HC Deb 23 July 2002 vol 389 cc890-953

[Relevant documents: Minutes of Evidence taken before the Treasury Committee on 17th and 18th July on the Spending Review 2002, HC 1092-i and U.]

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Sutcliffe.]

5.55 pm
The Chief Secretary to the Treasury (Mr. Paul Boateng)

At the heart of this spending review is a passionate belief in the value of public services and in the potential of the British people. It also shows a passionate belief in the value of education in achieving that potential and of health in maintaining it. It recognises the need always to drive forward, with an emphasis on science, the creation of a competitive and productive economy with enterprise at its base. It also recognises, however, that common sense demands that, to deliver the outcomes that we desire for our country, there must be new investment. Common sense, too, dictates that this investment will not be enough without reform. Passion and common sense, investment and reform are the linchpins of this spending review.

Compare and contrast that with the approach of Conservative Members, a dispirited and lacklustre bunch still reeling after the letting of much blood. By the look on their faces, I fear that some of them are a little crazed by it all. The chairman of the Conservative party has gone; the shadow Chief Secretary to the Treasury has gone. Both have apparently been promoted. However, let me send my felicitations to the former shadow Chief Secretary, the hon. Member for Buckingham (Mr. Bercow). We will miss him; they do not often make them like that. That at any rate was clearly the view of one of the shadow Chancellors, but I will come to him in a minute. I genuinely want to congratulate the hon. Member for Arundel and South Downs (Mr. Flight) on what is a genuine promotion. He has worked hard for it, and I hope that he lasts a little longer than his predecessor.

There is something of the night about recent events. For instance, why is the shadow Chief Secretary, whoever it was to be, not opening for the Opposition in this debate? That is the precedent in the House. [HON. MEMBERS: "No."] Opposition Members must get their facts right. The previous debate on the spending review, the one before that and the one before that were all led by the Chief Secretary and the shadow Chief Secretary. A week ago, why did we discover that the shadow Chief Secretary, whoever it was to be, would not lead for the Opposition? The shadow Chancellor was going to lead, so could it be that he was absolutely determined that, whoever was to be made shadow Chief Secretary, there was no way that person would lead for the Opposition?

Mr. Michael Howard (Folkestone and Hythe)

Since the Chief Secretary asks the question, I will give him the answer. We were told that, if I opened in the debate, the Chancellor might speak in it. It is a matter of great regret that he is not coming to the Dispatch Box to defend his spending review.

Mr. Boateng

They were never told any such thing. Let me suggest a reason—

Mr. Deputy Speaker (Sir Alan Haselhurst)

Order. It would be a good idea if Members settled down. This is an important debate that is unfortunately taking place in restricted time.

Mr. Boateng

I am much obliged, Mr. Deputy Speaker.

The reason why the hon. Member for Arundel and South Downs was not allowed to speak for the Opposition on this matter—

Michael Fabricant (Lichfield)

On a point of order, Mr. Deputy Speaker. As you rightly said, this is an important debate. The Minister has been speaking for five minutes, yet so far he has not begun the debate. Do you not think that that is an abuse of the House and, more to the point, an abuse of Back Benchers?

Mr. Deputy Speaker

Fortunately, the Chair has no responsibility for the content of the speech of any right hon. or hon. Member. I was merely suggesting that the debate on public expenditure can occupy only just over four hours, so Members should quieten down so that we can listen to the arguments.

Mr. Boateng

It was the shadow Chief Secretary, the hon. Member for Arundel and South Downs, who rather gave the game away as regards the Conservative approach to the spending review. In a memo to the shadow Chancellor, he said that the reforms that the Tories would be proposing would end the NHS monopoly and entail those who can afford it making some payment for health care services. That is the view of the new shadow Chief Secretary about the NHS and about charges. That is the truth of the matter.

Mr. Howard Flight (Arundel and South Downs)

Will the Minister add that the Government came by that confidential memo by improper means?

Mr. Boateng

I can understand why the hon. Gentleman deny the accuracy of the quote. I shall give him the opportunity to deny either that that was his view then or that it is his view now. He is not doing so. We know, then, that when Conservative Members talk about reform, they mean charging.

Gregory Barker (Bexhill and Battle)

Have the Government ever put up prescription charges? Do you charge for spectacles, dental checks or dental care, or are there no charges in your NHS?

Mr. Deputy Speaker

Order. There are none in mine.

Mr. Boateng

The reality is that the hon. Member for Arundel and South Downs was talking about private insurance, which is the reform that the Conservative party has in store for this country should it ever again have the opportunity to exercise power.

The spending review is focused around four key objectives: raising productivity so that Britain can be more prosperous; extending opportunity by investing in education; creating strong and secure communities matching rights with responsibilities; and, in relation to Britain and the wider world, maximising the opportunities for our country and for managing globalisation and minimising the insecurities of the world in which we live. Economic stability and sound public finances are the basis upon which better public services can be delivered.

Difficult decisions had to be taken in the first term—the independence of the Bank of England, tough fiscal rules and strict control of the public finances. No one could pretend for one moment that any of that was easy, but it worked and it provided the basis on which to build. Five years on, the state of our public finances is sound and, despite uncertainties in the global economy, inflation is under control, interest rates have been low and stable, and employment and growth continue to rise. Over the economic cycle, we will meet our fiscal rules even on the most cautious case. We are saving £20 billion a year on debt interest and a further £10 billion through cutting the cost of unemployment. Those extra resources have made it possible to recruit more nurses, doctors, teachers and police officers than at any time in the past two decades.

Mr. John Redwood (Wokingham)

Will the Minister give way?

Mr. Boateng

In due course.

We have never entered a period of global uncertainty in a stronger position than we do now. We will steer a steady course with the strength to make decisions for the long term. That is what the spending review is about. Holding strictly to the total spending envelope that the Chancellor set out in the Budget, we are raising departmental spending from £240 billion this year to £263 billion next year, to £280 billion in 2004–05, and to £301 billion in 2005–06—in total, by 2006, that will be £61 billion a year more for improved public services. That is what Conservative Members cannot bear to hear.

Mr. Redwood

Can the right hon. Gentleman explain to my constituents in Wokingham why our primary care trust has just received a letter saying that instead of the 76 general practitioners that we currently have, we should have only 63, and that funding is to be adjusted on that basis? Is not that a cut rather than an increase?

Mr. Boateng

The right hon. Gentleman is calling for more, not fewer, resources. He and his right hon. and hon. Friends must answer these questions. If they oppose our spending plans, what are theirs? What are their priorities and policies? What would they cut? How would they raise the money? They say absolutely nothing about that. The right hon. Gentleman knows that in supporting the money that we are passporting directly to schools on the front line, he is opposing the policies, such as they are, of his Front Benchers. He should have the honesty to say as much.

The increased investment must be matched by real and radical reform. In each area of service delivery, we will ensure that new resources are tied to reform and results. We are setting demanding national targets; introducing independent and open audit and inspection; giving frontline staff the power and flexibility to deliver; extending choice; and rewarding success and turning round failing services.

Mr. George Osborne (Tatton)

Will the Minister give way?

Mr. Boateng

In due course.

In the Budget, we set out our programme for the NHS. None of us can know when we might need the NHS. All of us are entitled to use it without fear of charges and without having to worry about the consequences for our loved ones when we do. That is the great success of the NHS. It is an act of collective will on the part of the British people that we will all take responsibility one for the other to relieve us all of the fear and pressure of growing ill and growing poor at the same time. That is what we owe to the founding fathers and mothers of the NHS. That is the legacy that we inherited and are determined to take forward, and that is what Conservatives opposed in 1945 and would wreck now if given half a chance.

In April, there was a Budget for the NHS. Now, there is a spending review for education. That is as we promised: schools and hospitals first. The only guarantee of prosperity in an uncertain world is the skills that are needed to cope with change. Investment in education and skills—investment that was neglected by the Conservative party—is the best guarantee of families' future prosperity, and that is the guarantee that we give to the people of this country. However, resources must be tied to reform. Reform of the primary school system has helped teachers and children to achieve a step change in standards. Today, 75 per cent. of 11-year-olds achieve the expected literacy standards, compared with just 57 per cent five years before. The work goes on. Our next task is to extend those improvements to secondary schools. The Secretary of State for Education and Skills has announced her reforms to raise standards, to enhance choice and diversity and to tackle poor pupil behaviour in our secondary schools, so that schools can develop the talents of all.

We are already delivering real results. There are more teachers, class sizes have fallen, more than 125,000 adults have been helped to improve their basic skills, and the number of students in our universities has increased by 87,000. However, there is no room for complacency. We want a culture of continual improvement. We want more children to achieve higher standards of literacy and numeracy, more teenagers to get five good GCSEs, and more young adults to stay in education and training—50 per cent. of them with experience of university by 2010.

Education is the best defence against changing circumstances; it is the best hope of future prosperity. Investing in the children of today is investing in the productive potential of tomorrow. This spending review not only divides up the cake within closed national boundaries, but seeks to make the cake bigger in an open, global economy. That is true in education, science, competition, planning, knowledge transfer, enterprise and regional development.

In each of those areas we are providing increased resources: a 10 per cent. real-terms rise in the science budget each year; and an increase in the budget of the Office of Fair Trading. from £34 million this year to £55 million by 2005–06. We are promoting independence and delegating responsibility; there are independent competition authorities, and new powers for regional development agencies over planning, transport and tourism. This is about the enterprise-driven economy—one in which competition and productivity go hand in hand.

There is investment in each of those areas and in housing, neighbourhood renewal, transport, the countryside, and resources to assist the implementation of the Curry report. There are resources to assist the voluntary and community sector, and the police and the Prison Service. There is investment in defence to combat the insecurity of an interconnected world, and in development as we take up arms in the war against want. That is investment that must be matched by reform.

Mr. Osborne

I am grateful to the Chief Secretary for allowing me to interrupt his pocket-book sloganising to answer my question. While he is talking about spending increases, will he put this debate in context and tell us which taxes have gone up to pay for them—and where those tax increases were spelled out in Labour's manifesto?

Mr. Boateng

The hon. Gentleman normally does better than that. There were many of us who were glad that he was not on holiday and hoped for his preferment. [Interruption.] Let me answer his question. My right hon. Friend the Chancellor laid out our policies for taxation in the Budget. As a result of the decisions that he has taken, our rates of company taxation are lower than those of all but 12 of our partners and competitors in Europe. It is because of his decisions that this country is now a preferred destination for inward investment, second only to the United States. That is because of his fiscal policies. They are the envy of the world, and the hon. Gentleman ought to have the grace to accept that.

Mr. Alex Salmond (Banff and Buchan)

Will the Chief Secretary give way?

Mr. Boateng

No, not at the moment.

It is important that we ensure that investment is linked to reform. That is the significance of the public service agreements. There has been much interest in the past few weeks in PSAs, and it is right that there should be. It is important that we have a proper debate, but there should not be any great party political difference on the subject. PSAs are about transparency, accountability and good governance—an agenda to which we can surely all sign up.

The charge is that PSAs are in some way a manifestation of this Government's supposed centralising tendencies, but in fact the reverse is true. By setting clear and measurable targets, publishing information on those targets, and collating the information in one easily accessible location, we empower not the Government but the people who elected us and who can use the information to hold Departments to account.

The National Audit Office has said: the introduction of Public Service Agreement targets, and in particular the move to outcome-focused targets, is an ambitious programme of change which puts the United Kingdom among the leaders in performance measurement practice. Even right hon. and hon. Members who represent the Liberal Democrat tendency ought to recognise and welcome that. [HON. MEMBERS: "Where are they?"] At least one of them is present, and that is more than enough. [Interruption.] Good, another one has joined us.

We must take this debate forward on a clear understanding of PSAs. They set out a Department's plans to deliver results in return for the investment that it receives. They are focused on outputs and not inputs. They provide a clear statement of priorities and a clear sense of direction around which all those involved in delivering can focus. They are part of a culture of transparency and accountability, but require an attitudinal shift: that all of us engage and recognise the need for continued improvement.

Mr. David Cameron (Witney)

Will the Minister explain why the Lord Chancellor's Department's PSA target of paying small businesses within 30 days had to be dropped after conversations with the Treasury?

Mr. Boateng

The hon. Gentleman must recognise that the inclusion of such a target is designed to drive forward performance.

Mr. Cameron

So why was it dropped?

Mr. Boateng

If the hon. Gentleman examined the Department's performance, he would see that it is the Lord Chancellor's Department's intention and practice—it has delivered on that intention and practice—to provide a better service to small businesses. The whole point of such a target—[Interruption.] Opposition Members who question the need for targets and their value should give some credit where there has been achievement. They need also to understand that the whole point of the targets is not that they should run in perpetuity. It is rather that they should provide a focus for improvement and that that improvement should be delivered. That is the case for the example that the hon. Gentleman has cited.

Mr. John Bercow (Buckingham)

Will the right hon. Gentleman give way?

Mr. Boateng

No, not at the moment.

As part of the spending review process, Departments set out alongside their bids their proposed PSAs. They are discussed along with the Departments' track record of delivering against existing targets, and once agreed, Departments are then responsible for reporting progress and delivering on their PSAs. The advantage of that approach is that it addresses precisely the question on Departments' performance that hon. Members on both sides of the House have raised on behalf of their constituents: they provide the opportunity to examine whether there has been progress.

Mr. Edward Davey (Kingston and Surbiton)

While the Chief Secretary is on the subject of PSAs, will he explain how the Foreign Office will meet its top PSA, which includes a target of reducing poppy cultivation in Afghanistan by 70 per cent. within five years?

Mr. Boateng

The reason why such a target exists ought to be self-evident to anybody who is concerned about drugs on our streets. When we are applying large sums of public money in order to enable the Foreign Office, the MOD and agencies that have responsibility in this area to take forward our anti-drugs policy, it is absolutely right that we should be able to demonstrate at the end of a prescribed period that that has made a difference.

Mr. Davey

That is stupid.

Mr. Boateng

There is nothing stupid about it. It is clearly important that Departments understand that they need to work in ways that deliver results and that those results should be measurable. Those who cry out against such targets have to explain how they intend to ensure that value for money is secured and that Departments respond in a way that is capable of demonstrating that they are making best use of the money available to them.

Mr. Bercow

Will the Chief Secretary give way?

Mr. Boateng

No, I will not allow the hon. Gentleman to intervene at the moment.

This is our responsibility, and it is ultimately for the House, on the basis of the evidence approved by the National Audit Office and the Office for National Statistics, to judge whether targets have been met and to hold Ministers and Departments to account for their successful delivery. That is about transparency and accountability, and it is a vital part of good governance.

Roger Casale (Wimbledon)

My right hon. Friend is right to stress the importance of public service agreements, which will help the public, above all, to see that the extra money that the Government are putting into public services is being wisely spent. Under the Conservative Government, public service agreements—had they existed then—would have helped the public to register the fact that no investment was being made.

Mr. Boateng

My hon. Friend makes an excellent point. Alongside PSAs lie independent audit and statutory inspection. Departments and agents are fully accountable for their performance against those targets.

Mr. Bercow

I am extremely grateful to the Chief Secretary for giving way to me. Unfortunately, his rhetorical overload cannot camouflage the Government's dismal record of underperformance. Can he answer this very straightforward question: why did the Treasury set itself a public service agreement target and guarantee to measure the level of Treasury output, only to announce now that it has not proved possible to measure aggregate Treasury output"? Why should we have any confidence in the Government's performance on other public service targets if the Treasury cannot even identify and meet its own?

Mr. Boateng

Because we have met our other targets, and because 90 per cent. of all the targets set by the Government for delivery in 2002 have been met or are on the way to being met. The reality is that all the huff and puff in the world cannot hide the fact that we need to make sure that resource delivers improved performance. We have to have a transparent and accountable system, and PSAs are the best way to achieve that.

PSAs are also about devolving responsibility from Whitehall. They are about empowering primary care trusts, head teachers and governors in schools, police commanders and local service providers—all people to whom the Opposition would deny resources and who saw the very infrastructure within which they work eroded under 18 years of successive Conservative Administrations. We are about ensuring that by working with new partners in the private, voluntary and community sectors we create a system of public service delivery that is focused on outputs and reform and which delivers a better quality of service to all our people. We want a strong, vital and independent voluntary and community sector delivering public services in a way that promotes choice, flexibility and consumer focus, reaching out to disadvantaged groups and tailoring services to their needs. Sure start and the children's fund demonstrate how much the public and voluntary sectors working together can achieve.

It is no use the Opposition describing partnership as cliché. We have made available a significant increase in child care provision. Our approach has created and is in the process of delivering 250,000 child care places by 2006, targeted on the most disadvantaged areas. That is not only about ensuring that children get a good start in life, but about bringing women back into the workplace and enhancing and improving productivity—all things that the Conservatives failed to do when they had stewardship of our economy.

We want to build on the partnerships that have been created between the voluntary and community sectors and Government. In the course of the cross-cutting review of the delivery of public services by the voluntary sector, it became clear that there were still areas in which improvement was needed and that barriers needed to be removed. As a result, I can announce that there is to be a new one-off three-year fund worth £125 million to help such organisations in their public service work. Called futurebuilders—[HON. MEMBERS: "Oh dear."]—the aim of the fund is to increase the scope and scale of voluntary sector service delivery, to remove obstacles in the path of organisations that want to deliver services, and to provide the means to modernise operations in the long term.

It is no use the Opposition saying, "Oh dear," because as we speak voluntary organisations such as the Leonard Cheshire fund are out there, working with local authorities—[Interruption.]

Mr. Deputy Speaker (Sir Michael Lord)

Order. May I say to the hon. Member for Ealing, Southall (Mr. Khabra) that that is the second time his phone has gone off in the Chamber? As far as I am concerned, that is one of the most serious crimes that an hon. Member can commit.

Mr. Boateng

Voluntary organisations are out there, working with local authorities and community groups, to deliver a better quality of service to some of the most disadvantaged and vulnerable sections of our society. We are about making sure that such organisations have at their disposal the means to deliver and take forward their plans, thus empowering and enabling local communities to take responsibility for the vulnerable, the disabled and the disadvantaged in ways that enable better delivery of public services than has hitherto been provided.

Public services exist to serve the public. When they are underfunded, as they were under the Conservatives, the people are the poorer. When they underperforrn, as they do when management is weak and the right systems are not in place, the people are let down. High performance must be rewarded with more responsibility and more resources. Failure cannot and will not be tolerated, so in the present review, for the first time, Departments are to introduce effective sanctions against failing institutions—not withdrawing resources and so punishing the public, but bringing about that attitudinal, cultural and systematic shift to focus attention on performance and deliver against targets of continual improvement.

That is not something to be rubbished or decried. Failing schools, education authorities, colleges, social services, local authorities, police forces and prisons—all will be enabled and empowered to deliver, but all will understand that if they fail to do so, there will be consequences. We cannot allow resources to be wasted.

We have set out a framework for progress—a framework in which resources are tied to reform in order to deliver results. It is a vision for public services that has at its heart the concrete steps that it is necessary to take to enhance opportunity and security for all in this changing world. Above all, it is about bringing together people in partnership for change—[HON. MEMBERS: "No!"] The Conservatives do not like the notion of partnership—they do not accept that there needs to be a change in the way in which we deliver services. They do not accept that because they do not trust the people and they were never prepared to make the resources available. They do not accept that because, fundamentally, they do not like public services.

We believe in public services. We believe in the values and ethos of public service. Only the Labour Government can be trusted to protect that and take it forward. That is why we are sitting over here, and the Conservatives are condemned to remain over there.

6.29 pm
Mr. Michael Howard (Folkestone and Hythe)

Unlike the Chief Secretary, who took eight minutes—almost a quarter of his speech—before he got round to the spending review, I want to talk about the review. Last week, the Chancellor had the opportunity to signal real improvements in public services to end the crisis in the national health service, to bring order to classrooms where, too often, disruptive children prevent standards from rising for all and to get the police back on the streets fighting crime. Our public services can and must be improved, but to improve them requires vision, leadership and real reform. These things the Government have constantly promised, but last Monday the Chancellor once again failed to deliver them. Today, despite the fact that he has taken personal charge of delivery in this area, he has not even come to the Dispatch Box to defend the Government's record.

Perhaps that is no surprise. Last week—

James Purnell (Stalybridge and Hyde)

Will the right hon. and learned Gentleman give way?

Mr. Howard

No. The hon. Gentleman will have to wait. Last week was not the Chancellor's first spending review, but his third. The country can be forgiven for a sense of deja vu because his recipe is always the same. First, he announces record amounts of money. We have his word for that. In 1998, the extra money was said to

be the biggest ever investment in health and education. In 2000, it was record investment. Last Monday, it was more of the same.

Then comes the spin. With the Chancellor, not everything is what it seems. [Interruption.] It is no good the Chancellor chuntering away like a man possessed on the Government Front Bench. He should listen.

The Chancellor refuses to update his growth forecasts, even though most commentators think that they are optimistic. However, he is quick to take credit for changes in forecasts of unemployment and interest rates. If new forecasts help his presentation of public finances, he does not hesitate to use them. If they do not, he ignores them. Why did the Chief Secretary not explain why the Chancellor has ducked repeated requests to say whether he envisages yet further tax rises, even in this Parliament? He avoided the question six times on "Today" and he did so again last week in response to questions from my hon. Friend the Member for Buckingham (Mr. Bercow). Despite repeated questions, he did so yet again before the Treasury Select Committee. Why cannot the Chancellor and the Chief Secretary come clean on that?

Secondly, there are questions about the way in which the public debt is classified. Both the National Audit Office and the Statistics Commission have queried the way in which the Chancellor proposes to deal with the £21 billion borrowing of Network Rail. Why are not the Government including that borrowing in their accounts? Why is it being taken off-balance sheet? Is that not a classic case of Enron-style accounting?

The third ingredient in the Chancellor's recipe, after more money and more spin, is that he flunks real reform. Real reform means allowing teachers to restore discipline in the classroom, police officers to get back on the streets to fight crime, and doctors to treat patients without constant diktats from Whitehall. It means trusting professionals to get on with their jobs. It also means being willing to learn from success in other countries. Measured against those benchmarks, real reform of our public services has not taken place, is not taking place, and never will take place under this Government.

Mr. Tom Harris (Glasgow, Cathcart)

The right hon. and learned Gentleman rightly says that reform is key. Does he agree that new funding is key? Will he commit himself to matching the extra funding that has been provided by the Government?

Mr. Howard

We will not be bound by the spending commitments that derive from policies that are failing. In due course, we shall bring forward our own spending commitments, which will derive from our policies, which will succeed. That is the difference.

David Wright (Telford)

Since 1996–97, spending per pupil in the right hon. and learned Gentleman's constituency has risen by 18.9 per cent. Will he be writing to every head teacher in his constituency to say that that cash will disappear?

Mr. Howard

The hon. Gentleman may have overlooked this, but we are talking about the Chancellor's spending review and his plans for the future, not about what has happened since 1996–97. We are concerned with the future, rather than the past.

The truth is that Ministers want to improve public services. Of course they do. I understand that and I give them credit for it, but they simply do not know how to. As a result, they can only spend more money each year. However, more money without real reform will not work.

The Chancellor's substitute for reform is targets, about which the Chief Secretary waxed—I cannot say that he did so eloquently, but he waxed. Last week, the Chancellor gave us a new batch of public service agreements, and they are worth looking at in a little detail. For the past four years, we have been told that they lie at the heart of the Chancellor's strategy, that they are central to his drive to improve public services, and that they form the very bedrock of his agenda. He announced them in his very first spending review in a fanfare of publicity, saying that they were an "essential change", helping to ensure that the Government would do what they did "to the highest standard".

What has happened since? One independent analysis found that no fewer than 44 per cent. of the targets set by the Chancellor had not been met by the required deadline.

Four years ago, the Chancellor placed particular emphasis on targets for efficiency improvements. The purpose of these, he said, was to ensure that more resources go directly to front-line services."—[Official Report, 14 July 1998; Vol. 316, c. 188.] If the Chancellor places such great emphasis on these targets, why was he unable to tell me last week why the 3 per cent. health efficiency target was first failed and then cut? Will not that lead to £890 million less in resources for patient care in the health service?

What about the Chancellor's own target for efficiency gains? The Treasury efficiency target has itself been dropped altogether. The reason given is that the Treasury could not measure its own output. Was it not possible for the Chancellor to think about that before setting the target in the first place? How can he lecture other Departments about meeting efficiency targets when he cannot meet his own?

The efficiency targets are not the only targets to be dropped or cut as a result of the Government's failure to deliver. The Home Office target on the removal of failed asylum seekers has been cut. The measurable target on fear of crime has been dropped. Instead, the Home Office will aim to increase to 1.2 million the number of crimes for which offenders are brought to justice. Presumably, the latest rise in crime will help the Home Office to achieve that goal.

In education, the failed targets on truancy have been cut, and so has the national vocational qualification target for 19-year-olds. The Government say that both were subject to "slippage" or "increased room for catch-up", as, according to the Chancellor's advisers, that should now be known.

Mr. Mark Hendrick (Preston)

What are the right hon. and learned Gentleman's targets for the national health service charges to which my right hon. Friend the Chief Secretary referred?

Mr. Howard

I am astonished at the extent to which Labour Members constantly refer to charges in the health service. In the Chancellor's speech last month, he said that it is entirely unacceptable for the sick to pay for being sick. Are he and other Government Members completely unaware that, last year alone, about 250,000 people who had no sort of insurance cover had to pay for their own operations because they could not face the delays that they would have experienced with the national health service, which is in crisis under the Government's stewardship?

Mr. Boateng


Mr. Howard

No, not at the moment. The Chief Secretary will have to wait.

Gone is the work and pensions target for promoting security and independence in retirement for tomorrow's pensioners. After the Chancellor's pensions tax, the crisis in pensions and the lowest ever savings ratio, it is not hard to see why.

What became of the Chancellor's promises over the past five years—there have been enough of them—to provide "skills for work" to invest

heavily in education and skills"?—[Official Report, 14 December 2000; Vol. 359, c. 785.] What happened to the right hon. Gentleman's promise to provide "new support for skills"? Does he agree with the Government's better regulation taskforce, which said last week that Government delivery of local economic development and skills training is a bureaucratic nightmare involving a maze of more than 50 Government agencies, Departments and other organisations, and 52 funding streams? Why does a training co-ordinator have to fill in up to 26 pieces of paper before starting a trainee on a work-based programme? Is that the way to encourage skills?

What of the targets that remain? The Government describe them as SMART—specific, measurable, achievable, relevant and timed—so let us see how smart they are. The Department of Trade and Industry has the target of bringing United Kingdom levels of competition and consumer empowerment and protection up to those of the best by 2006, but the level of the best is not defined, so how will the DTI or anyone else know whether consumer empowerment has reached the required level by 2006?

Roger Casale

On the subject of "how smart you are", may I ask the right hon. and learned Gentleman a question? Does he believe that it is possible for public service reforms to be successful if those reforms are not supported by appropriate financial resources? How does he imagine that those financial resources can be released if the share of Government spending were reduced to 35 per cent. of gross national product, as he wishes to do?

Mr. Howard

If the hon. Gentleman attends these debates, he will know perfectly well that I do not wish to do that. [Interruption.] Does the Financial Secretary to the Treasury wish to intervene? I do not wish to do as the hon. Gentleman suggested, and I have answered that question many times before.

James Purnell

I have attended many of these debates, and I find it impossible to find out what the right hon. and learned Gentleman's position is on tax and spending because he will not tell us, so I have had to read articles in which he has discussed his position. When asked whether he would match our NHS spending in the last Budget, he told The Scotsman: There are times when other things have to take priority over tax cuts. The crisis in the public services in this country means that this is such a time. That was six months ago; now he will not even say whether he will match our NHS spending increases. What has happened? Have our reforms been so successful that the NHS is not now in crisis, or is his agenda really about tax cuts and reducing public spending to 35 per cent. of gross domestic product? He will not admit that because all he is interested in is spin.

Mr. Howard

If the hon. Gentleman really thinks that the Government's attempts to reform the NHS have been successful, he must be living on a different planet. What I said in the article that he quoted is entirely consistent with what I am saying now. Our spending plans for the NHS will be derived not from the Government's failed policies on the NHS but from our policies on health care, which will deliver the ideals of the NHS and succeed.

Several hon. Members


Mr. Howard

I want to return to the Government's targets. I quite understand why Government Members do not want to talk about the targets, but I do.

The hon. Member for Kingston and Surbiton (Mr. Davey) referred to the targets set by the Foreign Office. The Foreign Office is meant to contribute to a 70 per cent. reduction in opium production in Afghanistan within five years. Is achieving that really within the power of the Foreign Office? If not, how on earth can it be judged to have succeeded or failed?

What of the framework the Chancellor established for his targets? He solemnly told the House in 1998 that public service agreements were a contract for the renewal of public services and that results would be demanded. He said: Money will be released only if Departments keep to their plans."—[Official Report, 14 July 1998; Vol. 316, c. 188.] So how many Departments have not had money released because they did not keep to their plans? After all, the then Chief Secretary, now the Secretary of State for Transport, said: in both health and education, money will be released only if the Government are satisfied that we are getting the returns that we want."—[Official Report, 16 July 1998; Vol. 316, c. 597.]

Last week, the Chancellor made no reference to the possibility of funds not being released. Treasury officials at a sitting of the Select Committee could not think of a single example of a departmental budget that would be different if that Department had performed better or worse against its PSA targets.

When the Chief Secretary to the Treasury was asked by the BBC whether any Department had yet had money withheld as a penalty for not meeting its targets, he replied: We are not in the business of holding money back in that way. Not only has that policy been dropped, but the current Chief Secretary does not even know about it. He has been at the Treasury for more than a year and no one troubled to inform him of that policy, which was meant to be at the heart of the Chancellor's strategy to improve the public services.

It is little wonder that the Chief Secretary, in his Financial Times interview this morning, said: Gordon called for a debate about targets and PSAs, and I think we should have one, because people often don't understand what they are there for.

Andy Burnham (Leigh)

A moment ago, the right hon. and learned Gentleman referred to Conservative health policies. To my knowledge, the only one that has been explained to us so far was the four-phase policy that the hon. Member for Woodspring (Dr. Fox) outlined a few months ago. Phase 1 is to persuade the public that the NHS is not working. Phase 2 is to convince people that the NHS will not work. Phase 3 is to introduce themes on learning from other countries. Phase 4 is to produce policy detail—ultimately the most difficult phase. Will the right hon. and learned Gentleman tell us which phase the Conservative party has reached?

Mr. Howard

May I give the hon. Gentleman a little advice? Next time, he should ask his Whips for better material. He and they need to do rather better than that.

I know that Labour Members do not want us to talk about their targets, but I do. What other sanctions are in place when the targets are not achieved? How are Ministers held to account for results? We have looked at the fate of some of the Cabinet Ministers from 1998 whose Departments now have the fewest targets described as "met", "met and ongoing", or "on course". What has happened to the Cabinet Ministers with the worst records in meeting their targets?

It is true that one of them—the then Secretary of State for Health—was indeed punished for his failure. He became Labour candidate for Mayor of London. Another Minister who achieved fewer than seven in 10 of his own targets was the Chancellor himself. As far as we know, he is still in post. The third, the Minister who achieved one of the worst results of all, was promoted to his current post of Home Secretary.

Meanwhile, one Cabinet Minister achieved in full more than nine out of 10 of the targets set. He had the best record of the lot, so surely he must have been promoted. Well, actually he was not—he was sacked. The right hon. Member for Islington, South and Finsbury (Mr. Smith) now sits on the Back Benches—a permanent reminder to his colleagues of the danger of over-achieving on the Chancellor's targets. So there we have it. So much for the Prime Minister taking the Chancellor's PSAs seriously. So much for their claim to reform.

Is it any wonder that Professor Colin Talbot, in evidence to the Treasury Committee, described the PSA mechanism as deeply flawed and as "a topdown, opaque process"; or that Tony Travers of the London School of Economics says that the targets represent "rigid centralisation"? Is it any wonder that even the BBC, on the night of his spending review statement, compared the Chancellor's approach with the 10-year plans of the Soviet Union?

Is the Chancellor aware that the Chairman of the Select Committee on the Treasury has said that there are so many targets that it reminds some people of Stalin's Gosplan?

Is the Chancellor proud of the fact that he is becoming known as Gosplan Gordon? Why does he not understand that the result of that ever-tightening leash is that innovation and improvement are being strangled?

In today's NHS, doctors cannot treat patients in pain because they are not in the right Government category to fill empty hospital beds. Instead of recruiting an extra 2,000 GPs by 2004, as the Government promised, in each of the last two years, they have managed just 18.

Mr. Boateng


Mr. Howard

I shall certainly give way to the Chief Secretary. I hope that he will explain why the Government have managed to recruit just 18 GPs in each of the past two years, instead of the extra 2,000 that they promised.

Mr. Boateng

Talking of GPs, does the right hon. and learned Gentleman still adhere to the view that the NHS is "a Stalinist, centralised, monolithic, bureaucratic creation, which is failing the nation"?

Mr. Howard

We are going to find a better way of living up to the ideals of the national health service. The Chief Secretary ought to pause here. Does he really think that the best way to deliver health care to the people of this country is through a centralised organisation that employs 1.3 million people, the biggest employer in the world outside China, with the possible exception of the Indian state railway? The Chief Secretary ought to reflect on the implications of his question.

In today's schools, teacher vacancies have more than doubled and more than one in two trainee teachers walk away in their first three years because they do not have enough classroom time with children. What does the Chancellor fall back on? No longer able to offer hope, the Labour party now tries to win votes through fear. The Chancellor and his colleagues try to scaremonger, based on our refusal to be bound by their figures. Yet that, of course, was precisely the position that he took in opposition: it was not until January 1997 that he described his party's spending plans.

We, too, will outline our policies before the next general election. But one thing is certain: we are determined to move away from the Chancellor's policy of money without real reform. It does not mean that we are against spending more on health, education and other services but that we are determined to break with the Chancellor's legacy of failed promises and dashed expectations. We are determined to offer something better.

Gregory Barker

Is my right hon. and learned Friend aware that after five years of increased Labour spending on health, and 53 tax rises to pay for it, bed blocking at the Conquest hospital in Hastings over the last 12 months has risen by 130 per cent., so that now one in nine beds have elderly people trapped in hospital? In East Sussex, the waiting time for women with breast cancer to receive radiotherapy—the Chancellor should be interested in this because he has been confronted on television by one of my constituents, since when the situation has got a lot worse—has risen from 12 weeks 12 months ago to 23 weeks? Where has the money gone? That is what my constituents want to know.

Mr. Howard

I am not astonished by my hon. Friend's figures. I was not aware of the precise figures for East Sussex, but I fear that they are typical. But that, I am afraid, is what counts as success for Labour Members. That is what they mean when they talk about the success of their policies to reform the health service. Those are the kind of figures that they have in mind.

Hugh Bayley (City of York)

Will the right hon. and learned Gentleman give the House an assurance that his party's plans for improving the national health service will not include levying any charges on services that are currently available to patients free at the point of use?

Mr. Howard

I know that the hon. Gentleman is impatient to see our plans for the health service, and they will be worth waiting for. He will just have to wait a little longer and contain his impatience until we produce them. I am sure that if he is entirely objective when they are produced, he might even like them. We will have to wait and see.

The Chancellor promised the country in the run-up to the 1997 election: We have an instinct to serve the public interest, which is not the same as an instinct to spend. But now the country is all too painfully aware of the instincts of this Chancellor and his party: an instinct to spend, an instinct to centralise and an instinct to interfere. It is as a result of those instincts that they have failed to deliver on the public services.

There is a better way. There is a way to achieve safer streets and better hospitals and schools. But it will not come about through more of the same. It will come about through leadership, imagination, vision, and real reform. That is what the Government had the opportunity to offer, but they have failed. That is precisely where we intend to succeed.

6.54 pm
Mr. John McFall (Dumbarton)

The shadow Chancellor made himself politically infamous when, on "Newsnight", he refused 14 times to answer a question from Jeremy Paxman about Derek Lewis. He has now refused to answer about 14,000 times questions about where he will get the money from for his plans. The question I have for the right hon. and learned Gentleman is this: how can he maintain the present level of public services without spending any money? Credibility and honesty in politics is all and, sadly, the shadow Chancellor is a sham because he gives no indication of how his party would govern this country. Until he does, he has no credibility whatever.

Mr. Howard

Can the Chairman of the Select Committee on the Treasury explain why my party should produce its spending plans now when his party did not produce its spending plans until four months before the 1997 election?

Mr. McFall

I have a simple explanation. The shadow Chancellor has stood up and, for half an hour, criticised the Government's policies rotten. If he is going to do that, he must give us an alternative vision. All we have at the moment is a blank sheet; frankly, that is not good enough for this debate.

Mr. Tom Harris

Does my hon. Friend agree that, even before the 1997 election and before the Labour party had published its specific spending plans, our values and core aims were well known, which is the complete opposite of the Conservative party's position?

Mr. McFall

I agree. In my position as Chairman of the Select Committee, it is important for me and the Committee to analyse the Government's spending targets and plans and, as the shadow Chancellor has said, we did that in the past week.

I thank the Chancellor for his appearance at the Select Committee last week and for the extra money provided. However, I have to say that six days' notice of an event of such significance at the end of the parliamentary Session is not good enough. If we are to take the comprehensive spending review seriously as part of a transparent and well-managed process, we have to ensure that there is more time for discussion.

I suggest also that given that the envelope for public services was announced in the Budget some time ago, it might be a good idea to have a White Paper on the draft proposals so that the Government could consult on the issues and so that we knew where the money was going to be spent. There is a two-year process associated with the review, so there is no reason why we should not have the issues up for public discussion. After all, the United States federal Government do that annually. The British Government have a way to go on that.

I welcome the substantial increase in public spending. As has been mentioned, the total level of public spending will be £51 1 billion by 2005–06. That is £61 billion extra for public services over the next three years and, in cash terms, it is the biggest rise ever. It is reassuring to know that 75 per cent. of that spending will be focused on the key areas of education and health. It is the biggest rise in spending that we have witnessed and the annual rate of spending will be 4.3 per cent. over this year's forecast.

Mr. Mark Francois (Rayleigh)

Is there not a massive irony in all of this? When new Labour came to power in 1997, we were told repeatedly that they would never be a tax-and-spend Government because that had been the failure of all previous Labour Governments since the war. Now, that is exactly what they have become.

Mr. McFall

I shall answer that in two steps. The Treasury Select Committee had a number of experts before us last week, one of whom—David Walton, the chief economist of Goldman Sachs—said that, on the average growth trend of 2.5 per cent., the Government's projections looked very reasonable and their fiscal rules would be met comfortably.

A further issue for the hon. Gentleman and his colleagues who go on about tax and spend is that, as a share of national income, public sector spending is set to grow from 39.8 per cent. to 41.8 per cent. in 2005. That is still lower than the average of 44 per cent. of national income spent over the 18 years of Conservative Government from 1979 to 1997. The figure is also low by international standards. I would remind the hon. Gentleman that his heroine, now Baroness Thatcher, presided over public spending of 48 per cent. of national income in 1982–83, three years after the previous Labour Government. So this is far from tax and spend—indeed, I would refer to it as fiscally conservative.

Mr. Bercow

I am sure that all democrats share one goal, which is to increase the engagement of the public with the democratic process. I put it to the hon. Gentleman that the question of the share of national income spent by the state is very important, but that it is not much discussed in the Dog and Duck. Will he tell me how, in practical terms, the increase in expenditure on education will either reduce the appalling truancy levels from which we suffer or counter the 300 per cent. rise in assaults by pupils on teachers?

Mr. McFall

I speak from experience here, after a lifetime in teaching. We have to progress the priorities. I do not know about the hon. Gentleman, but I have visited every primary school in my constituency since 1997. Without exception, every head teacher has told me that they have extra resources and that they are happy with them. The step change is taking place in primary schools, and I urge the Government to ensure that it also takes place in the secondary schools and elsewhere.

Mr. Salmond

Public spending as a proportion of gross national product might not be discussed in the Dog and Duck, but the hon. Gentleman is undoubtedly correct in what he is saying. I am not altogether sure, however, whether it places a Labour Member in a comfortable position to say that Baroness Thatcher was spending a higher percentage of GNP on public spending. The hon. Gentleman also talked about the trend growth rate of 2.5 per cent. being met. Is he saying that the bulk of the evidence before his Committee suggests that, in the current international environment, that trend growth rate is likely to be met in the next three years?

Mr. McFall

On the hon. Gentleman's first point about the previous Conservative Government's spending, this Government have increased employment by 1.5 million and cut the national debt, giving us the opportunity to spend on things that were previously a burden. On his point about the 2.5 per cent. growth trend, the Chancellor has historically always underachieved in his growth targets. This is the first occasion on which people have said that he is getting near his target. Certainly, from a macro-economic point of view, the economists who have come to the Treasury Committee have said that that target represents a reasonable proposition. We are aware that the global situation is not favourable but, as one of the economists said to us, the money is in the books until 2006; that is reassuring.

James Purnell

Does the Chairman of the Select Committee agree that the key difference between spending under Margaret Thatcher and spending now is that, under Margaret Thatcher, the money was being spent on 3 million unemployed people? Does he remember the hon. Member for Buckingham (Mr. Bercow) writing in The Guardian that he accepted that it was desirable to underspend on welfare payments so that more money could be spent on hospitals and schools? That is exactly what we have done.

Mr. McFall

Those points have been well made.

Tony Cunningham (Workington)

I have listened to all this and reached the conclusion that many people on the Front Bench just do not live in the real world— [Interruption.] I meant people on the Conservative Front Bench, not that there are very many of them there at the moment. I visited a primary school recently, and the headmistress told me that, five years ago, the only extra resources that they had were felt tip pens. She said that they now had new buildings, new computers and nine classroom assistants, and that standards were rising all the time. She said, "If that's spin, can we have more of it?"

Mr. McFall

That is a very good anecdote. And talking of felt tip pens, I give way to the hon. Member for Buckingham.

Mr. Bercow

I am grateful to the Chairman of the Select Committee for giving way; he has been extremely generous. I am glad that the hon. Member for Stalybridge and Hyde (James Purnell) reads my articles in The Guardian. That is flattering, but I do not think that it greatly advances the debate. I asked the hon. Member for Dumbarton (Mr. McFall) what the effect of increased education expenditure would be on the truancy problem and on the problem of assaults on staff. Asked what the effect would be, he said that the spending was welcome. I hope that he will forgive me, but I want to ask him the question again, because this is important. How will the increased expenditure serve to reduce truancy or assaults by pupils on staff? Those two matters are of pre-eminent concern to thousands of teachers and parents.

Mr. McFall

Speaking of The Guardian, I read about the hon. Gentleman in that newspaper, and about his fiancée who has different political views from him. Perhaps she will balance him from here on, and perhaps that will help him with his new portfolio.

I shall refer again to my own experience. For a while, I was in charge of a truancy unit in a Glasgow school, and it was very hard keep the kids in school. One way of doing so was to enhance the status of the truancy unit, and to get more resources, teachers and classroom assistants into it. The only way to achieve that was through extra resources. The hon. Gentleman asks me how the extra resources will help. They will help in modifying behaviour by providing adequate staffing for young people; that is a good way forward.

David Wright

Is my hon. Friend aware that, in Buckinghamshire, about 220 more teachers have been employed under this Government since 1997?

Mr. McFall

My hon. Friend makes a good point. I think that that must be the last intervention that I take. It is not often that someone from the Back Benches says that, but I shall say it just in case. Other hon. Members want to speak tonight and it is important that they should be able to do so.

I welcome a number of aspects of the Government's commitment. One relates to the aid budget. I know that some of my colleagues will devote a large part of their speeches to that subject tonight. It is reassuring to find that the aid budget will be increased by £1.5 billion to reach the target of 0.4 per cent. of GNP by 2005. I am one of those who wish to achieve the target of 0.7 per cent., but we will have to do that in stages. To come from 0.2 per cent. to 0.4 per cent. in seven or eight years is a welcome development.

The shadow Chancellor and other Members referred to targets. The Treasury Committee has looked at that issue, and I want to ask the Government whether the services will improve, now that we have the funding. Vast sums of money have been mentioned in the spending review. The individual in the local pub might not recognise those sums, but they will want to see the improvement in their services at local level. They will want to see a transformation involving shorter waiting lists, better education for young people, criminals being locked up and social nuisances on housing estates being eliminated. That is the key for the Government. Targets are extremely important.

If I have one criticism of the Government, it is that they have perhaps inflated expectations, and that the end result has been less than it was expected to be. These processes will be undertaken using targets. I note that, when the Chancellor introduced his spending review, he introduced 130 public sector agreements. That is down from 160 in 2000, and from more than 300 in the comprehensive spending review of 1998. I have described the targets as a bit vague and, perhaps, bland. Is the Chancellor satisfied that these targets will allow Parliament properly to monitor Departments' performance? Until we have a clear and unambiguous answer, we will ensure that the monitoring process takes place.

On the Treasury's public service agreements to achieve year-on-year improvements in public services' value for money, the latest Treasury annual report simply states that matters are on course, without providing any measurement. Table A2, on page 67 of the report, merely states: These value for money targets are monitored as part of the Treasury's Spending Review 2000". I suggest to Ministers that we need to do more to ensure that those targets are met. If they are to be of value, they need to be simply expressed, transparent, believable and credible. Some hon. Members have mentioned poppy growing in Afghanistan, but are the Government going to report on progress on making the world a safer place—one of the seven Foreign Office targets—daily, hourly, or every five minutes? Let us ensure that the targets have a wee bit more credibility.

Do centrally determined targets that rely on command and control work? I want the Government to confirm that the targets are not centrally imposed and do not rely on command and control. Central Government must allow local initiatives to engage in diversity, but historically, Governments have not been good at that. I am talking about Whitehall and the associated culture, which must be broken. Devolution of power is essential if we are to ensure that long-term goals and proper accountability arrangements are put in place.

The targets also depend on the credibility of independent audits. We must ensure that the money does not disappear down black holes. One issue is public sector pay increases. Public sector workers have rightly made some demands, but if we allow most of the money to be spent on extra pay, we will not achieve the targets. Let us strike a healthy balance. It is important that we ensure that the money is put in, that we bring about reform, and that we achieve the required outcomes.

The Chancellor also placed a great deal of emphasis on productivity. In the past, productivity has been somewhat disappointing, with a figure of 1.3 per cent for the past four years. Public sector productivity has lagged behind the private sector. Value added per employee in the public sector was almost £30,000, but in the private sector it was £41,000. In the past six years, productivity in the private sector has been running at 25 per cent., compared with only 17 per cent. in the public sector. In transforming the public services, we must be very aware of productivity issues. Otherwise, international competitiveness, profitability and investment will be eroded.

When the Prime Minister appeared before the Liaison Committee, he spoke of three tough long-term issues: transport, housing and pensions. He said that he would like all-party support on those issues, and I echo that sentiment. If we are to bring about improvements in these three crucial areas, there must be some political consensus. On pensions, we have the combination of an ageing population and a trend towards economic growth in future years. However, the clash that will arise between an ageing population and the demands of the public is not peculiar to the United Kingdom.

A few months ago, I was fortunate enough to attend a meeting involving the budget chairman of the Organisation for Economic Co-operation and Development, in Washington. David Walker, of the general accounting office, said that every country in the world will experience such problems. There are several things that can be done. There could be a reduction in the provision of services, but that is very hard for politicians of whatever party to accept. [Interruption.] I note that Liberal Democrats are nodding furiously. Taxes could be increased—again, that is unpleasant medicine—or growth could be increased, and that is where productivity comes in.

I shall leave Ministers and the House with a sense of the difficulties involved. When I pressed the general accounting officer in Washington for the growth figure that will ensure that American targets will be met within 25 years, he mentioned figures of 8 to 10 per cent. Our current annual growth figure, however, is about 3 per cent., which shows the scale of the problem. This is an issue not merely for the Government, but for the entire political process and the country as a whole. Such tough long-term decisions need cross-party support, and I seek the support of the shadow Chancellor and others. Would he like to respond?

Mr. Howard

I am very happy to respond to the hon. Gentleman. When we see particular proposals for dealing with the crisis in pensions, we will of course consider them. We are prepared to look at all proposals on their merits. We are determined to provide the people of this country with public services of which they can be proud, and which they need and deserve.

Mr. McFall

That is what I call a first step towards partnership, and I welcome it.

The Chief Secretary to the Treasury mentioned the Government's four main priorities. The first is a sound economy, and we certainly must not do anything to jeopardise long-term stability. The second is good public services, and the country and our constituents deserve no less. The third is the need to recreate communities that, as our daily constituency experience shows, have been shattered. It is extremely important that we build strong communities. The final priority is the United Kingdom's place in the world in the provision of overseas aid, and I am reassured by the Government's commitment to such targets in the spending review.

I am also pleased that such means have been provided in handsome measure, but the slogan here should be not education, education, education, but delivery, delivery, delivery. Back Benchers and Treasury Committee members will monitor these developments, and ensure that the Government are held to account for these huge—and hopefully beneficial—sums of public money.

7.18 pm
Mr. Edward Davey (Kingston and Surbiton)

I agree with much of what the hon. Member for Dumbarton (Mr. McFall) said. It is clear that he has been listening to my hon. Friend the Member for Yeovil (Mr. Laws), who serves with him on the Treasury Committee. I congratulate them both, along with other members of the Committee, on their work in scrutinising the spending review. However, it is a great shame that, because of the truncated timetable that the Government have instigated, we cannot consult their report in order to enhance our debate.

It is a genuine pleasure for a Liberal Democrat to be able to say in a public expenditure debate, "At last!" [Interruption.] One of my hon. Friend's says I should say "I told you so". I was trying to be gracious at the beginning of my speech. After three successive election manifestos and more than a decade of hard campaigning, key Liberal Democrat demands for investment in education and health at last look like they have begun to be met. The Government have U-turned on public spending, at last. No one in British politics today is in any doubt that the Budget and spending review for 2002 mark historic shifts in public investment, and Liberal Democrats welcome that unreservedly.

At last, the Government have stopped copying the Conservatives—on some things, at least. The days of adopting Conservative spending plans lock, stock and barrel appear to be long gone. At last education is receiving something approaching the scale of funding for which Liberal Democrats have long campaigned.

Of course we will question individual priorities in the education budget. We have huge concerns about the approach, and no doubt my hon. Friends will identify education needs unmet over coming months. Tuition fees are one example. But at last we can begin to shift from a debate about how much to spend to a debate about how best to spend. and that is the debate in which I intend to engage.

First, however, let me make an observation about public expenditure during Labour's first five years in office. It is directly relevant to this debate. For the record, Liberal Democrats believe that Labour made a huge strategic mistake in failing to invest properly in our public services during those first five years. Much of today's extra expenditure is necessary simply to rectify major errors of the past. It would have represented much better value for money had it happened earlier. Labour's bust-boom approach to public spending has been bad for patients, bad for pupils and bad for passengers. In his first five years the Chancellor, far from being an iron Chancellor, has been a corroding Chancellor, allowing our public infrastructure to rust away. Whatever his party political reasons for that, it was a huge financial and social mistake.

Hugh Bayley

The hon. Gentleman reminds us of the Liberal Democrats' pledge to raise income tax, if necessary—their qualification—by one penny, thus raising some £2.5 billion a year. Would the hon. Gentleman have put that drop in the ocean towards the Labour Government's increased investment in education, in health spending, in fighting crime or in transport? It would not have gone very far if he had tried to spread it across the total of Labour's increased spending.

Mr. Davey

Some interventions take one by surprise. That was not one of them.

We have always said in our taxation plans that our spending proposals will be fully costed. Because our proposals were covered by tax increases, they were over and above what the Government were proposing at the time. The cumulative tax rises in the alternative Liberal Democrat Budget of 2002 are very similar to the rises proposed in the Government's Budget, although obviously they would apply to different things. We would therefore have had the same resources at our disposal as the Chancellor had for the purposes of his spending review. The hon. Gentleman's point, therefore, does not take us very far.

To be fair, it must be said that where we had new Labour, now, with this extra spending, we have new Gordon. The problem is that, whereas new Labour promised us that it would not spend anything, new Gordon promises us that he will not allow anyone else to spend anything. The Chancellor must micro-manage everything. New Labour had reviews; new Gordon has regulators. New Labour had taskforces; new Gordon has targets. New Labour had new ambitions; new Gordon has new auditors. New Labour created Tsars; new Gordon is the Tsar.

Some of us here are genuine admirers of the Chancellor. He has done some very good things—establishing an independent Bank, tackling third-world debt and sorting out the Conservatives' debt mountain. All those are great achievements. However accomplished this Chancellor is, however, he simply cannot run Britain's public services from Whitehall. He must learn to let go, and to trust others.

David Wright

During our debates on the Finance Bill, the hon. Gentleman made a number of additional financial commitments on behalf of his party. Does he think that he will have to put another penny on income tax to pay for them?

Mr. Davey

If the hon. Gentleman were being fair, he would also say that I opposed some of the Government's tax reductions because they were very unwise. An example is the reduction in the starting rate of corporation tax to 0p, which the Institute for Fiscal Studies says may lose the Exchequer as much as £2.9 billion. According to the hon. Gentleman's logic, we could pocket that money for our purposes.

The Chancellor talks of a new localism, but it is a new localism that his Whitehall controls. Outside Scotland and Wales, there is precious little new democracy in Labour's new localism. The Chancellor effectively said that himself in his statement. Poor-performing local education authorities would be subject to takeover; poor-performing councils would be subject to new managers, or to takeover.

What happened to local democracy? Does the Chancellor not trust the voters? Does he not see how sensible were the voters of Hull when confronted with the waste of Hull Labour party and the scandal of the failed Gypsyville project? They kicked out the Labour council after 50 years.

The Chancellor should talk to the Deputy Prime Minister. Has he not seen how Islington is being transformed now that the Liberal Democrats are running it? He should also talk to the Prime Minister. Instead of being the man in Whitehall ordering takeovers, he should be empowering voters; but instead of democracy we have a new battery of centralised targets, the new public service agreements.

Mr. Tom Harris

The hon. Gentleman's personal tirade against the Chancellor is all very interesting, but do the Liberal Democrats now support failing schools?

Mr. Davey

I thought that the hon. Gentleman would do rather better than that. What the Liberal Democrats do in power, having been voted into power by the electors, is tackle such problems with proper investment, making education a priority.

What our party supports is local democracy. We oppose the idea that the man in Whitehall knows best, because so often he does not.

The new public service agreements now contain 130 targets—admittedly fewer than the 300 in 1998 and the 160 in 2000, but there are still plenty of centrally imposed targets. And what a reassuring set of targets this is. The No. 1 PSA of the Office of the Deputy Prime Minister is "Promote better policy integration". I am not sure how "better policy integration" will be measured, and when we will know that we have reached that nirvana. Perhaps it will be like the "better transport policy integration" provided previously by the Deputy Prime Minister; let us hope not.

The Home Office has a particularly good public service agreement: Increase voluntary and community sector activity—including community participation—by 5 per cent. by 2006". We all look forward to seeing the Chancellor Tsar measure community activity and community participation up and down the country. Perhaps the Chief Secretary to the Treasury can tell us how it will be measured. I have an image of bowler-hatted man with clipboards touring village fetes. Presumably their first question will be "Has the number of stalls gone up this year, vicar?" As for increasing community participation, perhaps the Government have plans to slow hand-clap volunteers into joining the Women's Institute.

I would be fascinated to learn from Treasury Ministers how they plan to increase community sector activity by central diktat. We all agree with the aim—I am sure that scout and guide groups throughout the country are crying with joy at the prospect of having adult volunteers to help them—but the idea that a central Whitehall Department should target an increase in community and voluntary activity across Britain is a sign of the unbelievable hubris of this Government.

It does not end there. I discussed this earlier with the Chief Secretary to the Treasury. Part of objective 1 of the Foreign Office simply does not make sense. It states: Contribute to the reduction of opium production in Afghanistan, with poppy cultivation reduced by 70 per cent. within 5 years and elimination within 10 years. That may be an excellent idea. Indeed, we can all agree that it is a worthy aim. But can Treasury Ministers tell us how they will obtain the data? Is the source, perhaps, the Afghan Ministry of Agriculture? It is an entirely innocent question.

I presume that some of the extra cash given to the Foreign Secretary has been earmarked for the purpose of destroying Afghan poppy fields; but the National Audit Office will want to audit the data that the Government use to calculate their success in approaching that ambitious target. We need to know the answers to such questions. The key point is that the Treasury wants us to take PSAs of that kind seriously. Page 11 of the spending review White Paper states: PSAs are central to the Government's strategy for improving public services. We as parliamentarians, therefore, are right to ask questions. The problem is that when we do the Treasury does not answer them. Liberal Democrats have asked the Treasury to publish a list of the PSA targets from the 1998 and 2000 spending reviews to show which targets were passed, which were failed, which were revoked and which were amended. The Treasury has refused to answer. How can we hold Ministers to account in regard to PSAs when they do not answer parliamentary questions about them? The Chancellor, when asked about them by the Select Committee on the Treasury, also refused to give a straight answer.

We have therefore conducted our own analysis, which the shadow Chancellor used in his speech. We have consulted departmental annual reports to try to establish what progress has been made on PSAs. Unfortunately, the annual reports are not terribly helpful, but we have managed to make some progress. The record is not very good. The Foreign Office has missed 47 per cent. of its targets, the Department for Transport has missed 57 per cent., the Department for Environment, Food and Rural Affairs has missed 83 per cent., and the Home Office has missed a staggering 89 per cent. of its PSA targets. It met only four of the original 37 targets: all the others have been missed, dropped or revised.

We do not know, now, what happens when Departments miss their targets. The Chief Secretary said today that they will not be penalised, but will Ministers be sacked, or—as the Chancellor implied to the Select Committee—will the pay of permanent secretaries be docked? We just do not know.

Mr. Steve Webb (Northavon)

Nothing will happen.

Mr. Davey

My hon. Friend is right—nothing will happen. We have heard that the former Ministry of Agriculture, Fisheries and Food has been penalised. It has been renamed, and is now the Department for Environment, Food and Rural Affairs. If that is the sort of penalty that the Government have in mind, the focus of the PSAs will be lost.

Mr. David Laws (Yeovil)

Is my hon. Friend aware that the Chancellor, when asked by the Treasury Committee about that point, said that the only sanctions would be those imposed by the Prime Minister or the electorate? Does he think that that will he good enough?

Mr. Davey

On current performance, it clearly will not be good enough. My hon. Friend is right to make the point. The Government's feelings about the purpose of PSAs seems to have changed. When they announced their PSAs in 2000, a press release issued on 3 November of that year stated: action will be taken where there is a risk that a Department's performance is off track. Is that still so? What has changed? Given that so many targets in the 2000 spending review have been missed, will the Chief Secretary say what actions have been taken in the past two years? Why have they failed?

James Purnell

The hon. Gentleman's relatively thoughtful speech should embarrass the right hon. and learned Member for Folkestone and Hythe (Mr. Howard). However, what is his view about targets and objectives? Is he completely opposed to them, or does he agree that they are worth setting? Does he agree that general targets that cannot be measured have to be set for some items, whereas clear measurable targets can be set for others? Is not it slightly foolish to pretend that everything can be measured specifically, as counterproductive targets could be set as a result?

Mr. Davey

I agree that targets are justified in some circumstances. We have argued that output and outcome targets are necessary in many areas, but the hon. Gentleman makes an interesting point about how targets should be used in different circumstances. The Government's performance should not be determined according to measurable targets, but by the degree to which they look at intangibles that cannot be measured.

My hon. Friend the Member for Yeovil and I went to New Zealand to find out how targets were used there. We were told about the dangers that arise when targets are too specific. The police in Wellington had a target for the number of breathalyser tests undertaken. Towards the end of the year, the force realised that it had not performed anywhere near the number of tests that it had contracted to do. As a result, Wellington was brought to a standstill for two days as breath tests were taken by every driver.

Government policy must be sensible and sensitive, and not driven only by targets. That is our concern today, especially as many of the targets are centrally imposed on bodies that are asked to meet them having had no part in deciding what they should be.

David Taylor (North-West Leicestershire)

Is not the hon. Gentleman trying to have it both ways? He is making fun—perhaps justifiably—of the Treasury's target-setting process. However, he seems to classify quantitative targets as irrelevant, unachievable or capable of being fiddled, yet, if asked, he would no doubt describe qualitative targets as vague, waffly and imprecise.

Mr. Davey

The hon. Gentleman is putting words in my mouth. I did not say that there was no case for qualitative targets, or that there was a case only for quantiative ones. Clearly, Government objectives must be scrutinised, and we must try to find a way to ensure that we can "focus minds" on that, to use the Chief Secretary's phrase. However, in this speech I am looking at the Government's published targets and attempting to find out what the Government's intentions are. I am also trying to discover what happens when Departments do not meet their targets.

We are told that the targets are important and crucial to public service reform, but the Government have so far failed to make that case in this debate. The Chancellor was asked about the Treasury's performance in relation to targets, yet he and the Chief Secretary have failed to explain why the key target on efficiency had been missed. The Chancellor set himself a target of delivering efficiency gains of 2.5 per cent. a year. He agreed that target with himself, but he missed it, and has now dropped it.

The Treasury has other targets, such as that for underlying growth. Originally set in the 1998 spending review, that target, we have been told, has been achieved. The Chancellor forecast trend growth at 2.5 per cent. a year, but this year—hey presto!—the estimate is of 2.75 per cent. The Treasury seems to have hit that target, but a closer examination reveals that that has nothing to do with higher productivity. The Treasury has hit the target only because of higher than expected labour force growth, fed by higher than expected immigration.

At least, that is what the relevant Treasury document states, but a deeper inspection shows that the Chancellor has pulled off a nice little trick. In the past, the Treasury used to take the principal forecast of the Government Actuary to determine population growth and labour force growth. This year, for the first time ever, the Treasury has decided to override the Government Actuary. Unilaterally, the Chancellor has decided to forecast labour force growth at a higher rate than the Government Actuary. Miraculously, Britain's trend growth appears to have risen. The Treasury has hit its PSA target because it has fiddled the figures.

We have tried to investigate the matter. We are not obsessed with PSAs, but the matter is critical to the Government's forecast of public finances. By increasing by 0.25 per cent. his trend forecast for growth, the Chancellor has given himself a fiscal windfall of an extra £4 billion a year.

In the interests of fiscal prudence, therefore, we have been asking some questions about the change in the forecast. It turns out that the Treasury has done little work to justify it. It published a report at the time of the Budget entitled "Trend Growth: Recent Developments and Prospects", but a close reading of that document reveals only how little work the Treasury did to justify what was a very significant change.

The formal justification for the change was that the Government Actuary department had underestimated the extent of net immigration, and that increased net immigration has raised the size of the labour force. However, the Treasury has offered no analysis of the longer-term determinants of immigration, and no justification has been given for assuming that a recent upturn of immigration will be sustained in the longer term. After all, the Home Office has a PSA that requires it to enforce the immigration laws more effectively. Even the major driving forces behind recent immigration flows will be cut, according to other PSAs. The Foreign Office has a ludicrous PSA, requiring it to reduce tension in South Asia, the middle East, Balkans and elsewhere. That is not to be achieved through the employment of masseurs, but—presumably—through diplomacy. Yet, if the Foreign Office succeeds in reducing tension in those parts of the world, future immigration flows will presumably fall. Perhaps the Treasury has little faith that the Home Office will reduce immigration, or that the Foreign Office will reduce the tensions that create it. If the Treasury has a target to increase immigration, there is no PSA for that.

Our analysis shows that the targets are nonsense. The key weakness of the PSA system is that Departments are, in effect, judge and jury when it comes to their performance. They decide the targets, and measure performance. The targets are not agreed with Parliament, and there is no discussion with Select Committees about what they should be. They are not agreed with an external body such as the National Audit Office. Of course, Select Committees and the NAO may look at performance against targets, but most PSAs rely on data provided by—guess who—the Government.

After the Sharman report, we were promised that PSAs would be externally validated. The Chief Secretary's predecessor told Parliament on 13 March that he accepted the external validation of PSAs. He said: we are taking measures that add to the substantial external validation that is already carried out by the Office for National Statistics and the Audit Commission, the ability of the Comptroller and Auditor General to oversee the data systems as a whole.—[Official Report, 13 March 2002; Vol. 381, c. 893.]

That is a very welcome development, but what does it mean in practice? According to the Office for National Statistics, PSA data come from various sources: 43 per cent. of it comes from departmental surveys or statistics. 18 per cent. from agency data, 12 per cent. from local authorities and the NHS, while 13 per cent. comes from other organisations. Only 14 per cent. comes from national statistics. So Ministers retain control, directly or indirectly, of 86 per cent. of the data going into the PSAs. The National Audit Office will have a tough time giving any meaningful external validation to these statistics.

I make just one challenge to Treasury Ministers. If they are so confident that they have their own PSAs right, and, specifically, if they truly believe that underlying growth has increased from 2.5 per cent. to 2.75 per cent., let the Treasury ask either the NAO or the Statistics Commission to review the revised estimate for underlying growth. While they are at it, let them review the analysis that the Treasury has presumably done on long-term immigration determinants. The NAO did neither when it audited the Budget assumptions before the Budget. Will the Minister ask the NAO or the Statistics Commission to do that as one of their first tasks in auditing PSA data? I hope that she will give me that commitment, but I very much doubt it.

My worries in this area are profound and they have got worse as a result of the spending review statement. One of the key elements of that statement, supposedly to ensure that extra cash is well spent, was the development of so-called independent auditing and inspection. New audit arrangements are to be established, according to page 12 of the White Paper, to hold Departments and agencies accountable for performance against the PSA targets. In other words, five new central quangos are to be set up—a commission for health care audit and inspection, a single independent inspectorate for social care services, a single housing inspectorate, a new police standards unit and a modernised inspection regime for the criminal justice system.

These new auditing inspection regimes raise profound questions for the House. First, why do we need these new bodies at all? What was wrong with the Audit Commission? What was wrong with the National Audit Office? Why could not these experienced and well respected bodies have been enhanced and expanded? Both have value for money remits and both have experience auditing the services that the new quangos will audit.

David Wright

Of course, these new bodies are not new. In respect of housing, we are bringing together inspection regimes that are currently in place, so the hon. Gentleman's comment is false.

Mr. Davey

I was quoting what the Government were saying. I am sorry if their spin was new; the hon. Gentleman's spin is not new, but I can only quote from what the Government say in their own press release.

My second point concerns the extent of the independence of the "new"—that is a Government word—quango audit bodies. The status of the NAO and the Audit Commission were carefully debated in this House in the past. The NAO has genuine independence from Government Departments, and while it has independence from this House too, it is, in statute, a creature of Parliament, working for the Public Accounts Committee.

This plethora of new auditors will not be based on the NAO system. They will have a degree of independence but there will be no parliamentary involvement in agreeing who should head them up, as there is for the NAO. They will not report to or work closely with the Public Accounts Committee in the way that the NAO does. These independent bodies will have their budget set by the Treasury, not the House of Commons Commission, in the way that the NAO does. So these independent bodies will not have the independence of the existing audit bodies, which perhaps explains why they have been set up.

There is a third question, which is perhaps more politically profound. Will this panoply of new central auditors make any real difference? Will they not simply soak up many talented individuals who would be better employed in the front line? Will they not soak up large amounts of cash to duplicate controls on auditors elsewhere? Will they not waste the time and efforts of the professionals? We do not have to look far to see their future. Local government is already subject to an equivalent audit exercise through the comprehensive performance assessment. Anyone in local government will say what a waste of time and money that exercise is. It disrupts the work of the Audit Commission, not to mention councils around the country. The exercise looks set to waste more than £100 million. People in local government say that the Audit Commission's increasing concern is simply to avoid the danger of a council judicially reviewing the report made on it because of the link to future freedoms and future cash.

The comprehensive performance assessment is just a taste of things to come. Whitehall regulators, auditors and inspectors will have to be trained in their thousands to do a job best done by existing national bodies and, at regional and local level, through existing and new democratic structures.

James Purnell

The same point applies to the comprehensive review by the Audit Commission, the whole point of which is to bring together previous reviews by different sector-specific auditors in local government such as social services, education and others. In that way, we can reduce the burden of auditing for very good councils and concentrate on those which have problems. That is all about reducing the burden of auditing. Does the hon. Gentleman worry that the Tories appear to be opposing the spending while the Liberal Democrats appear to be opposing reform? Will he make any positive recommendations about reform, which is a good tradition in his party?

Mr. Davey

The hon. Gentleman anticipates what I am about to say. He should talk to local authorities in his area regarding the comprehensive performance assessment. The message that I am getting clearly is that the burdens are being increased, not reduced.

The Government talk about new localism and new local discretion while at the same time setting up new quangos, new central bid funds and new central targets. I think that their approach on new localism lacks credibility.

Liberal Democrats are concerned that far too much of the welcome increase in public spending could be wasted because of how the Government intend to manage that spending. The Government are trying to reassure us that we can trust them to spend this money wisely because they have these PSA targets but the targets are a real cause for concern. The Government also try to reassure us that value for money is guaranteed because they are establishing these new bodies. We do not believe that these bodies are a necessary or sensible way of auditing public services. We do not see how creating a new army of central auditors and regulators will help turn round public services.

Liberal Democrats have a positive alternative to ensure that we get value for money from these welcome billions. Rather than making contorted attempts to win trust for the Treasury, the Government should trust others. They should trust the people on the front line—the professionals; they should trust local communities. Above all, the Government should trust local voters. Huge tracts of public spending need to be devolved, not to quangos, for which the Treasury set a multitude of PSAs, but to democratic bodies responsible to the communities they serve. With the Conservatives against the extra spending, and given their history of destroying local government and opposing regional government, the Liberal Democrats, who welcome the money, will be the only party capable of arguing for the democratic way to better public spending.

Mr. Deputy Speaker

Order. Before I call the next speaker, may I make a plea for shorter contributions to the debate? An awful lot of hon. Members are seeking to catch my eye, and unless contributions are considerably shorter, an awful lot of hon. Members will be disappointed.

7.47 pm
Denzil Davies (Llanelli)

I shall be brief, Mr. Deputy Speaker. I welcome the Chancellor's public expenditure review and the extra resources that will be put into public services. I do not think that any sensible person can believe that money alone will reform our public services, but without the money, there would be no hope. As the Chief Secretary to the Treasury said, we must see that reform goes hand in hand with the money that is put into the services. That will not be easy, but I believe that if it happens, the money will eventually find its way into the improved services we all want.

Ever since the Chancellor announced the totals of public expenditure in his Budget, various financial commentators have tried to cast doubt on the Government's ability to fund the totals without, in some cases, hefty increases in taxation. However, as my hon. Friend the Member for Dumbarton (Mr. McFall), the chairman of the Treasury Select Committee pointed out, the Chancellor's forecasts of growth for the next three years, for the purpose of the public expenditure totals, are reasonable and conservative. The forecast is a growth of 2.5 per cent. That is a prudent figure and the Chancellor has probably been more successful in the difficult art of forecasting than many in the private sector, certainly over the past few years. Therefore I believe that there is a good chance of achieving the 2.5 per cent. growth on which the public expenditure totals are based.

However, as the Chief Secretary said, nothing is certain in the kind of global economic system with which we have to live. Growth could still, for external reasons, fall short of that 2.5 per cent., although I hope that it will not. If it were to fall short of 2.5 per cent., the response should certainly not be to put up taxes, as some commentators seem to imply. Nothing could be worse for an economy. One need not be an economist, like the hon. Member for Kingston and Surbiton (Mr. Davey), to realise that an increase in taxes against the background of a lower growth rate would merely do damage and reduce growth even further.

If there were a funding deficit—I do not believe that it will happen—I suppose that public expenditure could be cut, but that is not easy either. It is not easy in practical terms when one sets out a programme for three years, and cutting public expenditure against a background of reducing growth or a reduced rate of growth would make matters worse. Therefore the point that I wish to make to my right hon. Friend the Chancellor is that, as I am sure he is well aware, the only sensible way of funding a shortfall in growth and funding the present public expenditure totals—I have to say it, although perhaps it is not fashionable these days—would be to increase Government borrowing.

The Chancellor, in the Red Book, proceeds on the assumption that what I will call the old PSBR—public sector borrowing requirement—will be about 1.2 per cent. of gross domestic product over the next three years, should the growth rate be 2.5 per cent., the basis of the public expenditure assumptions. There is a new, fashionable phrase for PSBR these days—it is not borrowing but a cash requirement, I believe, but let us just call it the old PSBR. Those of us who have been in this place for a long time, at least, should be allowed to call it the old PSBR.

A PSBR of 1.2 per cent. is not, I suggest, very high, so I would suggest to the Chancellor that if growth were to fall there is plenty of room to increase the PSBR as a percentage of GDP, bearing it in mind that the chances are that, with a lower growth rate, inflation would be very low, so the inflationary consequences of borrowing an increased percentage in respect of a PSBR would not have an inflationary effect.

In my view the main threat to growth, should it come. would be a fall in the rate of inflation into what I would describe as the danger zone of deflation, caused by the relentless pressure of the global economic system—call it global capitalism, if you like—on prices, then on costs, and ultimately on profits. Over the past few years, this pressure has been going on and on. Perhaps we have underestimated it, or perhaps economists prefer to turn a blind eye to it, but those of us who have constituencies where a substantial proportion of the work force—in my case about 30 per cent.—is still employed in manufacturing industry, producing goods, can see clearly. after talking to employers and employees, that the pressure is relentless. Prices cannot be increased; they must be reduced. If prices must be reduced, costs must be cut, but eventually a point comes where they cannot be cut further and profits are squeezed relentlessly. That is what has been happening, and is happening, especially in manufacturing industry.

Recently I read in one of the American newspapers that an American commentator was predicting a profitless growth over the next few years. I am still trying to work out what sort of concept a profitless growth is and I do not suppose that it really means very much. However, talking of the United States, we are obsessed with the scandals of Enron and WorldCom. Now Dr. Alan Greenspan—that wizard of central bankers, apparently—has come up with a new soundbite. A few years ago it was "irrational exuberance" when the stock market was going up. Now that the stock market is going down, it is "infectious greed" that is causing all these problems. Perhaps so; perhaps Enron, WorldCom and some other companies are going into liquidation because of the original sin of human venality, and no doubt that is there.

However, we should not forget—this is not to excuse any of these scandals or any of the people involved—the relentless pressure on profits, because prices are squeezed and costs cannot be reduced any further. The relentless pressure on prices is making people overturn or short-cut what could be called, if this is not a contradiction, the orthodox rules of accountancy. It seems quite easy for central bankers to point to original sin as the reason, but perhaps there is a problem with the system. I do not want to say it too loudly, but perhaps the present capitalist system can no longer cope with capitalism. I do not know. It is a very real difficulty, which we shall have to face.

In Britain in the last month, one of the two inflation rates—I am never quite sure whether it is headline or underlying—was 1.5 per cent. The other was 1 per cent. but let us focus on the 1.5 per cent. While reading American newspapers, I noticed that in the United States in the last two months—this is not an annualised figure—consumer price inflation, or the consumer price index, was increasing by just over 1 per cent. That is a very low level—almost as low as, perhaps lower than, what we have in this country, and of course in Japan it is lower still.

I return to the British figures. Given that private sector services in Britain are very prone to inflation because the service industry—or parts of the service industry—does not have to face the kind of competition that manufacturing has to, it has been estimated that, again taking the annualised figure for last month, private sector services inflation was about 4 per cent. in Britain. Public sector inflation is probably also about 4 per cent. While we have an underlying rate of 1.5 per cent., then clearly, over a whole range of manufactured products, prices must have actually fallen. That creates this enormous pressure, especially on manufacturing industry, but ultimately on the rate of growth if the trend continues, because we could move into the danger zone of deflation.

The Chancellor, when this matter is raised—I make no criticism of my right hon. Friend—tells us that the Bank of England's target is asymmetrical. It is one of those words that I have some difficulty with, but I think I understand what is meant: that if inflation is increasing—getting worse—one increases interest rates, but if inflation is falling, or falling too far, one reduces interest rates. I am not sure whether we are comparing like with like, because I suspect that when an economy moves towards very low inflation, or deflation, cuts in interest rates possibly have very little effect. I do not know how effective interest rates are anyway. I suspect that for certain major, or multinational, companies the cost of money is not a major factor, although I accept that the situation is very different for small companies. In any case, it has been clearly shown that if inflation is falling, and approaching zero, the efficacy of reducing interest rates becomes less and less.

I suspect that in a world of deflation, Dr. Alan Greenspan and many other central bankers would be redundant. The British economy, with its sadly declining manufacturing base, which is producing fewer goods domestically, with a growing—still inflationary, I think—private services sector and with the public expenditure boost that the Chancellor has now given the economy, may be able to withstand that sort of global pressure, which is driving economies towards deflation. Indeed, the Chancellor and our services sector may be able to put enough inflation back into the system to stop us getting to the danger zone of deflation. I do not know.

In that case, however, and I hope that it is the case, the Chancellor will be able, through the measures that we are debating today and his totals, not only to lay the foundation for the improvement in public services but, perhaps as a side effect, to stave off recession and deflation in the British economy.

8.1 pm

Mr. Michael Fallon (Sevenoaks)

I shall begin with the nature of the comprehensive spending review process. The Chancellor often likes to make out that he has pioneered the concept of a long-term rational basis for public spending, but it is not quite like that. This spending review is the third in only four years. It comes just 15 months after the last spending review came into effect. Add to that the constant topping up of public spending programmes in each successive Budget and, indeed, in each successive pre-Budget report and we are a long way away from the sort of three-year fixed programme that the right hon. Gentleman likes to convey.

The public spending arrangements that we now have are not, as the Chancellor maintains, so very different from the ones that we did have. Of course, it is true that since Plowden we have had annual reviews, but even those reviews posited figures for years two and three. Now, it is true that the third year of each successive CSR is simply rolled into the first year of the next one. The Chancellor would be more convincing had he started off by saying that he would put this process on to a two-year framework into which much else was added in between.

This review has one odd feature, which is that the Chancellor was boxed in from the start by the enormous hole that emerged from the last review—the need to set up and implement the Wanless report and to yank up health service spending to the European averages. That meant in turn that he became in hock to the Department for Education and Skills and to the Home Office, which looked for similar increases. In turn, that has clearly skewed spending increases elsewhere.

When we get into the detail of the announcements that are following the spending review, it may well be that the increases for defence and for local government are not really as generous as they might at first appear. That would not matter so much—the national health service, schools and crime would be top of anyone's list and, indeed, they would be top of mine—if Ministers had not pretended that this entire process was the result of rigorous, rational review that really did match results with resources and reform with money. In fact, as we discovered in the hearings of the Treasury Committee last week, no Department was penalised and no money withheld. Even the much-disgraced Ministry of Agriculture, Fisheries and Food received a substantial increase in funding.

Fundamentally, politics has driven this spending review: how to square the large post-Wanless increases given to the health service with the obvious commitment of the Government to make education a top priority and the equally obvious need to do something about rising public concern about crime. Let us not be under any illusions: this was a very political spending review, driven entirely by new Labour preoccupations.

On the spending programmes, the first and most obvious comment—it has already been made—is that much of the extra spending will go on people. If it goes on front-line people, that is good news, obviously. We are desperately short of nurses. To confirm that, we have only to look at the use of agency nurses and their predominance on night shifts as well as the ridiculous state to which the Government have reduced the health service—flying nurses in at the same time that they are flying patients out.

Of course, every head teacher would like a greater choice of teachers when selecting for a particular post. Every area commander wants more police in his division and out on patrol. If the money goes on those front-line people, I for one will be cheering. I have two great fears, however. First, the extra spending that is already flowing through from the last review seems to be going on the back line—on advisers, liaison people, co-ordinators and systems managers. If our public services really are in the firing line, one only has to pick up the Wednesday jobs section of the Guardian to see that there are some pretty well-staffed chateaux right behind the front lines.

Some of those jobs are very worthwhile; others are more dubious. The one thing that we know for certain is that every pound spent on advisers, or administrators—on their cars, conferencing and so forth—is a pound less that is spent in the classroom, the hospital ward or out on police patrol.

The hon. Member for Kingston and Surbiton (Mr. Davey) has already articulated my second great fear. The Chancellor is overdoing it on inspectors. There are far too many inspectors. Of course, the public services should be accountable, but we will end up destroying any sense of profession—the element of trust that supports the sense of profession—if we over-inspect. The Chancellor set up four new inspectorates. Someone pointed out that they would amalgamate other inspectorates. The Government have already created dozens of new commissions and inspectorates. Far from amalgamating them, I would have liked him to ease off.

Mr. Salmond

I have been looking up the hon. Gentleman's background. Apart from working in the Conservative research department, he was a director of European Consultants Ltd. When he was doing that, was he working in the front line or the back?

Mr. Fallon

I was working in private industry and contributing to the funding of public services. I think that I have as much business experience as the hon. Gentleman, whom I am glad to see back in the Chamber.

On targets, the claim that these are actual programmes rather than simply political decisions rests fundamentally on all those public service targets. There is nothing wrong with performance targets. Any business needs and has performance targets, business plans and personal performance measures in place, as I hope that the hon. Gentleman will agree. Here as always, however, the Government blunder along. First, we had more than 600 public service targets, which were introduced a couple of Secretaries of State ago. Just a year later, those were thinned down and now they have been changed again.

What is wrong with those targets? First, they are ludicrously imprecise. Indeed, the Chairman of the Treasury Select Committee gave us some examples from the Foreign Office. Some of them are woolly and they are easy to implement or they are incapable of measurement. Secondly, as the hon. Member for Kingston and Surbiton said, they are not yet properly externally audited. It is by no means clear how the Audit Commission will ensure that that external audit is put in place. That still means that the Treasury can virtually audit itself at the moment. Thirdly, the targets are always being changed. The White Paper that sets out public service agreements for 2003 to 2006 states: A small number of headline targets will not be carried forward as either new PSA or SDA targets, where they have … been superseded by new targets or events. That shows that the targets are simply what the Government say they are. They mean what the Government say they mean. Given that no penalties apply, we are in "Alice in Wonderland" territory. The targets mean only what the Treasury says they mean and at the end of day, no one loses any money—all shall have prizes.

Finally—I know a lot of other hon. Members want to catch your eye, Mr. Deputy Speaker—I want to look at the impact of the public spending programmes in west Kent. We have some of the most expensive housing outside London. It is difficult for us to recruit and house key public sector workers. I welcome the key workers scheme but I would have welcomed it even more if the Government had not in the first five years cut housing association budgets by almost exactly the amount that they have put into the scheme.

The Deputy Prime Minister has announced swathes of new housing for north Kent. The new housing will have to go somewhere. We have to take our share of it but I would have welcomed that announcement if it had been accompanied by a proper recognition that one cannot announce thousands of new houses without first considering the infrastructure. If the Government are going to go down the route of huge new towns, they have to look at the way in which the money is allocated and ensure that the schools, roads and surgeries are put in place first. If there is to be a big increase in housing, they need to look again at the rules governing spending to ensure that the houses are not built and occupied before the infrastructure and support for communities are put in place. At the moment, it is the other way round.

Mr. Tom Harris

I do not want to pre-empt the climax of the hon. Gentleman's speech but would I be right in saying that his argument is leading us implausibly but inexorably to the conclusion that a future Conservative Government—sorry, a hypothetical Conservative Government—will be able to maintain public spending at the levels set by the Chancellor simply by cutting bureaucracy?

Mr. Fallon

It is certainly one of the conclusions that the hon. Gentleman should draw. I have always thought that cutting bureaucracy is important. It is important for central Government above all to keep bearing down on bureaucracy if we are going to get the money into the front line.

The next example from west Kent is law and order. We need more police on patrol. Last Saturday evening, I was in West Kingsdown, a village on the A20; some hon. Members may know it. The village was delighted that a new rural warden had been appointed to help with community safety, but that warden was paid for by Kent county council. The police authority does not have sufficient funding. We need more police locally, not just rural wardens, and more police on patrol.

The impact on council funding is perhaps the biggest threat of all to the successful implementation of some of the spending programmes in my part of west Kent. As hon. Members will know, particularly those representing southern England, another review was slipped out just a few days before the spending review: the formula grant review, under which—the Government are honest enough to put the figures in the illustrative tables at the back of the document—southern shire counties such as Kent and Essex could lose substantial funding. Indeed, the Government recognise that to the extent that they have already proposed damping mechanisms to ensure our councils in the south do not lose more than a specific amount in any particular year.

Mr. Harris

Will the hon. Gentleman give way?

Mr. Fallon

No, I must be fair to other hon. Members who want to speak.

There is a best case, there is a worst case, but Kent county council, for example, has estimated that in mid case it will lose around £62.4 million—a budget cut of around 6 per cent., a loss for Kent schools of around £20 million, a loss for social services in Kent of around £5 million. These are the examples set out in the illustrative tables for the formula grant review. I do not want funding for Kent to be cut, as it is being cut at the moment. I make it clear that I will oppose those particular cuts.

It is odd for the Government, at the same time as announcing all this spending nationally and having taken the political credit for it, to be consulting on options for transferring that spending from the south to our friends in the north. It is particularly odd to be doing it now, before we have the results of the census next year.

The spending review clearly is not just about more money. It is driven fundamentally by politics rather than economics. It is unaccompanied by serious reform of public services. It is based on made-up, moving targets. Nothing in it convinces me that public services in west Kent will get any better.

8.15 pm
Alan Howarth (Newport, East)

The spending review, with its focus on education and research, promises well for our country. My right hon. Friend the Chancellor in his announcement about funding for science has provided an excellent first instalment. We must now wait and see what improvement the Government make in their support for the university system as a whole.

The hon. Member for Sevenoaks (Mr. Fallon) and other right hon. and hon. Members have ranged broadly and fascinatingly. I would like to concentrate on one particular issue: public expenditure on university museums and galleries and—the other side of the coin—their liability to value added tax.

The university museums deserve the Government's support, benefiting as they do so many aspects of the public good. The university museums are custodians of the oldest legacy of publicly accessible collections. They have a long and distinguished history of public engagement as well as being repositories of scholarly expertise.

The nation's first museum education service was established 90 years ago in the Manchester museum, part of the university of Manchester, a service that is now provided to 25,000 children each year and reaches out into a culturally diverse local community. University museums are particularly well placed to help to widen access to higher education. They contribute to economic regeneration as important elements in regional tourism and cultural strategies.

I refer those who wish to know something of the history of the university collections to various excellent studies by Ms Kate Arnold-Forster, who was once a pupil of mine. The Ashmolean was the first museum in England to be opened to the public, in 1683. Colleges, universities and learned societies were institutional recipients of gifts of collections from an early date. The Hunterian museum of the university of Glasgow is based on the bequest of William Hunter in 1783, and is Scotland's oldest museum. The Fitzwilliam museum derives from the legacy of Viscount Fitzwilliam, who died in 1816. Other magnificent benefactions were the Courtauld Institute of Art collection, established in 1931, and the Percival David collection of Chinese art, presented to the university of London in 1951. Other collections were developed by the universities over centuries as resources for teaching and research, particularly in the natural sciences.

The Sedgwick museum of geology, for example, stems from the collection of Dr. John Woodward, bequeathed to the university of Cambridge in 1727, together with detailed instructions for its preservation and educational use. Important anthropological and archaeological collections came from great scholar collectors—for example, W. M. Flinders Petrie, whose Egyptology collection belongs to University college, London.

The movement to create new public museums, national and municipal, in the 19th century did not displace the tradition of university collections. In 1868, Owen's college, later the Victoria university of Manchester, accepted the collection of the Manchester Society of Natural History, which had been rejected by the city of Manchester.

What should the Government's responsibility be in regard to the university collections? We look to Government to do their best to ensure that the universities have, all in all, sufficient funding to fulfil their and society's expectations of them. Guardianship of our cultural heritage, and the provision of access to learning about it, are among those expectations.

Some university collections are admirably managed and presented; others have been sadly neglected, with their parent universities unable to provide the necessary resources, and survival of the collections effectively depending on the devotion of volunteers. We read recently, in The Guardian of 16 July, of admirable efforts at the university of Leeds to rescue and display collections in the fields of chemistry, biology. Arabic and textiles.

The old University Grants Committee used to provide so-called "non-departmental special factor" funding to universities in recognition of their collections, but as that came through the general block grant it is not clear that it achieved any more than to stabilise existing levels of funding. To the credit of the current Government and the Arts and Humanities Research Board, a substantial proportion of the AHRB's resources—almost £8.5 million in 2001–02, rising to nearly £9.15 million in the present year—is now channelled to 52 university museums and collections. Resource, funded by the Department for Culture, Media and Sport, also contributed just over £3,850,000, to 16 university museums with collections designated as outstanding between 1999 and 2002. I very much hope that we will shortly hear of further grants through the designation challenge fund to this group of university museums containing pre-eminent collections.

The number of visits to the university museums with designated collections in 1999–2000 was almost 1.5 million. They are an important and much valued source of pleasure and instruction for the public. My own passion for museums began with childhood visits to the Barber Institute of the university of Birmingham. The recent study, "Renaissance in the Regions", commissioned by the DCMS, made it clear that the university museums should play an enhanced role in strengthening the cultural life of the regions, as well as in support of tourism and the creative economy.

There is one particular anomaly in the financial regime for university museums to which I want to draw attention. As long as the university museums refrain from charging the public for access to their collections, they, alone among museums, cannot recover input VAT. As the House knows, other national museums and galleries were, until last year, in an invidious position. Those museums that wished to retain free access found that the VAT rules gave them a perverse incentive to introduce entry charges, since by doing so they were able to recover the VAT that they paid on expenditure incurred in providing services. By contrast, the museums that did not charge for admission were unable to recover the VAT on any associated expenditure, resulting in considerable additional cost, simply because they were not charging admission fees.

That presented an impediment to the fulfilment of the Government's policy to secure free entry to the national museums and galleries, which my right hon. Friend the Member for Islington, South and Finsbury (Mr. Smith), as Secretary of State for Culture, Media and Sport, and I, as Minister for the Arts, were pursuing. It took us a long time, between 1998 and 2001, to achieve what we sought. We were stalwartly supported by the directors of the non-charging national museums and galleries. We had endless discussions with Customs and Excise and the Treasury, which did not want any chipping away at the splendid edifice of VAT and, as always, prided themselves on their resilience in the face of lobbying. I was closely in touch also with some of the great benefactors of our public collections, the National Art Collections Fund and Sir Denis Mahon, who felt very strongly about this and added their voices to the cause.

The Treasury adduced a variety of objections, both general and technical. I was particularly indebted to Ms Helen Donoghue, whose help we enlisted and who found a solution which was technically sound and at the same time protected the Exchequer's interest against a proliferation of concessions. I was even more grateful to my right hon. Friend the Chancellor for agreeing that the Finance Act 2001 should, at section 98, amend the Value Added Tax Act 1994 to include a new section 33A. That empowered the Government to specify, by statutory instrument, individual museums which, while not "engaged in economic activity," should none the less be able to recover all the previously irrecoverable VAT that they incurred. The Government duly, by order, relieved the national museums and galleries of this burden and disincentive to maintain or create free entry. I was delighted to note that my right hon. Friend the Chancellor, in his announcement of the outcome of the spending review last week, stated with satisfaction that since museums were opened free to the public, attendances have risen by 75 per cent."—[Official Report, 15 July 2002; Vol. 389, c. 27.] We have the anomaly, however, following the order, that the university museums that offer free entry are the only remaining category of public museums liable for irrecoverable VAT. I should explain to the House that the term "national", as applied to museums and galleries, is an administrative term of art referring to a limited group of some 13 institutions that, for reasons of history, fall within the category. The group does not include the university museums. I should also explain that there has not been a similar problem in relation to local authority museums and galleries, as they already enjoyed VAT relief under section 33 of the 1994 Act, and have therefore suffered no tax penalty should they offer free entry. The rationale for the concession to local authorities was that it did not make sense for Government to fund bodies to pay tax—a rationale that applies equally to university museums. Again, private museums, which are independent of public funding, do not have a problem in this respect because they need the income that they receive from charging and can recover their input VAT.

I had argued that the university museums should be included within the scope of the new concession, and I discussed the problem with the AHRB. However, lead responsibility in Whitehall for the universities, including their museums, rests not with the DCMS, but with the Department for Education and Skills, and the university museums were not included in the order. I would ask my hon. Friend the Financial Secretary and my right hon. Friend the Chancellor, together with the Secretary of State for Education and Skills and the Secretary of State for Culture, Media and Sport, to reconsider their position on the matter.

I do not propose that the relief should apply to every university collection. Because of the manner in which some of them are housed, it would, in practice, be impossible to separate the costs associated with them from other costs of their institutions. My proposal is that, in England, the concession should be extended, by order, under the powers already established in last year's Finance Act, to those university museums that have collections that are formally designated by Resource, the Council for Museums, Archives and Libraries, as outstanding. There are 16 of those. In addition, the Sainsbury centre at the university of East Anglia, which receives AHRB funding in recognition of its quality, should be included, making it possible to abolish its entry charge.

Although there are no equivalent schemes of designation in Scotland, Wales and Northern Ireland, a limited number of university museums of appropriate quality in these territories should also be selected for relief. In Scotland, those might be among the six distinguished museums and collections, most notably the Hunterian, in receipt of funding from the Scottish Higher Education Funding Council's minor recurrent grant stream of nearly £1 million for museums, galleries and collections. In Wales, significant collections at the universities of Swansea, Aberystwyth and Glamorgan are for consideration. The forthcoming survey by the Northern Ireland Museums Council of the university collections in Northern Ireland will provide a basis on which to judge eligibility there. The Government would wish to agree the list with the devolved administrations.

I do not see any significant objections to my proposal, which, of course, is along the same lines as recommendations that have also been made by the universities. Representations to the Government have, I know, been made by Professor Sir Martin Harris, vice-chancellor of the university of Manchester, on behalf of Universities UK, by Professor Paul Slack, pro-vice-chancellor of the university of Oxford, and, jointly, by Dr. Christopher Brown, director of the Ashmolean museum, and by Dr. Duncan Robinson, director of the Fitzwilliam museum.

There is no technical difficulty. The Government have the statutory power to extend the list by order. I understand that my right hon. Friend the Chief Secretary to the Treasury, when he was Financial Secretary, met Sir Martin Harris, and in uttering a charming but categoric "no" to Sir Martin's plea, said that the European Union might have difficulties with the proposal. In fact, we have the words of the President of the European Commission, in a letter to Sir Denis Mahon: As to the question of bodies that qualify under Section 33 of the 1994 VAT Act, this is, of course, a purely national matter to be decided by the UK authorities. Very recently, Mr. Stephen Bill, the head of indirect taxation in the European Commission, has confirmed that there is no technical objection to the original scheme or to its extension to university museums.

My right hon. Friend the Member for Brent, South (Mr. Boateng) also wrote to Dr. Brown on 9 May. He did his duty in devising arguments to oppose our case, but he was in some difficulty. My right hon. Friend said that extending the concession beyond the national museums and galleries would undermine the stated rationale for the scheme and be unfair to other cultural and heritage bodies. I submit that the rationale could not be undermined by admitting to the list specific bodies that provide identical services and which, like the national museums and galleries, are substantially funded by the Government. No other cultural or heritage bodies are analogous.

My right hon. Friend's letter went on to say: it is not for the Government to dictate to these independent institutions whether or not they should charge for admission. That is ultimately a decision for them to make, and it would not be appropriate for the Government to interfere in that decision, because it has made no commitment to ensure universal free access to these institutions. Of course, it is not for the Government to dictate, but they should cease to discriminate against these institutions and they should remove from them the pressure to charge for entry.

It has riot been suggested that the Government ever committed themselves to ensuring free entry. There have, however, been endless statements from Ministers about the desirability of matching excellence with access. My right hon. Friend the Minister for the Arts wrote to me on 8 May saying: DCMS and Resource are working in partnership with the Arts and Humanities Research Board to encourage university museums to deliver increased public access at the same time as achieving high standards of scholarship and collections care. My right hon. Friend the Chancellor himself said plainly in his Budget statement last year:

The Government's policy is for free museums".—[Official Report, 7 March 2001; Vol. 364, c. 301.]

The Government need not fear the cost, either. The combined turnover of the 16 university museums with designated collections in 1999–2000 was just over £18 million. The Treasury was unable to tell me, in answer to a parliamentary question, how much irrecoverable VAT was paid in respect of these museums in the past three years, but the best estimates from university sources that I have been able to obtain indicate that, setting aside any exceptional building costs, the annual aggregate is unlikely to have been much more than £500,000. Occasionally, if it was lucky, a university museum might find itself in a position to undertake a substantial new building project or refurbishment that would produce an exceptional increase in the VAT figure. We are looking, however, at costs affordable to the Exchequer by any standard, yet truly significant as relief for the university museums.

There is no danger that universities would seek to smuggle in other items of spending to exploit the concession. The accounts are entirely distinguishable, and Customs and Excise officials have recently made it clear that they regard the activities of university museums as being sufficiently removed from the main educational activities of the university not to be caught by the university exemption.

Nor is the designation scheme a Trojan horse. The chair of Resource, Lord Evans of Temple Guiting, has assured the Treasury that, after a minimal addition to the list in 2003, it will be closed. In any event, the Government have the safeguard that they nominate individual institutions to be added to those given relief from VAT under section 33A.

The VAT concession that I seek for university museums is feasible within existing legislation; it is affordable; it is consonant with the policy and values of the Government; and it would put an end to an injustice. My proposal provides an opportunity that should always be welcome to a tax authority—to get rid of an anomaly.

My right hon. Friend the Chancellor once fought a notable battle in the cause of free access to a university collection. As rector of the university of Edinburgh in 1972, when the then Government proposed to bring in charges for entry to museums, he insisted that the university should require that its paintings on long-term loan to the national gallery of Scotland should continue to be shown free to the people of Scotland. I hope that he, recalling that spirit in these no less heroic days, will once again raise the banner.

8.32 pm
Mr. David Ruffley (Bury St. Edmunds)

It is impossible to have an efficient economy if the biggest single spender in that economy is itself grossly inefficient. Last week's comprehensive spending review will pour billions of pounds into an unreformed leaky public sector bucket. It will pour an extra £10 per household in real terms per day, or £3,650 a year. in extra money. Spending as a share of national income in this country is rising at precisely the time that it is falling in other European Union countries. If the Chancellor carries on in the way that he is doing, within 10 years, the share of national income taken up by public spending will converge with the EU average. That is not in the national interest.

I want to show that, behind the tiresome rhetoric of money for modernisation and investment tied to reform, lies an old Labour model, not a new one. The Chancellor's model is, in fact, about 50 years out of date. I also want to suggest a modest and positive Conservative proposal as an alternative, in which the state remains the key funder—although not on the incontinent new Labour levels that we saw last week—but not the central provider chasing ever-illusory national targets. The Conservative vision will demand more genuine competition and choice for the citizen and the reform that is essential for a more responsible civil society and a wealth-creating economy. Above all, it will produce a set of reforms that never forgets that those most let down by failing public services are often the poorest in society, who have the least opportunity to opt out, unlike the middle classes.

The great public services were designed in the decade after the second world war, when resources were very scarce. For practical and moral reasons, a consensus arose across society whereby the state would be the prime funder and intervene to ensure that rationing was delivered equitably across all sections of society. That consensus was of its time, and it has broken down and been overtaken by the realities of modern life. With increasing prosperity—driven, I am delighted to say, from 1979 onwards by the necessary supply-side reforms of Mrs. Thatcher—living standards rose. That brought a rise in consumer culture, which is desirable, and a rise in voters' demands for more responsiveness and flexibility from the great public services. Those voters now know that those services are failing.

In his statement last week, the Chancellor invited us to believe that the wants of our citizens can be met by huge public spending increases. Sadly, that logic is hideously flawed. The Chancellor is shifting the balance of the economy in favour of public sector activity at the expense of private sector activity, and in so doing he is going against international trends.

The International Monetary Fund's economic outlook report, published in May 2001, states: on average general government expenditure in the advanced economies (excluding Japan) declined by close to 6 per cent. of GDP during 1993–2000 with the sharpest reduction in the northern European countries. In the 1990s, the gap between the United Kingdom and other European Union countries in terms of the share of GDP accounted for by public expenditure was high, peaking at 9 per cent. at the end of the 1990s. Now that virtuous gap is closing, and closing fast. Between 1998 and 2003, our public spending ratio rises by 1.3 per cent., but for the EU as a whole, it falls by nearly 2 per cent. Between 2000 and 2003, the gap between the UK ratio and the EU spending ratio will fall from 9 per cent. to just over 5 per cent. On current trends, British public spending will grow by 1 per cent. of GDP every five years, while the EU ratio will fall by 2 per cent of GDP every five years. If those trends continue, spending at this rate will mean that the EU's and the UK's share of GDP accounted for by public expenditure will converge by 2013. I contend that that is the Chancellor's secret agenda.

Mr. Salmond

Before the hon. Gentleman leaves that point, can he tell us whether the current percentage of public expenditure in relation to GDP is higher or lower than it was in 1983 during the golden age of Baroness Thatcher?

Mr. Ruffley

It is roughly the same, or perhaps even slightly lower, than in 1983. The hon. Gentleman must stop picking convenient dates. When my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) left office after his hugely distinguished tenure as Chancellor of the Exchequer, with record low levels of unemployment and inflation, falling debt and growing employment, the share of GDP was just under 40 per cent. That is the answer to the hon. Gentleman's question, but he must stop being selective about his dates. He is getting like Government Front Benchers in that respect, and I do wish that he would grow up.

The Chancellor's secret agenda in the medium to long term is to move the share of GDP accounted for by public expenditure up to EU levels. Moreover, there is more spending in the pipeline for this Parliament over and above that which was announced in the comprehensive spending review. We know that for one simple reason. Next year, the increase for transport, schools and hospitals is a whacking 7 per cent., but it is front-end loaded. We are invited to believe that, in the second and third years of the spending review, the rate of spending will decelerate.

Unfortunately, most commentators—and I am included in this list—look at what the Chancellor did in his two preceding comprehensive spending reviews. What has he done? In the middle of the so-called three-year fixed period, he has added more money to the totals that were allegedly fixed. No one believes that this Chancellor will stick to the same figures for 2004–05 and 2005–06 that were published in his documents last week. Why should anyone believe him this time when he has bust the limits in the past two spending reviews? As Andrew Dilnot of the Institute for Fiscal Studies has said:

The three year expenditure plans are supposed to set fixed and firm limits but so far they have been floors. This spending review is not about catch-up; it is more of a first downpayment, with more spending to follow.

It is also regrettable that this Chancellor publishes no assessment of the benefits of increased spending as against the full economic cost of that spending in lost output caused by the higher taxation that he has had to levy to finance the high spending. The United States Joint Economic Committee of Congress has done some interesting work that the Government choose not to do for this country. It notes that, in the United States, the economy loses 40 per cent. in economic welfare per tax dollar levied at current levels. The Centre for Economics and Business Research in this country has done a similar calculation, and argues that each pound raised in tax in the UK reduces national income in the medium term by more than £1.

That defect is compounded by the knowledge that the extra spending announced last week is to go into state monopoly enterprises, where, as we know, competition and proper price transparency do not exist. Instead of real reform to address those problems, the Chancellor offers us more centralised command and control state planning, which frankly owes more to eastern bloc ideas before the wall came down than to the marketised disciplines of the United States to which the Chancellor so noisily and disingenuously pays homage whenever he talks to City audiences—but not to anyone else.

The subtitle of last week's spending review should have been, "Welcome to Gordon's Gosplan", where we will have more auditors to audit and more inspectors to inspect, we will have more targets, commissions and delivery units worrying about more OPAs, PSAs, SDAs, more general targets and a hundred more pen-pushing, paper-chasing initiatives—a public spending inspector perched on the shoulder of every hospital manager, school head teacher and police inspector and every manager of our prisons and transport systems.

Unfortunately, the Government are obsessed with national standards and national targets. They think that that is the answer. The problem, as we all know, is that national standards eliminate diversity; they are its enemy. New Labour national standards are code for, "Here is what you must deliver because we say so, if you want Government funding."

Private sector disciplines set minimum quality requirements. Those standards are a safeguard and are not used to create norms and standardised products. Individuals choose from a wide range of different products. Choice is the mechanism that they use to satisfy their needs. They set their own standards by what they choose to buy and what they do not want to buy.

A state-led, national standard—a one-size-fits-all approach—is convenient for central Government but less good for local head teachers, NHS hospital trust managers and police inspectors, because funding is allocated to them on the basis of a centralised decision. The standards that they are told to implement are not local. Their activity will be continuously monitored centrally in a way that will undermine their freedom to innovate. Talk of devolution is therefore a cruel and empty deceit.

As evidence for that proposition, we have only to look at the wise words of Sir Steve Robson, who until recently was the second permanent secretary at Her Majesty's Treasury and, I understand, a man who thanks the Chancellor for his knighthood. A moderately dispassionate observer, he said that the forest of new targets creates

a blame culture which stifles local initiative. Central directions are no substitute for empowerment of individual consumers which would create real incentives to create better services. That is the comment of a highly distinguished figure—an adviser to the Chancellor, who left but 18 months ago.

What is truly astonishing is the Government's apparent belief that this year's—the 2002—model of public sector reform should be taken any more seriously than the 1998 version, or the 2000 version. In 1998, at the time of the first review, the Prime Minister stated: 'Money for modernisation' is a contract. In the 2000 version, the Chancellor said: it is by tying new resources to reform and to results and by locking in incentives, penalties, inspection and information that we ensure that … investment goes to the front-line services … At every stage, money will be tied to output and to performance."—[Official Report, 18 July 2000; Vol. 354, c. 220.] Finally—and my personal favourite—the Chancellor, with even more breathtaking hyperbole, said in The Sun on 13 November 2001: There is not going to be one penny more until we get the changes. The use of the word "contract" in those contexts must have some metaphorical significance. It certainly has no purchase on the way in which public services have been managed since 1997, under the current Chancellor. That is because the main existing set of so-called contracts—public service agreements—remain largely unenforced and unenforceable. Take the Department for Education and Skills, whose first PSA objective is to ensure that all young people reach 16 with skills, attitudes and personal qualities that will give them a secure foundation for life long learning, work and citizenship in a rapidly changing world. As far as I am aware, no Minister has resigned as a result of that objective not being met. The Department failed to reach its target of reducing by one third by 2002 the number of half-days lost to truancy, even though a budget had been specifically allocated to that purpose. The only result of the failure to hit that target was—wait for it—the reduction of the target by 10 per cent. and the date being moved to 2004. Moving the goalposts in that fashion has been a deplorable feature of the wretched and useless PSA target regime.

Some of the targets are rather arbitrary. No one seems to understand where the percentages come from or what cost-benefit analysis has been carried out to produce the figures. Suicides are to be reduced by 20 per cent. by 2010, cancer deaths by the same percentage, and deaths from heart disease by 40 per cent. Desirable though those objectives are, what is not clear is how they were arrived at.

Mr. Bercow

My hon. Friend is offering a penetrating dissection of the failures and absurdities of the Government's performance. Does he agree that the Government are guilty of the targets they have not met, the targets they will not set, and the targets that are meaningless? Does he also agree that if Government Departments have public service agreement targets simply to publish White Papers when they have obviously already decided to publish them, it is no great achievement when they do so?

Mr. Ruffley

I am grateful to my hon. Friend for making the point that I was about to make. Let me remind him of a figure that he brilliantly exposed: 43 per cent. of the 1998 PSA targets were not met in full by June 2002. I am grateful to him for disclosing such interesting facts, which were buried away in all sorts of annual reports; clearly, the Government hoped that we would not unearth them.

Were any of the funding allocation decisions in this year's spending review the result of PSA failures? In other words, did failure inform any of the allocations? Were financial penalties imposed on under-performing and offending Departments? Professor Colin Talbot, in evidence to the Select Committee last week, said no, there were not. I thought that I would go to the horse's mouth, and I put the question to the Chancellor last Thursday. He was typically evasive and would not give a straight answer. However, we know that he was unable to name one Department that had had its spending allocation adversely affected in the new spending review as a result of failure to hit any of the PSA targets. That is eloquent testimony to the futility and utter uselessness of the Chief Secretary, his predecessors and the Chancellor. So much for the tough talk of the martinet grinning on the Government Front Bench and his predecessors.

It is clear that the present regime, which has attempted to raise productivity and activity rates in the public services, has got virtually nowhere, despite the Herculean efforts of many of the dedicated public servants in our schools and hospitals, for example. I include the nurses, doctors and support staff and everyone else in the caring professions. Has the money that the Government have devolved been properly spent so far? Have funding increases for the NHS worked? I fear that the answer is a resounding no.

Between 1997–98 and 2001–02, the total health budget in England has risen by nearly one third. However, the number of patients treated in hospitals rose by an amazing 5 per cent., from 1,211,000 per quarter to 1,267,000. The failure in productivity means that waiting lists remain above 1 million. They have remained at that level since 1993 despite a public spending increase over that period, over two Governments, of two thirds.

What about the new money promised in the spending review? No one would doubt that some earnings catch-up is important if we are to recruit and retain good quality public sector workers. However, the evidence suggests already that the well-being of providers, and that of the unions at the forefront, is ranked ahead of increasing capacity and activity. In the year to last March, earnings grew, according to the Office for National Statistics, by more than 5 per cent. in the public sector, outstripping private sector earnings growth for the first time in nine years.

In the NHS, during 2001–02, 40 per cent. of the budget increase went on higher pay for existing staff while only 11 per cent. went to pay for new health workers. It is not immediately obvious to anyone that this is merely a one-off catch-up for past losses. Presumably, that is why the respected and independent director of health systems at the King's Fund, Mr. John Appleby, says that a similar proportion of the new NHS spending increases will also be consumed in higher salaries.

The other problem with public sector pay is that managers in the health service and elsewhere have not been given the necessary freedom by the Government to set pay according to local conditions and to chip away—indeed, abolish—national pay bargaining. Higher salaries are, of course, necessary in certain parts of London and the south-east to ensure that workers are recruited in areas where housing costs especially are very high. However, it is madness, under national pay bargaining rules, that such increases must be reflected in other parts of the country where the cost of living, especially in terms of housing costs, is much lower.

The Secretary of State for Health trumpets his new foundation hospitals. He says that these are the best performing hospitals that will be given greater autonomy. He does not tell us whether the hospital managers involved will have responsibility for staff working practices and the setting of staff remuneration levels. The answer is almost certainly not. That is why the Government have got it all wrong. We know in advance what the results will be.

What about failing schools? In his statement, the Chancellor seems to believe that local authorities or nearby more successful schools will be able to take over failing state schools. He seems to think that that is the way to improve productivity. We have heard that for five years now, but what is really required is the threat—the stick—of private sector providers being allowed to take over the management of a failed school. However, under the review last week, private providers will have no such freedom to come in, sack, put in their own management and remove failing teachers, without the unions invoking employment law. That is a bar to innovation and to increasing productivity, but the Chancellor did absolutely zero about it in his spending review last week.

An alternative to Gordon's Gosplan form of government could begin with reforming Whitehall. I worked in Whitehall for five years before 1997, with a very distinguished Secretary of State—my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke). In those years, I saw that career civil servants could do things a lot better. They need to change, and they need to change fast.

I suggest that we as a country urgently consider the lessons that can be learned from the fantastically successful public sector reforms in New Zealand, where Ministers are chiefly responsible for the strategic direction of policy, but they have contracts with new-style chief executives, who are responsible for achieving the outputs and for the financial performance of the Departments. That involves removing the financial control from the Treasury and giving it to those chief executives.

The chief executive has control over departmental inputs. He can employ whom he likes. He can hire and fire. He can determine the procurement policy. He can even buy and sell departmental assets, provided that that is within the capital limits as described by the departmental balance sheet. Better chief executives are employed. There are fixed-term contracts, good bonuses and remuneration.

All those things are supplemented by the complete abolition of any requirement—implicit, or otherwise—that Departments have to procure services from central, monopoly providers. That is where we should start. That is what I believe the Opposition should, and will, be considering. We need a route map of the New Zealand kind to begin a long march through the public sector culture, which so desperately needs revolutionary change.

I conclude by saying that the Chancellor's brazen tossing of taxpayers' money into what too often seems like a bottomless pit, or even a leaky bucket, is behaviour that in the private sector would put him in breach of fiduciary duty at best, or put up on a charge with a court appearance next week at worst. He has tried to bamboozle the country in saying that money will be tied to reform when it patently has not been—not this year, not the year before and not the year before that.

The Chancellor has no concrete proposals for raising productivity in the public sector, and that is why many of those services will remain in relative crisis. He is reheating failed Labour polices from yesteryear, with some new Labour topspin added for good measure, as a substitute for the serious debate about the practical solutions that this country's public services are crying out for. Someone obviously told the Chancellor that he could be the new Nye Bevan. Unfortunately, he has believed it.

8.58 pm
Paul Goggins (Wythenshawe and Sale, East)

May I begin, as other hon. Members have done, by acknowledging the importance and timeliness of this debate? Five years ago, we had an election dominated by tax pledges, which resulted in a new Government committed to keeping within inherited spending limits. I would be the last to hide from the fact that that involved very tough discipline during the first two years, but, unlike the hon. Member for Kingston and Surbiton (Mr. Davey), I can identify the benefits that that policy created.

In particular, the policy helped to bring about financial stability, together with the reductions in debt interest, to which the Chief Secretary referred in his speech, that are now worth £20 billion a year and an economy in which 1.5 million more people are now working and dole queues are shorter than they have been for 25 years.

During that Parliament and, indeed, in the first year of this Parliament, it has become clear that, after years of underinvestment in education, health and transport, many of our public services are failing to keep pace with the capacity demands and the expectations of quality that are placed on them. People, rightly, want better services and—this is every bit as important—there is increasing evidence that people are prepared to pay for them. It is this shift in public attitudes that has assisted the Chancellor in allocating the £61 billion extra for spending on our hospitals, schools and public transport by 2006. This is not funny money, or double counted; it is real and people do not want it back in tax cuts. But both the public and the Chancellor demand that the money is accompanied by real reform and change.

Over a fifth of the new money is to be allocated to education. I was reminded by my hon. Friend the Member for Workington (Tony Cunningham) of a visit I made 10 years ago to a school in Germany, where I looked enviously at the state-of-the-art classrooms, computers and other modern equipment in the school. With this new money, and the money allocated by the Government in previous Budgets, classrooms like that are becoming a reality in my constituency and in those of all hon. Members. That is happening not only in the leafy suburbs, but in some of the least advantaged communities in the country.

I also welcome the £1.5 billion invested in the complete roll-out of Jobcentre Plus, not least its introduction in my constituency from next April. At the moment, the Benefits Agency deals with benefits in an office that is close to the town centre, but the Employment Service runs the jobcentre two miles away from the town centre on the periphery of our community—frankly, in the place where the Tories put it in the 1980s when their policy was to get jobcentres off the high street and out of the town centre.

From next year, Jobcentre Plus will operate in the town centre. It will provide an integrated service and will use the best of new technology to transform not just the way in which the job is done, but the life chances and opportunities of those in my constituency who are still looking for work. That is a real example of investment accompanied by reform and change in the way in which we deliver services.

I welcome also the extra money for housing, an area that has been neglected too often over the past 20 years. I welcome the money for transport and for law and order, which will deliver more police officers and speed up the criminal justice system. There can hardly be a more important issue for our constituents.

One aspect of public expenditure announced last week by my right hon. Friend the Chancellor that has been welcomed on both sides of the House—it was referred to by my hon. Friend the Member for Dumbarton (Mr. McFall)—was the increase in development assistance. In the early 1970s, the UK and others signed up to the UN pledge that 0.7 per cent. of gross national product would be spent on development aid. The original idea was that that target should be reached by the end of the decade. By 1979, we had not fulfilled that pledge, but we had at least got spending up to 0.52 per cent. Since then, countries such as Sweden, Norway and Denmark have met the target and, in some cases, exceeded it.

By 1997, our contribution had fallen to a miserable 0.26 per cent. This subject has been a priority, I am proud to say, for Labour in government. The proportion is now 0.34 per cent and the announcement made by the Chancellor last Monday was of a figure of 0.4 per cent. by 2006. That will be just above the European average, which was promised at Monterrey. In real terms, that means a doubling of the amount that we spend in this country on development assistance since 1997.

Again, it is investment accompanied by reform. Untying of aid, which began in April last year, is critical in getting better value for money out of what we spend on development assistance. Of course the stronger focus on poverty is moving us closer to the millennium development goals to which the Government are committed. Of course, 0.4 per cent is still not the 0.7 per cent. level that we need and there are still many problems in the world to overcome—the conflicts in Africa, the problem of HIV/AIDS and the continuing difficulties faced by heavily indebted poor countries as a result of the collapse in commodity prices.

If the rate of increase announced by my right hon. Friend last Monday can be sustained, however, it would bring us to 0.7 per cent. by 2012. That would fulfil the hopes of the 240 Members who have signed early-day motion 386, and it should evoke support and welcome on both sides of the House. I say in all sincerity that, despite the neglect in the 1980s and 1990s, this ought to be an area of policy on which there is no division across the House.

There is a great deal to be optimistic about, but we also face three significant challenges. The first, to which other hon. Members have referred, is the need for an open and honest debate about the balance of benefits to be gained from the extra money going in. How much will go in extra pay for existing staff? How much will go in higher charges to private sector suppliers and contractors? And how much will go in extra and improved services for our constituents?

I do not hide from the fact that those questions are complex, or that they overlap. Nor, indeed, should we hide from the tough questions raised by my right hon. Friend the Member for Llanelli (Denzil Davies), when he spoke of the global economic pressures that are building up. I am very clear, however, that the biggest winners must be our constituents, who, of course, fund public services through their taxes. I am not against public sector workers having a decent living wage. I am in favour of a campaign to try to eradicate low pay from our public services and elsewhere. Frankly, however, we need to ensure that a disproportionate amount of cash does not go to middle and higher earners in our public services who already benefit from the low-interest mortgages on offer and have the prospect of decent pensions in retirement. They cannot have the first call on the extra money.

David Taylor

My hon. Friend rightly details some areas of expenditure that might well soak up some of the Chancellor's good intentions. Does he accept that the private finance initiative and public-private partnerships fit exactly into that category, and that, as the years roll by, they will absorb greater and greater sums of money and crowd out the ability to expand infrastructure and up the rate of activity in the public sector? Does he recognise that as a real risk?

Paul Goggins

I suspect that my hon. Friend and I have slightly different views about public-private partnerships. He has, however, anticipated my next point, which is that a strong message needs to be sent to the private sector that we are not prepared to pass on the extra money in the form of higher charges for medicines, for example, or more expensive contracts, to which I am sure my hon. Friend was referring. We have a three-year time frame for improvement and, over that period, all those who are engaged in or supportive of public services must fight for the principle of public services funded by taxes rather than fees, and for the practical improvements that will justify that principle. That is a fight that we have to win.

The second challenge is to change the way in which our public services are delivered. Developing capacity alone is not enough; more of the same is not enough. We have to do things differently. For example, older people often need better physiotherapy in a primary care centre rather than a long wait to see a consultant who might not be able to do very much to help them. Doing things differently also means introducing neighbourhood wardens and community support officers to complement the vital work of the police. It also means introducing better intermediate and community care for older people, to avoid delayed discharges or lengthy residential care placements that are not always appropriate. We must encourage those who run our public services to be innovative and to ensure that those services are accessible and user-friendly. We do not just need more services; we need more effective services.

The third challenge is nothing less than to bring about a change in the culture of our public services, particularly in the way in which they are planned and delivered. It was right that, in the first term of this Government, there was a huge push from the centre to bring about the kind of rapid and dramatic changes that were required in certain areas. That meant that more patients were treated and, as the Chief Secretary pointed out earlier, that primary school pupils were leaving schools with better levels of numeracy and literacy.

For long-term change to be sustainable, however, we have to have a different approach. We have to match rising national standards with a greater sense of local ownership and control. Unusually—I hope that I do not vex my right hon. and hon. Friends in saying this—I agree with the words, at least, of the shadow Chancellor. In a speech last Monday, he said that we should be moving decision making closer to the people, the families and communities affected. It means trusting people to know what is best for their area".—[Official Report, 15 July 2002; Vol. 389, c. 32.] Those are noble sentiments, and as I say, I agree with the words, but there are two reasons why I doubt the spirit behind what the right hon. Gentleman said, the first of which is the small matter of the 18 years in which the Conservatives were in power. During that time, they did precisely the opposite, centralising a great deal of power and doing much to undermine local democracy. The second reason is my strong suspicion that, in the shadow Chancellor's view, "local" means cheap. It does not.

For example, in my constituency we are about to introduce a demand-responsive bus service. Minibuses and people carriers will help to get people from home to hospital, the shops, transport links, and so on. That good and effective local initiative has come about only because central Government are providing £750,000 to make it happen. A local housing trust, Willow Park, is encouraging greater tenant participation at board level, but it began with £20 million of public funding from the Government. It is assisted with funds for closed circuit television schemes and for neighbourhood warden schemes. Another example is the panel of 300 local people who are helping to set local health priorities in the South Manchester primary care trust. Indeed, primary care trusts are another example of Labour reforms. We need to push power and decision making downwards, but let nobody be mistaken—it is not a cheap option.

If we achieve that greater sense of local and public participation, this Government will have created a distinctive feel-good factor; not the so-called feel-good factor of the 1980s, which was based on narrow self-centredness and the exclusion of the poorest in our society, but a feel-good sense based on communities that meet needs and foster inclusion and cohesion. I believe that the money is now in the system to give us real hope that we can achieve such a society.

9.12 pm
Mr. Alex Salmond (Banff and Buchan)

Thank you, Madam Deputy Speaker, for calling me at the climax of this debate. I have sat here for some four hours plus, and I have listened to the debate ebb and flow, although I should say that it has mostly ebbed. [Interruption.] It is going to get better. At times, the Scottish Grand Committee has taken on a new and attractive light. If I followed the example of some hon. Members, I would leave precious little time for the Front-Bench spokesmen to sum up. I do not intend to do that, but I am strongly tempted, given the length of some of the contributions, particularly from those who discussed "productivity" in the public sector. I found that somewhat amusing.

One of the "flows" in this debate was the first class contribution from the Chairman of the Select Committee, the hon. Member for Dumbarton (Mr. McFall). His was the most thoughtful speech by a mile. He argued that the Treasury forecasts are believable because public investment is very low as a percentage of gross domestic product—much lower than in the glorious reign of Baroness Thatcher, some 20 years ago. When asked whether that is a good thing for a Labour Member of Parliament, in particular, to be saying, the hon. Gentleman said that, in the Thatcher years, public investment was wasted on unemployment, but now it is diverted towards much more useful things. To some extent that is correct, but it is not the only point about the decline of public investment in the economy.

One example is gross public investment—investment in capital infrastructure in the public sector. In 1975, gross public investment in the UK was 8.9 per cent. of GDP; by 2000, it was 1.7 per cent. Even if we include private finance initiative schemes, that figure increases to only 2.1 per cent. The Wanless report was predicated on the argument that there had been £200 billion of underinvestment in the national health service over a generation. One difficulty that I have with the Treasury team's credibility as they deal with such points is that, for the past five years, the Chancellor of the Exchequer has argued that public investment and public spending has increased when it has not, and that taxation has not increased when in fact it has.

Mr. Tom Harris

I will keep this brief. The hon. Gentleman rightly referred to a low percentage of gross national product. Is he claiming that that represents a real-terms decrease? A percentage of a pie that is becoming bigger is not the same as a real-terms decrease. I hope that Hansard gets that right.

Mr. Salmond

Which is more than the hon. Gentleman did, but never mind.

What I am saying is that by double-counting, triple-counting and quadruple-counting the Chancellor pretended that public spending increases were greater than they were over the past five years. Now we have reached a point at which there really are substantial increases in public spending, of which I approve. Indeed, I fought an election in Scotland on the principle of direct taxation leading to direct increases in public spending. I approve of the policy. I am merely saying that this Treasury team, and the Chancellor in particular, have a track record that does not necessarily lead us to believe everything that they say, given the experience of the past five years.

The hon. Gentleman put his finger on one important point, however. The argument relating to the credibility of these figures is not to do with the balance between the public and private sectors; it is to do with whether the rate of growth will hit the Chancellor's targets and make the public spending increases affordable, or whether the international situation and other factors will crowd in and cause difficulties.

One of my reasons for being critical of the Chancellor and the Treasury team for missing the boat is that over the past five years the international economic environment has been much more benign than it is likely to be over the next few years. It will be much more difficult to sustain substantial increases in public spending in that difficult and uncertain environment.

The Chairman of the Select Committee spoke of a trend growth rate of 2.5 per cent. That is not a fancy figure in international terms. In the past 10 years the Irish economy has grown at a rate of 7 per cent., the Norwegian economy at a rate of 4 per cent., the United States economy at a rate of 3.3 per cent. and the Dutch economy at a rate of 2.7 per cent. As for the revised figure of 2.5 per cent. over the past 10 years, there was a higher average growth rate during the last five Tory years than in the past five years under the present Chancellor. The trend figure is already modest; if it is "crowded in" further, the public spending increases will be extremely difficult to meet. However, I approve of the Chancellor's conversion to the notion of honest direct taxation—a "Penny for Britain" in national insurance—as a means of financing such increases.

I am glad that the Chief Secretary has returned. He made an uncharacteristically rude, windy, feart, faint-heart, evasive and thoroughly disreputable speech, during which he refused to give way to me. I must confess that that contributed to my interpretation of his speech. I wanted to ask him a very simple question: is a review of the Barnett formula under way in the Treasury or not? Three Treasury Ministers are present, including the Chancellor. I merely ask for a reasonable "yes or no" answer, rather than an impassive scrutiny of papers.

I am tempted to say that when three people are silent a number of possibilities come to mind. Certainly silence speaks volumes on this occasion.

In the Western Mail of 10 July the Deputy Prime Minister clarified matters, saying that no review was in progress, but he conceded that information-gathering might lead to changes. Let me ask the Treasury team this: what is the difference between a review and information-gathering that may lead to changes? That is a perfectly legitimate question—one that a Chancellor of the Exchequer should be able to answer, and one that any member of the Treasury team should be able to answer. I hope that the Financial Secretary will manage to answer it when she winds up the debate.

The importance of the question is obvious when one compares the comparable Barnett-affected figures for Scotland and the increases announced by the Chancellor. The review includes a 6.5 per cent. increase in money for health, education and transport, whereas the comparable Scottish figures show an increase of 4.5 per cent. That is the reality behind the spending review, and of the Barnett squeeze.

The irony is that many hon. Members believe that the Barnett formula protects Scottish public spending. However, at a time of increased public spending, the formula will result in rapid convergence to the average. The same thing happens in Northern Ireland, as the hon. Member for North Down (Lady Hermon) knows. It happens in Wales too, as hon. Members from that country know.

The Chancellor will have been following closely the evidence on identifiable public spending that has been given to the Treasury Committee. I was interested to note that, according to the analysis by Professor Ian Maclean—and leaving aside the unidentified spending going to huge Government Departments, to transport infrastructure and elsewhere—even identified public expenditure per head in London is almost identical with that in Scotland.

If that is regarded as unfair, why is there not a Barnett formula for London? Why is there a Barnett formula to converge spending in Scotland with the rest of the UK? The questions are not inconsequential. If the Scottish increases were on a par with the UK total that the Chancellor has announced, there would be additional spending in Scotland of £1.5 billion over the next three years. That would be worth £300 for every man, woman and child in the country.

The question therefore requires an answer. I do not favour having the Barnett formula squeeze Scottish spending, but neither do I agree with the Deputy Prime Minister, who wants to squeeze Scottish spending further and faster.

I see that the Chancellor himself is informing the Financial Secretary about what to say in her reply. I look forward to hearing it.

I do not approve of the argument that Barnett should be replaced by something even worse. That would have serious consequences for Scottish spending levels.

Many hon. Members might approve of a solution that made the Scottish Parliament responsible for raising its own revenue, and for making its own expenditure decisions. The most recent Conservative Member to adopt that position was the right hon. Member for Haltemprice and Howden (David Davis). Perhaps his fate today would render inauspicious any attempt to convince independent-minded Conservative Members about that solution, but a growing number of Labour Members of the Scottish Parliament can see the sense of not being at the mercy of a convergence formula such as Barnett. They do not want to be at the mercy of the Deputy Prime Minister either, but want a Scottish Parliament robust and responsible enough to make its own expenditure decisions.

That might not be the most popular notion with the Chancellor, who does not believe that any Government Department—or school, or hospital—should have real discretion. However, such a power would be good for the Scottish Parliament and for Scottish spending decisions. It would be good also for the growth rate in the Scottish economy—the key economic variable determining whether increases in public expenditure can be sustained in the long term, or whether this Chancellor is offering, in this spending review, a boom and a bust in public expenditure.

9.23 pm
Mr. Eric Illsley (Barnsley, Central)

I welcome the spending review and the overall spending allocations announced by my right hon. Friend the Chancellor. I especially welcome the increased spending on education and health, which are two of the Government's priorities. In the short time available, I shall dwell briefly on those two areas.

I congratulate my right hon. Friend the Chancellor on his bold commitments and on his stewardship of the economy which, despite the current economic climate and the uncertainty in the stock exchange, has made the spending increases possible. However, my main question with regard to the spending review has to do with how money is allocated and distributed to areas such as mine. The failure of some of our distribution formulae and systems has meant that some of my constituents will not benefit from the total amount announced by the Chancellor in the review. We will continue to struggle to provide better standards of education, an improved health service and better public services administered by local government simply because the distribution mechanisms are unfair in my area. The funding mechanisms for health, local government and education are biased against my constituency and other metropolitan areas.

Areas such as mine are receiving less money for health this year than they were last year, and we must address that anomaly. In 2001–02, Barnsley health authority was funded at 98 per cent. of its target. This year, it will be funded at 97.2 per cent. of its target, so technically, the money available to my local health authority is decreasing because it is funded below that target. Unfortunately, no one has an answer to this; it is not just this Government who have consistently underfunded Barnsley health authority. There was a long period under previous Governments, especially the Tories, when the funding received was considerably less than our funding target.

In its franchise plan, the strategic health authority for South Yorkshire gives the figures for the funding targets for my local health authority. As I said, funding at 97.2 per cent. means that we are 2.92 per cent. short of our funding target. Our two neighbouring authorities, Rotherham and Doncaster, are funded at 99.8 per cent. and 99.1 per cent. Even local authorities close by get more money than we do—there is no rationale behind that funding structure.

In reply to a questions that I asked the Secretary of State for Health recently, he said that Barnsley received an uplift of something like 10 per cent. at the last funding allocation. That money is going to fund that gap between 97.2 per cent. and the 100 per cent. target. The funding gap equates to something of the order of £6 million. The 2002 settlement of 10 per cent. was generous, but my health authority has had to use the increases awarded to fund the year on year gap in health funding.

The initiatives and targets placed on my health authority make up part of the problem. It cannot meet those targets because the funding is ring-fenced and has to go to initiative targets when the authority needs to spend money on closing the funding gap. Simply as a consequence of the lack of funding to cover that gap, my health authority is likely to be described as a failing health authority and have restrictions imposed on it. Yet a further new target has been imposed by the comprehensive spending review to cut accident and emergency admission waiting times to no more than four hours by 2004, and other targets have been reaffirmed.

My health authority, struggling as it is, 3 per cent. short of its funding target, is still already close to meeting even the new targets that my right hon. Friend has imposed because of the effort and hard work of its staff. It is not that the health authority is badly administered but that the funding is being diverted into meeting the historical underfunding in my area. My health authority will not have the money to reach the new targets, however, because it cannot keep using scarce resources to bridge the funding gap while still trying to meet the targets imposed on it.

Why is my health authority historically funded at such a low level? Why cannot the money be made available under the distribution formula to bridge that gap to give us the funding that we require in Barnsley?

On education, I welcome the increase of 6 per cent. in overall funding and the direct payment to schools. My local authority has consistently passported the extra money on education standard spending assessments through to schools and made sure that education is a local priority. Once again, funding is largely ring-fenced in terms of education initiatives and other initiatives, whereas the other services block—for example, to provide a range of other services apart from education and social services—is squeezed, again because the distribution formula does not work for my area.

I know that the local government review has been announced, but the material issued with that review says: Since the system can only distribute the available resources, it must be based on comparisons between authorities rather than absolute measurements of need to spend. My local authority requires an assessment based on its needs. It requires a distribution formula based on the needs of the area; otherwise, it will simply lose out again and again. Again I ask, why is it that my local authority can get 70 per cent. less funding than other authorities, such as Manchester, Birmingham and Liverpool? There is absolutely no reason for such a shortfall in funding.

I shall bring my remarks to an end, because unfortunately, in this short debate, some hon. Members have probably been less considerate than others in taking such a long time over their speeches. My message is that unless we get the distribution formulae correct and address historical underfunding anomalies, the welcome news of the extra money for all our public services will not be recognised by the wider public.

9.31 pm
Mr. John Bercow (Buckingham)

It has been an excellent and sometimes highly charged debate, to which there have been several first-class contributions.

My starting point is simple. In the year 2005–06, the Government anticipate spending £511.4 billion; we need to know what that means. It means that the Chancellor of the Exchequer proposes to spend no less than £16,216.39 for every second. Translated into a meaningful statistic—on the strength of the lamentable speech by the Chief Secretary to the Treasury tonight, I think that the House and people outside will want to know what it means—it means that for the 34 minutes for which the Chief Secretary to the Treasury expected us to listen to him, we were charged a bill in public expenditure of £33,081,435.60. So when 34 minutes is taken up by the Chief Secretary, that is what the Government are spending, supposedly on the public services of this country.

The central thrust of the speech by my right hon. and learned Friend the shadow Chancellor was that simply to boast about the level of expenditure without securing the detailed constructive and effective reforms of the way in which public services are delivered will not produce the results on which the people of this country depend, and which they are entitled to expect from a Government who have had two landslides and enjoy an impregnable parliamentary majority.

As my right hon. and learned Friend said on Monday 15 July, we have heard it all before; we have heard what the Government say and seen what they fail to achieve. The truth of the matter is simply stated. In 1998, the Government promised improved public services to renew Britain. In the year 2000 spending review, the Chancellor committed himself to achieve—I quote, so as not in any way to be unfair to him—service improvements, key reforms and much-needed modernisation. No amount of flannel, no amount of rhetorical verbiage, no amount of typically aggressive and meaningless posturing from the Chief Secretary can conceal the reality that in terms of the quality of services, the Government have not delivered.

It really will not do for the Chief Secretary to fail to answer the central challenge: why have the Government now decided that the Treasury itself, which is the architect and arbiter of public service agreements, cannot measure whether it has achieved its own? To bluff, to bluster and to disdain criticism, but to fail to respond to that central challenge was a searing indictment of the generally poor speech that we heard from the Chief Secretary.

Mr. Tom Harris

The hon. Gentleman is very generous in the number of times that he gives way. At the start of this debate, his right hon. and learned Friend the Member for Folkestone and Hythe (Mr. Howard), the shadow Chancellor, told the House that he could not commit a future Conservative Government to matching the spending committed by this Government because he was not confident that the reforms presented were adequate. Last Thursday, however, his hon. Friend the hon. Member for North Essex (Mr. Jenkin) not only committed a future Conservative Government to matching defence spending, but to improving on that spending. What reforms have been implemented at the Ministry of Defence that have so impressed the Conservative Front-Bench spokesman?

Mr. Bercow

Unfortunately, the hon. Gentleman has totally misunderstood and misquoted what my hon. Friend the Member for North Essex (Mr. Jenkin) said. The shadow Secretary of State for Defence has certainly not committed himself to increased resources beyond those that the Government have already pledged. The hon. Gentleman is wrong. I know the facts, I have seen the evidence, I have read the speeches and I have had the discussions. I know the position of my hon. Friend: it is a commitment to secure the quality of protection for the people of this country that we need. We are not pledged to increase resources but to devise a new, credible, effective and attractive alternative to Government failures for the delivery of public services. We are not prepared to be hidebound and narrow in our approach or to be restricted to the low-level terms of debate on which the Government insist.

The Government are stuck in an old-fashioned mindset, which says that all that matters is money. I am grateful to the hon. Gentleman because he spurs me to invest my speech with additional vigour. The people of this country are interested not in words but in deeds. They are interested not in inputs, but in outputs—not in promises, but in performance. When the people of this country make a judgment about the effective use of public expenditure, the question in their minds will simply be this: are we getting the three things that we want from the money that the Government spend, which we have given them in our taxes? The three things that the people of this country will tell the hon. Gentleman and the Chancellor of the Exchequer that they want are: results, results, and results.

In the past five years, the people have heard the promises, seen the spin, observed the misrepresentation and, above all, they have been disappointed by not merely the gap but the gaping chasm between the words that Ministers utter and the deeds that they do.

Roger Casale


Mr. Bercow

I will not give way at the moment.

The conflict that exists now between the rhetoric and the reality is so stark that it ought even to embarrass the normally unembarrassable hon. Member for Wimbledon (Roger Casale).

Warming to my theme, I will deal with the specific public services. Frankly, the Chief Secretary, who is an intelligent and often an amiable man, debauched the currency of this debate from the outset. The right hon. Gentleman, who is justifiably proud of his recent promotion, seemed to forget that we are here to identify ways to improve the quality of the lives of our constituents and our fellow citizens as a whole. The reality of the Government's performance is a dismal catalogue of under-performance: of hopes destroyed, promises broken and trust betrayed.

Let us take the example of the national health service. I do not need to misrepresent the Government's position because the track record is poor enough studied according to its own lights. The Government have increased public expenditure on health since they took office by approximately 30 per cent. During that time, we had nearly 78,000 cancelled operations last year and we have witnessed that, on average, it takes four months to get an in-patient hospital appointment compared with a maximum wait of four weeks in France. As anyone who studies the situation should be appalled to discover, in today's national health service, under a benighted Labour Government who have taken more and more of our money in taxation since they took office, there are more administrators than there are beds.

The hon. Member for Dumbarton (Mr. McFall), the Chairman of the Treasury Select Committee, made a potent contribution. He drew attention to the danger of wage demands. He recognised the need for local involvement in the delivery of public service agreement targets. He was chary, and with good reason, of some of the rhetoric of Ministers, but the one thing that he did not appear to recognise was that, in Scotland, a constituency within which he ably represents, we see evidence of the mismatch between money spent and improvement delivered. He knows that since his party took office expenditure in real terms on health in Scotland has risen by 28 per cent., but simultaneously the average waiting time for treatment in Scotland has risen by 25 per cent.—more money spent but not a better performance delivered. That deals with health.

Roger Casale

Will the hon. Gentleman give way?

Mr. Bercow

No. The hon. Gentleman may tempt me in a moment or two if he is patient but there were other contributions. I might want to refer particularly to the excellent contribution by my hon. Friend the Member for Sevenoaks (Mr. Fallon), who was rightly sceptical of the Government's position, and the truly devastating critique of Government performance that came from the lips of my hon. Friend the Member for Bury St. Edmunds (Mr. Ruffley). Not for nothing are they the twin terrors of the Chancellor of the Exchequer on the Treasury Committee.

Let us talk about the quality of the education system. The Government have increased expenditure on education since they came to office by about a quarter. What do we see in terms of Government performance? We see that on a typical day 50,000 children play truant from our schools. We know that there has been a 300 per cent. rise in the number of assaults by pupils on staff. We observe a doubling of teacher vacancies in our state schools. We recognise the appalling burden on teachers, who have to put up with 17 pages of paper spewing forth from the Department for Education and Skills every day, amounting to no fewer than 4,440 pages a year. That is the reality of Government performance in education. Last year, fewer people achieved the Government's numeracy target than the year before.

It is no good the Chief Secretary saying that all is well and dandy when the truth is that 43 per cent. of the Government's own public service agreement targets have not been met. As I have had reason many times to observe, for the Government to fail to achieve public service targets set by independent experts would be disappointing. To fail, however, to achieve the targets that the Government have themselves set requires incompetence on a truly spectacular scale.

Of course, it is true in relation not just to health and education but to transport. Last year, one in five trains failed to arrive on time. People who experience the public transport system at the grass roots know that delay, congestion, cancellation, danger and vandalism is the regular diet. It is the normal state of affairs. It is not the exception; it is all too commonplace.

Roger Casale

Will the hon. Gentleman give way?

Mr. Bercow

I want briefly to point out the serious failings in Government performance in relation to law and order but if the hon. Gentleman is that keen, I shall be my normal indulgent self.

Roger Casale

I congratulate the hon. Gentleman on his new appointment. His contributions to debates on public expenditure will be greatly missed on the Labour Benches. Before he takes up his new appointment and shuts down his Treasury brief, perhaps he can tell the House whether there are any aspects of public expenditure other than defence and international development where a future Conservative Government would match the increases that the Labour Government announced last week.

Mr. Bercow

That was very disappointing. I blame myself. My natural generosity of spirit got the better of me. It is a pretty rum individual who expects the Conservative party to produce the details of its manifesto for the next election precisely 13 months after its devastating defeat at the last.

David Wright

Will the hon. Gentleman give way?

Mr. Bercow

I recognise the impatience of the hon. Gentleman. He will have to be patient.

In relation to law and order, the Government have spent more, trying, honourably and decently but unsuccessfully, to fight crime. They have increased resources by 25 per cent. in real terms. Now, crime is rising by 7 per cent., violent crime is rising by 11 per cent., robbery is rising by 28 per cent.—

Hugh Bayley

Will the hon. Gentleman give way?

Mr. Bercow

No, I will not. Street crime is rising by 31 per cent. The central proposition that the Government have not been able to answer is this: for the last five years, they have spent more money, promised reform, failed to deliver it, and presided over a continuing deterioration in the quality of public services on which the citizens of the United Kingdom depend. We are not going to be trapped in that discredited gobbledegook that says more money alone will solve the public service ills from which this country suffers. We are determined instead to listen, to look and to learn. Labour Members may be all in favour of giving power to people in European Union institutions whom we do not elect and whom we cannot remove. What a pity that they do not want to learn from the practical experience of countries that are more successful, in their public services, at translating care from a word to a deed. They have failed to do it. They have closed minds, closed ears and closed intellects. We have opened minds, opened ears and opened intellects.

We will fashion a credible policy. We will communicate it honestly. We will subject it to the scrutiny of the electorate. We are determined to get rid of the highest-taxing, heaviest-regulating, most pompous, sanctimonious, politically correct sisterhood called new Labour, and to get a Conservative Government in office led by my right hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith), who will promise less and deliver better in the interests of people who have suffered too much too long from a Government who have nothing left to offer.

9.47 pm
The Financial Secretary to the Treasury (Ruth Kelly)

We have had an interesting debate this evening, with useful and—may I say?—measured contributions from my hon. Friend the Member for Dumbarton (Mr. McFall), my right hon. Friends the Members for Llanelli (Denzil Davies) and for Newport, East (Alan Howarth), and my hon. Friends the Members for Wythenshawe and Sale, East (Paul Goggins) and for Barnsley, Central (Mr. Illsley).

We have talked about choices—political choices. We have made ours. In our election manifesto, we promised to put schools and hospitals first. In the Budget, my right hon. Friend the Chancellor announced the largest sustained increase in spending on the NHS since it was founded in 1948. We now have an unprecedented opportunity to re-establish the historic consensus in favour of the NHS: free at the point of use to all who need it. The Tories oppose our funding and seek to unravel that national consensus, which has endured for 50 years, in favour of charges and cuts.

The right hon. and learned Member for Folkestone and Hythe (Mr. Howard) appealed to our compassion this evening. Why should he set out his spending plans for our scrutiny? Why, indeed. We learned two important and interesting facts this evening. First, we found out from his answer to one of my hon. Friends that he stands by his earlier comments that the NHS is a Stalinist creation. We also found out that the hon. Member for Arundel and South Downs (Mr. Flight), the new shadow Chief Secretary to the Treasury, does not deny that he wrote in a memo to the shadow Chancellor: The reforms which we will be proposing will end the NHS monopoly and will entail those who can afford it making some payment for health care services". No wonder he is hiding behind the camouflage of reform. They talk about reform; instead, they mean cuts. They talk about learning from abroad; instead, they mean charges. They talk about consultation; instead, they mean forcing the sick to pay for being sick. Let them explain why they do not support our health service reforms and our money, and why they are considering charges for visits to hospitals and GPs.

In the spending review, my right hon. Friends the Chancellor and the Chief Secretary set out their commitments to education. Over the next three years, there will be a 6 per cent. real rise in education in England—the biggest sustained rise in a generation. That will include £165,000 direct to secondary school heads, rising to £180,000, and £50,000 direct to primary schools. There will be more resources for further and higher education. That is what we mean when we say "education, education, education".

I defy Conservative Members to go back to their constituencies to tell head teachers why they do not support the extra money that we are giving to secondary schools and directly to primary schools, or the 6 per cent. real terms increase in education spending. Why did the Conservatives say in their manifesto at the last election that they would support our education and health spending and our reforms, and why have they turned away from that now? What has changed? Do they believe that they were being too generous just a year ago?

Five years ago, when we came to power, we inherited a legacy of economic failure and social decay. Money was being wasted on debt and debt interest, and high unemployment was a further drain on the Exchequer. Public services were starved of resources and public servants were starved of support. Because we have cut public sector debt from 44 per cent. of national income to 30.4 per cent. last year, and have cut unemployment by more than 700,000 and created a new framework for monetary policy and tough new fiscal rules, we are now in a position to build on the successful reforms of our first term and to introduce the investment and the reform that the public sector desperately needs.

Debt interest is at its lowest as a proportion of gross domestic product since the first world war. Debt interest payments have fallen by more than £6.5 billion since 1997, so more money has been freed up for investment every single year. Britain's debt has been reduced to the lowest level of national income in the G7 and to the lowest of all our major European competitors.

Within that framework, we have the strength to invest for the long term and to reverse the chronic underinvestment of the 18 years under the previous Conservative Government. The investment has already started to go in and we have already seen the results. Instead of 500,000 children in classes of more than 30, there are none today. There are 20,000 more teachers in schools, and 100,000 more students in universities. We have 10,000 more doctors and 39,000 more nurses, but there is still a lot to do.

Holding strictly to the public spending totals that my right hon. Friend the Chancellor set out in the Budget, we are raising departmental spending from £240 billion this year to £263 billion next year, to £280 billion in 2004–05 and to £301 billion in 2005–06. By 2006, we will have increased public spending by £61 billion, and that is £61 billion a year more for improved public services.

In each area of service delivery, we are tying new resources to reform and results, developing a modern method for running efficient public services, setting national targets with performance monitored by independent and open audit and inspection. Front-line staff will be given the power and flexibility to deliver, thereby extending choice, rewarding success and turning around failure.

There has been much discussion in the debate, not least from the hon. Member for Kingston and Surbiton (Mr. Davey), about the new inspection regime. We as a Government are determined that the extra £61 billion allocated to public services will deliver results. We are tying the resources to reform and results through streamlined arrangements for accountability and audit. I would have thought that the Opposition would welcome our new inspection regime.

Those of us who believe in public services know that we have a special duty to make sure that public money is well spent and spent efficiently. We are as determined to secure value for money as we are to secure money for services. [Interruption.] I hear jibes from those on the Opposition Front Bench, but this Government want value for money, whereas the Opposition seem to want value without money.

Points have been raised about the inspection regime, but I must point out that the National Audit Office's responsibilities are completely unaltered by the new inspection arrangements. The new bodies will amalgamate and streamline existing performance and value-for-money work, so the National Audit Office will continue to have an important and valuable role in monitoring the new arrangements.

My hon. Friend the Member for Dumbarton made some interesting comments about public service agreements. I am extremely pleased to hear that the Treasury Select Committee will continue to take an active interest in monitoring the Government's performance against our performance targets. By setting clear, measurable targets, publishing information on each of them and collating that information in one easily accessible location, we empower not the Government, nor even the Treasury, but the people who elected us and who can use that information to hold Departments to account. The National Audit Office has said: the introduction of Public Service Agreement targets, and in particular the move to outcome-focused targets, is an ambitious programme of change which puts the United Kingdom among the leaders in performance measurement practice. This is about transparency and accountability as a necessary component of good governance. We are learning from best practice in the private sector and applying it for the first time to the process of government.

Alongside the new performance targets, each Department will publish separately detailed implementation plans as to how they intend to meet those targets. They will be open to public scrutiny and debate, and I am sure that they will monitored by many hon. Members, not just those on the Select Committee. I look forward to that.

We heard several interesting contributions. I am sorry to have missed the speech by my right hon. Friend the Member for Newport, East, who gave a passionate and erudite exposition of the case for university museums and collections and for making a change to the VAT regime. I remind him that the impact of tax changes is already included in spending allocations, although I take his point as an early representation on the next Budget.

I also enjoyed the comments of my hon. Friend the Member for Wythenshawe and Sale, East, who agreed that money has to be accompanied by reform, and gave specific examples of reforms that are making a real difference in his constituency and others.

On the comments of the hon. Member for Banff and Buchan (Mr. Salmond), with whom we have had some dealings in the House over the past few weeks and months, I may say that they might have had more credibility had he not opposed the extra money that is coming through the taxation of the North sea oil regime. He cannot stand up in the House and argue for more resources for Scotland if he does not back the revenue-raising measures that go alongside that.

My hon. Friend the Member for Barnsley, Central made an impassioned plea for his local authority and for others in the north of England. The options are currently being discussed and I look forward to his active participation in those consultations. I am sure that my ministerial colleagues with responsibility for local government will take that into account.

As for Liberal Democrat Members who suggested that in the comprehensive spending review we have succumbed to the demands of the Liberal party for extra resources to be put into our public services, I should like to point out a couple of facts. By comparison with what the Liberals promised at the last election, by 2006 we will be spending £9 billion more than they promised on education, £25 billion more on health, £6 billion more on transport and an extra £1 billion on international development. From a sedentary position, the hon. Member for Kingston and Surbiton refers to the trend rate of growth. I know that he made that point during his contribution. We base our fiscal forecasts on cautious estimates for the trend rate of growth, and all those estimates have been audited by the National Audit Office.

By 2006, we will be investing a total of £61 billion a year in public services. We have established testing targets, independent audit, new powers, new flexibilities, new responsibilities for front-line agencies and systems of sanctions for those who fail to deliver. We are building on the successful reforms of our first term to deliver improvements in education, housing, defence, development and productivity. Resources matched by reform to deliver results—that is what the spending review sets out. I commend it to the House.

Mr. John Heppell (Nottingham, East)

I beg to ask leave to withdraw the motion.

Motion, by leave, withdrawn.

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