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Mr. Hopkins: I have great sympathy with what my right hon. Friend says. We have a happy fiscal policy because we have the ability to choose our monetary and fiscal policies and to ensure that they work well in tandem. That is possible because we are outside the eurozone. Does he agree that we should stay outside the eurozone so that we can continue to manage our economy sensibly?

Alan Howarth: I can certainly see no case for subjecting ourselves to the consequences of a single currency, such as a one-size-fits-all interest rate and all the associated constraints on fiscal policy, so I agree with my hon. Friend.

The Government's spending plans are predicated on an assumption that there will be no serious economic slow-down in the wider world. It is difficult to be entirely
 
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optimistic about that. Given the fiscal profligacy and the monetary imprudence that have prevailed in the United States of America for a good long time past, clearly, after the presidential elections, there must be a retrenchment in the USA, which will be bad for growth. Equally, if the politburo manages to slow down the Chinese economic juggernaut to some extent, it might provide a shock to the world economy. However, I think that my right hon. Friend the Chancellor's plans allow for sufficient margins to accommodate any setbacks of such a nature that might occur.

The departmental expenditure limits are anticipated to rise by 4.2 per cent. per annum on average throughout the spending review period but, as has been noted, reductions in the rate of growth are intended in later years. Rather than assuming that that will be achieved through a process of slamming on the brakes that would be impossible to handle, I take it that it is a prudent provision for the future. Let us see what proves to be fiscally manageable in the event.

It must be acknowledged that it will be hard to spend a 4.2 per cent. average increase in public expenditure efficiently and effectively, which makes the efficiency review all the more important. Moreover, increases to front-line spending are intended to be substantially funded by the benefits of the efficiency drive. As hon. Members have noted, it will be difficult to achieve the efficiencies that are held out. All Governments have promised to achieve dramatic efficiencies in the use of public funds, but the Parkinsonian tendency for bureaucracies to expand is unrelenting. It will be a tough job to get the process right without any doubt. The process will also be tough for the public servants affected, so I was pleased, but not at all surprised, to note that my right hon. Friend the Chancellor intends to take a great deal of care of those staff, in human terms, to ensure that the personal consequences that they face are no harder than they need to be.

Several commentators—the hon. Member for Twickenham added himself to their number this afternoon—have said that we will never actually know whether the efficiency targets have been achieved, but I do not think that that is right. My reading of the Gershon review is that it is rigorously set out and establishes bases and benchmarks against which we may judge performance and progress. It sets out relevant definitions, describes the methodologies for achieving efficiency and offers a variety of expert support systems.

I do not think that any of us can doubt that there is scope now, as there always is, to achieve economies. Let me offer one small vignette that arises from my recent constituency experience. The young son of one of my constituents assaulted a teacher and there was a requirement that the boy attend a non-maintained special school. Monmouthshire local education authority was unable to provide appropriate schooling in its own system, so the boy had to be sent away. Two options were considered: a special school in Cardiff charging fees of £124,000 a year; and a special school in Somerset charging fees of merely £75,675. To get those amounts into perspective, I checked the fees at Eton, which will rise in the autumn to £22,380. It beggars belief that the public sector is paying such sums. I do not criticise the director of Monmouthshire LEA because he has no choice but to find a placement for the boy. He says that supply is limited and that the situation is what
 
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market forces dictate. That provides a small example of the scope for considerable legitimate cost savings in the public interest. The search for efficiencies must be continuous because economies are always there to be won.

On a more cheerful note, public servants who might have the opportunity to relocate to Newport have nothing to fear. I myself relocated there only a few years ago, and the House must discount my bias because I always fall in love with any constituency that is good enough to put up with me. Better witnesses to the merits of setting up public service shop in Newport are the public officials who already work there—the staff of the Patent Office, the Office for National Statistics and the UK Passport Service.

As long ago as 1994, the National Audit Office found that, following the Patent Office's relocation to Newport, it had not only improved performance but saved on accommodation and staff costs. It saved on staff costs partly because salaries were somewhat lower in south-east Wales, but mainly because staff turnover was so much lower compared with turnover in south-east England. I shall not descant at length on the beauties and joys of Newport, but I ask my right hon. Friend the Chief Secretary to study an excellent document produced by Newport city council—"Newport: a pleasure doing business"—which is both eloquent and sobersided and makes the case irresistibly.

The Government are also right to pursue a programme of asset sales, as one would in any substantial business in which assets are found to be surplus to need. It is no more and no less than their duty to the taxpayer, as is the whole drive for efficiency savings.

I thank my right hon. Friends for specific features of the spending plan. I thank them on behalf of Wales for the average real-terms increase in funding of 4 per cent. that is planned over the period. In particular, I want to mention two items that are small in the scale of things but significant to me, partly because they represent unfinished business from my incarnation as a Minister with responsibility for the arts and heritage.

I very much welcome the Government's decision to extend the VAT refund scheme to university museums and galleries to enable them, too, to offer free entry. I spoke on that subject in the public expenditure debate two years ago. The Chancellor and the Chief Secretary were kind enough to meet me and a deputation to discuss it. I pay particular tribute to Professor Martin Harris and Dr. Christopher Brown for their expert advocacy of the cause.

The other small item in the cultural field for which I want to thank the Government is the decision to double the size of the national heritage memorial fund. The fund enabled the National Trust to acquire Tyntesfield. There are now similar needs and opportunities, with the possibility of the National Trust for Scotland acquiring Dumfries house, a wonderful house that reflects the undisturbed work of the three Adam brothers and which has Chippendale furniture, and Abbotsford, which is a house of great historic importance.

More broadly, I want to express my appreciation to the Chief Secretary for the provisions in the spending review on the voluntary sector. Like me, he has taken a
 
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close interest in policy for the voluntary sector over the years. The decision to introduce longer-term funding agreements, to consider in new ways the assignment of risk between the voluntary and statutory sectors, to accept full cost recovery if charities and voluntary organisations provide public services so that they are not subsidising the Exchequer, and the proposed lightening of regulation are all good news for the voluntary sector.

As a member of the Intelligence and Security Committee, I express my appreciation of the additions to the secret intelligence account. Like all my other right hon. and hon. Friends, I single out the Government's commitment to achieving the 0.7 per cent. of GDP spending on aid as important and welcome. I hope that it will go into the manifesto. I also hope that the Chancellor's plans for an international finance facility are accepted by the international community so that we reach our 0.7 per cent. of GDP in 2008 rather than 2013. Next year, with the chairmanship of the G8 and the presidency of the European Union, Britain will have an important opportunity to mobilise the rich countries of the world to that cause.

I want to speak about two other policy areas. On higher education and science, I welcome the reiteration of the Government's commitment to maintain funding per student during the spending review period. There are, however, other important requirements for higher education, such as infrastructure—buildings, libraries, laboratories, classrooms, lecture rooms—support for part-time students and, perhaps most particularly, academic pay. The House will recall that in the 20 years to 2002, academic pay rose by 4 per cent. while average earnings rose by 45 per cent. The Treasury used to insist that that did not matter and that there was not a market failure, but that discrepancy was bought at the price of rapid deterioration in staff-student ratios and the jeopardising of quality. It has inevitably affected the quality of recruits to higher education. The Bennett report from the British Academy expressed unequivocal anxieties about the numbers and quality of people embarking on PhDs, including on subjects that are important by the utilitarian standards of the modern world, such as economics or Chinese.

The issue is whether we can renew our enlarged universities, of which so much is expected, to an acceptable quality. The Government have paid more heed to the Roberts report on the supply of people with scientific, engineering and technological skills, but we must balance the needs of the arts and humanities with the need for science. We should be wary of going down the US route of simply paying more for teachers with marketable skills. I readily acknowledge that there has been a good settlement for academic pay this year, but where are the funds in the plans properly to restore academic pay? Where are the funds to make sure that our remarkable new laboratories will have remarkable scientists in them? How are we to pay for the costs of higher education? If every course charged the full £3,000 allowed under the new tuition fee regime that would bring in a maximum of £1.4 billion after 2009, which should be set against the shortfall in higher education funding of £8.8 billion cited by Universities UK. I do not expect the Treasury to agree with the latter figure, but the disparity is still huge.
 
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I hope that the Government will at least fund the recommendations in the Thomas report, which looked at the possibility of creating endowments for our universities. It recommended that the Government provide time-limited match funding to pay for the costs of establishing development offices in universities and training in fund-raising techniques. It also recommended that they look again at tax relief. It is noteworthy that the largest endowments enjoyed by universities in the United States of America have, in the main, been built up in the past 20 years. Although it would be a long haul and a difficult task to raise endowments on a significant scale for our universities, we should certainly try to do so. If higher education in the United Kingdom achieved the same share of individual giving as higher education in the USA, our universities would be £600 million a year better off.

Naturally, I welcome the extra £1 billion of spending on science in the plans, although I fear that it may partly be at the expense of other areas of the higher education system that are no less important, as a good proportion will come from the budget for the Department for Education and Skills.

The planned spending on science represents funding beyond any dreams of avarice that I had as Science Minister. The Treasury has become quite dewy-eyed about science. It expects spending to increase by 5.8 per cent. a year in real terms, and is moving towards an objective of research and development taking 2.5 per cent. of GDP. The Government's science strategy in the "Science and innovation investment framework 2004–2014" is, however, rather long on assertion and aspiration and rather short on tight argumentation and precision. It seems to say that a lot of science means a lot of wealth, which is more redolent of alchemy than science. Science is somehow to be the elixir of competitiveness.

There is much reference in the document to indicators and goals, but when one looks at them, they are all rather vague. The strategy dilly-dallies on its way, for example, to achieving the funding of the full economic costs of public interest research by Government Departments. We are told that the final adjustment to the methodology for that will not be in place until 2007–08 and the research councils should fund close to 100 per cent. only by the beginning of the next decade, yet the issue has been around for a very long time. The transparency review exposed the fact that the Government are not paying the economic cost of the research that they commission from universities. A decision should be taken so that the matter can be resolved.

All that is strange, as I believe that Lord Sainsbury is an outstanding science Minister. The document smacks of negotiations not quite completed in Whitehall and material that was not quite ready for publication. Its commitments are deferred, qualified or imprecise. More Gershonesque rigour is needed in this regard.

I am worried in particular that the document holds out a prospect of too much bureaucratic hassle. We are told that to inform periodic reviews of public spending, the Government will conduct every two years a detailed assessment of progress towards goals. Why not just let good scientists get on and do good science? It is not quite in the spirit of devolution, letting things go from the
 
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centre and allowing people to take responsibility, that we find both in the Gershon review and in the spending review document.

I am worried, too, that the tilt towards applied science may be carried too far. The research council programmes are to be more strongly influenced by and delivered in partnership with end users of research. The research assessment exercise is to favour research relevant to users more than in the past. But if higher education moves too far towards applied knowledge, the irony is that this may damage the economy because it may impair our national capacity to generate talent for broad-based problem-solving, disinterested consideration and original thought.

If we commercialise and marketise higher education too far, we also risk losing the public values that we should respect in the universities and which the Government certainly do respect. Higher education is not just an annexe of the economic production line. Academics should address fundamental questions on our behalf. They should prepare students for democratic participation and social leadership, and they should speak truth to power. I hope that the Government will not overlook those important points.

Finally, I shall say a word about pensions, as there is strikingly little mention of the subject in the spending review document. It states on page 159 that 3.2 million people will be on pension credit and 2.2 million will be receiving guaranteed credit by 2008, which the document acknowledges is a "stretching commitment" for the Department for Work and Pensions. The funding of pensions and the consequences of pensions policy are a major issue for public expenditure. We face looming problems in both the public and the private sector. The Government have been addressing aspects of pensions policy requirements piecemeal, and I believe this is a field where the Chancellor has not yet applied his own magisterial intelligence.

The TUC is right to note with concern that fewer than half of people under 30 are saving for pensions. The defined benefit promises that the previous generation felt able to make will prove unaffordable. It is clear that the private sector is withdrawing wholesale from that commitment and, if not now, before long, the public sector will be in serious difficulty with it too. We are hearing about local authority pension scheme deficits. Part of the trouble is that local government employees contribute too little and people retire too early, presumably at the expense of council tax payers. Every time there is a new chief executive, he or she gaily restructures the senior management team, with a pension fund footing the bill.

We used to be complacent about our prospects on pensions vis-à-vis Europe, but there is no more room for complacency. Radical reforms are needed. I hope my right hon. and hon. Friends will look carefully at the proposals from the Pensions Policy Institute and the National Association of Pension Funds for a citizens pension on something like the New Zealand model.

We need a better basic state pension that is universal and based on citizenship and residence, not contributions. Only 14 per cent. of recently retired women are on a full basic state pension, so we do not have a universal state pension and we should have one. We should conflate the basic state pension and the state
 
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second pension to build a platform at or above the present means-testing level, which would be affordable now. We should then index pension benefits to national earnings. We would get rid of the complexities and disincentives that riddle the system such as contracting out and great swathes of means-testing, including pension credit. That would enormously benefit not only women, but low-paid people who earn less than the lower earnings limit for national insurance and carers, which is entirely consonant with the Government's commitment to social justice.

Above the basic pension platform provided by the state, individuals should build their own schemes to which employers should be compelled to contribute. The evidence from the Association of British Insurers is that, where employers do not contribute, only 13 per cent. of employees save for pensions, but where they contribute 5 per cent., 69 per cent. of employees save for pensions. The Treasury should switch from tax relief to grants, because an enormous proportion of tax relief goes to people who are already well off and who least need incentivising to save. Whether that is the right pattern for reform—I think it attractive and practical—we cannot continue as we are for very much longer.

The spending review is admirable. It was made possible by a disciplined and intelligent approach on the part of the Government, who understand the dynamics and interdependencies in our society. They are dedicated to strengthening our society, so that talent and energy find scope and reward. They support vulnerable people, who find that they are respected, cared for and have opportunity. And they particularly seek to improve life for children born in poverty. The title of chapter five of the spending review, "A Fairer Society with Stronger Communities", expresses this Government's ethic, a society in which the public and private realms flow into each other fruitfully and in which the values of community and personalised public services, which are therefore true services, are restored.

5.32 pm

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