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Mr. Edward Leigh (Gainsborough) (Con): I hope that the hon. Member for Bristol, East (Kerry McCarthy) will forgive me if I do not follow her remarks, which I am sure were of a very high quality.

I want to deal with a matter that is at the heart of the work that I do in Parliament—efficiency savings. As the parties move closer and closer together ideologically, the debate will increasingly centre on which party can achieve such efficiency savings. The Chancellor claims that through the Gershon review he can save £21 billion. I support that target, which approaches 5 per cent. of Government spending—a worthy aim.

However, there are various problems, the first of which concerns baselines. In our ordinary life, if we are given a utility bill, compare it with last year's and see that we have saved £20 having spent £200, it is clear that we have made a 10 per cent. saving. Unbelievably, in most Government Departments that clear baseline on individual projects is not available. For instance, the National Audit Office found that out of 300 projects that it looked into under the review, 180 had no baseline. How can one make accurate claims if one does not know one's starting point? That is surely the first essential in any walk of life. The situation is not surprising, because although it has been a requirement on local government to have a professionally qualified finance director since 1988, there is no such requirement on Whitehall Departments. As far as I know, no permanent secretary has ever run a project, although they are highly intelligent people.

In the 2005 Budget, the Chancellor claimed that he had already achieved £2 billion-worth of efficiency savings. If one looks in the detail of the Budget report, though, one finds that only £1.2 billion of efficiency savings is listed. So where has the rest gone? The devil is in the detail. To this day, there is still no full NAO access to the Office of Government Commerce breakdown of the £2 billion claim. The NAO has therefore had to conclude that Departments are not sufficiently subject to OGC challenge. The first problem, therefore, is that we do not know the baseline—the starting point—for these efficiency savings.

The second big problem is that of double counting. The vast majority of efficiency savings, which are now the bedrock of successive Budgets, were already under way before the efficiency programme began. In the NAO sample of 20 projects, 17 were initiated before publication of the Gershon review in July 2004. Many efficiency savings are simply added on to existing programmes rather than being new programmes.

The third problem sounds quite technical but is very significant—it is the inclusion of non-cash-releasing schemes. Perhaps the former Chancellor, my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), will understand what I am talking about, but I will try to explain. The £21 billion saving includes non-cashable elements. That is where I would claim, as Chancellor of the Exchequer, that I am putting the same inputs into a particular programme—it may be number of cancer operations—but getting significantly enhanced outputs. That is a non-cashable release. The position is much less clear than with cashable releases. The Gershon review claims that two thirds of the
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£21 billion saved is based on cashable savings, but the pre-Budget report shows that in fact the figure is only 48 per cent.—so where has the rest gone?

I bring those three problems to the House to try to get a more rigorous discussion of what is now a central element of the Budget debate. Let me turn to why they occur. Unbelievably, the accounts of the Department for Work and Pensions have been qualified by the Comptroller and Auditor General for 16 successive years. An army of 115,000 staff is employed by that one Department, most of whom are not delivering money to the poor but working out entitlements. We are buried in a system that is increasingly based on means-testing, complexity and bureaucracy, and riddled by fraud and error. We now see that the Inland Revenue, which has been the most successful and efficient Government department, is being sucked into this vortex. Previously, it very efficiently took money from the middle classes. It is not expert at delivering money back to poorer people, and its reputation has suffered from it.

The Comptroller and Auditor General already audits Budget assumptions. I propose a much clearer audit trail throughout its forecasts and claims, all of which should be independently validated. I say this to my hon. Friend the shadow Chancellor, although perhaps it is too radical a suggestion: why should not the Opposition parties, when they initiate the equivalent of the James review, offer to have their forecasts and proposed efficiency savings audited by the National Audit Office so that we can have an honest debate? I think that that is an interesting idea—I dreamed it up in my bath last night—and I will suggest it to the Comptroller and Auditor General.

As the hon. Member for Twickenham (Dr. Cable) suggested in his excellent speech, we increasingly have to replace complex, means-tested benefits and tax credits with raising tax thresholds. That is the key, because it can be argued for by compassionate Conservatives who are worried about the fact that as people on lower incomes increase their income, they are paying marginal rates of 60 per cent. tax—far higher than the rich. At the same time, middle class people will work out that as tax thresholds are raised their tax will start to go down. It is a canny thing to do politically—after all, we are politicians—as well as being the right thing to do for the economy and for the poor.

Mr. Charles Walker (Broxbourne) (Con): Does my hon. Friend recognise the huge cost inefficiencies in laundering taxpayers' money back to them? Would not it be simpler if we just raised the tax thresholds at which people start paying tax, and would not that help a huge number of the least-well-off families in our society?

Mr. Leigh: I entirely agree with that sensible proposition, which I hope the Minister has noted.

Helen Goodman : Will the hon. Gentleman give way?

Mr. Leigh: Of course I give way to my fellow member of the Public Accounts Committee—a very effective member and former teenage scribbler in the Treasury, according to Mr. Lawson.
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Helen Goodman: I am most grateful to the hon. Gentleman. I do not think that he was paying attention to the Budget speech last week when the Chancellor said:

Can the hon. Gentleman explain how his proposal would be in line with compassionate Conservatism?

Mr. Leigh: I just tried to explain it. We can argue back and forth about statistics, but I shall not do that. I simply make the perfectly good point that, in every Budget, tax thresholds should relate to the real world where there is growth and inflation. In a fair Budget, tax thresholds should do that, leaving aside the debate on tax credits.

If we are to have an honest debate and achieve the £21 billion of savings, which is achievable—after all, the private sector regularly makes 5 per cent. efficiency savings—on what could we spend the money? The number of people who pay inheritance tax is rising rapidly. This year, 37,000 people were paying it, whereas in 1996–97, the figure was15,000. The amount paid has doubled since 1997, from £1.6 billion to £2.9 billion. If one is spending £550 billion, one can address that tax. I hope that my hon. Friends on the shadow Treasury Bench will view the matter as a priority. It has a massive impact on behaviour and is not good for the way in which families plan inheritance. It often causes disputes, it raises only £2.9 billion and it should be a priority for a future Government.

We could increase efficiency in so many ways. For example, the Chancellor makes a great song and dance about spending £7.5 billion or more on the skills learning sector. The private sector already spends £20 billion because it reckons that too much public sector investment is academically based and not based on what is useful to business.

A sea change in public opinion may be occurring. New Labour's success was its realisation that it needed to marry its belief in social justice with economic efficiency. That was the headline claim. However, buried in that message was a clear realisation that, however compassionate one wants to be, one cannot win elections in this country if one hammers middle class people. I am afraid that, increasingly, middle class people, who are faced with the largest tax burden ever, are beginning to wake up to the fact that they are being hammered. The inheritance tax that I mentioned increasingly bites into ordinary middle class homes.

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