Examination of Witnesses (Question Numbers
220-239)
RT HON
ALISTAIR DARLING
MP, MR DAVE
RAMSDEN, MR
MARK BOWMAN
AND MR
ANDREW HUDSON
30 MARCH 2010
Q220 Ms Keeble: Also, Robert Chote
told us yesterday that the biggest unprotected budget was schools.
In terms of the public making their decision, like Andrew Tyrie
and Michael Fallon said, people need to know what is going to
happen to their services, such as, for example, schools, and if
it is going to be managed cuts or it is going to be catastrophic
cuts. That is the kind of thing that they will make their decisions
on, including what happens to their children's schools, so what
do your cuts look like and then what do they plus an extra £6
billion look like?
Mr Darling: First, we have said
that we want to protect the schools budget, but I have quite deliberately
not got myself into a position of making a promise of a reduction
in National Insurance contributions, and nor would I unless I
was absolutely sure that I could afford it. Otherwise you get
yourself into a situation where you either have to put up another
tax, and it would probably be one of the big taxes to get that
sort of money in and the big tax raisers are VAT and income tax,
or you have got to find your £6.6 billion elsewhere. I make
no bones about it: I want to protect frontline services in the
way I have described but I am equally determined to get our borrowing
down. I think people in this country, people who look at our country,
everyone has agreed you have to get your borrowing down and you
cannot take risks with that, and that is why I find that particular
proposal so difficult.
Q221 Ms Keeble: Do you think the
extra £6 billion is possible through efficiency savings given
the questions we have had about the existing proposals? Do you
think the proposal that that can be got through efficiency savings
is plausible?
Mr Darling: It is tempting to
say your questions should be better addressed to those who think
they have found them, but all I would say is that if you look
at the £6 billion that Mr Osborne was referring to yesterday,
they include, for example, relocation of offices. That is already
factored into the figures that we have previously announced, so
that is not new money, and in relation to cancelling some IT projects
we have done some of that as well. I think there is a risk of
double counting, but I think it would be a big mistake to rely
on getting money when, by their own admission, they do not know
where it is coming from. They cannot even allocate it between
departments. If you have already spent it you have a binding commitment
but if you have not got the income to pay for it then it is rather
like any other organisation, you have got shortfall and you have
got to make it up somewhere else unless you completely do a cartwheel
and say, "I am not so bothered about borrowing". I think
that would be a big mistake.
Q222 Ms Keeble: You referred just
now to the attitude other people have towards our country and
towards the programme for fiscal consolidation. If the markets
were to begin to charge a higher premium on UK debt would you
then look at more substantial cuts with the resulting possible
risk to economic growth?
Mr Darling: I have made my forecast
on the basis of my proposals, so I am just talking about my proposals
now, not anybody else's. One of the encouraging things is, if
you look at what we are paying in debt interest at the moment,
it is less than we thought we were going to be paying, and indeed
yields have come down slightly. They are around about 4% at the
moment, which is historically a lot lower than they were. I think
most people looking at us will say, "Britain has gone through
a very difficult period", most people say that the strategy
we have followed was the right one and most people, I think, know
that we have got to get our borrowing down and we have to get
it down at a rate which is manageable. To give you an illustration,
if you wanted to do this over a three-year period, you would have
to take another £26 billion out of it or, if you wanted to
eliminate the structural deficit altogether in the next Parliament,
I think it is another £48 billion you would have to find.
If someone wants to do that, that is fine, but you actually have
to spell out where you are going to do and that rather reduces
your room for manoeuvre on anything where you have not got proper
funding. In relation to debt interest, one of the reasons I would
like to get borrowing down and then debt down is I have always
believed that, if you have got money to spend, it would be better
to spend it either on services that people depend upon or perhaps
reducing taxes, especially for people who are low-paid. Servicing
debt is not really where you want to be spending your money.
Q223 Ms Keeble: In the middle of
this, and clearly there are some big challenges ahead around managing
the budget, there is also the need to hold to some of the political
priorities which the Government has, in particular, the targets
on child poverty. What is your view about the feasibility of that?
We heard yesterday that the Commission will actually produce a
strategy and that will be carried through, but what realistically
are your projections about that, and will the Government ensure
that that strategy is maintained and put into effect?
Mr Darling: We were the first
Government ever to say that we wanted to eradicate child poverty.
We have made progress and the measures we have announced and are
already in place or did announce will take one million children
out of poverty. It is not just money as well, it is the whole
question of education, and Sure Start centres are all part of
what we are trying to do. As far as I am concerned, it is a commitment
that we signed up to and a commitment over a 20-year period, and
we are not departing from it.
Q224 Ms Keeble: So the Department
is going to continue to focus on that?
Mr Darling: Yes.
Q225 Ms Keeble: Because in some of
the previous sessions there have been some concerns raised by
officials about the fact that there were conflicting priorities.
Mr Darling: It is not just a good
social policy, it is not just that it is the right thing to do,
but it is a very good economic policy as well because there is
quite a high correlation between poverty, lack of educational
skills and, therefore, low income because of lack of work. Indeed,
one of the central parts of what we have tried to do in the last
13 years, and it was the central plank of our 1997 Manifesto,
was getting people into work because work is one of the best ways
of beating poverty. There are other things you need to do, like
the tax credits, which is why I do not want to cut them, and raising
people's aspirations, which is why the Child Trust Fund is an
important element of that, and giving people a stake in the future.
I think there are a number of things that you need to do. Obviously,
there are some years when you can do more than in others and I
think people understand that. In the last year, our priority has
clearly been to keep people in work because, once people go out
of work, incomes drop and then you have a big, big problem, and
that is what I have been trying to avoid.
Q226 John Thurso: Chancellor, if
I may, I want to ask you a bit more about the efficiency savings,
but can I just first ask a factual question regarding personal
allowances. These have all been frozen for the forthcoming year.
Does that mean that everybody in real terms will have an albeit
modest reduction?
Mr Darling: Let me explain what
I did. Firstly, the policy of freezing the allowances was announced
in the Pre-Budget Report on the floor of the House of Commons.
I know that some of us who are MPs sometimes feel that we want
to say something confidentially and there is no better place than
the floor of the House of Commons! A lot of us have this problem
that it is a very good way of keeping a secret, but that is where
it was announced. As you know, your personal allowances and the
indexation are driven off the September RPI. Last September, for
the first time in ages, it was negative, so, in theory, the allowances
would have come down which would have meant that people were paying
more tax, which I did not think was a very good idea. That is
why I said I would freeze them, because indexation under the normal
rules which successive governments have followed for years would
have meant that they would have come down, so that is what I did.
Q227 John Thurso: But for the year
coming forward, in real terms, we will have a minor reduction?
Mr Darling: What would have happened
is they would have come down and you would have had to pay more
tax. That is why I froze them and that is why I did something
similar in the Budget. I am told that this has been the case since
1977.
Q228 John Thurso: But the straight
fact is that in the year ahead, coming forward, whatever you would
have done in the past, we will actually be, to a modest degree,
slightly worse off.
Mr Darling: Or the alternative
would have been to reduce it. In real terms, therefore, what we
tried to do was to maintain things.
Q229 John Thurso: I am just trying
to get a straight answer to a straight question.
Mr Darling: You are right, it
was suggested in some quarters that we should have increased the
allowances in the Budget last week and that would have cost another
£2 billion more, which at the moment would have been impossible
to have done but, given that inflation is coming down this year,
when people look at their income as a whole, I think that is helpful.
The reason, I will explain what I have done and why I did it.
Q230 John Thurso: Will you do the
same as you did for pensions and so forth, which is to claw back
the 1.5% this September coming?
Mr Darling: If you recall, and
this was in the Pre-Budget Report, what I did was to make sure
that people got an increase over the two years.
Q231 John Thurso: You put them up
by £1.1 billion.
Mr Darling: It was one of these
funny calculations people were doing. We were not taking money
away from people, we were saying, "Look, rather than give
you nothing now and wait until two years' time", we were
saying have a bit now and the rest of it in the next year. That,
I think, was a more sensible way of proceeding.
Q232 John Thurso: But what your Minister
confirmed on the Statutory Instrument was that, if inflation is
1.5% this September, there is a 1.5% disregard, so it will be
zero.
Mr Darling: But the alternative
would have been to say, "You get no increase this year, you
can wait for it".
Q233 John Thurso: We agree on the
facts.
Mr Darling: Given that pensioners
generally do not have high incomes, I would have thought that
it would have been a bit churlish to have done that.
Q234 John Thurso: I think we agree
on the facts. Can I ask you about the efficiency savings. I think
it is paragraph 2.57 on page 30 which sets out that, in respect
of expenditure, you are looking for something over £20 billion
of reductions, of which £11 billion is from operational efficiencies
and other cost-cuttings, £5 billion from targeting and prioritised
spending and the rest from restraint on public sector pay. Given
that the National Audit Office has still not agreed the numbers
on the last round, is it really wise to count on this for actual
cash reductions in the deficit?
Mr Darling: Yes, because I think
this is something that we can achieve. Para 2.57 is the one that
you were referring to, and in relation to public sector pay and
in relation to public sector pensions we can see how much that
can be achieved. I think the other sums referred to, efficiencies
if you like, I believe this is something that we can deliver.
We did deliver about £26.5 billion following the 2005 election
and, yes, of course we want the NAO to be able to confirm these
things, but I do not think you could hang around waiting until
you do that. I think it is better that you keep having to set
demanding targets, and I think they are deliverable.
Mr Hudson: Just to clarify, the
NAO Report, which I am assuming is being referred to, was midway
through the delivery of the Gershon savings and a good deal of
work was done subsequently to deliver the overall total of £26.5
billion savings that the Chancellor has just referred to, which
is an over-achievement on the savings target there and where we
also over-achieved on the headcount reduction target, which was
part of that saving, so there is evidence of over-achievement
there once the process was complete, which was after the NAO published
that report.
Q235 John Thurso: Chancellor, nobody
would dispute that in any organisation there are savings to be
had. Anybody who has ever run a business knows that at any moment
it is a dynamic and you can always find a saving. There is a lot
of scepticism from people in the business community about these
savings because, first of all, they are resource rather than money
and some of them are non-cash, secondly, efficiency is usually
linked to productivity, whereas you were talking about the NHS
earlier, which is of course ring-fenced, so it will not be used
for this, but productivity over the period of the efficiency gains
has gone down, not up, so you have this curious conundrum of theoretically
going through efficiency with actually lower productivity. Most
people understand the balance sheet of profit and loss and a cashflow
and are really pretty bamboozled as to whether these are real
or not. How can you reassure them that these are actually cash
numbers that can be put aside and put in the bank to reduce the
deficit rather than resource accounting with no cash involved?
Mr Darling: I was just going to
make the point that the total amount of money that we will be
spending this year and departments are spending is about £350
billion. I do not think it is impossible to say in this particular
case, "You can save £20 billion". As you say, every
organisation can do it. I suppose there are two ways you can do
it. You can either say to a department, "Well, that's your
total, you've got that minus X. Find your X in whatever way you
want, but you're not getting it", or you can do it by saying,
"Look, these are areas where I think you can be more efficient,
whether it's your premises, whether it's your IT, or doing more
things with less people", but there is a variety of ways
of doing it. I would just make a point about productivity. Productivity
is always difficult within the terms. If you take the NHS, for
example, if you have got more doctors and nurses because you are
treating people more intensively, if you like, that does have
some influence on how you might measure productivity and you cannot
really compare that with a factory that is making metal boxes
or whatever where you can do it with ever-decreasing numbers of
people. I honestly do think that these are efficiencies that we
can get out of the system or, to put it another way, we need to
get them out of the system because we cannot just go on spending
more and more money, people would not expect us to do that.
Q236 John Thurso: Really, you are
putting your finger on the point. A lot of people say, "Fine,
we know we've got to reduce spending", and that is called
a `cut', but everybody is doing their damnedest not to call it
a `cut' and they are trying to call it an `efficiency gain'. Do
you not think everybody would just be a bit more respectful of
all of us if we said honestly, "We are going to cut something.
It is not actually about efficiency, it is just about reducing
expenditure"? Is the country not grown-up enough to be able
to take that on board?
Mr Darling: I do not think anyone
is afraid of saying that they are going to cut something, whether
it is because they do not want to do it, because they can think
of a better way of doing something or simply because it is going
to have to be put off. I do not think there is any problem with
that. If you look at it this way, and let us go back to the NHS
because we have been talking about that, what matters to people
is the outcome: can they see a consultant within a couple of weeks
if they are suspected of having cancer, is there better health
screening, the MOTs for men over the age of 40, and the treatment
you get if you go to your GP practice or the hospital. Most people
will accept people are involved in that, the services and so on,
but they would expect the organisation to provide that as efficiently
and effectively as possible. Indeed, the NHS itself will tell
you that, if it took a sample of 100 hospitals, some will be more
efficient than others. I think that is rather different from if
you, say, for example, decided to cut Sure Start, which I am not
proposing, and some people might, but I am not, but that is a
cut and an efficiency, if you like.
Q237 John Thurso: The NHS, you have
told us, will become more efficient and will get money, but that
money will be redeployed, so it is a movement of resource from
an inefficient outcome to an efficient outcome; you will not actually
be taking money out of their budget.
Mr Darling: Yes, in the protected
part.
Q238 John Thurso: So, as far as reducing
the deficit is concerned, the NHS is actually irrelevant because
no cash is coming out of that, but there are other efficiency
savings which will be used as part of the deficit reduction?
Mr Darling: Yes.
Q239 John Thurso: And those are the
ones which need to be in cash.
Mr Darling: Yes.
Mr Hudson: And there is more detail
in the departmental press releases than certainly I can recall
at this stage of the process, given that these are savings to
be delivered in full by 2012-13. There is a substantial body of
work in the Operational Efficiency Programme, which reported a
year ago, on at least some of the ways by which departments can
deliver these programmes, so those are the reasons for confidence
that these can be real efficiencies.
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