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Government Spending

Volume 719: debated on Wednesday 26 May 2010


My Lords, with the leave of the House, I shall now repeat in the form of a Statement the Answer given by my right honourable friend the Chief Secretary to the Treasury to an urgent Question asked in another place earlier today. The Statement is as follows.

“Mr Speaker, I am extremely grateful both to you and the shadow Chancellor for this opportunity to update the House on the urgent and decisive action which the Government have taken to tackle the economic mess which we inherited from the last Government. I refer the House to the Written Ministerial Statement that I laid in the House this morning, which sets out the details of this early action.

The last Government were borrowing an extra £3 billion each week. These huge public debts threaten financial stability and, if left unchecked, would derail the economic recovery. We need not look far across our own continent to see that action to tackle our budget deficit is both urgent and necessary. This is only the first step in a long road to restoring good management of our public finances.

I have set out in a Written Ministerial Statement this morning the details of the spending cuts that we will make for government departments in 2010-11. We have found cuts totalling £6.243 billion—£243 million more than originally targeted. However, the budgets for health, international development and defence will not be reduced, and we have been able to take the important decision to protect the budgets for schools, Sure Start and spending on 16 to19 year-olds in 2010-11.

The devolved Administrations will have the option of making their savings this year or deferring their share of the savings until the next financial year. They will also receive their share of the additional spending as agreed.

We will help local government to deliver their savings by removing the ring-fences around over £1.7 billion of grants to local authorities in 2010-11, consistent with our belief in giving more freedom to local government.

Our first priority is to cut out waste. We cannot expect difficult decisions to be taken on spending until we have eliminated waste. We expect departments to make savings which include: around £1.15 billion in cutting discretionary areas such as consultancy, advertising and travel costs; £1.7 billion from delaying and stopping contracts and projects, including immediate negotiations to achieve cost reductions from the 70 major suppliers to government; £600 million from cutting the costs of quangos; and at least £120 million from freezing Civil Service recruitment. We will drive these and other savings through a new Efficiency and Reform Group, drawing on expertise within government and funded from within existing budgets.

This action is designed to send a shock wave through government departments, to focus Ministers and civil servants on whether spending in these areas is really a priority in the difficult times we are now facing.

As well as reducing waste and the costs of government, we have started work to scale back lower-priority spending. We will pass legislation to end child trust fund payments that will save £320 million in 2010-11, rising to £520 million in 2011-12, but the House will be pleased to learn that some savings will be reinvested to provide respite breaks for disabled children.

Quangos across government will have to make major savings in their budgets. Regional development agencies will have to cut back on spending which has the lowest economic impact.

Finally, we have decided to allocate £500 million in 2010-11 to measures to invest in improving our growth potential and building a fairer society, and £150 million will be used to help to deliver up to 50,000 adult apprenticeship starts.

Following the shambles under the previous Government of the colleges capital programme, an extra £50 million will be allocated to help to fund capital investment in those FE colleges in most need. We are also allocating an additional £170 million to fund investment in social rented housing in 2010-11 to help deliver 4,000 social housing starts, and we will freeze backdated business rates payments under the eight-year schedule of payments, including businesses in ports, until April 2011. We will consider any further action in this area and bring forward any plans before the freeze ends.

These are only the first steps which we will need to take to put our public finances back in shape. The public and the House will welcome the fact that we now have a Government who have the determination to act but who will also cut with care”.

My Lords, that concludes the Statement.

My Lords, I am most grateful to the noble Lord, Lord De Mauley, for repeating the Answer given by his right honourable friend in another place. I congratulate him on his new responsibilities, and express the hope that he will display the same forensic ability in economic affairs displayed by the noble Baroness, Lady Noakes, in the previous Parliament.

It is an axiom of sound financial management that actions have consequences. What is striking about the Statement made by Mr Laws is that the consequences of the expenditure cuts are not spelt out at all. Instead we are presented with £6 billion-plus of cuts in government expenditure, but not told what the true consequences will be. Of course I can understand the sheer delight with which the Chancellor imposed swingeing cuts on the Department for Business—or should it now be called the department for closure? That will teach Vince Cable to declare earlier this year that,

“cutting spending further … would be extremely dangerous”.

Try a cut of £836 million on for size, Vince!

The rationale for the cuts is declared to be,

“to start tackling the UK deficit and secure the recovery”.

The Chief Secretary cites the United States as following a similar policy. That is arrant nonsense. On the very day that Vince Cable suffered the unkindest cut of all, President Obama announced a £30 billion new initiative to support small businesses. Has the noble Lord read the speech of Professor Christina Romer, chair of President Obama’s Council of Economic Advisers, delivered at the William and Mary College last week? Professor Romer said:

“I worry that policymakers may take the return of growth as license to withdraw the support that has been essential to the recovery. That is exactly what happened in 1936 and 1937. President Roosevelt, Congress and the Federal Reserve switched to fiscal and monetary contraction before the recovery from the Great Depression was complete. The result was a second recession in 1938 that pushed unemployment back up to 18 percent and delayed the return to normal for another three years”.

That is the potential cost of this Government’s deficit hysteria.

So will the noble Lord tell us, first, what is the Treasury’s estimate of the increase in unemployment directly attributable to these spending cuts? Secondly, what is the Treasury’s estimate of the number of business failures that will be directly attributable to these spending cuts?

The Government claim continuously to be protecting front-line services—a laudable objective. To enable your Lordships' House to assess the Government’s achievement, will the noble Lord give the House a precise definition of what is a front-line service? A precise definition would enable your Lordships to assess whether the £1.7 billion of the contracts and projects delayed or stopped are front line. Can the noble Lord tell us exactly what the contracts and projects to be stopped might be? Can he also tell us exactly what are the £1.7 billion of local authority services that are no longer to be ring-fenced? Are they front line? Is the removal of funding to underwrite children's futures in the children's trust fund front line—they look jolly front line to me.

The Government have presented a policy without consequences, because they are unwilling to spell out the true consequences. It is a pretty poor start to open, transparent government. What is transparent is the evident relish with which Mr Laws wields the budgetary axe. He revels in the policy of shock and awe. Mr Laws is the Donald Rumsfeld of economic policy, and we can expect his activities to achieve equally constructive consequences. Lloyd George would be ashamed of him.

My Lords, I thank the noble Lord, Lord Eatwell, for his Question, and indeed for his kind words when he opened his speech. I congratulate him on his new role and welcome him to the Dispatch Box. He says that the consequences of the cuts are not spelt out. I respond by saying that I understand that it is a subject about which he and his noble colleagues feel strongly. I point to the advice from the Governor of the Bank of England, who has said that he does not think that £6 billion of cuts will dramatically change the outlook for growth this year and that indeed they reduce some of the downside risk. That is backed up by advice from the Treasury. The Governor of the Bank of England has also said that the bigger risk at present, given the experience of the past two weeks, would be for the new Government not to put in place clear and credible measures to deal with the deficit.

The noble Lord asked specifically about cuts to the business department. In that regard, I simply say that cuts in specific departmental budgets have been agreed with the respective Secretaries of State. All of them are committed to ensuring that those cuts are made in a way that does not jeopardise front-line services. The noble Lord and his noble friends will have ample opportunity in the debate on the Queen's Speech to ask the respective Ministers about their position on these cuts.

The noble Lord also asked about the projected increase in unemployment and the likely effect on future business failures. He is quite right to say that these matters are extremely important. The Government's response is along the lines that the Governor of the Bank of England suggested: if the cuts were not pursued, higher interest rates would inevitably follow, which would lead to a worse situation for business and for employment.

As regards local government, we on these Benches believe that giving freedom to local authorities will enable them to meet the real priorities that they see locally. As the noble Lord will know, the LGA has said in its response to these spending cuts that it knows that they are necessary. It has identified substantial savings and welcomes radical decentralisation and the removal of ring fencing.

The noble Lord asked about child trust funds. Given the country's unprecedented budget deficit, we must make tough choices. In that context, the Government believe that it is not affordable to spend more than half a billion pounds each year on the child trust fund, when that money is not even accessible to people for up to 18 years. We believe that it is right to focus resources on spending, support and services to people now. However, the money that was allocated for extra payments into the child trust funds of children entitled to disability living allowance in future years will be recycled into other forms of support for disabled children. The noble Lord suggests that my right honourable friend revels in shock and awe. I respectfully remind him of the words with which the Statement closed: that the cuts will be made with care. They will be made with sensitivity.

My Lords, there are 20 minutes for Back-Benchers to speak, so we have plenty of time. I invite the noble Lord to speak first, and then we will hear from one of my noble colleagues.

My Lords, I thank the noble Lord. I think that is the protocol. I have two further questions for the Minister. First, is he aware that, as an annualised rate, the deficit—all this is premised on the huge increase in the deficit—was 2.5 per cent 18 months ago and is now 11.1 per cent? That has created a hole in the economic output against trend of about £50 million. Does he not find it totally incredible to say that that is the fault of public sector workers? Is it more likely to be the fault of the top 0.1 per cent of the population whose average wage is over £2 million? The benefit is going to those people, but the cost is because public expenditure has got to go up to pay for unemployment benefit and tax revenues will go down because of lower income tax and lower corporation tax.

My Lords, I thank the noble Lord, Lord Lea of Crondall, for his question. He quite rightly points to the huge size of the deficit. He suggests that the Government somehow imply that it is the fault of public sector workers. There is no question that that is the suggestion. We are all in this together. I take his point, but there is no suggestion that public sector workers should bear more than their fair share of the burden.

My Lords, it might be the logical thing this afternoon for me simply to stand up, say “I agree with David Laws” and sit down again. However, although loyal members of this coalition, we do not intend to play quite such a supine role.

Over the next few weeks, we will meet to decide exactly how we intervene in debates and, indeed, exactly where we sit. For today, we agree that it was necessary for the Government, in the light of the European economic circumstances, to take quick action to demonstrate their resolve on the budget deficit. On a specific point, I urge the Minister to abolish quickly those regional development agencies that are to be abolished, and to confirm quickly the status of those that are to remain so that they can continue with their valuable work.

My Lords, I thank my noble friend for his question. I am delighted that he said that he will be rigorous in his questioning. I thank him for his response on this point, and I will take back his point about RDAs to the department.

My Lords, I am sure that the Minister will take that back to the department. I am also sure that at some stage he will come back to the noble Lord and tell him what he has to think. However, my main question right now goes back to the beginning of his Statement when he did again what he did in opposition: rubbish the British economy. While that was depressing in opposition, it is positively dangerous when you do that in government. There is a real danger of a double-dip recession. This is more like the 1930s, because of its international style, than the Conservative slumps of the 1980s and early 1990s. Will the Minister not confirm that if you talk down the British economy, people will believe you and you will help to trigger the second recession which just about everyone in industry and commerce generally is desperately trying to avoid?

My Lords, I am most grateful to the noble Lord, Lord Soley, for his question. I absolutely reject the assertion that the Government are talking down the British economy. I reiterate that the Governor of the Bank of England himself has said that he does not think that £6 billion of cuts will dramatically change the outlook for growth this year. He has also said that, given the bigger risk at present and the experiences of the past two weeks, it is absolutely crucial to put into place clear and credible measures to deal with the deficit.

My Lords, does my noble friend not think that, as we as an incoming Government now face the biggest mess that this country has had to face for years, it might have been more appropriate for the noble Lord speaking on behalf of the Opposition to express contrition for the mess that they have left behind and which the Government now have to tackle? Given the situation in Europe now—a very grave situation brought on in part by the fact that some Governments have failed to face up to their responsibilities and are not taking action early enough—it would have been criminal of this Government not to have taken early action to face this situation. It is incredible in this situation to see that the Opposition still appear to support the policy of no action yet. Would that not be the most disastrous approach for this Government to take?

My Lords, I am most grateful to my noble friend Lord King for his supportive comments. Europe is indeed in a very grave situation, and it would be very dangerous if this Government did not take early action to make these cuts.

May I confirm to the Minister that we on this side of the House do not favour inaction but oppose wrong action very strongly and will continue to do so through the coming months of examination? Will he answer my noble friend Lord Eatwell’s specific questions on outcomes, as the Government have been silent on this, despite opportunities? Will he for instance tell us the cost to the public purse of breaking or suspending contracts to the private sector? We have heard nothing on that.

Neither have we heard about the consequences for employment and small businesses of the action taken to make cuts this year of £6.25 billion. These issues are vital for a reason which I am sure the Minister will recognise; we are about to get 15 times £6 billion of cuts at the very least over the next few years. If the course that is now set is continued, I put it to him that we will get not a coalition for fairness but a corrosion of jobs, opportunity and growth.

My Lords, the noble Lord, Lord Kinnock, is very experienced in these matters. I agree with him on opposing wrong action, and we on these Benches look forward to the debates that he promises over the next few months. The Government wholeheartedly agree with him about the effect on employment and small businesses, but we differ in that we believe that high interest rates are what will really adversely affect small businesses and employment and that it is absolutely crucial to make the cuts about which we are talking. He asks a very specific question about the cost of breaking contracts. I am not in a position to answer that now, and I will do my best to respond to him in writing.

My Lords, the Minister referred to the removal of ring-fencing of certain funding to local authorities. Is he aware of the concern that sometimes local authorities will emphasise services such as waste removal and roads above services to vulnerable children and families because they are the most apparent to their voters? Will he monitor the effects of that change and ensure that it is not unfairly disproportionate on the most vulnerable? Will the removal of ring-fences directly affect services to vulnerable families?

My Lords, I am grateful to the noble Earl, Lord Listowel, for his point. As I have said, the Government believe that giving freedom to local authorities will enable them to meet the real priorities in their local areas. I assure him that these matters will be monitored closely and that the most disadvantaged in society absolutely must be protected.

My Lords, is it not astonishing that, on listening to the questions from the opposition Benches, you would have thought that we were running a surplus? We are running an enormous deficit. Will my noble friend please encourage his colleagues to continue in attacking the most appalling economic heritage since Denis Healey, Mr Callaghan, Philip Snowden, Hugh Dalton or anyone else you care to mention in Labour Governments in the past who have left us in a similar mess to that which we are in now?

My Lords, I am most grateful to my noble friend Lord Onslow for his helpful words. I assure him that I will indeed exhort my colleagues as he requests.

My Lords, any such cuts are likely to bear disproportionately on those who depend on public expenditure, notably the poorest people in the poorest regions of this country. What formula is being used? How does the noble Lord seek to protect vulnerable people and areas such as Wales which depend disproportionately on public expenditure?

My Lords, I have just said that the Government agree that we must pay closest attention to the effect on the most disadvantaged in society. The noble Lord, Lord Anderson, specifically asked about the devolved Administrations. At this stage, all that I can say is that we acknowledge that these cuts must be fair. While savings are to be made as a top priority, they must be done sensitively.

My Lords, will my noble friend encourage the Government to produce soon an accurate figure of the total accrued national debt, including the off-balance-sheet debt, such as the total PFI liabilities and the massive sums owing for unfunded public sector pensions? I am sure that that figure would help us in debates such as this.

My Lords, I am most grateful to my noble friend Lord Burnett for that point. As he is aware, there will be a Budget shortly, which will tackle the task he has suggested. There will also be established an Office for Budget Responsibility. Its job will be to root out and identify the items to which he specifically referred.

My Lords, given that many Conservative-controlled authorities have a zero-rate increase this year and cuts already, will the Minister explain in greater detail which of the services not ring-fenced do not assist the most vulnerable people? Which services specifically do his Government consider to be un-ring-fenced and therefore expendable?

My Lords, I thank the noble Baroness, Lady Farrington, for her kind question. It will be a principle of this Government that such matters will be for local government to decide.

My Lords, will my noble friend be robust in rebutting the assumption from the opposition Benches that reductions in expenditure necessarily lead to reductions in outcomes? Does he accept that most businesses in this country that have to control their costs every year are well aware that removing waste and inefficiency is normally a way of delivering better services, by re-engineering the processes? Does he accept that, after a period of unparalleled growth in government expenditure, there is a huge target to go for in improving efficiency while improving services in this country?

My Lords, I entirely agree. The control of costs is vital; likewise the removal of waste, which does not necessarily lead to cuts in productivity.

My Lords, I welcome the new Minister to his role and wish him well in the future. One of the issues that the coalition Government will face will be unemployment. Will he again consider giving a better answer to the Front-Bench questions about the consequences of this action and the number of jobs that will be lost? I advise him that if he cannot do so today and unless we get the full facts, this side will not let go of the issue of the options on jobs that will disappear when cuts come. The Government should take note that they will be required to tell us what the consequences of each of their cuts will be in future.

My Lords, I share with the noble Lord a grave concern about unemployment. I point out to him that, at the end of 13 years of Labour government, unemployment was higher than it was at the beginning. We will do our level best to tackle unemployment and keep it under control.

My Lords, will my noble friend confirm that the current national debt amounts to some £893 billion run up by the party opposite when they were in government, and that the responsible cuts that he is proposing today therefore amount to less than 1 per cent of the total? Would he care to speculate about the consequences for small businesses, for unemployment and for the most vulnerable if firm action were not to be taken to tackle the debt mountain that has been left for us?

My Lords, my noble friend Lord Bates is quite correct. I have said that the Government believe that the effect of not making cuts, feeding through into higher interest rates, would be vastly worse for small businesses and for unemployment than the effect of making those cuts.

My Lords, will the Minister finally give an answer to the question on the assessment of the effect on unemployment of the cuts that the Treasury has made? Will he simply give those numbers?

My Lords, I can only refer the noble Lord back to my earlier answer that the effect would be worse if we did not make these cuts than if we do.

My Lords, I shall follow up on my noble friend Lord Blackwell’s point. Does the Minister accept that one of the problems that the economy is facing is falling productivity, and that this is caused by the wall of money that has been thrown at the public sector? There would be enormous opportunities to make savings if actual productivity were raised in the public sector, and that would not affect front-line services.

My Lords, I agree with my noble friend. I am convinced that there are substantial increases in productivity to be made, despite making these cuts.

My Lords, the Minister has not been his usual frank self in responding to the question about front-line services, which are crucial to this debate. Nor has he been frank when he maintains that introducing cuts at this stage may not do irretrievable damage to the economy with a double-dip recession. After all, his party argued that in the general election and did not achieve a majority, while two other parties—the Liberal Democrat party included—argued the danger to the economy of cuts at this point. Why, therefore, is he persisting with this position?

My Lords, the Government believe that the line they are taking is the right one to achieve the best results for the country.

On the issue of increasing apprenticeships, which is very welcome, will the Government continue to look at ensuring that small businesses are able to engage in apprenticeships and are given assistance in that direction?

My Lords, I thank my noble friend Lord Cotter for his question and for his kind comments on the Government’s actions proposed in the area of apprenticeships. I can assure him that we will keep a very close eye on its effects on small businesses.