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Mr. Aitken: I cannot anticipate my right hon. and learned Friend the Chancellor's next or future Budgets. He will cut taxes, in whatever direction, only when it is prudent to do so. It is certainly not prudent to do that with public finances recovering as they are and with the present high level of borrowing. All the Labour party wants to do is to add to borrowing, which is about the most irresponsible of policies that anyone can think of.

I want now to consider the important subject of the Government's public spending programme. In parenthesis, may I say, in this age of leaks and leaked

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memoranda, that this year's public spending round and the public spending totals that it produced were, on the whole, remarkably leak-free? Virtually no commentator envisaged that what we would achieve were reductions in public spending that would total £28 billion over the next three years, with £24 billion off the control total. The ratio of public spending to GDP is projected to fall from 43.5 per cent. this year to 41 per cent. by 1997-98.

There have been no quick fixes or conjuring tricks. There are genuine reductions in our previous spending plans across virtually all Departments. They show the strength of the new arrangements for determining public spending created by my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont), to whom I pay tribute for that innovation.

Mr. David Nicholson (Taunton): May I take this opportunity to compliment my right hon. Friend the Chief Secretary on the same skill and achievement in handling this year's public spending round that he showed when he was at the Ministry of Defence in handling the successful "Front Line First" exercise? In particular, may I thank him and the Chancellor for listening to the representations that a number of my hon. Friends and I made, and in particular my right hon. Friend the Minister for Agriculture, Fisheries and Food, for not cutting the hill livestock compensatory allowance this year?

Mr. Aitken: I am grateful for my hon. Friend's very kind remarks. I can confirm that HLCA spending will remain constant at, from memory, £105 million.

I want now to consider the way in which we have been guided in the public spending round. We have been helped by lower inflation and the private finance initiative. Many of the sweeping criticisms made by the hon. Member for Dunfermline, East completely missed the fact that billions of pounds-- the latest estimate is £5 billion--are coming into spending on public projects through co-operation with private sources. That was a most important part of the speech by my right hon. and learned Friend the Chancellor.

I want to concentrate on the priorities in public spending and improving efficiency. One of the great divides in British politics is about priorities in public spending. That great icon of the Labour party, Nye Bevan, once said:

"The language of priorities is the religion of Socialism." If Nye Bevan were around today, he would be amazed that his modern heirs and successors have become Trappist monks on the fundamental questions.

On the fundamental question--is public spending too high or too low?--the hon. Member for Dunfermline, East resolutely refuses to give an answer. When my hon. Friend the Member for Chingford (Mr. Duncan Smith) asked the hon. Gentleman that question in the economic debate during the debate on the Queen's Speech, Garrulous Gordon, the great gusher of soundbites, suddenly fell silent and became Dumbstruck of Dunfermline.

However, at least one member of the shadow Treasury team was allowed briefly to escape from the Trappist nunnery to say something about priorities on public spending when she gave a long press conference. The hon. Member for Peckham (Ms Harman) introduced a bizarre new dimension to the argument by saying that the new modern Labour party would separate public spending into

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new categories, the first of which was rescue spending. In the language of "1066 and All That", that was a "Bad Thing". The second category was renewal spending, which was a "Good Thing".

I said that those categories were bizarre. For example, rescue spending--a "Bad Thing"--included spending on the unemployed, the poor and the police. That last line should change the slogan of the Leader of the Opposition to "tough on crime, soft on paying the bills for the crime fighters".

The row about renewal and rescue spending was quite enough to set the brothers and sisters of old Labour at the throats of the new yuppie Islington economists, because old Labour finds it very hard to see how lower rescue spending on the poor and the unemployed can possibly be reconciled with the Labour party's long-standing commitment to high welfare state spending.

I do not want to intrude too much on private grief in that respect, because I candidly admit that we Conservatives, ever since the time of Disraeli, have also been trying to identify and deliver the right priorities in public spending. From time to time, we have not been entirely averse to borrowing good ideas from Opposition parties. I offer a quotation from Disraeli to illustrate my point. He said that we

"caught the Whigs bathing, and walked away with their clothes. We left them in the full enjoyment of their Liberal position while we are the strict Conservatives of their garments."

There is an echo of that in the spending round today. It would perhaps be a little unchivalrous of me to use Dizzy's quotation while the hon. Member for Peckham was still up to her neck in the muddied waters of Labour's confused thinking on public expenditure priorities, but now she has moved on to higher ground I can certainly tell the remaining members of the shadow Treasury team that public expenditure is now running in a sound and Conservative direction.

While we have reduced the public spending totals by £28 billion over the next three years, we have also given priority to several key areas, of which I want to highlight two or three, and some of which Labour likes to treat as its own private fiefdoms. For example, with regard to health, we now plan to spend £1.3 billion more in 1995-96 than this year on the national health service. That is an increase of 1 per cent. in real terms over and above this year's 3.75 per cent. growth in real terms. That demonstrates once more this Government's commitment to improving the NHS. By next year, spending will be 70 per cent. higher in real terms than in 1979--an extra £12.5 billion at today's prices.

When asked, the Labour party is quite unable to say whether it would spend more or less public money on health. Perhaps Dumbstruck of Dunfermline needs a course of speech therapy at his local NHS hospital and I am sure that he would receive very good treatment there.

My right hon. and learned Friend the Chancellor also introduced an imaginative and far-reaching package of new spending to help the unemployed. The national insurance contribution changes will make a significant difference to those who benefit from them. It was interesting that the Leader of the Opposition could find nothing to criticise yesterday among our plans to help the unemployed. I recognise that if we are to have priority areas of public spending, some programmes must be trimmed. Perhaps the most interesting aspect of the public spending round

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that we have just been through is the quiet revolution that we have initiated in that unglamorous area of public spending--administrative efficiency, cost reductions and improving the output of public services without a commensurate increase in the input of taxpayers' money.

Soon after I arrived at the Treasury, I was rather startled to discover that the running costs of Whitehall were £15 billion a year. That is approximately £13 a week in taxation for every household in the land. We have been tough on those plans. The new plans announced in yesterday's Budget represent a 10 per cent. reduction in real terms over three years in the cost of running central Government. Despite increasing work loads, for example in social security, that is quite an achievement. The public sector is increasing its efficiency while continuing to deliver high-quality services to the taxpayer.

The size of the civil service is falling. There are 10,000 fewer civil servants now than in April, and the numbers have fallen by 40, 000 since the last election. The civil service is now at its smallest since Neville Chamberlain was in power in 1939, and the plans introduced in the Budget will ensure that that trend continues. Service to the public is our priority, but we can still serve the public's needs without having to squeeze their pockets. In each area of government, that involves asking questions to ensure that we are doing the right things and doing them as efficiently as we can. That is why we started the programme of fundamental expenditure reviews in each Department. They are improving the cost- effective delivery of front-line services on all fronts. The Ministry of Defence defence cost study, to which my hon. Friend the Member for Taunton (Mr. Nicholson) was kind enough to refer, produced annual savings of £750 million and enhanced operational capability.

That trend continues. The NHS will reduce central bureaucracy by 21 per cent. The Department of Transport is increasing efficiency by a fifth and the Treasury is consulting on the recommendations of its fundamental review, which could lead to savings in senior posts of more than a quarter while improving its performance as an Economics Ministry.

A new round of reviews is now starting that will include reviews into spending on agriculture, the environmental programmes of the Department of the Environment, on the Department of National Heritage and on the Office of Public Service and Science. All those rather unglamorous reforms are, nevertheless, fundamental to our target of keeping the costs of Government under control and reducing the public sector borrowing requirement.

Of course I recognise that a Budget, the centrepiece of which is its success in reducing public spending totals by £28 billion, is hardly likely to be greeted with immediate celebrations or dancing in the streets, but let me say a word about the so-called feel-good factor--a phrase much beloved of journalists, but which does not exactly resonate around the hearths and homes of Britain at the present time. Indeed, I have some doubt whether it is within the power of politicians to make people suddenly feel good. Certainly, in the pubs of Ramsgate in my constituency, nobody raises his glass and says, "Oh, I see that GDP growth has now reached 4.2 per cent.--cheers!" or, "I see that manufacturing production is now up by 6 per cent. this year. I feel good; I'll have another half." Human

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nature simply does not work like that. People feel good because of much deeper and more personal factors in their lives.

I was rather struck by speeches in the economic debate on Wednesday and by the words of my right hon. Friend the Member for Old Bexley and Sidcup, whose thoughts were also echoed by my hon. Friend the Member for Aldridge- Brownhills (Mr. Shepherd)--I hope that I can still call him my hon. Friend, despite his newly independent status. In their different ways, my right hon. and hon. Friends made a point that the Government have not missed-- that we are living through a revolution of changing expectations, in which many of the old economic certainties of life are vanishing.

People are having to adjust to uncomfortable changes such as the loss of expectation of lifelong employment in any one job. Quite naturally, they are worried about their employment prospects, their debts and their pensions, even when national economic statistics are cheerful. We should sympathise with such feelings and respond wisely to them, because man certainly cannot live by economic data alone. There are difficulties, too, in adjusting to what might be called the problems of success--the new world of low inflation that my right hon. and learned Friend the Chancellor has created, for that, too, means a shift in expectations, particularly for those who lived through the fool's paradises of artificial booms followed by all too real busts. My right hon. and learned Friend has shown consistently in the Budget and in his many speeches that he is absolutely determined to avoid the phenomenon by his steady steering for a low- inflation and real-growth course.

I believe that, sooner or later, the electorate will see what many commentators have already seen--that my right hon. and learned Friend's Budget responds to the anxiety and insecurity factors that I have mentioned, because it is a courageous, cautious and correct Budget. People who do not relate now to a good economic statistic such as the current 10 per cent. annual growth in exports might start to feel rather less anxious when the firm or factory in which they work starts to increase its production because it wins a big export order.

That is happening throughout the country because of Britain's spectacular success in the export sector. The people who are not rejoicing now about 2 per cent. inflation might start to recognise their better fortune when their pension or weekly wage holds its value and buys the same amount of goods in the shops month after month because prices are not rising, as a result of my right hon. and learned Friend's determination to keep inflation down.

Let us consider another category of people for whom the Budget might start to ease anxiety and insecurity factors--the unemployed. Let me again repeat the good news, which the Opposition Treasury team cannot bear to hear. Unemployment has been falling for nearly two years. The level is 450,000 lower than its peak. During the past few months, more than 1,000 people per day have been coming off the unemployment register.Incidentally, that is good news for public spending, too. Every 100,000 people who come off the unemployment count save the public purse £365 million a year.

We want to see more and more unemployed people going back into work, so we have been listening carefully to what unemployed people tell us are the main things

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that make them hesitate in deciding whether to take work if a job is on offer. Unemployed people tell us that the three things that make them hesitate are insecurity about how to manage between leaving benefit and receiving the first wage, uncertainty about being able to meet the rent and uncertainty about whether they really are better off in work or on benefit.

My right hon. and learned Friend's package has tackled all three issues in an imaginative way. It builds substantially on all the work that the Department of Social Security and the Department of Employment have been doing to encourage unemployed people effectively to search for jobs and to keep in touch with the marketplace. My right hon. and learned Friend's work incentives package includes substantial measures targeted at precisely the very obstacles and barriers that I have mentioned, which hinder unemployed people in taking up jobs, and the lack of incentives or reward for working harder or for working longer hours.

The package provides especially powerful incentives for employers to take on unemployed people, particularly those who have been out of work for long spells and who might have lost confidence in their ability to hold down a job. Those people need extra assistance and encouragement, and that is what we have provided them with. My right hon. and learned Friend's package proves that, above all, the Government listen carefully to what the unemployed tell us are their real problems. Those problems have been addressed positively and imaginatively, with a large package of small, tightly targeted, relevant work-incentive reforms.

When we consider the great sweep of the Budget, with its emphasis on sound public finance and on maintaining credibility in international markets, the public spending totals and the effect on the lives of ordinary people, it is greatly to the credit of my right hon. and learned Friend the Chancellor that he has introduced an austere, prudent, responsible and, already, well- respected Budget. He has certainly not taken the soft and easy pathways of personal and political popularity. Perhaps in footwear terms he is thinking of exchanging his famous Hush Puppies for some long-distance walking boots, for he has embarked on a long, steady, strategic march, the results of which will take time to achieve. If the results could be achieved by an overnight miracle, we would be back in boom and bust territory.

Mr. Ken Livingstone (Brent, East): Will the right hon. Gentleman give way?

Mr. Aitken: No, I will not give way.

Good management of the economy requires not only resolution from the Chancellor but some patience and resolution from our own supporters, particularly when we are only just past the halfway mark in the life of this Parliament. Sometimes, I think that the patience of politics is better understood by the electorate than by journalists and politicians who work in the fevered hothouse atmosphere of Westminster. My right hon. Friend the Prime Minister made a good point recently, when he highlighted the yawning gulf between the 1,000 or so active politicians and their media camp followers and the rest of the 50 million or so who are our fellow countrymen.

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Britain gives its judgments slowly and thoughtfully, and certainly on a different time scale from that of the shadow Chancellor, a man whose vision is limited to tomorrow's headlines or to tomorrow morning's "Today" programme soundbite. By contrast--it is well recognised by today's media--my right hon. and learned Friend the Chancellor, who is variously described as cool Clarke, cautious Clarke, calm Clarke and canny Clarke, has a much longer, more profound and more substantial agenda.

The Guardian , which is not always my favourite newspaper, got it right when it headlined yesterday's statement as a

"slow burner of a Budget".

The Budget will gradually thaw out the chill winds of personal economic anxiety in the country. Its warm measures on work incentives will encourage a fall in unemployment. Above all, the Budget will stoke the fire of our already successful national economic recovery. I commend it to the House.

5.56 pm

Mr. James Wallace (Orkney and Shetland): Slow burners can sometimes have the heat turned up on them later. Many of us suspect that that is what is proposed in the longer-term strategy to which the Chief Secretary to the Treasury referred. We have a Budget for the short term. The right hon. Gentleman said that the shadow Chancellor's horizons are tomorrow's newspapers, but, for the Chancellor and his team, the short term appears to be the interests of the Conservative party and the next general election.

The country needed a Budget for the longer term, to secure the long-term well-being of the economy and the growth that can last well beyond the next general election. We needed a Budget for investment in jobs and industry and for investment in our infrastructure, and in particular in the talents and skills of our people. Instead, we have a missed opportunity.

Twenty-four hours on, we have an opportunity to consider some of the fine print of the Budget and some of the accompanying departmental press statements. What dismal reading they make. Perhaps the House will recall that, yesterday, the Chancellor highlighted education as one of the priority spending sectors for the Government, with a budgeted increase of 1 per cent. in real terms next year. One then reads the press statement from the Department for Education, and, when one looks beyond next year, one finds a control total budget which, in real terms, is 1 per cent. less in 1997-98 than it is this year.

The Chancellor highlighted the Home Office budget--it has been earmarked for growth--but the true nature of the Government's approach to unacceptable crime levels can be found in the Home Office press release. The budgeted sum, we are told by the Secretary of State for the Home Department,

"is fully sufficient to enable the present numbers of officers to be maintained across the country if chief officers . . . choose to do so."

The significant word is "maintained". When chief constables have requested additional police officers, they have been told that, by squeezing other parts of their budget, they might just have enough to keep the numbers that they already have.

While the hon. Member for Taunton (Mr. Nicholson) seemed to think that it was a matter for congratulations that hill livestock compensatory allowances would not be

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cut in the agriculture budget, he must know that maintaining them at present levels will mean a real cut in allowances. The Government, who used rising farm incomes as an excuse to cut HLCAs in previous years, now refuse to follow the logic of their argument and increase HLCAs when farm incomes are falling. Our rural communities will have to tighten their belts even more and sustain farming and related service enterprises with reduced support in real terms.

This will impact particularly hard on the more remote communities where essential car use and haulage costs will be penalised by the imposition of higher duty on petrol and diesel, without any relief from the compensatory measures which were proposed by my right hon. and hon. Friends. In my constituency a difficult position is exacerbated by the Government's withdrawal of freight subsidies and the reduction of subsidies in the export of livestock.

The Chancellor said that more would be done in the area of health, and made the somewhat platitudinous statement that the Government would deliver even better standards of patient care. I doubt whether that will bring much comfort to the long-term frail elderly or young people with acute disabilities who are told that there is no longer any room for them in the health service and that they must place themselves in the hands of local authorities whose cash runs out halfway through the year.

With the number of health service administration staff in Scotland rising by 45 per cent. in the five years from 1988 to 1993, what guarantee do we have that additional funding will not be taken up by administrative costs?

Mr. Butterfill: On the point about cash running out, will the hon. Gentleman confirm that the Isle of Wight council, which is run by the Liberal Democrats, had a substantial increase in resources and still ran out of money?

Mr. Wallace: It ran out of money while trying to deliver a service. It was given that responsibility and it may have had an increase in resources, but quite clearly the increase was not sufficient. It has always been acknowledged that the provision of proper packages of care for individuals who are now the responsibility of local authorities is expensive. If an authority runs out of money halfway through the year, it has clearly received insufficient funding.

The press release from the Overseas Development Administration proudly proclaims that Britain's aid programme is to be increased. But when one analyses the small print, one finds that there will be a £116 million reduction in real terms between this year's estimated figure and the planned expenditure for 1997-98. At a time when the Chancellor boasts that we have easily the fastest growth rate of any of the major European economies, as a country we seem incapable of sharing any of the fruits of that increase with those who struggle to survive in the developing world.

Closer to home, the Scottish Office budget is set to fall by £590 million in real terms over the next three years. The Secretary of State for Scotland has made it clear that local authorities will bear the large burden of those cuts. Local authorities have been obliged to cut back more and more over the past 18 years. In addition to trying to

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contain tight budgets even more, they are being asked in the next year or two to deal with a reorganisation of local government which no one wants. They will have to undertake even more community care, and they face ever-increasing repair and maintenance bills for schools.

There is no fat left to cut away and our councils are now being asked to hack away at the backbone of local public services. That is hardly an auspicious start to the promised era of democracy, with new councils coming into being in 1996. The elections of these unitary authorities will take place next year. They may well serve a useful purpose, because the timing will not be lost on the people of Scotland, coming five days after the 17.5 per cent. VAT on domestic fuel is to take effect.

The House, through the amendments on the Order Paper, will have the opportunity next week to make the Chancellor rethink the increase in VAT on domestic fuel. My right hon. and hon. Friends will certainly take the opportunity to make him think again.

Mr. Gallie: I thank the hon. Gentleman for giving way. How can he ask the Chancellor to step back from the increase in VAT when he has demanded increases in public expenditure in many areas? It does not add up.

Mr. Wallace: I thought that the hon. Member for Ayr wanted the Chancellor to back away from the VAT increase. The Budget measure which extended the band of the 20 per cent. income tax rate goes a long way to achieving the same result as increasing VAT to 17.5 per cent. The Chancellor should rethink his decision, and I hope that the hon. Gentleman will have the courage of his convictions and vote for the Chancellor to think again when he has the opportunity to do so next week. If the House does not vote that way, the people of Scotland have an opportunity to give their verdict on the VAT increase on 6 April next year.

Mr. David Nicholson: I am grateful to the hon. Gentleman for giving way, as he mentioned me early in his speech. His long list of points amounts to the Liberal party trying to have it both ways as usual, but I want to probe him about petrol taxation. Is the Liberal party opposed to an increase in petrol taxation? I know that it is in favour of the expansion of public transport infrastructure, and that may be desirable, but in most rural and semi-rural areas people depend on cars to get around.

Mr. Wallace: I am grateful to the hon. Gentleman for giving me the opportunity to comment on that. The Government have increased petrol duty without any compensation to people in rural areas who, as the hon. Gentleman says quite rightly, need to use cars and to whom cars are not a luxury.

I draw the hon. Gentleman's attention to the proposals in our alternative budget. We said that any increase in petrol duty should be accompanied by a decrease--not the increase that we have seen--in vehicle excise duty, with the biggest decreases going to those vehicles which are the most fuel efficient. A number of examples have shown that that would benefit motorists in rural areas. We acknowledge that it is a problem. We have faced up to it and we are trying to deal with it.

The Conservative party used scare tactics in most rural constituencies in the run-up to the last general election by speculating as to the amount that the Liberal Democrats would increase tax on fuel. The Government have put up

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the tax on fuel even more than they suggested in their propaganda against us, and they have not introduced any of the compensatory measures which we have always said would be part and parcel of any increase.

The measures that the Government have introduced to compensate for the VAT on fuel are inadequate because they are calculated to help those who will have an average increase in their fuel bills. However, because it is an average, inevitably for some the burden will be above average.

That will be the case not just in Scotland--although the 1993 family expenditure survey showed that, while average weekly household expenditure on fuel, light and power was 4.8 per cent. of a family's total budget, in Scotland the figure was 5.1 per cent--but in areas such as the north-east and west midlands, Wales and Northern Ireland where the percentage was higher still. People in these areas with above-average fuel bills will continue to suffer.

The Government have asked us to accept that the most vulnerable members of our community will have to suffer because of the Government's past economic mismanagement which has led them to impose such measures. The Chief Secretary could not say what will happen in the future. If there is an opportunity to cut taxation, he would not say whether he would reduce this particularly punitive tax or whether he would take the opportunity to give a handout to those who are better off already.

The Government's short-termism is demonstrated by its cutting expenditure and obtaining revenue from measures such as the VAT on domestic fuel. They want to tax today and hand back tomorrow in the run-up to the general election. It is short-termism which makes the Budget such a wasted opportunity.

It is time that we encouraged industry to invest in the future. I accept that the Budget contains a range of measures that will particularly benefit small businesses. That is very welcome. I welcome in particular the increase in the VAT threshold. A significant measure which will be of most immediate help is the transitional rating relief which will ease the pain of revaluation for many small businesses.

When I wrote to the Secretary of State for Scotland in the summer warning him of the potential damage that the revaluation could do to small businesses, he suggested that the concerns had been overstated. However, I am pleased to see that in Scotland, as in the rest of the United Kingdom, proper attention has been given to the issue and that significant funds have been made available to cushion the impact of revaluation.

In the longer term, investment in our country's future will require both public and private investment. At a time when rail and urban networks are ill equipped to deal with a modern industrial economy, the Government are cutting their capital expenditure even further. We have heard talk in successive Budgets about public and private partnerships, which in general my right hon. and hon. Friends support. The lack of a high-speed link to the channel tunnel is not exactly a glowing testimony to the success of those projects to date.

I often think that the contrast between the link between Calais and Paris and the link between Folkestone and London is a fitting example of the Government's much-vaunted policy of a two-speed Europe. Liberal

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Democrats believe that there is an important place for joint public-private ventures, but the Government should recognise the importance of the public sector priming the pumps.

Considering what the Chancellor said yesterday, perhaps my most doom-laden comment must be about the obvious cuts in the training budget. We are not exactly in the position that there is so much training in Britain or that we have so few people unemployed that we can afford to cut our training budget. That is particularly so when we compare what we have achieved, or not achieved, in training with what our main competitors have achieved.

The inadequacy of our training provision and achievement was well documented in the report of the Confederation of British Industry Scottish manufacturing group entitled, "Manufacturing Matters", which was published earlier this year. It pointed up the absence of any training strategy for Scotland and drew attention to the report of the Policy Studies Institute, which showed that almost half of all employees had not received any training in the previous three years. The CBI report highlighted the low rate by employers of the promotion of vocational qualifications. Too often, employers see training as a cost rather than an investment. Yet if we are to be a competitive economy and if employees are to remain employable throughout their working life in an ever-changing global economy, training and retraining will have to become part and parcel of tomorrow's work patterns. That will require a change in attitude and culture. It is one that the Government should promote rather than stifle.

It will cost money to increase the training budget and provide incentives for training, but what is the cost today of failure in the past to invest in training? Already, at this stage of the recovery, 2.5 million people are unemployed yet industry is hitting skills shortages. The managing director of an electronics firm which I visited earlier this month in central Scotland, which has relatively high unemployment, explained to me his difficulties in finding employees who had the necessary skills for his company's work. He pointed out that the company's sister company in France received support to allow nine weeks full-time training of new employees. That is the contrast between the attitudes on different sides of the channel. That is the measure of an approach to training which is qualitatively different to ours.

Investment in training and investment in research and development are long- term projects which have a long-term payback so we find that they are off the Government's agenda. The Government have their horizon at the ballot box. Tax levels with cuts in expenditure are to be used to provide fuel for the all-too-familiar pre-election tax bribes. We should be using the opportunities and revenues created by our recovery to invest now for the future. We are paying today for yesterday's failure to invest. We shall pay tomorrow for today's failure to invest.

6.13 pm

Mr. Tim Sainsbury (Hove): It is perhaps appropriate that I resume my contributions to our affairs from the Back Benches, after a short interval of 11 years, in an economics debate, after spending some time at the Department of Trade and Industry.

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Following the hon. Member for Orkney and Shetland (Mr. Wallace) takes us from the northern extremities of our country to the south coast. The challenges that our economy faces are the same whether we are in Orkney and Shetland or Hove. Those challenges are not met by vague suggestions of more expenditure here or there or less tax here or there, which are characteristic of the speeches of not only the hon. Gentleman but of Liberal Democrat Members in general. If I may say so, my speech will move from the woolly world to the real world. My right hon. Friend the Chief Secretary to the Treasury gave us perhaps too short a taste of his ability for knockabout stuff, but I particularly welcomed his reference to the need to enhance our competitiveness and to the long-term approach to the problems and challenges in our economy that the Budget represents, and which he reflected fully in his speech.

I should be overlooking an opportunity if I did not make some reference to the speech by the hon. Member for Dunfermline, East (Mr. Brown). When he was shadow spokesman on trade and industry, I spent some time sitting opposite him on the Front Bench. I listened carefully, as I did today, to many of his speeches. That was when I developed my admiration for his fluent style and his skill in using--and, not infrequently, abusing-- statistics. Most of all, I constantly developed an amazement at the inaccuracy of his predictions. Every time that he spoke from the Opposition Dispatch Box he predicted doom, gloom and disaster for our economy. As my right hon. Friend the Chief Secretary has already pointed out, every time-- or, to be fair to the hon. Gentleman, almost every time--he was entirely wrong. He became a master at finding a cloud for every silver lining. It appears that a change of portfolio has not changed that part of his skill. His speech today, rather like the speech by the right hon. Member for Sedgefield (Mr. Blair) yesterday, put me in mind of an article in yesterday's Financial Times . The article referred to the skills of French diplomats from the Quai d'Orsay. The article said that they were particularly good "at striking rhetorical poses that bear little relation to reality".

That is an admirable summary of the speeches of both the hon. Member for Dunfermline, East and the right hon. Member for Sedgefield.

The hon. Member for Dunfermline, East went a little further. The article also attributed to French diplomats the skill of

"holding two almost irreconcilable positions at once." We heard the hon. Member for Dunfermline, East--it is a characteristic not only of his party but of the Liberal Democrats--at the same time demand more spending practically anywhere one cared to ask and demand lower taxes.

I sometimes wonder whether Opposition Members recognise any connection between taxes and spending. I have to tell them that the Government do. I welcome what my right hon. and learned Friend the Chancellor of the Exchequer was able to announce about the public sector borrowing requirement. The importance of maintaining and building on improvements in the public finance is paramount if we are to have a successful economy.

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That reminds me that this is not only my first speech from the Back Benches after a short gap but almost exactly the 21st anniversary of my maiden speech, which was also in a debate on the economy. It was in fact what one could call a Budget or mini-Budget debate- -the sort of debate to which we had become too accustomed under Governments of both parties, but never more often than during Lord Healey's period as Chancellor. If he did not introduce two or three Budgets a year, he was slipping. We had many of those extra debates. We unhappily became familiar with them in the 1970s.

It is generally accepted everywhere except among Opposition Members that our economy did badly compared with our main industrial competitors in the G7 during the 1960s and 1970s. We did much better in the 1980s.

Ms Hilary Armstrong (Durham, North-West) indicated dissent .

Mr. Sainsbury: In view of the hon. Lady's sedentary comment, it will perhaps be instructive if I remind the House of some of the background facts and figures for 1973.

In the three years preceding the economic debate in which I first participated, the increase in the retail prices index had been 7.6 per cent. When we came to 1979, after a period of unhappy Labour government in the three years before 1979, the average increase in the RPI had been 18.8 per cent. In the three years preceding this year, the average increase was 3.7 per cent. My hon. Friends on the Treasury Bench think, as I do, that that is too high, but today it is 2.2 per cent.

Economic growth was very strong in 1973, but negative--the output of the economy declined--in four of the following nine years. The growth rate recovered to something approaching our present rate only in 1983.

I hope that the hon. Member for Durham, North-West (Ms Armstrong) accepts that productivity is a very important factor if we are going to generate wealth and jobs. In 1973, productivity in manufacturing, to which the Opposition rightly attach great importance, was only 54 per cent. of the level that we have achieved. Five years later--after five years of Labour misgovernment--it had hardly improved and had crept up to only 56 per cent. of the present level. During the 1970s, it hardly grew, but it grew strongly throughout the 1980s and I am happy to be able to say that it is still growing strongly now. The growth in productivity contributed to unemployment. As we all know, unemployment is a problem that is common throughout the developed world, and it is much worse in most European countries. I am glad that my right hon. and learned Friend the Chancellor of the Exchequer sensibly tackled it in his Budget in two ways: first, through his detailed proposals to encourage investment in business, especially the small and medium-sized enterprises that are so important in our economy. They make an particularly vital contribution these days as so many of the larger firms assemble components and sub-assemblies produced by smaller companies. If the latter are not efficient and productive, the efficiency and productivity of the larger companies are bound to be damaged. They also contribute as innovators and companies that can respond flexibly and fast to changes in their market. Most of all, they contribute as job creators.

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Another comparison with 21 years ago shows that small and medium-sized enterprises employed only 27 per cent. of the work force in manufacturing at that time. Five years later, under Labour, it had crept up to only 30 per cent., whereas it is now about 40 per cent. Those small businesses will greatly welcome the further help given to them in the Budget.

Mr. Wallace: Is not one explanation for that increase the fact that many big businesses have been destroyed and, therefore, from sheer mathematical analysis we may deduce that more people are employed in small and medium-sized enterprises? As the right hon. Gentleman is so fond of comparisons, is he proud of the comparison that the World Economic Forum made with other countries? It found that in Britain fewer young people between the ages of 17 and 22 were in full-time education and training than in almost every other industrialised country and we came 37th out of 41 for total gross domestic investment. Is he proud of that comparison?

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