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Stephen Hesford: I question the right hon. Gentleman's encapsulation of productivity—but if he is right, why has growth occurred year after year since the Government came to office? Next year's growth is earmarked to increase. Why is that happening against what he would have us believe is a background of declining productivity?

Mr. Redwood: There has been some growth in the economy, but I am commenting on productivity decline in the public sector and public services. The manufacturing productivity growth rate has been pretty good. Part of that is due to the enormous influence of the international market, which is competitive and forces companies to compete better. However, I am afraid that part of it is due to a large number of factory closures, of which Peugeot and Rover are some of the most public in recent months, which have closed down the less efficient capacity. The average efficiency of what remains therefore increases.

Approximately 1 million manufacturing jobs have been destroyed under the Government, partly because of tax and regulatory considerations and partly because of the international competitive climate. That raises the average productivity growth and overall productivity of the remainder. That is why I am concentrating not on manufacturing but on the public services and the public sector, where the productivity record, on the Government's figures—until they stopped producing them—was poor. It is obvious that the figures must be poor; otherwise the huge sums of money going into the health service and the education service would produce much better results, and not throw up such large deficits and redundancies.

Stephen Hesford: The right hon. Gentleman is generous in giving way. The hon. Member for South-West Hertfordshire (Mr. Gauke), who is sitting behind
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him, raised the same issue in the Budget debate. However, he was good enough to accept that defining public sector productivity is difficult. If the right hon. Gentleman accepts that there is decent productivity in the private sector, does he agree that it is difficult to define productivity in the public sector? Perhaps his point is not well made.

Mr. Redwood: I do not agree. It is easy to calculate productivity in the public sector, and it always was done—until the Government did not like the answer. It is calculated in the same way as that in the private sector. If one gets more for the same amount of resources, productivity rises, whereas if one gets less for the same amount of resources, or if one puts in extra resources yet does not get proportionately more out, productivity falls. That is happening under this Government.

Mr. David Gauke (South-West Hertfordshire) (Con): The hon. Member for Wirral, West (Stephen Hesford) referred to my comments in the Budget debate. I made the point that however one measures productivity in the public sector, the current record is abysmal.

Mr. Redwood: I am grateful to my hon. Friend for clarifying his point.

What should the Government do about the poor productivity record that now blights health, education and other leading services? I hope that they will take the Gershon work more seriously. Gershon was on to something, and it is a pity that so much of the study remains unimplemented.

When will the Government tackle the vast and bloated administration that remains in central Whitehall Departments and in quangos? When will they cut through the huge regional and national administrative overheads, and the comprehensive performance review and best value regimes that so blight local government and local service delivery? When will they get rid of regional and strategic health authorities and much regional government, which constitutes an unnecessary encumbrance, in England? When will they start using natural wastage in the administrative grades in the civil service to cut the numbers in a sensitive but sensible way? When do they intend to establish a target for a much smaller civil service, which delivers more with fewer people, rather than constant expansion every time a Minister introduces a new initiative? When will they procure things more intelligently? When will they cut through the huge army of private sector management consultants who receive generous contracts on practically everything of interest in the public services?

When will the Government get to grips with the bad managerial organisation, which one witnesses health authority by health authority, primary care trust by primary care trust, that led to recruiting people last year and firing them this year, and an army of spin doctors telling us that nothing is going wrong and that no nurse or doctor will lose their jobs, only for us to read in the press that nurses and doctors are losing their jobs? The mismanagement is grotesque, and an enormous waste of money. An analysis at the weekend suggested that only 13 per cent. of the additional money for the health
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service has bought additional capacity, and nurses and doctors who can carry out medical and clinical tasks. Is it not a pity that we did not get half that money to buy the additional capacity that we so badly need?

Mr. Breed: The right hon. Gentleman mentioned the Gershon report. I do not know whether his experience has been the same as mine, but substantial job reductions have occurred in jobcentres, yet because of the complexity of what has to be done, all that has simply created longer queues and piles more work. My constituents, and probably the right hon. Gentleman's, now have to wait much longer for their working tax credits to be understood, and in any crisis. Although a few jobs have been cut, no more efficiency has been achieved, and the brunt of the consequences is borne by the vulnerable people whom the Government aimed to help.

Mr. Redwood: The hon. Gentleman's analysis is not quite right. My local centre was closed and the service has subsequently been much worse. However, I do not believe that overall staff numbers or costs were reduced. I believe that they increased instead, because at the same time as closing small local offices, the Government expanded larger offices in big towns and cities and took on extra people, as well as spending a fortune on a computer system that clearly did not work well. That is a common theme of much of the so-called public sector modernisation that we witness. The IT debacles are enormous.

The main productivity problem in the country is public sector led, and the result of gross waste and mismanagement. It is high time the Government got on with what I believe the Treasury wishes to do—I encourage Treasury Ministers to do it—and started to control the massively wasteful over-recruitment in the administrative and bureaucratic parts of the public sector, cull the quangos, deal with the intermediary bodies that we do not need and ensure that the extra money is targeted on providing additional capacity in schools, hospitals and general practice surgeries, where it is clearly needed. We cannot afford to expand both that and bureaucracy, which appears to have been the Government's priority so far.

As the Treasury Committee points out in its report, the external trade balance does not provide an especially good picture. When the Chancellor was in opposition, he appeared to take great delight in any balance of payments figures that were adverse for the country, and believe that they were enormously significant. Now we hear almost nothing about those. It should worry the Government that the British economy is not as symmetrical or well balanced as it should be, so we are extremely dependent on imports, not only in manufacturing but in some services and commodities. That places enormous strain on the external trade balance, and on financing it. The Government need to think about that. They need to redouble their efforts to create a background for a more productive economy. That means lower taxes, less regulation and creating a climate that is far more favourable to enterprise.

The fall in business investment—or the failure of business investment to grow as quickly as many would like—is a matter for concern. I was glad that the Treasury Committee took evidence about it, but I would
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say that it underestimated the significance of the pensions crisis. Many companies simply do not have the cash to spend on the investment that they would like or that would be welcome, because after the taxman has taken his cut, the second most important claim is the pension fund contribution—and now the pension fund levy contribution, which they have to make under the new laws.

The Government would be wise to examine that and ask themselves, as I suggested in my Budget speech, whether the regulatory system can be amended and improved to get more accurate figures for the pension deficits. I believe that they are currently greatly exaggerated and that that increases the strain on payments into the funds and therefore on corporate cash flows, reducing the amount of new investment.

Labour Members who feel that the pensions crisis is simply the result of companies taking pension holidays at the end of the previous century are way off the mark. No fund could stop paying money into its pension pot unless it was fully funded. They stopped paying extra money in when they were fully funded because, under Treasury rules, they had to. The Treasury regulator said that they could not keep putting money into a pension fund to build up a bigger surplus, as that was against the rules of pension funds. That is quite right. The deficits subsequently arose and they are now exaggerated by the long bond rate, the discount rate and the other assumptions made in deficit evaluation, and they are producing unfortunate knock-on effects for business investment throughout the UK productive sector.

The Government have said that they wish the Budget to be green. Being green is now very popular among all the main political parties, and the Government are welcome to this exciting green party. The Budget measures do not quite live up to people's expectations in that regard, however, and we have already heard some criticisms of them. The Government would do themselves a lot of favours if they went in for friendly greenery. I am a great believer in friendly greenery, which involves giving people a tax break when they do the right thing rather than clobbering them with high taxes if they do the wrong thing. I know that the Lib Dems are in the clobbering camp. We tried to tease out of them earlier just how much they would clobber us for travelling by car or by plane. They were a little coy about that, but they seemed to want to clobber us more than anyone else did. They seem to take pride in being the biggest clobberers of them all—

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