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David Taylor: My hon. Friend rightly details some areas of expenditure that might well soak up some of the Chancellor's good intentions. Does he accept that the private finance initiative and public-private partnerships fit exactly into that category, and that, as the years roll by, they will absorb greater and greater sums of money and crowd out the ability to expand infrastructure and up the rate of activity in the public sector? Does he recognise that as a real risk?

Paul Goggins: I suspect that my hon. Friend and I have slightly different views about public-private partnerships. He has, however, anticipated my next point, which is that a strong message needs to be sent to the private sector that we are not prepared to pass on the extra money in the form of higher charges for medicines, for example, or

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more expensive contracts, to which I am sure my hon. Friend was referring. We have a three-year time frame for improvement and, over that period, all those who are engaged in or supportive of public services must fight for the principle of public services funded by taxes rather than fees, and for the practical improvements that will justify that principle. That is a fight that we have to win.

The second challenge is to change the way in which our public services are delivered. Developing capacity alone is not enough; more of the same is not enough. We have to do things differently. For example, older people often need better physiotherapy in a primary care centre rather than a long wait to see a consultant who might not be able to do very much to help them. Doing things differently also means introducing neighbourhood wardens and community support officers to complement the vital work of the police. It also means introducing better intermediate and community care for older people, to avoid delayed discharges or lengthy residential care placements that are not always appropriate. We must encourage those who run our public services to be innovative and to ensure that those services are accessible and user-friendly. We do not just need more services; we need more effective services.

The third challenge is nothing less than to bring about a change in the culture of our public services, particularly in the way in which they are planned and delivered. It was right that, in the first term of this Government, there was a huge push from the centre to bring about the kind of rapid and dramatic changes that were required in certain areas. That meant that more patients were treated and, as the Chief Secretary pointed out earlier, that primary school pupils were leaving schools with better levels of numeracy and literacy.

For long-term change to be sustainable, however, we have to have a different approach. We have to match rising national standards with a greater sense of local ownership and control. Unusually—I hope that I do not vex my right hon. and hon. Friends in saying this—I agree with the words, at least, of the shadow Chancellor. In a speech last Monday, he said that we should be

Those are noble sentiments, and as I say, I agree with the words, but there are two reasons why I doubt the spirit behind what the right hon. Gentleman said, the first of which is the small matter of the 18 years in which the Conservatives were in power. During that time, they did precisely the opposite, centralising a great deal of power and doing much to undermine local democracy. The second reason is my strong suspicion that, in the shadow Chancellor's view, "local" means cheap. It does not.

For example, in my constituency we are about to introduce a demand-responsive bus service. Minibuses and people carriers will help to get people from home to hospital, the shops, transport links, and so on. That good and effective local initiative has come about only because central Government are providing £750,000 to make it happen. A local housing trust, Willow Park, is encouraging greater tenant participation at board level, but it began with £20 million of public funding from the Government. It is assisted with funds for closed circuit television schemes and for neighbourhood warden schemes. Another example is the panel of 300 local people who are helping to set local health priorities in the

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South Manchester primary care trust. Indeed, primary care trusts are another example of Labour reforms. We need to push power and decision making downwards, but let nobody be mistaken—it is not a cheap option.

If we achieve that greater sense of local and public participation, this Government will have created a distinctive feel-good factor; not the so-called feel-good factor of the 1980s, which was based on narrow self-centredness and the exclusion of the poorest in our society, but a feel-good sense based on communities that meet needs and foster inclusion and cohesion. I believe that the money is now in the system to give us real hope that we can achieve such a society.

9.12 pm

Mr. Alex Salmond (Banff and Buchan): Thank you, Madam Deputy Speaker, for calling me at the climax of this debate. I have sat here for some four hours plus, and I have listened to the debate ebb and flow, although I should say that it has mostly ebbed. [Interruption.] It is going to get better. At times, the Scottish Grand Committee has taken on a new and attractive light. If I followed the example of some hon. Members, I would leave precious little time for the Front-Bench spokesmen to sum up. I do not intend to do that, but I am strongly tempted, given the length of some of the contributions, particularly from those who discussed "productivity" in the public sector. I found that somewhat amusing.

One of the "flows" in this debate was the first class contribution from the Chairman of the Select Committee, the hon. Member for Dumbarton (Mr. McFall). His was the most thoughtful speech by a mile. He argued that the Treasury forecasts are believable because public investment is very low as a percentage of gross domestic product—much lower than in the glorious reign of Baroness Thatcher, some 20 years ago. When asked whether that is a good thing for a Labour Member of Parliament, in particular, to be saying, the hon. Gentleman said that, in the Thatcher years, public investment was wasted on unemployment, but now it is diverted towards much more useful things. To some extent that is correct, but it is not the only point about the decline of public investment in the economy.

One example is gross public investment—investment in capital infrastructure in the public sector. In 1975, gross public investment in the UK was 8.9 per cent. of GDP; by 2000, it was 1.7 per cent. Even if we include private finance initiative schemes, that figure increases to only 2.1 per cent. The Wanless report was predicated on the argument that there had been £200 billion of underinvestment in the national health service over a generation. One difficulty that I have with the Treasury team's credibility as they deal with such points is that, for the past five years, the Chancellor of the Exchequer has argued that public investment and public spending has increased when it has not, and that taxation has not increased when in fact it has.

Mr. Tom Harris: I will keep this brief. The hon. Gentleman rightly referred to a low percentage of gross national product. Is he claiming that that represents a real-terms decrease? A percentage of a pie that is becoming bigger is not the same as a real-terms decrease. I hope that Hansard gets that right.

Mr. Salmond: Which is more than the hon. Gentleman did, but never mind.

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What I am saying is that by double-counting, triple-counting and quadruple-counting the Chancellor pretended that public spending increases were greater than they were over the past five years. Now we have reached a point at which there really are substantial increases in public spending, of which I approve. Indeed, I fought an election in Scotland on the principle of direct taxation leading to direct increases in public spending. I approve of the policy. I am merely saying that this Treasury team, and the Chancellor in particular, have a track record that does not necessarily lead us to believe everything that they say, given the experience of the past five years.

The hon. Gentleman put his finger on one important point, however. The argument relating to the credibility of these figures is not to do with the balance between the public and private sectors; it is to do with whether the rate of growth will hit the Chancellor's targets and make the public spending increases affordable, or whether the international situation and other factors will crowd in and cause difficulties.

One of my reasons for being critical of the Chancellor and the Treasury team for missing the boat is that over the past five years the international economic environment has been much more benign than it is likely to be over the next few years. It will be much more difficult to sustain substantial increases in public spending in that difficult and uncertain environment.

The Chairman of the Select Committee spoke of a trend growth rate of 2.5 per cent. That is not a fancy figure in international terms. In the past 10 years the Irish economy has grown at a rate of 7 per cent., the Norwegian economy at a rate of 4 per cent., the United States economy at a rate of 3.3 per cent. and the Dutch economy at a rate of 2.7 per cent. As for the revised figure of 2.5 per cent. over the past 10 years, there was a higher average growth rate during the last five Tory years than in the past five years under the present Chancellor. The trend figure is already modest; if it is "crowded in" further, the public spending increases will be extremely difficult to meet. However, I approve of the Chancellor's conversion to the notion of honest direct taxation—a "Penny for Britain" in national insurance—as a means of financing such increases.

I am glad that the Chief Secretary has returned. He made an uncharacteristically rude, windy, feart, faint- heart, evasive and thoroughly disreputable speech, during which he refused to give way to me. I must confess that that contributed to my interpretation of his speech. I wanted to ask him a very simple question: is a review of the Barnett formula under way in the Treasury or not? Three Treasury Ministers are present, including the Chancellor. I merely ask for a reasonable "yes or no" answer, rather than an impassive scrutiny of papers.

I am tempted to say that when three people are silent a number of possibilities come to mind. Certainly silence speaks volumes on this occasion.

In the Western Mail of 10 July the Deputy Prime Minister clarified matters, saying that no review was in progress, but he conceded that information-gathering might lead to changes. Let me ask the Treasury team this: what is the difference between a review and information- gathering that may lead to changes? That is a perfectly legitimate question—one that a Chancellor of the Exchequer should be able to answer, and one that any member of the Treasury team should be able to answer. I hope that the Financial Secretary will manage to answer it when she winds up the debate.

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The importance of the question is obvious when one compares the comparable Barnett-affected figures for Scotland and the increases announced by the Chancellor. The review includes a 6.5 per cent. increase in money for health, education and transport, whereas the comparable Scottish figures show an increase of 4.5 per cent. That is the reality behind the spending review, and of the Barnett squeeze.

The irony is that many hon. Members believe that the Barnett formula protects Scottish public spending. However, at a time of increased public spending, the formula will result in rapid convergence to the average. The same thing happens in Northern Ireland, as the hon. Member for North Down (Lady Hermon) knows. It happens in Wales too, as hon. Members from that country know.

The Chancellor will have been following closely the evidence on identifiable public spending that has been given to the Treasury Committee. I was interested to note that, according to the analysis by Professor Ian Maclean—and leaving aside the unidentified spending going to huge Government Departments, to transport infrastructure and elsewhere—even identified public expenditure per head in London is almost identical with that in Scotland.

If that is regarded as unfair, why is there not a Barnett formula for London? Why is there a Barnett formula to converge spending in Scotland with the rest of the UK? The questions are not inconsequential. If the Scottish increases were on a par with the UK total that the Chancellor has announced, there would be additional spending in Scotland of £1.5 billion over the next three years. That would be worth £300 for every man, woman and child in the country.

The question therefore requires an answer. I do not favour having the Barnett formula squeeze Scottish spending, but neither do I agree with the Deputy Prime Minister, who wants to squeeze Scottish spending further and faster.

I see that the Chancellor himself is informing the Financial Secretary about what to say in her reply. I look forward to hearing it.

I do not approve of the argument that Barnett should be replaced by something even worse. That would have serious consequences for Scottish spending levels.

Many hon. Members might approve of a solution that made the Scottish Parliament responsible for raising its own revenue, and for making its own expenditure decisions. The most recent Conservative Member to adopt that position was the right hon. Member for Haltemprice and Howden (David Davis). Perhaps his fate today would render inauspicious any attempt to convince independent- minded Conservative Members about that solution, but a growing number of Labour Members of the Scottish Parliament can see the sense of not being at the mercy of a convergence formula such as Barnett. They do not want to be at the mercy of the Deputy Prime Minister either, but want a Scottish Parliament robust and responsible enough to make its own expenditure decisions.

That might not be the most popular notion with the Chancellor, who does not believe that any Government Department—or school, or hospital—should have real discretion. However, such a power would be good for the

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Scottish Parliament and for Scottish spending decisions. It would be good also for the growth rate in the Scottish economy—the key economic variable determining whether increases in public expenditure can be sustained in the long term, or whether this Chancellor is offering, in this spending review, a boom and a bust in public expenditure.

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