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Public Expenditure

Volume 716: debated on Wednesday 13 January 2010


Asked By

My Lords, from 2011-12, the Government will reduce the rate of spending growth. Public sector current expenditure will grow by an average of 0.8 per cent a year in real terms from 2011-12 to 2014-15, and public sector net investment will move to 1.25 per cent of GDP by 2013-14 and will be maintained at that level in 2014-15.

I thank my noble friend for that reply. It is clear that maintaining the levels of public expenditure has been a sensible element in the economy in the past year, but if there is to be a pre-election Budget, should it not reduce, or even further limit, the level of public expenditure?

Maintaining the level of public expenditure, and indeed bringing forward public sector investment into the current period, has undoubtedly helped to ameliorate the worst outcomes of the recession, as a result of which we have seen much lower unemployment, much lower business failure and much lower levels of repossession. It is the judgment of the Chancellor that it is still too soon for us to reduce the fiscal push from which the economy continues to benefit. Whether there will be another Budget between now and the election is not a matter for me to determine.

I notice that the Minister has difficulty in getting the words “expenditure cuts” out, a little like the Prime Minister, although the Prime Minister has now owned up to the fact that, because certain budgets will be protected, there will be very significant cuts to other budgets of anything up to 19 per cent. Since the Government are now partially owning up to the fact that there have to be cuts, is it not now time for a Comprehensive Spending Review, which would give planning certainty to all those on whom these cuts will have to fall?

There have been five Comprehensive Spending Reviews since 1997, covering variable periods. The current CSR07 continues to apply until April 2011. My right honourable friend, the Chancellor of the Exchequer, has quite rightly concluded that, in an environment in which there is still poor global visibility about whether the recovery is well rooted and established, it would be inappropriate to carry out a CSR. I feel that the noble Baroness at times comes with her questions so well prepared that she may not listen carefully to what I say. I very clearly said that we will be reducing the rate of spending growth.

My Lords, I am sure that the Minister would agree that we now have record levels of public sector employment. On the other hand, we seem to have lost a sense of balance in that the old understanding was that the public sector had jobs for life, high pensions and job security, but relatively low pay. Today the public sector earns, on average, more than the private sector and has gold-plated pensions. Is not the public sector now having its cake and eating it too? Does the Minister feel that we can afford this unfair situation any longer?

The first point I would make to the noble Lord, Lord Bilimoria, on unemployment is that the United Kingdom has lower levels of unemployment than the United States and many of our major competitor EU countries. That is precisely because of the policies that this Government have so successfully followed in dealing with this global recession. In identifying areas where savings can be made in public expenditure, we have been very clear that one of the areas we will be targeting is public sector employment costs. In particular, the Chancellor of the Exchequer has referred to the need for a 1 per cent cap on public sector pay entitlements in 2011 and 2012, which will save £3.5 billion a year, and for reforms to public sector pensions, which will save in excess of £1 billion a year from 2012 onwards.

My Lords, would we not have been obliged to cut public expenditure earlier and more deeply if the Prime Minister, when he was Chancellor of the Exchequer, had not had the wisdom to keep us out of the euro? Can my noble friend help me understand why any political party would want to inflict that kind of damage on public services gratuitously?

It is not for me to explain the policies of Her Majesty’s Opposition in this respect. I cannot dream up the arguments that would choose to bring an increase in unemployment and destroy the prospects of smaller companies in this country at such a fragile time in our economic recovery. However, the Chancellor of the Exchequer at that time, through his prudent stewardship of our economy, ensured that we went into the recession with the second-lowest borrowing as a percentage of GDP of any G7 country. Even on our worst case estimates of the outlook over the next four or five years, we will still have borrowing in line with, or below, the average of the world’s major developed countries when expressed as a percentage of GDP. That is sound and prudent economic management for you.

My Lords, does the Minister not agree that the only argument is about the timing of cuts, not about their necessity? If that is the case, would he not further agree that if a programme of cuts is not to be botched and therefore arbitrary, it needs careful planning and that it is not a moment too soon to begin the process of planning those cuts?

The Chancellor of the Exchequer has been very clear that the next spending round will be the toughest for the past 20 years. We are going to have to look very carefully at all elements of public expenditure to ensure that programmes that do not represent priorities or for which there is not an immediate need are reprioritised, but that we continue to support programmes that are consistent with the Government’s values: programmes about supporting British families, a fair society and a society of opportunity. I can assure the noble Lord, Lord Brittan, that thinking around those priorities is constantly taking place.

The Minister said that it is too soon to reduce the fiscal push. Could he explain why the Government have recently announced major cut-backs in expenditure for higher education? Does he not think that that will be very damaging, not just to the overall fiscal position but to producing a flow of highly skilled young people into the workforce in future?

In the most recent PBR, one of the areas that we gave significant priority to was to continue to invest in the provision of funds to support the education system. Of course, the scaling back of support for universities in the immediate future comes after a period of quite exceptionally strong growth in investment in that sector.

My Lords, was not the Governor of the Bank of the England right to say to a committee of this House that the speed of deficit reduction should be contingent on the state of the economy? Is it not plain that sustained recovery requires gradual, deliberate deficit reduction on the path being followed by Her Majesty’s Government and not the precipitate cuts that would sabotage the recovery that is being promised by the Opposition?

I absolutely agree with my noble friend. That is why we are committed, through the deficit reduction plan, to halve the deficit as a percentage of GDP over a four-year period once recovery is firmly established. However, we will not place at risk the recovery.