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Fundamental Savings Review

Volume 448: debated on Thursday 13 July 2006

4. What recent assessment he has made of the impact of the level of funding for public services on the economy. (84765)

To ensure that, in the coming spending round, even more resources will go direct to front-line services, I am requiring asset sales in excess of £30 billion by 2010; and as we complete a zero-based and fundamental review of each Department’s baseline spending, with further announcements in the pre-Budget report, I can also confirm that all Departments will have to achieve efficiency savings of at least 2.5 per cent. annually, on top of the £21 billion administrative savings being implemented from the Gershon review. Administrative budgets which have already been frozen will now be cut not only in real terms but in cash terms, releasing extra resources for front-line services. These administrative savings make possible improvements in service within a Home Office budget which, as agreed, will have a flat real settlement, and settlements for the Treasury, Department for Work and Pensions, Her Majesty’s Revenue and Customs and the Cabinet Office, which have agreed a 20 per cent. real-terms decrease over five years. [Interruption.]

I am also today publishing the terms of reference for the six policy reviews on children and young people, the third sector, economic development and regeneration, supporting housing growth, mental health outcomes and counter-terrorism and security. These will inform cross-Government priorities for the comprehensive spending review. I can confirm that Sir David Varney, chairman of HMRC, will report to me at the pre-Budget report on further administrative savings—[Hon. Members: “This is a statement”.]—and I am also publishing my letter to the public sector pay review bodies, proposing that public sector pay settlements should be founded on a 2 per cent. target. [Interruption.]

Order. Mr. Pritchard, the last thing you should do is shout. If you are unhappy, you may raise a point of order after Question Time.

Why has the Chancellor chosen to put that information out with a whimper, not a fanfare, at the end of Treasury questions? Surely the House deserves a proper statement. And why is it so at variance with his press release of 19 July 2005, which promised a thorough review of demographic change, innovation, global issues and terrorism? What has happened to his pledge to look at spending over 10 years? If we just look at health spending, 73 per cent. has gone on increased costs. When will Government get a grip of these issues and ensure that money is spent more effectively?

The hon. Gentleman should read what I have said previously. We published a document on globalisation and its challenges. We shall publish a further document on that in the pre-Budget report. As for administrative savings based on a zero-based review, I am announcing today—and I thought there was some all-party support for it—that we are finding savings in administration, we are imposing efficiency savings and we are imposing asset sales. The purpose of that is to release resources for front-line services. I should have thought that hon. Gentlemen would support that, but perhaps the Conservative party is still the party under which, when additional public spending was announced in the 1990s, 80 per cent. of it went to debt and unemployment; whereas now 80 per cent. of new spending goes to health, education and vital public services.

I thank my right hon. Friend for that answer. Will he ensure that the spending review does not follow the rule whereby public expenditure grows less than the growth in the economy?

I reject the rule that has been put forward called the third fiscal rule. The third fiscal rule would require, no matter what the circumstances, that public spending should fall as a share of national income. [Interruption.] It was excellent I hear a Conservative Member say. It was exactly the policy on which the Conservatives fought the last election and the previous election. The electorate knew that and voted on the basis that they wanted to see improvements in health and education investment, money spent to relieve child and pensioner poverty, and this country properly defended and secure. I suggest that to impose a rigid rule on public expenditure would mean cuts of £17 billion this year and £18 billion next year. That would mean that hospitals, schools and public services generally would not have the resources that they need.

Is this empty document really what the Prime Minister called the vital foundation stone of his spending review and announced at the Labour party conference last year? This is not a fundamental savings review. A fundamental look at Government spending would have asked this simple question: how can Labour have taxed so much, spent so much and achieved so little? How can Labour have spent £4 trillion over nine years and have an NHS that is sacking doctors and nurses and a Home Office that is not fit for purpose? Surely a serious attempt to find savings would have addressed soaring public sector construction costs and falling public sector productivity, but the document does none of those things. Surely a review of that kind would have concluded that the real reason why the Chancellor has been a big spender rather than a wise spender is because he blocked proper public service reform.

I am amazed at the shadow Chancellor. He does not support my announcement that we get efficiency savings of 2½ per cent. He does not seem to acknowledge my announcement that the administration budgets of Departments will be cut. He does not seem to recognise that £30 billion of asset sales are being asked for. He does not seem to recognise that the administrative budgets of Departments, which were 6 per cent. in the early ’90s, will fall below 4 per cent. now. When it comes to the reason why he does not recognise that, I have a copy of a speech that he gave at the fringes of the Conservative party conference. He said that he would not compete with us at the next general election on efficiency savings. What he would do is promise that there would be very specific cuts in particular areas of the Budget, such as child tax credits and the new deal. He said:

“It’s a hard choice which we will put to voters in an election.”

He should tell us which hospitals, which schools, which teachers and which nurses will—[Interruption.]

I thank the Chancellor for sending us his 66-page report before the statement, but he did not give us the opportunity to respond fully to it. The Prime Minister himself set out the criteria at his party conference, when he stated that the report would describe

“where we can save, and where we need to spend more”.

Since the Chancellor has already indicated where he intends to spend more—partly on admirable objectives such as reducing child poverty, but also on massive overruns on the NHS IT scheme, on an ID card scheme costing £15 billion, on acquiring sites for new nuclear power stations, and on advance spending on the Trident missile—can he point us to those paragraphs in the report that show the Departments that will be cut in order to accommodate that? As his savings appear to depend largely on efficiency, which, of course we entirely welcome—the Gershon savings—can he point us to independent reviews that have shown where those efficiency savings have so far been materialised and how they will be monitored thoroughly in future?

We have had the work of the National Audit Office, the announcement in this document in relation to the first step—40,000 jobs in the Department for Work and Pensions and Her Majesty’s Revenue and Customs that were referred to in the Gershon report have gone—and the announcement in this document that DWP, HMRC and the Treasury, as well as the Cabinet Office, will have 5 per cent. real-terms cuts in their budgets over the spending round. The hon. Gentleman has therefore got the answer that he sought. I also said that this is part of a process whereby, in the pre-Budget report, we will have the Varney report and further detail on departmental settlements. Next week, we will have the capability reviews of individual departments. That is a continuing process that will lead to the spending round next year. I thought that he would have welcomed that, particularly as he has a special problem to solve: he has to find £20 billion to plug the gap.

When the leader of the hon. Gentleman’s party was asked a few days ago how he would do that—[Interruption.]

Order. I know how to tell the Chancellor to sit down. I do not need help from anyone else. I say to the Chancellor that the policies of the Liberal and Conservative parties are really nothing to do with the Chancellor in the House.

My constituents have benefited massively from the extraordinary increases in public expenditure for front-line services. They also value greatly their own public assets, which they have worked and paid for and which they control through public policies. Will the Chancellor give us some idea, an overview, of what kind of assets he intends to dispose of in order to give a further boost to public services?

Surplus land is a very good example—land that has been held by public authorities for a long period is now being released for housing. We have achieved £6 billion of asset sales in the last two years, and there will be £30 billion of asset sales by 2010. It would be wrong for the Government to hold on to assets that they did not need; it would be right for the Government to keep assets that they do need. My hon. Friend will see that that £30 billion makes possible investment in other areas of vital importance to the economy and to public services. He would be the first to acknowledge—indeed he did so—that in the past nine years we have doubled expenditure on health, and on education, and on policing and on transport, and the results are that not only do we now have more doctors, nurses, teachers and teaching assistants but standards in health, education and policing are rising, not falling.

The huge and mounting private finance initiative debt with which the Chancellor has saddled the public sector is now beginning to lead to cutbacks in the very front-line services that he is trumpeting. In advance of any internal Labour party election, is this one Tory policy that he regrets adopting?

The Tory policy was to cut public expenditure. Our policy is to increase public expenditure. The problem with the hon. Gentleman’s policies is that they are so economically illiterate that they would lead to the same results of cuts in public expenditure, and he should go back to the drawing board and think again.

Last week I visited Brislington enterprise college in my constituency to look at the architect’s plans for investment in new school buildings under the building schools for the future programme. Last week also saw the announcement of £750 million for investment in community hospitals, and in Bristol £42 million for the Greater Bristol bus network. Will the Chancellor assure me that that investment in front-line public services will continue under a Labour Government? What would be the implications for such investment if he were to give in to calls for spending to grow at a lower rate than economic growth?

I am pleased about those developments in my hon. Friend’s constituency. That is happening in all constituencies, and Conservative and Liberal Members are also getting benefits from that investment. When we came into power net public investment was £7 billion. It is now £27 billion a year; it is rising, and because of the announcements today it will continue to rise every year right through to the end of the next spending round in 2011. I should have thought that in a country that desperately needs expenditure on infrastructure, as well as investment in health and education, there ought to be all-party support for that increase in investment, rather than the cuts programme of the Conservative party.

Nothing could more vividly demonstrate the contempt that the Chancellor has for the House than the way he sought to make what is in effect and should have been a statement in this underhand way, and all because of his childish desire to avoid giving my hon. Friend the Member for Tatton (Mr. Osborne) and the other party spokesmen advance sight of what he was going to say. Why has not the Chancellor given the House, from that Dispatch Box, a progress report on the implementation of the Gershon review? Is it not because, like so much of what comes from him and the rest of this Government, that review amounted simply to warm words and the Government have fallen far behind in its implementation?

What was unimplementable were the James proposals that the right hon. and learned Gentleman put forward at the last election. Our Gershon proposals have already achieved £9½ billion out of the £21 billion of savings to be made by 2008. We have already reduced employment by the 40,000 net that we promised out of the 80,000 to come by 2008. We have already relocated 8,000 civil service jobs out of the 20,000 planned. We have reduced the share of administration in the Budget as proposed: compared with the 6 per cent. under the right hon. and learned Gentleman’s Government, it is less than 4 per cent. under ours. I am not going to take any lectures about administration from the former Leader of the Opposition who was the poll tax Minister who caused the worst administrative mess in taxation this country has ever seen.

Does the Chancellor not understand the damage done by the stop-go nature of his public spending planning? Public spending was first constrained, then expanded massively, and today there are panic cuts outside the priority areas. Can he confirm that the Treasury has asked some public bodies to prepare illustrative plans on the basis of budget cuts of 5, 10 and 15 per cent.?

That question shows the difference between the Front Benchers and the Back Benchers. The Front Benchers say that the proposal is a damp squib, but the hon. Gentleman says that it cuts beyond anything that has ever been seen before. The truth, however, is that we are making administrative savings so that we can get more money to front-line services. Every person in the country will welcome the cuts that will be made to administrative budgets, the sale of unnecessary resources, which will release money for further investment, and of course the efficiency savings being achieved in different Departments. Once the hon. Gentleman looks at the details of the proposals, I should expect him to welcome them, and perhaps he might give a lecture to those on his Front Bench. These are serious proposals, and they should not be dealt with in the immature way that the shadow Chancellor has done.

May I welcome the tough announcement that the Chancellor has made? The 2.5 per cent. cut that he announced will free up resources for our priorities of health and education, and I look forward to that. I welcome strongly the announcement on housing, but is the Chancellor selling off assets to ensure that the proceeds are made available for additional housing, and in particular affordable housing?

I can tell my hon. Friend that the budget for social housing is being doubled, which is a major advance. [Interruption.] The party of the hon. Member for Tatton (Mr. Osborne) set interest rates at 15 per cent. and prevented people from buying houses when they were in government. We have just announced £900 million for equity sharing to allow more people, particularly young couples, to buy their first home. I believe that we will be able to make further announcements about the extension of equity sharing, which should be supported on an all-party basis. My hon. Friend the Member for Edmonton (Mr. Love) is right that in addition to health, education, policing, security, and our defence responsibilities, housing has a priority in the future spending round.

Can the Chancellor explain why, in the Home Office section of the report, identity cards are not even mentioned as one of the Home Office spending priorities? Is that because the Treasury was responsible for the leak by David Foord of the Office of Government Commerce, who talked about the unaffordability of the ID card project and a “lack of clear benefits”? He said:

“Just because ministers say do something does not mean we ignore reality”.

Has the Chancellor finally accepted the reality, which is that the scheme will not wash?

Sometimes I think that the hon. Gentleman lives in a completely unreal world. Identity cards are the policy of this Government. I should have thought that the more that people see the chances of their identity being stolen by organised crime, the more they would support identity cards. The Opposition parties have made a very big mistake in opposing identity cards, which are part of the spending settlement for the Home Office.

As someone who has never wanted cuts in hospitals and schools, but wants to reduce waste and inefficiency, I obviously welcome the Chancellor’s latter-day conversion to the idea that we can achieve efficiency gains in the public sector. This time, has he consulted with the staff in advance and how many posts will have to go to meet these new, interesting targets?

The right hon. Gentleman is chairman of the Conservative party’s economic competitiveness policy group, so there will be an interesting debate in that group between those who believe that we are doing something serious, as he does, and those who do not take seriously the fact that a major change is taking place in administrative budgets. As for the numbers, 80,000 civil servants, particularly at the DWP and the HMRC, will be replaced. As a net figure it is nearly 40,000, and as a gross figure it is over 40,000 now. We will reach the 80,000 figure by 2008, and we will introduce further proposals for the next spending round, so that we can ensure that we provide the most resources for the front-line caring services, which are the priority for the Government and, I know, are the first priority for the people of Britain. I welcome the right hon. Gentleman’s support in this case, but can he inform and educate the shadow Chancellor on these matters?