenience of hon. Members if I remind them that, at the end of the Chancellor's speech, copies of the Budget resolutions will be available to hon. Members in the Vote Office.

3.35 pm

The Chancellor of the Exchequer (Mr. Kenneth Clarke) : A politician presenting his first Budget is rather like a lion tamer trying out his act for the first time, but I have decided to tackle the difficulties I face in a direct way, on the basis of the clear policy objectives that I set myself when I became Chancellor.


My first priority has been to sustain the economic recovery now under way and to create the right climate for growth and for jobs. I have been determined to take no risks with inflation. We have brought inflation down to the lowest level for a generation and low inflation must now remain a permanent feature of the British economic landscape.

To achieve these objectives, the task of my first Budget has been to set the Government's finances on a sustainable path for the rest of the decade, to make the decisions necessary now to secure lasting recovery and rising living standards in the future.

"The Financial Statement and Budget Report", together with a number of press releases filling out the details of our spending plans and my Budget tax proposals, will be available from the Vote Office as soon as I have sat down.


Britain's economic performance this year has been encouraging. It is now clear that the recovery started in the first half of 1992, well before sterling's departure from the exchange rate mechanism. GDP has risen for six successive quarters, and in 1993 as a whole, I now expect the economy to grow by about 1 per cent.

Unemployment has fallen since the beginning of the year, at a much earlier stage in the economic cycle than past experience would suggest, and crucially the recovery has been accompanied by continuing low inflation. Underlying inflation has not been lower since 1968, and unit wage costs in manufacturing have actually fallen this year, allowing British industry to establish a durable improvement in our competitiveness.

As a result, despite the weakness of activity in the other major European countries, Britain's trading performance over the last year has been excellent. Exports to countries outside the European Union were up by no less than 14 per cent. in the last three months compared with a year ago a sharp increase in our market share. After the last three difficult years, that performance convincingly demonstrates the strength of British manufacturing today. Continued growth in consumer spending, together with further increases in exports and investment, should bring faster growth in 1994. Economic forecasting is an unreliable art, to which in my opinion far too much

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importance has been attached in recent years, but on the best judgment I can make, growth next year should be about 2 per cent. With considerable spare capacity in the economy, inflationary pressures remain subdued. The tax measures announced in March, and the further measures I shall be announcing today, will push inflation up a little in the next few months, but this should not feed through into higher inflation over the medium term.

I expect underlying inflation to remain inside the Government's 1 to 4 per cent. target range over the year ahead, and to decline steadily into the lower half of that range by the end of this Parliament. Monetary policy will continue to be directed towards meeting that objective.

Monetary policy

As now, my decisions on interest rates will be based on a careful assessment of monetary conditions and inflationary trends, focusing particularly upon the growth of narrow and broad money, changes in the exchange rate and movements in asset prices.

On the basis of these indicators, I felt able last week to reduce interest rates to 5 per cent., the lowest level for 16 years. The effect of that is very marked. Since 1990, industry's interest bill has been slashed by nearly £12 billion each year, and the typical mortgage borrower is now paying £170 less each month. That is a massive boost to spending power, fully justified by the remarkable progress that we have made on inflation.

Starting with last week's change, I decided to give the Bank of England responsibility for the precise timing of interest rate movements. That underlines my commitment to the new framework for monetary policy established by my predecessor last September.

Funding policy

The increasing credibility of that framework has brought our long-term interest rates down to their lowest level for over 25 years. That fact also demonstrates the ease with which this year's borrowing requirement has been financed, but the very success of the funding programme, coupled with last year's substantial gilt sales to banks and building societies, has squeezed the liquidity of the banking system, complicating the task of managing the money markets. To offset the purchases made by banks and building societies last year, I intend to sell some £7 billion worth fewer gilts than would otherwise be necessary to fund the public sector borrowing requirement through to the end of 1994-95. Using this flexibility in our established funding policy will ease money market pressures, while continuing to ensure that borrowing is financed in a non-inflationary way.


World economic developments

As I turn to look towards 1994, the prospects are encouraging, but two substantial risks remain. First, there is the continuing weakness of world economic activity, particularly in continental Europe. With Britain the only major country in the European Union likely to have grown at all in 1993, what manufacturing industry needs most is a pick-up of activity in the rest of Europe.

However, economic recovery on the continent will not be enough on its own. Europe's economic problems are not just cyclical. The continent as a whole faces a number of

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deep-rooted and long-standing challenges, inflexible markets and declining competitiveness, which have combined to produce mounting structural unemployment.

There were more jobs created in Britain in the 1980s than anywhere else in Europe, and in the period ahead we must not only fight to export our goods and services, but also to win the battle of ideas in Europe. We must continue to work for more flexible and deregulated labour markets right across the continent, and we must continue to fight for free trade, not just within the European Union, but between the Union and the rest of the world. The first essential step is to secure a satisfactory conclusion to the GATT round.

The public finances

The second major risk to the recovery in Britain is the public finances. The overriding need is to place the public finances on a sound footing. That is the immediate task of the Government, and it is the main theme of my Budget today. Business can plan ahead with confidence only if it knows that Government borrowing is under control. My task today is to deliver that confidence.


In his excellent Budget in March, my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont) [Interruption.] who at this moment is no doubt commenting on my remarks on television, announced a series of tax measures designed to reduce public sector borrowing over the medium term. But necessary and controversial as those measures were, they still left the prospect of a borrowing requirement of over 4 per cent. of GDP by the end of this Parliament. In my judgment, we now need to go further. The first Budget that combines decisions on taxation and spending, a reform instituted by my right hon. Friend, gives me the opportunity to do so.

As a prudent Government, we cannot sit by, simply hoping that faster growth and forecasting changes will come to our rescue. As a Government committed to high quality public services, we must prevent ever larger sums being swallowed up in debt interest payments. As a Government with a long-term tax-cutting agenda, we must stop ever more national debt piling up for future generations to pay. As a Government determined to deliver sustained recovery, we must ensure that billions of pounds of the nation's savings are not poured into the public sector savings that are better used by the private sector, to support investment, expansion and jobs.

It may seem easier to take the short-term view, but Britain's recovery can only be sustained if we tackle the deficit now. In my opinion, the Budget must sort out the problem of public borrowing once and for all. The measures I am announcing today will in themselves reduce the public sector borrowing requirement by a further £5 billion in the next financial year, by £7 billion in 1995-96 and by £10 billion in 1996-97, equivalent to 1 per cent. of GDP by the end of this Parliament.

Coming on top of the measures announced by my right hon. Friend in March, these are substantial sums, but, in my judgment, this is the minimum necessary to ensure that the public finances are on a sustainable track for the rest of the decade. It will help to reduce the public sector borrowing requirement from just under £50 billion in the current year to about £38 billion next year. It should

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eliminate borrowing to finance current spending by 1997-98 and eliminate Government borrowing entirely by the end of the decade. In short, my proposals today should meet their objectives in full establishing sound public finances into the next century.


Before I set out the Government's new plans for public expenditure over the next three years, I have one important piece of business to conclude from the March Budget. My right hon. Friend's decision to extend VAT to domestic fuel and power was in my view fully justified, and I have no intention of asking Parliament to change the measure which it has already voted in favour of and put on the statute book. To reduce borrowing, we had to raise revenue. In a full year, VAT on domestic fuel will raise nearly £3 billion, without affecting the job-creating sectors of the economy. It will also help to meet Britain's commitment to aim to return carbon dioxide emissions to their 1990 levels by the end of this decade [Interruption.] a commitment to which the parties opposite were fully committed until we turned to do anything about it. However, the Government recognised from the outset that the poorest would need extra help. I can now announce to the House our detailed proposals.

First, even before the extra help we intend to provide, all those on income -related benefits will get a substantial increase next April under the normal uprating rules. Benefits will rise by 3 per cent. a lot more than many people in work will get next year. On top of that automatic increase, the Government have decided to provide further, substantial help.

For poorer households other than pensioners and the disabled, we will calculate the benefit increases that would be paid at the April 1995 uprating from VAT on fuel, and pay them a year early this coming April. This will ensure that extra help is available before the bills arrive.

In April 1995, we will adopt a similar approach, bringing forward the VAT element in the benefit uprating once more. In April 1996, this extra payment will remain as a permanent addition to benefit. Beyond that, for poorer pensioners and disabled people on income-related benefits, we intend to go further. Next April, we will give a special increase on top of the normal uprating : 50 p a week for single people and 70p a week for couples. In April 1995, this will be doubled to £1 a week for single people and £1.40 a week for couples, partly through the normal uprating and partly through a further special increase. By April 1996, benefits will be £1.40 a week higher for single poorer pensioners and £2 a week higher for couples than they would otherwise have been.

The immediate impact next April will be to give a pensioner couple on income support a total increase in benefit of £4 per week. Cold weather payments will also be increased, to help the most vulnerable groups during periods of exceptionally cold weather. Next winter, these payments will go up from £6 to £7 a week ; and there will be a further increase to £7.50 a week from November 1995.

This is a substantial package of help, which fully discharges the promise we have made. It will ensure that the introduction of VAT does not put the cost of fuel beyond the reach of the poorest in our society. That

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promise was, of course, restricted to people on means-tested benefits, benefits which exist precisely in order to help those in the greatest need.

However, I recognise over and above the promises that we have already given that there is another group who have struggled to cope over recent years and will also have difficulty in meeting their higher fuel bills. Many retired people on modest incomes have worked hard all their lives and have been careful to put something aside each week. Often, these savings mean that they cannot claim benefit. Yet, while millions of families and businesses have benefited from falling interest rates over the last three years, many of these people feel that they have lost out again. Falling inflation helps to preserve the real value of their savings, but the interest that retired people receive on their savings has dropped very sharply. The Government have therefore decided to give extra help not just to those on modest incomes, and not just to those who receive benefit, but to all pensioners. We will do so in three ways. First, my right hon. Friend the Secretary of State for the Environment has decided to boost the home energy efficiency scheme by £35 million a year over the next three years. An equivalent extension will be made in Northern Ireland. This will provide substantial financial assistance with home insulation, helping people to reduce their fuel bills whilst staying warm. By almost doubling the present provision, we will be able to extend eligibility to all pensioners and all disabled people.

Secondly, I shall help savers, and particularly those whose incomes are made unpredictable by changes in interest rates. I intend to introduce a new pensioner's guaranteed income bond, which will combine a fixed rate of interest, guaranteed for five years, with regular monthly interest payments. Full details will be announced in the new year, but I can tell the House now that the rate will be a competitive one. Pensioners will be able to invest their savings with complete security, and know exactly what income they will be getting month in, month out.

Thirdly, and most significant, I intend to make a special addition to pensions and to the benefits linked to it over and above the normal uprating in line with the retail prices index. Over the next two years, I propose to give all pensioners exactly the same extra help with their fuel bills as those pensioners on income-related benefits will be getting.

This extra help will build up over time. By April 1996, the weekly retirement pension for a pensioner couple will be £1.85 a week higher than it would otherwise have been without the VAT increase. A single pensioner will receive £1.30 a week more.

The help for pensioners that I have outlined will not precisely match increases in fuel bills in each and every household, because not everyone has an average fuel bill, but on average, pensioners are likely to find that, after taking account of falling real fuel prices, the extra help they receive will broadly cover changes in fuel bills, including VAT, over the course of this Parliament.

This is the first break since 1980 from our policy of uprating pensions strictly by the retail prices index. It must be regarded as wholly exceptional, and it cannot be repeated whenever a particular tax or price increase is opposed on the grounds that retired people should not pay it. In a very difficult year for public spending, this amounts to a huge package of extra help with VAT bills.

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Fifteen million people will benefit. We shall be providing around £400 million of extra help next year, and around £1 billion extra in the year 1996-97.

These massive sums more than deliver the Government's firm commitment to help the less well-off groups in society. They extend that significant help to all our pensioners. I am sure they will be welcomed by everyone who wants to see revenue raised in a sensible and fair way.


Let me now turn to the Government's new spending plans for the rest of this Parliament. In June, the Cabinet imposed tight ceilings on public spending over the next three years a real terms freeze in the new control total over the next two years, with growth limited to 1 per cent. a year thereafter. In my view, as I have frequently said, nothing tougher has been attempted since this Government came to power in 1979.

Anyone who has actually run one or more of the big Departments of State knows how unacceptable it would be to contemplate cuts in the health service, in our education system, or in the resources needed to improve law and order. In a modern and civilised society, no one can regard all public spending as a bad thing.

Of course, more spending is not the only way to improve our public services. Quality public services also depend crucially on greater efficiency, better value for money, and, where sensible, on the involvement of private sector money, management and advice. Earlier this year, my right hon. Friend the Chief Secretary launched a series of fundamental public expenditure reviews to establish more clearly what the Government's spending priorities should be. Already, this programme is producing dividends. The first four reviews have played a key role in this year's public expenditure survey.

I can now announce to the House that overall, even including the package of help with fuel bills that I have just announced, the Government's new spending plans are fully consistent with the tough limits agreed by the Cabinet in June.

For the next three years, Government expenditure will grow by substantially less than the projected growth of the economy. Public spending will therefore fall as a proportion of national income, from around 45 per cent. this year to 42 per cent. in 1996-97.

Public sector pay

To achieve this, we have started with a rigorous approach to the Government's administrative costs. Central Government running costs, including paybills, will be frozen at this year's cash level. Pay increases for public sector staff will therefore have to be paid for by greater efficiency or by savings in the cost of running government itself.

However, we have also had to conduct a searching examination of spending on Government programmes. That examination began with the largest spending programme of all, social security.


Social security spending is increasing at an underlying rate of more than 3 per cent. a year in real terms, well above the sustainable growth rate of the economy as a whole. If this trend continues, it will place a quite impossible burden

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on the working population in the future our children and our children's children. If we do not plan the social security programme properly, we shall be unable to give effective help to those who need it most.

A good social security system, under which the better-off and people in work pay to support the poor and the disadvantaged, is an essential feature of a modern civilised state. In reviewing the social security budget, the Government's objectives have been to ensure that the social security system is better targeted on today's real needs and to make it simpler and less susceptible to fraud.

Job seeker's allowance

Let me start with two proposals designed to help people back into work. The present convoluted system for helping the unemployed includes two entirely separate benefits income support and unemployment benefit and two quite separate bureaucracies for delivering them the Employment Service and the Benefits Agency, employing between them no fewer than 44,000 civil servants to do the one job.

We intend to cut through this bureaucratic maze by introducing, from April 1996, a single benefit for the unemployed the job seeker's allowance. This will align rates and rules and reduce the contributory element of the benefit from 12 to six months. But it will also build on the success of the restart programme introduced in the 1980s, by drawing a much closer link between the receipt of benefit and the claimant's demonstrated willingness to look for work. It will be reinforced by a strengthening of restart itself ; by an extension of community action places ; and by the introduction of pilot schemes offering intensive guidance, assessment and a financial incentive to long-term unemployed people who need it most.

Family credit

Our second proposal should have a more immediate impact. The House will be aware of the rising level of concern about the causes, consequences and costs of the growth of lone parenthood in this country. There are many lone parents and married mothers as well who have no desire to remain trapped in poverty or dependent on benefits, but who believe that they have no choice. As a result of the cost of childcare, they simply cannot afford to go out to work. That cannot be right. The Government have therefore decided to introduce next autumn a new allowance available to those on family credit who need to pay for childcare. This will be worth up to £28 each week per family and it should help tens of thousands of mothers to get back into work and off income support. [Interruption.] I am sure that it will be warmly welcomed by all those who want to see the poorest parents back on the road to financial independence.

Statutory sick pay

I turn next to statutory sick pay. At the moment, employees who go sick and meet the qualifying conditions are entitled to receive sick pay at specified rates. After the first three days of sickness, their employers are entitled to reimbursement from the Government for 80 per cent. of the cost. We have no plans to reduce the sick pay entitlements of employees, but, with effect from next April, we propose to stop reimbursing the cost of statutory sick pay for the largest employers.

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For smaller companies, the current special exemptions will be extended. At present, those with national insurance bills of less than £16,000 a year are fully reimbursed after the first six weeks of each statutory sick pay claim. I propose to increase that threshold to £20,000, to bring more companies into the scheme, and to provide full reimbursement after only four weeks. Two thirds of all employers will therefore continue to get help.

Employers' national insurance contributions

The transfer of these costs from the taxpayer to business will reduce public spending by around £700 million a year over the next three years, but to ensure that business as a whole does not lose, my right hon. Friend and I have decided to reduce the main rate of employers' national insurance contributions by 0.2 per cent. from next April. This means that, for well managed companies with low sickness rates, there will be a net reduction in the cost of employing people. Other companies will have a much sharper incentive to improve their management of sick leave and to take a greater interest in the health of their own employees.

However, with unemployment in Britain still far too high, it is vital that we do everything we can to reduce the cost of providing employment. Having reviewed the position, I have therefore decided that, even in a year of acute fiscal stringe the pay scale. To improve companies' incentives and ability to provide that kind of job, I propose, again from next April, to reduce each of the lower rates of employers' national insurance contributions by one full percentage point.

Overall, the reductions in national insurance contributions I have announced will reduce the cost to employers of providing jobs by £830 million next year, rising to £1 billion by 1996-97. That £1 billion is well above the overall cost to employers of the reforms that I have announced to statutory sick pay.

In our discussions within the European Union, my right hon. Friend the Prime Minister and I have repeatedly made clear our view that the surest route to higher employment is not the dirigisme of the social chapter, but measures to reduce the cost of creating jobs. That is the message that we will be taking with us to the European Council in Brussels next week.

Invalidity benefit

My right hon. Friend the Secretary of State for Social Security also plans a significant reform of the current regime for invalidity benefit. For those who are disabled and incapable of work, invalidity benefit is important and necessary. But the astonishing growth in the numbers receiving the benefit in recent years indicates that it is now being claimed by many people who are not genuine invalids. The Government have decided to make a number of changes to the benefit, which will refocus it for the future on those who are genuinely incapable of work. My right hon. Friend proposes to introduce a new benefit incapacity benefit to replace sickness and invalidity benefit. The new benefit will involve a tighter and more objective medical test.

The Government have always made clear their intention to bring the tax treatment of invalidity benefit into line with that of the retirement pension and most other

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income-replacing benefits. Now that the necessary administrative arrangements can be made, I propose from April 1995 to bring its replacement, the new incapacity benefit, into tax.

State pension age

Finally, I can announce one further decision which will have little immediate effect, but will certainly make a considerable difference to the affordability of the modern welfare state in the next century.

After careful consideration, the Government have decided that the state pension age should eventually be equalised at the age of 65. The change will be phased in over ten years, starting in the year 2010, so it will not affect anyone currently aged 44 or older. By the year 2020, the state pension age in Britain will be broadly in line with that of most of our industrial competitors, although we will still have more generous arrangements than in the United States, where the pension age is to be equalised at the age of 67. All developed countries are making similar changes for similar reasons. Women nowadays tend to spend more of their lives in paid employment. They also live longer than men. Pension schemes need to recognise this, and end the current discrimination between the sexes.

In the next century, the ratio of working people to retired people will fall sharply, and the burdens on taxpayers will rise. The Government's decision will moderate those burdens, eventually by some £5 billion a year, and so help to ensure that they are sustainable. The basic pension is, and will remain, a cornerstone of the welfare state. The Government are committed to it and to retaining its value.

The proposals on social security overall that I have announced today will in themselves save some £2 billion a year by 1996-97. Nevertheless, even taking these savings into account, we will still be spending £5 billion more on social security in 1996-97 than we planned last year. The social security budget will continue to grow in real terms, but at a more affordable rate than we have seen in recent years. At the same time, we have honoured our manifesto commitments, we have fully protected the real value of pensions and benefits, and we have provided generous help with fuel bills. These are not short-term measures to deal with today's problems. The Government have the courage to take a clear and far-sighted view of the modern social security system. We must make sure that it is a system that future generations will be able to afford. This Government will never take part in any attempt to dismantle the welfare state. We intend to see a better welfare state, well run, well judged and one that meets the priorities of modern society. My right hon. Friend the Secretary of State for Social Security will fill out the details in his uprating statement tomorrow.


Let me turn now to a number of other areas where savings have been found this year.

Local authorities

The first area is local authorities. Growth in total standard spending in England, adjusted for changes in responsibilities, will be limited to 2.3 per cent. next year. There will in addition be extra provision for community

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care. The Government will continue to use their powers to cap excessive spending by local authorities where that is necessary to protect the local taxpayer.


The second area is housing. Here too savings have been made on last year's plans. Nevertheless, the new plans for social housing provide for more than 153,000 new homes over the three years to 1994-95, fully meeting our manifesto commitment. In addition, the Government will press ahead with plans to improve value for money in the housing association sector and to introduce more private finance into the development of social housing.


The third area is transport. British Rail's and London Transport's investment programmes will be maintained at levels substantially higher than in the 1980s, but to make room for this continuing investment in public transport, there will be modest reductions in the previously planned provision for the roads programme. In the past five years, real expenditure on roads has grown on average by more than 10 per cent. a year. With construction prices next year more than 25 per cent. lower than when the roads programme was announced in 1989, the new plans will sustain the recent improvements in our roads network at less cost to the taxpayer.


The final area where savings have been found is defence. In the next two years, spending will be some £250 million and £500 million lower than previously planned. In 1996-97, it will be about the same in cash terms as in the previous year. The new plans will be delivered in part by lower procurement and employment costs, and through the planned sale to a private sector housing trust of married quarters for service personnel.

In addition, my right hon. and learned Friend the Secretary of State for Defence has set in hand a major review of all aspects of support, right back to the headquarters in Whitehall. Savings can and will be made without affecting our foreign policy commitments.

Priority programmes

The new method of controlling the total of public spending has brought big improvements in the system of Cabinet government. The Cabinet now decides its priorities collectively and brings to the House a single package that reflects our key policy objectives. Savings identified in a number of programmes have allowed the Government to meet in full the priorities and promises set out in our manifesto. I turn now to those priorities.


We are all proud of the contribution that the national health service makes to the quality of life in this country. Even in a very tough year, we have decided to increase, once again, the level of real resources going into the health service. National health service spending will be over £1 billion higher next year in cash terms and over 1 per cent. higher in real terms than this year's plans. Indeed, the programme is set to rise in real terms in each of the next three years.

To ensure that these very substantial extra resources are translated into more and better health care, my right hon. Friend the Secretary of State for Health will be insisting on substantial increases in efficiency and firm containment of

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pay and the drugs budget. The NHS will be able to maintain the steady improvement of recent years in treating more patients and treating them better.


Our second priority is education. Increased educational opportunities and better standards are an essential investment in the future. Over the next two years, we will therefore be adding more than £1 billion to the plans for the education programme. This will ensure record levels of participation in further and higher education.

Our manifesto predicted that one in three young people would be in full- time higher education by the year 2000. With seven years to go, we have virtually reached that target already, but with a third of our young people now going to university, the ordinary taxpayer cannot be expected to pay for all their costs. Tuition is free ; but why should the bus driver or the pensioner also pay higher taxes to finance all the living costs of tomorrow's lawyers ?

I am glad to say that the recent explosion in student numbers has revealed as ridiculous the fears that the student loan scheme might deter students from poorer families. My right hon. Friend will therefore, as predicted, be bringing forward proposals to reduce the level of the means-tested grant for student maintenance and replace it with an expanded loan entitlement for students. Even taking this into account, spending on education will still be no less than £1 billion higher in 1996-97 than it is this year.

Employment and training

I turn thirdly to training. My right hon. Friend the Secretary of State for Employment plans to introduce a new apprenticeship scheme. This will provide a major boost to work-based training and increase substantially the number of young people obtaining the technical and craft skills which not only employers but trade unions agree the country has been lacking. There will also be an increase in training opportunities for the adult unemployed.


The fourth priority is science. The plans fully protect the real value of spending on basic science and technology next year.

Home Office

Finally, in the vital area of criminal justice, previous plans for Home Office spending will be maintained in full. Next year, spending on the police service will increase by over 4 per cent. Over time, the management reforms and reduction in paperwork announced by my right hon. and learned Friend the Home Secretary could put over 5,000 more police officers on frontline duty. A re-ordering of priorities will also allow for extra provision to be made for more prison places and for victim support. Efficiency improvements will meet in full the costs of new policies, including our proposals to deal with juvenile offenders.

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