House of Commons Hansard Debates for 6 Mar 1997 (pt 31)

Mr. Darling: Can the Chief Secretary tell us the percentage of spending that he is aiming for? That would be helpful.

Mr. Waldegrave: I shall return to that. There is a difference between short-term targets and what one intends in the future, but I would hope that the growth of public spending could be kept below the growth of the trend rate of the economy as a whole over time.

Mr. Miller: What percentage?

Mr. Waldegrave: That depends how far ahead one looks. The hon. Member for Edinburgh, Central thinks that he is being frightfully clever by trying to prove a difference between me and the Chancellor. He thinks, rightly, that I said that it would be splendid if we could achieve 35 per cent. whereas the Chancellor spoke about 40 per cent. next year. There is nothing clever about that. We will achieve 40 per cent. and then we will go on with the trend line.

Mr. Darling: I am not trying to be frightfully clever, as the Chief Secretary puts it. He will recall that two or three years ago he said that he was one of those in the Tory party who believed that the figure that should be aimed at was about 35 per cent., and that the Chancellor

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referred to those people as being from the slash and burn school. There is a significant difference between 35 per cent. and 40 per cent. We are entitled to hear from the Chief Secretary where he wants to get to in percentage terms. Does he still adhere to his figure of 35 per cent. or not?

Mr. Waldegrave: It is not rational to talk about a fixed end target. One must examine the growth of the economy over time, and the relationship. I am speaking the same sort of language as the Liberal Democrats, who were not trying to score silly points, but were setting out a policy.

Mr. Miller rose--

Mr. Waldegrave: I was going to refer to the hon. Member for Ellesmere Port and Neston (Mr. Miller). We have heard two kinds of speeches. We heard thoughtful and interesting speeches about the nature of public expenditure and the relationship between public expenditure and the economy--for example, from the hon. Member for Newham, North-East (Mr. Timms), but outstandingly from my right hon. Friend the Member for City of London and Westminster, South and from my hon. Friend the Member for Wantage (Mr. Jackson), who is no longer here and has explained to me why he cannot be present.

The hon. Member for Ellesmere Port and Neston, if I may say so, made a more old-fashioned speech. He took two areas of spending which he likes and lobbied for them. He said that he wanted more spending on science. We have a good record on spending on science. It will encourage him to know that research and development expenditure in the United Kingdom is 2.19 per cent. of GDP. The figures are from 1994, which is the last year for which the comparative figures are available for all the other countries. The UK figure was above the Organisation for Economic Co-operation and Development average of 2.15 per cent. and above the European Union average of 1.91 per cent. Spending on the science base has been protected and has increased in real terms.

The speech of the hon. Member for Ellesmere Port and Neston was a bid for more local authority spending and more science spending. Fine. It showed the difficulty that the hon. Member for Edinburgh, Central would have if he ever found himself in my office, because no one speaks from his Back Benches, as my right hon. and hon. Friends do, with an instinctual commitment to the control of spending. All his Back Benchers speak for lobbies and for increased spending--quite honourably, but that is what they came into politics to do.

Mr. Miller: I hope that the right hon. Gentleman will read my speech in Hansard. My argument in the context of the Roslin institute is that the Government structure for that institute means, first, an increase in health costs; and, secondly, other problems such as unemployment. The key to the institute's success must be creating the right financial infrastructure that allows the public and private sectors to work together successfully. That structure has not been established, yet we are seeing cuts now.

Mr. Waldegrave: As always, the hon. Gentleman's argument requires more money. If he were to sit in my chair for a week or two, he would find that every spending

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bid was couched in those terms--I expect that the right hon. Member for Ashton-under-Lyne remembers that. When I was in the private sector, my company used to sell things to the Government. We would argue, "If you don't buy our products, people will be unemployed and it will be more expensive for you." That seemed to be a jolly good way of trying to sell our products. However, the Labour Government at the time were not much convinced by our arguments, and I am afraid that the Opposition would remain unconvinced by the hon. Gentleman's assertions.

Our belief in cutting spending does not derive from the advice of our public relations people. Labour's PR people have advised it that Labour lost the last election because it was perceived as a high-spending party, so Opposition Members now try to disguise their underlying beliefs. Our belief in low spending derives from our fundamental philosophy: we believe that the index of spending by Government is a good indicator of whether the balance between Government and the individual and Government and private institutions is correct. When spending gets too high and goes on growing, we believe that it damages individual liberty and independent institutions.

We believe also that it is economically beneficial to diminish the weight of public spending, and there is increasing evidence in support of that view. An interesting paper published by the International Monetary Fund in 1996 showed that the best and safest way of balancing budgets was achieved not by increasing taxes, but by cutting spending. That delivers longer-term balance to fiscal affairs, with all the attendant benefits. A separate IMF study--I shall be happy to send these publications to any Labour Members who wish to read them--made the more fundamental point that small Governments exhibit greater regulatory efficiency and inhibit less the functioning of labour markets, the participation in the formal economy and the innovativeness of the private sector. To put it in ordinary language: they produce more jobs.

I agree entirely with the hon. Member for Newham, North-East, the bishops and everyone else that job creation lies at the heart of the debate about the proper way to run an economy. My right hon. Friend the Deputy Prime Minister completely demolished the Opposition's old-style, subsidised jobs proposal. The hon. Member for Edinburgh, Central claimed that we would not debate that issue, but it was debated to such good effect this afternoon that my right hon. Friend demolished the Opposition's argument totally and there was no comeback possible from the deputy leader of the Labour party on that point.

In the first half of my political life, I watched Labour Governments trying to subsidise jobs and creating long-term unemployment. The trick did not work then, and it will not work now. The Opposition argue that they would somehow miraculously turn history upside down and tax one group of companies--which would inevitably destroy jobs in those companies--in order to invent subsidised jobs elsewhere. They could not do that. They would go down the social chapter route, destroying jobs with the minimum wage--as the deputy leader of the Labour party had the honesty to admit--and destroying jobs by joining in a whole range of job-destroying

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initiatives that come from central Europe. They would end up with higher unemployment, and thereby the central core of Labour's argument would be destroyed.

The argument as to who is better at creating jobs is almost being proven experimentally--in so far as we could ever have such an experiment. We watched countries in Europe--especially Germany--lead the way after the war with good, basic liberal economics, as the deputy leader of the Labour party said. That is what Ludwig Erhard said and what he stood for. However, when asked about this matter at the end of his life, he said that he regretted confusing the issue by talking about the social market. He said, "I wish I had not said that, because markets did the magic in Germany," and that is true.

Germany has now got itself into a cycle where it has placed such weight on its employers and put such costs on employment that it is destroying jobs, not creating them. The head of the German BDI--in the presence, I think, of the leader of the Labour party--made a famous speech contrasting the difference between the Government in Germany and the Government in Britain, to the favour of the latter. He knew very well what the situation was. Herr Henkel said:

"One of the Governments,"--

the United Kingdom Government--