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Mr. Boateng: The hon. Gentleman began by praising Sir Peter Gershon, and then proceeded to rubbish him at length. He accused Sir Peter of not taking into account the efficiency gains that can come from local government. Has he actually read the Gershon report? I refer him to page 55, where Sir Peter states:
"Local government has a key role to play in this ambitious agenda, and many local authorities are already securing efficiency through investment in technology and rationalisation of back office and procurement functions."
That certainly includes the Norfolk example. Sir Peter has done the very thing that the hon. Gentleman accuses him of not doing. Will he withdraw his ill-advised and misplaced comment?
Mr. Flight: The Chief Secretary points out one sentence, but he does not refer to anything in Gershon that sets out how those improvements can be achieved. Gershon merely observes what has happened, and that is quite different from his cross-cut comments about centralised buying.
At last year's spending review, the Chancellor stated:
"In each area of service delivery from housing to education, from policing to defence, we are tying new resources to new reform and results, developing a modern way for efficient public services".
"we have a special duty to ensure that public money is spent wisely and efficiently and we are as determined to secure value for money as we are to secure money for our services."—[Official Report, 15 July 2002; Vol. 389, c. 22, 25.]
He said roughly the same thing about the 1998 and the 2000 spending reviews. He has failed and failed to secure value for money.
The truth is that the Chancellor has engaged in a pre-election public spending spree, creating bigger and bigger Government, based on bigger and bigger borrowing and rising taxes, which will produce big problems for the future and require a major increase in taxation if Labour were to win another election. In recent weeks, the Governor of the Bank of England has warned not only that the housing market has become overheated, but that the public sector spending spree is causing the economy as a whole to overheat. The Chancellor shows no signs of heeding that warning.
Mr. Boateng:
The hon. Gentleman accuses my right hon. Friend the Chancellor of engaging in a pre-election spending spree. Would he care to reflect on the words of the director general of the CBI—[Interruption.]
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Opposition Members say "Huh," but Digby Jones presumably speaks with greater authority on the views of British industry than any of them. He said:
"Mr. Brown has taken a big step in the right direction. Companies will breathe a sigh of relief that growth in public sector investment is not going to become profligate pre-election spending."
Those words are totally contrary to the claims made by the hon. Gentleman. Whom should we believe—Digby Jones, who speaks for British industry, or—
Madam Deputy Speaker (Sylvia Heal): Order. The hon. Gentleman has got the Chief Secretary's point.
Mr. Flight: I am delighted to note that my point has hit home. If the Chief Secretary were to read most of the economic comment, he would find my point being made. As I have just pointed out, the Governor of the Bank of England has warned the Chancellor that the extent of public sector spending is causing the economy to overheat.
The Chancellor and the Chief Secretary may try to speak the language of efficiency and of Gershon, but they are faking it. On closer analysis, many of the reductions are bogus. Bureaucracy has not been slashed: in just a single week at the end of June and the beginning of July, another 584 new jobs were advertised in the public sector, with a combined annual salary bill of £22 million. Salaries on offer included £74,000 for a new head of tourism sponsorship in the Department for Culture, Media and Sport and a whopping £130,000 for the chief executive of the Government education quango, Learndirect. On an annualised basis, that level of recruitment would add a further 30,000 jobs and more than £1 billion to the wages bill.
As The Times has commented, it was said of the Holy Roman empire that it was not holy, not Roman and not an empire, and likewise, the comprehensive spending review is not comprehensive and not a review, but an intensely political exercise, better termed "the big spend".
The public sector is now larger than Scotland. Whatever the Chancellor may say this week will not change anything, because he cannot give up his obsession with trying to manage and control everything from the centre—his only alternative to having the power of the Prime Minister. It is the medium and long-term economic damage caused by the Chancellor's big Government that is of the greatest concern.
The legacy inherited by this Government did not consist only of tightly controlled public spending, a greatly reduced bureaucracy and a public sector current balance. It also, and more fundamentally, consisted of an economy much more vibrant and better placed to compete than at any time in Britain's recent history. Taxes were lower, and regulation was lighter. Huge and profitable businesses had emerged from the ashes of failing nationalized industries. Britain's productivity growth rate was on a par with other major industrial competitors. Britain's household savings rate was respectable by international comparison, and we were fourth in the international competitiveness league. Now we have dropped to 15th and our productivity growth and savings rates have virtually halved.
The foundations of our economy are being eroded by over-regulation, over-taxation and excessive government. The vitality of the British economy has
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been increasingly smothered. According to figures from the Organisation for Economic Co-operation and Development, the UK public sector now accounts for more than 42 per cent. of national output, making it the largest state sector in the Anglo-Saxon world, where our growth rate is now the lowest.
In the long-awaited Gershon report, there is also a gaping lack of credibility as to how to deliver the suggested efficiency savings. The Chancellor's announcements on Monday added a further seven agencies and cooked the figures on civil service reductions. We need to cut away layer after layer of unnecessary government activity and layer after layer of bureaucracy. We need to remove swathes of regulation instead of continuing to add to them. That is the brief of the David James review.
The next Conservative Government will take office with more comprehensive plans for downsizing bloated government than ever before in our history. That Government will require overall adherence to our medium-term expenditure strategy and the progressive reduction of the proportion of our GDP consumed by the state in order both to eliminate the structural deficit that the Chancellor knows he has created at a time when the economy is at full capacity and to prevent the massive increase in taxation that would be required if Labour secured a third term.
Our objective is to give Britain smaller government that does less but does it better and a more vibrant and competitive economy, which alone can sustain first-class public services in the long term.
3.41 pm
Mr. John McFall (Dumbarton) (Lab/Co-op): I welcome the Government's spending review, especially the commitment to public services. I think that I speak for all Members on the Labour Benches when I welcome the extra 2,500 children's centres to be set up by 2008 and the extra £2.1 billion to tackle crime. Following the Barker review, an extra 50 per cent. will be invested in social housing, where we have described the situation as a scandal. As a scientist, I welcome the indication that £1.5 billion more will be spent on science and research in 2008 than in 2004–05.
The dividing lines for the next general election are clear. The Labour Government promise higher, better-quality public services. On the other hand, the shadow Chancellor, in his speech on 16 February outlining the Conservatives' medium-term expenditure strategy, said:
"I have agreed with my Shadow Cabinet colleagues that the baseline for spending across all of these department budgets will be 0 per cent. growth for the first two years."
The electorate will find that the Conservatives will not be spending on defence at a time of increased terrorism and insecurity; they will not be spending on crime at a time when we have to bear down on that problem; and they will not be spending on education when we need extra skills so that more young people can enter the work force.
The Government have said that we must match investment with reform. I agree, but we must cast a critical yet constructive eye over the plans. Sir Peter Gershon advocates public sector efficiency goals of 2.5
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per cent. over the next three years and efficiency gains of £20 billion in front-line services by 2007–08. As has been said, that will require the loss of 84,000 civil service posts and the relocation of 20,000 posts away from London. In his foreword to the efficiency review, Sir Peter stated that
"this will result in a significant loss of employment opportunities over a relatively short period. It is important that these reductions are managed well both for the individuals concerned and to sustain the commitment and motivation of the whole Civil Service in light of the invaluable functions it performs".
What discussions about those reductions have taken place with staff? How are staff savings on that scale possible? Will the Minister provide a regional breakdown of the proposed staff cuts?
The history of such efficiency savings does not leave much room for comfort. Civil service numbers have exceeded Treasury plans in every set of annual public spending projections since 1999. For example, if the plans published by the Treasury in May 2002 had been achieved, there would be 45,000 fewer civil servants than now. The Rayner scrutiny, the financial management initiative, market testing and Executive agencies have all been trumpeted as major sources of efficiency savings. Each of them promised £500 million in savings, but they resulted in the delivery of less than 50 per cent. of those savings. Those schemes are dwarfed by the Gershon review, so it is important that we have a transparent process to follow the progress and to introduce the recommendations sensitively. Many of the people in the posts that will be lost are relatively low earners. A number of my friends in my constituency have worked in the Department for Work and Pensions for 12 or 15 years. Their earnings are £17,000 or £18,000, and they are married people with children, so it is important that the consultations are sensitive and done properly.
I also note that the Lyons report asked for jobs to be moved from London, but again, I suggest to the Minister that we must ensure that we act more efficiently in such cases. I bring to his attention the DWP pensions centre in Liverpool, where more than 300 civil servants will lose their jobs on Merseyside. That news comes just three months after the Lyons report recommended that extra civil service jobs should be moved from London to Liverpool. The pensions centre in Breckfield only opened in December 2002 and the 316 staff deal with inquiries and claims for the state pension credit, but we now find that the plans that were trumpeted in December 2002 have been revised. That does not augur well for the efficient use of resources by the DWP and I look to the Minister and, indeed, the Chancellor when he appears before the Treasury Committee tomorrow, to answer those points.
It is appropriate to consider the golden rule because the spending review is taking place against a background of increased deficits in the public finances. We have to ask whether the spending commitments are affordable if the Chancellor is to stick with his fiscal rules. How much margin for error against the golden rule does the Treasury have if the public finances turn out worse than expected? We can refer to tax receipts on that issue. The forecasts in the 2004 Budget assumed an ambitious rise in receipts from 37.8 to 38.7 per cent. of GDP, but last year's out-turn—37.6 per cent.—caused our current receipts to be £1.6 billion lower than
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expected. Tax receipts could surprise us on the upside, particularly if the economy grows rapidly this year, but if so, the output gap will become an issue.
Evidence that the Treasury Committee took from the Governor of the Bank of England and others shows that the output gap is narrower than expected this year, so meeting the golden rule will be harder to achieve, with growth running faster than trend. The Treasury indicated a 3 to 3.5 per cent. growth rate in the Budget. We have also seen increased employment in the labour market. Although those figures are positive, they put pressure on the output gap. Is it the case that the output gap will be eliminated by this summer—a year earlier than indicated in the Budget? The Treasury Committee will examine the Chancellor on that question tomorrow and in the future.
May I make a point about the time scale of the spending review on behalf of the whole Committee? We are dealing with an enormously compressed schedule and I question whether that adds to the scrutiny of the exercise. For example, the public expenditure out-turn White Paper will not be produced until next week, yet such information is needed to gather the full picture. The Atkinson review on public sector output, productivity and associated prices has not yet been published. Given that it will focus on whether growth and spending have fed through into increased output and improved services, it will be important when we examine the spending review. I make a plea to the Minister—I shall also raise the matter with the Chancellor tomorrow—for adequate time to examine spending reviews adequately.
The Treasury Committee held two meetings this morning with Treasury officials and our experts. The aim of Select Committees is to ensure that there is an informed debate in the House, so a Select Committee report should be available for hon. Members to debate and to help them with the process. We will take evidence from the Chancellor tomorrow, but given our other commitments, we will not produce a report on the matter. That represents an omission, and it is due to the time scale that the Treasury and the Chancellor have imposed. I ask for that lesson to be taken on board so that we may have a decent amount of time to examine reviews in their entirety—I cannot stress the importance of that enough.
One aspect of the spending review that has received little publicity is the establishment of the financial inclusion fund, which I welcome greatly. The Treasury Committee will examine financial inclusion over the coming months. Almost 7 million people are currently financially excluded and, in today's society, people who are financially excluded are also socially excluded. I wait with interest for the Government's development of the fund.
The Opposition have made several vigorous points against the Government, but it is important for an Opposition to have credibility and sound judgment. When I read the Sunday papers this weekend, I was appalled to discover that the shadow Chancellor would abolish the Financial Services Authority.
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