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8.32 pm

Mr. David Ruffley (Bury St. Edmunds): It is impossible to have an efficient economy if the biggest single spender in that economy is itself grossly inefficient. Last week's comprehensive spending review will pour billions of pounds into an unreformed leaky public sector bucket. It will pour an extra £10 per household in real terms per day, or £3,650 a year, in extra money. Spending as a share of national income in this country is rising at precisely the time that it is falling in other European Union countries. If the Chancellor carries on in the way that he is doing, within 10 years, the share of national income taken up by public spending will converge with the EU average. That is not in the national interest.

I want to show that, behind the tiresome rhetoric of money for modernisation and investment tied to reform, lies an old Labour model, not a new one. The Chancellor's model is, in fact, about 50 years out of date. I also want to suggest a modest and positive Conservative proposal as an alternative, in which the state remains the key funder—although not on the incontinent new Labour levels that we saw last week—but not the central provider chasing ever-illusory national targets. The Conservative vision will demand more genuine competition and choice for the citizen and the reform that is essential for a more responsible civil society and a wealth-creating economy. Above all, it will produce a set of reforms that never forgets that those most let down by failing public services are often the poorest in society, who have the least opportunity to opt out, unlike the middle classes.

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The great public services were designed in the decade after the second world war, when resources were very scarce. For practical and moral reasons, a consensus arose across society whereby the state would be the prime funder and intervene to ensure that rationing was delivered equitably across all sections of society. That consensus was of its time, and it has broken down and been overtaken by the realities of modern life. With increasing prosperity—driven, I am delighted to say, from 1979 onwards by the necessary supply-side reforms of Mrs. Thatcher—living standards rose. That brought a rise in consumer culture, which is desirable, and a rise in voters' demands for more responsiveness and flexibility from the great public services. Those voters now know that those services are failing.

In his statement last week, the Chancellor invited us to believe that the wants of our citizens can be met by huge public spending increases. Sadly, that logic is hideously flawed. The Chancellor is shifting the balance of the economy in favour of public sector activity at the expense of private sector activity, and in so doing he is going against international trends.

The International Monetary Fund's economic outlook report, published in May 2001, states:

"on average general government expenditure in the advanced economies (excluding Japan) declined by close to 6 per cent. of GDP during 1993-2000 with the sharpest reduction in the northern European countries."

In the 1990s, the gap between the United Kingdom and other European Union countries in terms of the share of GDP accounted for by public expenditure was high, peaking at 9 per cent. at the end of the 1990s. Now that virtuous gap is closing, and closing fast. Between 1998 and 2003, our public spending ratio rises by 1.3 per cent., but for the EU as a whole, it falls by nearly 2 per cent. Between 2000 and 2003, the gap between the UK ratio and the EU spending ratio will fall from 9 per cent. to just over 5 per cent. On current trends, British public spending will grow by 1 per cent. of GDP every five years, while the EU ratio will fall by 2 per cent of GDP every five years. If those trends continue, spending at this rate will mean that the EU's and the UK's share of GDP accounted for by public expenditure will converge by 2013. I contend that that is the Chancellor's secret agenda.

Mr. Salmond: Before the hon. Gentleman leaves that point, can he tell us whether the current percentage of public expenditure in relation to GDP is higher or lower than it was in 1983 during the golden age of Baroness Thatcher?

Mr. Ruffley: It is roughly the same, or perhaps even slightly lower, than in 1983. The hon. Gentleman must stop picking convenient dates. When my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) left office after his hugely distinguished tenure as Chancellor of the Exchequer, with record low levels of unemployment and inflation, falling debt and growing employment, the share of GDP was just under 40 per cent. That is the answer to the hon. Gentleman's question, but he must stop being selective about his dates. He is getting like Government Front Benchers in that respect, and I do wish that he would grow up.

The Chancellor's secret agenda in the medium to long term is to move the share of GDP accounted for by public expenditure up to EU levels. Moreover, there is more

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spending in the pipeline for this Parliament over and above that which was announced in the comprehensive spending review. We know that for one simple reason. Next year, the increase for transport, schools and hospitals is a whacking 7 per cent., but it is front-end loaded. We are invited to believe that, in the second and third years of the spending review, the rate of spending will decelerate.

Unfortunately, most commentators—and I am included in this list—look at what the Chancellor did in his two preceding comprehensive spending reviews. What has he done? In the middle of the so-called three-year fixed period, he has added more money to the totals that were allegedly fixed. No one believes that this Chancellor will stick to the same figures for 2004–05 and 2005–06 that were published in his documents last week. Why should anyone believe him this time when he has bust the limits in the past two spending reviews? As Andrew Dilnot of the Institute for Fiscal Studies has said:

"The three year expenditure plans are supposed to set fixed and firm limits but so far they have been floors."

This spending review is not about catch-up; it is more of a first downpayment, with more spending to follow.

It is also regrettable that this Chancellor publishes no assessment of the benefits of increased spending as against the full economic cost of that spending in lost output caused by the higher taxation that he has had to levy to finance the high spending. The United States Joint Economic Committee of Congress has done some interesting work that the Government choose not to do for this country. It notes that, in the United States, the economy loses 40 per cent. in economic welfare per tax dollar levied at current levels. The Centre for Economics and Business Research in this country has done a similar calculation, and argues that each pound raised in tax in the UK reduces national income in the medium term by more than £1.

That defect is compounded by the knowledge that the extra spending announced last week is to go into state monopoly enterprises, where, as we know, competition and proper price transparency do not exist. Instead of real reform to address those problems, the Chancellor offers us more centralised command and control state planning, which frankly owes more to eastern bloc ideas before the wall came down than to the marketised disciplines of the United States to which the Chancellor so noisily and disingenuously pays homage whenever he talks to City audiences—but not to anyone else.

The subtitle of last week's spending review should have been, "Welcome to Gordon's Gosplan", where we will have more auditors to audit and more inspectors to inspect, we will have more targets, commissions and delivery units worrying about more OPAs, PSAs, SDAs, more general targets and a hundred more pen-pushing, paper-chasing initiatives—a public spending inspector perched on the shoulder of every hospital manager, school head teacher and police inspector and every manager of our prisons and transport systems.

Unfortunately, the Government are obsessed with national standards and national targets. They think that that is the answer. The problem, as we all know, is that national standards eliminate diversity; they are its enemy. New Labour national standards are code for, "Here is what you must deliver because we say so, if you want Government funding."

Private sector disciplines set minimum quality requirements. Those standards are a safeguard and are not used to create norms and standardised products.

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Individuals choose from a wide range of different products. Choice is the mechanism that they use to satisfy their needs. They set their own standards by what they choose to buy and what they do not want to buy.

A state-led, national standard—a one-size-fits-all approach—is convenient for central Government but less good for local head teachers, NHS hospital trust managers and police inspectors, because funding is allocated to them on the basis of a centralised decision. The standards that they are told to implement are not local. Their activity will be continuously monitored centrally in a way that will undermine their freedom to innovate. Talk of devolution is therefore a cruel and empty deceit.

As evidence for that proposition, we have only to look at the wise words of Sir Steve Robson, who until recently was the second permanent secretary at Her Majesty's Treasury and, I understand, a man who thanks the Chancellor for his knighthood. A moderately dispassionate observer, he said that the forest of new targets creates

"a blame culture which stifles local initiative. Central directions are no substitute for empowerment of individual consumers which would create real incentives to create better services."

That is the comment of a highly distinguished figure—an adviser to the Chancellor, who left but 18 months ago.

What is truly astonishing is the Government's apparent belief that this year's—the 2002—model of public sector reform should be taken any more seriously than the 1998 version, or the 2000 version. In 1998, at the time of the first review, the Prime Minister stated:

"'Money for modernisation' is a contract."

In the 2000 version, the Chancellor said:

"it is by tying new resources to reform and to results and by locking in incentives, penalties, inspection and information that we ensure that . . . investment goes to the front-line services . . . At every stage, money will be tied to output and to performance."—[Official Report, 18 July 2000; Vol. 354, c. 220.]

Finally—and my personal favourite—the Chancellor, with even more breathtaking hyperbole, said in The Sun on 13 November 2001:

"There is not going to be one penny more until we get the changes."

The use of the word "contract" in those contexts must have some metaphorical significance. It certainly has no purchase on the way in which public services have been managed since 1997, under the current Chancellor. That is because the main existing set of so-called contracts—public service agreements—remain largely unenforced and unenforceable. Take the Department for Education and Skills, whose first PSA objective is to

"ensure that all young people reach 16 with skills, attitudes and personal qualities that will give them a secure foundation for life long learning, work and citizenship in a rapidly changing world."

As far as I am aware, no Minister has resigned as a result of that objective not being met. The Department failed to reach its target of reducing by one third by 2002 the number of half-days lost to truancy, even though a budget had been specifically allocated to that purpose. The only result of the failure to hit that target was—wait for it—the reduction of the target by 10 per cent. and the date being moved to 2004. Moving the goalposts in that fashion has been a deplorable feature of the wretched and useless PSA target regime.

Some of the targets are rather arbitrary. No one seems to understand where the percentages come from or what cost-benefit analysis has been carried out to produce the

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figures. Suicides are to be reduced by 20 per cent. by 2010, cancer deaths by the same percentage, and deaths from heart disease by 40 per cent. Desirable though those objectives are, what is not clear is how they were arrived at.

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