Public Expenditure

HC Deb 14 July 2004 vol 423 cc1452-514

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

2.46 pm

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

The spending review announced by the Chancellor on Monday drew the dividing lines and gave a choice for Britain between this Government and the Opposition parties. The choice is between investment in security, law and order, or cuts; economic stability and investment in science and innovation, or cuts; and a future for our public services, or cuts, charges, privatisation and a return to the under-investment in our infrastructure that characterised the Conservative party in Government.

This Government are in a position to invest more, not less, in public services and in those areas that will enable the UK to grow and to prosper in the global economy of the future. We are in a position to do this because the savings that this Government are making on debt interest and unemployment—the two great costs under the Conservatives—allow us to meet our fiscal rules, keep taxes low and spend more on vital services. We have cut the costs of unemployment and the national debt. Together, they now consume just 2.3 per cent. of national income—as opposed to 4.6 per cent. in 1997—and net borrowing is only 2.4 per cent. of gross domestic product and falling over the forecast period. Both are lower than in the past and lower than in our major competitors in the industrialised world.

Because of the tough decisions that we have taken to secure economic stability, we have maintained stable and sustained growth, combined with the lowest inflation for 30 years and the highest levels of employment in our history. That is a far cry from the Britain under our Conservative opponents. That Conservative Government were first in and last out of the world downturns. That Britain suffered two of the deepest and longest recessions since the war. That Britain also had inflicted on it by a Conservative Government 3 million unemployed, interest rates at 15 per cent. and in double figures for four years, 1.5 million in negative equity and 250,000 repossessed homes. That was the Britain of our Conservative opponents.

Because of the economic stability that we have put in place, because the public finances remain sound and on track to meet the fiscal rules, and because we have held strictly to the discipline of the total spending envelope, we are in a position to raise departmental spending from £279.3 billion this year to £301.9 billion next year, £321.4 billion the year after, and £340.5 billion in 2007–08. In this spending round, three quarters of the spending will go to vital, front-line services, so while overall spending in 2006–08 will grow by just 2.8 per cent., departmental spending on vital services will have a real terms rise of 4.2 per cent. over the next three years.

Mr. Peter Pike (Burnley) (Lab)

My right hon. Friend is making many important points. Is it not a fact that the 18 years of Conservative rule created problems in towns such as Burnley, which only this Government, with the housing renewal pathfinder project and neighbourhood wardens scheme, have begun to tackle? Certainly, places such as Burnley will recognise what Labour has done for them over the last few years.

Mr. Boateng

My hon. Friend, who served his constituency so well for so many of those Conservative years, and who made that case on so many occasions in the House from the Opposition Benches, makes an absolutely true point: cities and towns such as Burnley suffered degradation of their infrastructure, under-investment in schools and under-investment in health, which this Government have turned around. Under the spending plans unveiled by my right hon. Friend the Chancellor on Monday, we will continue to turn that around, with increased investment in health and education, but going beyond that in ways that we will no doubt explore during this debate.

As the Chancellor said in his statement on Monday, resources have been, and will remain, linked to reform. We are committed to maximising efficiency within the public sector and to reducing administrative costs, while continuing our ambitious programme of public service delivery. We recognise that we have a duty to ensure that public money is spent efficiently, securing value for all. Therefore, on the basis of the evidence drawn from Sir Peter Gershon's rigorous 12-month review, and over and above our economic stability, growth and strong public finances, we have announced efficiency savings that will free up more than £20 billion a year by 2008. That will mean even more resources going from backroom functions to front-line services.

Mr. Michael Fallon (Sevenoaks) (Con)

The Chief Secretary says that he is committed to greater efficiency. Can he explain why the administrative costs of Whitehall, which he inherited at 4 per cent., have gone up in every single year in which he has been in government?

Mr. Boateng

The hon. Gentleman makes a profound error in that intervention as the percentage is now falling, and will continue to fall to 3.7 per cent. of total spend. Let us compare and contrast that with 5 per cent. and more during much of the period in which the Conservatives had stewardship of the economy. That is perhaps not his strongest point as, on reflection, he would be happy to admit.

Mr. Kenneth Clarke (Rushcliffe) (Con)

The right hon. Gentleman gave a figure, which startled my hon. Friend and I, that costs were falling to 3.7 per cent. How much of that is because of the recent reclassification of quite a bit of Home Office spending and one other Department's spending, which has suddenly ceased to be classified as administrative spending and has been moved to front-line spending? Were we to keep a consistent definition, he would agree that administrative spending has been rising, as my hon. Friend suggested.

Mr. Boateng

The point that I made clear is that as a percentage of total spend, what we are experiencing is a fall, which will be to 3.7 per cent. by the end of this spending review period. The right hon. and learned Gentleman's point, however, is one that I would be only too happy to explore. Although what I have said is absolutely true, and we will see that fall, he, as a former Home Secretary, will recognise that it was always nonsense to classify a group of people such as prison officers, who are very much on the front line of our criminal justice service, as in some way equivalent to those working in back offices and providing administrative services. That was a reclassification that was long overdue—I notice him nodding in consent—but it makes no difference to the figures that I have given.

Mr. Andrew Tyrie (Chichester) (Con)

Will the Chief Secretary give way?

Mr. Boateng

No, I am afraid not.

On Monday, the Chancellor announced details of planned efficiency savings: a gross reduction in civil service posts of 84,150, and efficiency savings in local government allowing for an additional reduction of some 20,000 posts; the merged Inland Revenue and Customs and Excise, which has increased planned gross reductions from 14,000 to 16,000; a total of 20,030 civil service posts to be relocated to the regions, which has been called for by Members on both sides of the House because it brings real benefits to all those outside London and the south-east whom they represent; and a real terms fall in administration costs and plans to deliver some £6 billion in procurement savings by 2008.

Therefore, while Conservative Members talk of fat Government, planned administration costs, which rose to more than 5 per cent. of total spending under the previous Government, will instead fall to a record low of 3.7 per cent by 2008.

Mr. Geoffrey Clifton-Brown (Cotswold) (Con)

The right hon. Gentleman has just reiterated the Chancellor's announcement of a very big figure that he expects to receive from savings. If he does not achieve those savings, will public expenditure be cut, or will taxes be increased to make up the shortfall?

Mr. Boateng

The hon. Gentleman knows well that the departmental limits are set, and that we are committed to meeting our fiscal rules. We have met them, and we will continue to meet them in this cycle and the next. The sum to be released by efficiencies—£20 billion a year by 2008—will mean even more resources going from backroom functions to front-line services. I thought that he—as he usually takes a progressive outlook on those areas and is usually hot for efficiencies—would see that as a welcome commitment and one that, far from dividing us, ought to unite us on the sense that it clearly represents.

In this spending review, not only will we continue to address past under-investment, of the sort to which my hon. Friend the Member for Burnley (Mr. Pike) referred, but we will also invest to equip Britain to rise to the new challenges of the changed global environment: internationally, through investment not only in defence but in international aid and development; and here at home, with investment in the key drivers of our current and future prosperity and in our public services.

In contrast, the shadow Chancellor, who I am sorry to see is not in his place this afternoon, but I can well understand why because he must have rather a lot on his mind because the sums do not add up—[Interruption.] The hon. Member for Hertford and Stortford (Mr. Prisk), who works so hard for his party, chuckles, but he knows that the sums simply do not add up in terms of the Conservatives' spending plans—

The Chancellor of the Exchequer (Mr. Gordon Brown)

Cuts.

Mr. Boateng

As my right hon. Friend the Chancellor says, those plans mean cuts. That is what it is all about.

Members do not have to take our word for that. On 16 February this year, the shadow Chancellor made his position very clear. He told the Bow Group: I have agreed with my Shadow Cabinet colleagues that the baseline for spending across all of these departmental budgets will be 0 per cent. growth for the first two years". We know what that means. I look forward to hearing any member of the shadow Treasury team say otherwise. Two years of cash-freezing departmental budgets would mean real-term cuts for every Department. Police numbers would be cut and crime would increase. Local government spending would be slashed, which would drive up council tax and force the closure of vital local services. Transport would be cut, which would undermine our infrastructure. The international aid budget—including programmes for Africa—would be cut. Defence would be cut, which would put our national security at risk.

I paused at that point because I expected at least one Opposition Front Bencher to leap to his feet and deny that what I had said was true. They do not stir. No, I see a slight stirring—but now even that has subsided. They cannot even look each other in the face. They certainly cannot look their Front-Bench colleagues in the face, because they have all complained about the impact of the shadow Chancellor's words on their own budgets. We can well understand why.

Let us explore the reasons for the element of confusion and chaos among Conservative spokespersons about their spending plans. We will invest more in the security of our nation. There will be a real-terms increase in the budget for our armed forces from £29.7 billion this year to £33 4 billion by 2007–08, to support their commitments abroad and to enable us to modernise and adapt our defence to meet the threat posed by the rapidly changing global security environment.

Mr. Tyrie

Will the Chief Secretary tell us by how much the Government intend to cut defence in real terms?

Mr. Boateng

We are providing a real-terms increase of some £3.7 billion by the end of the spending review period. It beggars belief—or perhaps it does not—that Conservative Members cannot distinguish between a cut and growth.

Mr. Gordon Brown

Perhaps the hon. Member for Chichester (Mr. Tyrie) will read out the figures.

Mr. Boateng

Yes, perhaps the hon. Gentleman would like to share the figures with us later in my speech, or perhaps he would like to make a speech of his own. The fact is, however, that the Conservatives would cut defence, while we are increasing our commitment to provide resources for the armed forces.

We are also increasing investment for security at home. Spending will have risen from £950 million in 2001 to £1.5 billion this year, and £2.1 billion by 2007–08. That is an annual real-terms rise of 10 per cent., which will go towards modernising our homeland security, our counter-terrorism efforts and our intelligence. Under the Conservatives, defence would be cut by £2.6 billion. We do not hear a word. No one is denying that that would be the result of the Conservatives' policy. Their silence says it all. Their silence signifies consent. The reality of Conservative policy is a defence cut of £2.6 billion.

We will invest more in our communities as well, in order to tackle crime and the cause of crime. That will be matched by investment to make our communities safer and stronger. There will be more investment in law and order, including resources to create a new National Offender Management Service, a new serious organised crime agency, and a reformed charging and sentencing system. We will invest in community support officers and neighbourhood wardens. The Conservatives would cut Home Office resources by £1.6 billion. Again, we hear no word of denial.

Mr. Dominic Grieve (Beaconsfield) (Con)

We intend to increase the size of the police force by 40,000 officers. We have shown how that can be done within the financial constraints. I should like to ask—[Interruption.] I am asking a question. This is an intervention, not a speech. I should like to know whether the Government intend to go down the same road as us.

Mr. Boateng

Talk about brass neck! It is this party that has increased the number of police officers by some 11,000 since taking office. It is this party that proposes to increase the number of community support officers. It is this party that is increasing the number of neighbourhood wardens. It is the Conservative party that will cut Home Office resources by £1.6 billion—and now Conservative Members pluck from the air a figure by which they say they will somehow increase the police force. It simply is not credible.

Mr. Grieve

While we are on the subject of the Home Office, let me say that while looking at the claims for the future contained in the spending review, I noticed the claim that the Government would continue to reduce illegal immigration. As the Government have never given us a figure for illegal immigration and have never even deigned to give us an estimate, how can we judge whether that policy objective will be met?

Mr. Boateng

I am afraid the hon. Gentleman has missed the point. It was for him to explain in his intervention how he would do more with less. We are happy to explain, on the basis of our record, what we have done to increase the number of police officers. We are happy to explain, on the basis of our record, what we have done to make our borders more secure and what we have done to make the long-awaited investment in the immigration and nationality directorate—a division of the Home Office that was shamefully neglected under the Conservatives. We have reversed the decline of the IND, and strengthened our borders. Customs and the immigration service are working ever more closely together. The Conservatives would cut the Home Office budget by £1.6 billion. Not one of them comes to the Dispatch Box to deny that.

We will do more. We will continue our long-term investment in our infrastructure, particularly transport and housing. The housing budget in England will rise from £5.9 billion this year to £7.2 billion by 2007–08, a 4.1 per cent. annual real-terms increase. That will fund a major programme of investment in affordable and social housing. It will tackle the long-term under-investment in and neglect of housing that characterised the Conservatives' stewardship of the economy, and promote the housing that is vital to both our economic prosperity and the quality of our lives.

To deliver further reforms in the rail industry and on our roads, the transport budget will rise faster than was originally planned. By 2008, transport spending will be 60 per cent. higher than it was in 1997. In contrast, the economic judgment of the shadow Chancellor—who is still not present—is to cut investment in our transport infrastructure by £1.8 billion. That, I might add, is against the advice of both the Confederation of British Industry and a broad cross-section of representatives of British business.

The Conservatives are never able to explain how it is possible for them to have a policy that is designed to promote economic prosperity—so they say—while cutting the very transport infrastructure upon which such prosperity so obviously depends. Rather than freeze budgets, which is the Conservatives' policy, we want to secure balanced economic development in every region, and to tackle regional weaknesses and build on regional strengths. Funding for regional development agencies will therefore rise from £1.8 billion a year to £2.3 billion by 2007–08. In addition, we have announced that, as with central Government Departments, local authorities will for the first time have three-year budgets that allow more effective long-term planning at local level.

So rather than cutting investment, we will invest more in our children and build on our improvements to the education system. That will include a new determination to make pre-school provision available to the under-fives, as well as making child care available to all. As my right hon. Friend the Chancellor said on Monday, this Government are determined to equip Britain for the global economy of the future. To do this, we published alongside the spending review a 10-year investment framework for science and innovation, the aim being to make Britain the best location for science and innovation in the world. We will not cut science funding, but will increase it in real terms by an annual average of 5.8 per cent.—a doubling of cash spending on science since 1997. We have also set ourselves the ambitious target of raising overall research and development spending in the private and public sectors from 1.9 per cent. of national income to 2.5 per cent. by 2014.

The choice is clear: Labour investment that is built on the strength of our economy, or Tory cuts and privatisation. This spending review seeks to invest, in an uncertain world, in law and order and security and defence, in order to protect our citizens at home and our interests abroad. It also seeks to meet our global responsibilities to others by investing in international development and in the achievement of the millennium development goals. It seeks to secure and maintain the stability and growth of the economy and to invest in the education, skills, science and innovation that will drive our future growth and prosperity. It further invests in our vital health service and transport infrastructure, thereby increasing the well-being and prosperity of individuals, as well as delivering for UK business.

The choice is stark: a stronger economy and a stronger Britain with billions of pounds more invested in housing, science, transport, defence, national security, skills, safer communities, sport and children; or billions of pounds of cuts in security, infrastructure, law and order, science and local government, and a return to a Britain of economic failure. That is the choice that my right hon. Friend the Chancellor set out for the nation on Monday, and which we will debate today. I have no doubt which option this House and the nation will choose. They will choose Labour and economic success, rather than the Tories and economic failure.

3.13 pm

Mr. Howard Flight (Arundel and South Downs) (Con)

The central challenge for all mature economies today is to improve the efficiency of their public sectors in order to achieve better delivery of public services and better value for taxpayers' money. In the light of an ageing population and rising demand for public services, unless that challenge is met the growth of the productive economy will be reduced, and with it the long-term ability to sustain provision of public services. As British experience under the current Chancellor has demonstrated, just turning on the spending taps does not work. Higher taxes and an ever-expanding public sector crowd out the productive economy and reduce long-term economic growth.

The real dividing line between the Conservative and Labour parties is our genuine commitment to improving public sector efficiency, downsizing the bloated Government that the Chancellor has created, and devolving power and responsibility to those at the sharp end who deliver public services—instead of seeking obsessively to micro-manage them—versus the sham of this Government, who have no intention of making the real reforms that are needed. As my right hon. Friend the shadow Chancellor pointed out so eloquently on Monday, Britain now has a fat—indeed, an obese—Government, and most of the extra spending has been absorbed by public sector inflation. That is the result of greater bureaucracy; more unproductive employees; failing and distorting targets; more initiatives, quangos and task forces; and greater regulation and centralisation.

The issue is not just the public sector in the traditional sense of wrong decisions, bad management, lack of controls and poor project management—issues that were ably investigated by the National Audit Office and the Public Accounts Committee—but the inherent expense and ineffectiveness of a bloated, command-and-control Government.

Mr. Boateng

Will the hon. Gentleman confirm that the Conservatives would cut public spending first to 35 per cent. of gross domestic product and then to 30 per cent.?

Mr. Flight

It is perhaps time that the right hon. Gentleman grew up a little. That intention has never been indicated and, as he has just argued, the one commitment that the shadow Chancellor has given is to prevent public sector expenditure from rising to 42 per cent. of GDP, and to restrain it to 40 per cent.

On defence, the Chancellor and the shadow Chief Secretary had better go back to school and learn their arithmetic—

Mr. Gordon Brown

You are the shadow Chief Secretary.

Mr. Flight

I am sure that it is not in order for even the Chancellor of the Exchequer to interrupt from a sedentary position.

The Government's figures in the 2004 spending review show that their planned increase, in cash terms, for defence expenditure is 1.4 per cent. per annum. I was not aware that, even under his new consumer price index formula, the Chancellor was forecasting inflation of less than 2 per cent. [Interruption.] In cash terms, 1.4 per cent. set against 2 per cent. inflation is a reduction in real terms. In due course, I shall ask the Chief Secretary whether he is happy with the defence procurement record, whether he feels that good value for money has been achieved, and whether he thinks it appropriate that the number of civilian defence employees should be approximately the same as the number of front-line fighting forces.

Mr. Andrew Love (Edmonton) (Lab/Co-op)

The hon. Gentleman referred to the speech that the right hon. Member for West Dorset (Mr. Letwin) made on Monday, and I shall paraphrase it by asking the following question. Does the hon. Gentleman agree that, according to the position adopted by the Conservatives, if they intend to waste less they must spend less?

Mr. Flight

Our position is that we will spend much better, and I have a great deal to say on how to achieve that. But before so doing, I should point out that this Government have increased public expenditure by some 63 per cent. in cash terms. As the National Audit Office reported, there has been a 54 per cent. increase in expenditure on public sector goods and services since 1997, but that has produced only a 12 per cent. increase in measured outputs. It is time that the Government learned to focus on outputs, rather than on spending.

The national statistics deflator shows that public sector inflation has risen from 1.6 per cent. when the Conservatives left office in 1997 to 10 per cent. today—a record of which I am sure the Chancellor is proud. Total spending on the NHS has risen by some 37 per cent., but hospital activity measured by finished consultant episodes rose by only 4.8 per cent. in the three years to 2002. While NHS spending has gone up by more than 50 per cent., productivity has declined by more than 15 per cent. since 1997. Indeed, overall productivity in the public sector has declined in the last three years by 10 per cent. No wonder the Government have tried to rig the figures.

As a Labour Trade and Industry Minister recently told a conference on regeneration in Philadelphia: Too often, a lot of money has been spent, but very little seems to have been achieved … In a year or so, we are going to have an election in the UK when people will say we have paid a lot of taxes but what has been achieved with all that money? We now have a public sector in which the bureaucrats and administrators in all the Government-created units, boards and panels devise the heavy-handed regulations and set the conditions of the specific grants in order to implement the initiatives so that targets can be monitored by inspectors in the overgrown layers of Government that control central and local activity, administer over-complex taxation, organise the systems of dependency, constrain the choices of the consumer and end up by disempowering the citizen.

Public sector employment has risen by some 10 per cent.—509,000 jobs since 1998—and an extra 350,000 public sector employees are planned over the next three years. Last year, 162,000 new jobs were created in the public sector while the private sector lost 98,000. The civil service is now the size of Sheffield; more than 5,000 new civil servants were hired every week in 2003. For every extra police officer, virtually one more bureaucrat has been employed in the Home Office, and the number of tax collectors has increased almost twice as fast as the number of doctors and nurses. Without the discipline of competition, that is essentially what happened in the nationalised industries, and the Chancellor has actively encouraged it across the public sector.

Mr. Boateng

The hon. Gentleman's dislike of public service, the public sector and public sector workers is well known. Does he not accept that for every administrator employed in the NHS since 1997 there are six doctors and nurses? Does he not accept that if we examine outcomes in the NHS, we find that chronic heart disease mortality is down 20 per cent. and cancer mortality down 8.6 per cent. in the under-75s? All of that is a product of having a Labour Government since 1997. Has the hon. Gentleman not a word of praise for those public sector workers who have delivered those results and who have been helped by the targets and extra resources that he would take away?

Mr. Flight

It is about time that the Chief Secretary spoke to some people working at the sharp end in the NHS. I have every sympathy and support for those people, toiling under the distorted regime of targets introduced by the Government. I suggest that the Chief Secretary, rather than quoting selectively, looks at the overall ratio of increased expenditure versus increased outputs.

As William Keegan's book on the Chancellor—I am glad that he is in his place to hear it—points out, the Chancellor realises that his Achilles heel is that the electorate will perceive that his major increases in tax and spending have in the widest sense of the word been wasted and that he has failed to deliver. In order to head off such criticism, the Chancellor introduced public service agreements in the 1998 comprehensive spending review to set out what public sector improvements were to be achieved from the additional spending.

The reality, as the Chancellor knows, has been failure to meet most of the targets. The volume of targets and the rigid centralised structures accompanying them have stifled local initiative, diminished professional responsibility, distorted priorities and diverted time and attention away from the task of improving the public services. It is analogous to the Chancellor's fake savings announced on Monday. The target regime was merely a substitute for real public sector reform.

Last year, as the Chancellor will be aware, a paper was produced for the European Central Bank. It compared the more efficient public sectors around the world, particularly Japan and the USA, with those of other countries. It found that to maintain output, UK public spending would need to be only 84 per cent. of the actual total spent if the public sector were as efficient as the best. Put another way, if the UK were as efficient as the best and maintained its current spending levels, output would be 25 per cent. higher. Effective reforms of the public sector need to focus on outputs rather than on spending, and to remove costs and activities that actually achieve little or nothing.

That is the context of the Conservative party asking David James and his 60-man team to investigate and address in a bottom-up review each area of public expenditure. [Interruption.] I suggest that the Government would do much better if, rather than making inane remarks, they reflected on the advantages of that approach over their Gershon approach and carried out a proper analysis of where the inefficiencies really lie. They need to know where things are going on that achieve little or nothing. As part of a process that we started more than a year ago, over the next few months we will present in major policy announcements the efficiency savings that should be made. We will present them in a way that stands up, unlike how the Chancellor presented his proposals on Monday.

The main precedent for establishing how to improve public sector efficiency has been the national partnership for reinventing Government in the US. It started by recommending more than 1,200 specific changes to make government work better and cost less, of which two thirds were implemented. It then focused on transforming the culture in the major Government agencies with the most public contact to be results-oriented, performance-based and customer-focused. It also addressed the scope for new technology to improve public sector efficiency. It succeeded in reducing the size of the federal civilian work force by nearly 500,000. Action on more than two thirds of the recommendations resulted in savings of approaching $140 billion.

Government was downsized the right way by eliminating what was not needed—bloated headquarters, layers of managers, outdated field services and obsolete red tape and rules. It succeeded in cutting 640,000 pages of internal agency rules and eliminated 250 agency programmes. Of great ongoing importance, it introduced annual performance reports, required under the Results Act. All Government bodies in the US are subject to regular operational efficiency, as well as financial audit, assessing whether the structures and processes in place in each Department and area are the most efficient and effective for carrying out their objectives.

Major improvements in the US public sector have also resulted from the creation of FirstGov, a one-stop website for Government information transactions, programme results and e-mail feedback to public officials, with connections to 27 million web pages.

In that context, we have welcomed the Government's Gershon initiative as a start. Gershon's cross-cut analysis of areas offering opportunity for efficiency saving is sensible as a starting base and useful as far as it goes, but the fundamental weakness is that the Government have failed to address how to implement the type of efficiency saving measures that Gershon recommends. The immediate shortcoming is that Ministers and civil servants have resisted reform in their territories. The existing huge infrastructures with strong vested interests outweigh the transitory and limited resources employed to implement change and reform.

I presume that the Chancellor and the Chief Secretary are aware that there is currently no valid way to measure desired Government outputs. Gershon also addresses only limited territories in the cross-cutting proposals on which he has focused. He does not address the culture problem of fat government—the culture of regulation, initiatives, targets, grants, panels, boards, tsars and inspectors. That culture has increasing layers of Government bureaucrats and administrators, and of complex and intrusive taxation. It involves widespread dependency on the slate and restricted choices for the consumer.

Throughout the public sector, the ratio of back-office costs to front-line services is far too high in comparison with private-sector service industries. Much more decentralisation of operational responsibility is needed to improve front-line services. That is one of the main objectives of Conservative policy, and of our aim to give citizens greater choice in health care and education.

Gershon gives no explanation for the limited number of areas that he investigated other than that they might offer the greatest potential for efficiency improvements. His report does not question whether many areas of expenditure are needed at all. Essentially, it seeks to determine whether some costs can be shaved off some areas. That approach ignores the potential for other major efficiency savings.

Gershon's time span is also too slow, and he hardly mentions the potential efficiency improvements and savings from outsourcing, except to say that they are typically of between 20 per cent. and 30 per cent. Although he is right to indicate the need for greater use of e-government, the potential in the UK remains restricted by the fact that a large proportion of the population in receipt of Government benefits does not use, or have access to, the internet. Moreover, Gershon seems to ignore the efficiency potential offered by the much greater use of technology within Government. That can yield large benefits speedily, as has happened in the US. Business best practice is to increase significantly the spans of control—that is, the numbers of people managed by one person compared with the practice of the recent past. Gershon does not address that territory.

Gershon's proposals for procurement efficiency saving are confined to centralised bulk buying, but they ignore the potential for improvement at local levels. Such an improvement was recently implemented successfully by Norfolk county council, which has saved some 25 per cent. of its procurement costs. His proposals for streamlining back-office functions are also unlikely to deliver without the discipline of outsourcing. He focuses on efficiency savings available from downsizing both private and public policy funding and regulation. He rightly points out that the cost of compliance to business is many times greater than to Government. However, a bolder Approach to both is capable of securing savings of at least £2 billion a year more, and in a shorter time.

Mr. Boateng

The hon. Gentleman began by praising Sir Peter Gershon, and then proceeded to rubbish him at length. He accused Sir Peter of not taking into account the efficiency gains that can come from local government. Has he actually read the Gershon report? I refer him to page 55, where Sir Peter states: Local government has a key role to play in this ambitious agenda, and many local authorities are already securing efficiency through investment in technology and rationalisation of back office and procurement functions. That certainly includes the Norfolk example. Sir Peter has done the very thing that the hon. Gentleman accuses him of not doing. Will he withdraw his ill-advised and misplaced comment?

Mr. Flight

The Chief Secretary points out one sentence, but he does not refer to anything in Gershon that sets out how those improvements can be achieved. Gershon merely observes what has happened, and that is quite different from his cross-cut comments about centralised buying.

At last year's spending review, the Chancellor stated: In each area of service delivery from housing to education, from policing to defence, we are tying new resources to new reform and results, developing a modern way for efficient public services". He also said that we have a special duty to ensure that public money is spent wisely and efficiently and we are as determined to secure value for money as we are to secure money for our services."—[Official Report. 15 July 2002; Vol. 389, c. 22, 25.] He said roughly the same thing about the 1998 and the 2000 spending reviews. He has failed and failed to secure value for money.

The truth is that the Chancellor has engaged in a pre-election public spending spree, creating bigger and bigger Government, based on bigger and bigger borrowing and rising taxes, which will produce big problems for the future and require a major increase in taxation if Labour were to win another election. In recent weeks, the Governor of the Bank of England has warned not only that the housing market has become overheated, but that the public sector spending spree is causing the economy as a whole to overheat. The Chancellor shows no signs of heeding that warning.

Mr. Boateng

The hon. Gentleman accuses my right hon. Friend the Chancellor of engaging in a pre-election spending spree. Would he care to reflect on the words of the director general of the CBI—[Interruption.] Opposition Members say "Huh," but Digby Jones presumably speaks with greater authority on the views of British industry than any of them. He said: Mr. Brown has taken a big step in the right direction. Companies will breathe a sigh of relief that growth in public sector investment is not going to become profligate pre-election spending. Those words are totally contrary to the claims made by the hon. Gentleman. Whom should we believe—Digby Jones, who speaks for British industry, or—

Madam Deputy Speaker (Sylvia Heal)

Order. The hon. Gentleman has got the Chief Secretary's point.

Mr. Flight

I am delighted to note that my point has hit home. If the Chief Secretary were to read most of the economic comment, he would find my point being made. As I have just pointed out, the Governor of the Bank of England has warned the Chancellor that the extent of public sector spending is causing the economy to overheat.

The Chancellor and the Chief Secretary may try to speak the language of efficiency and of Gershon, but they are faking it. On closer analysis, many of the reductions are bogus. Bureaucracy has not been slashed: in just a single week at the end of June and the beginning of July, another 584 new jobs were advertised in the public sector, with a combined annual salary bill of £22 million. Salaries on offer included £74,000 for a new head of tourism sponsorship in the Department for Culture, Media and Sport and a whopping £130,000 for the chief executive of the Government education quango, Learndirect. On an annualised basis, that level of recruitment would add a further 30,000 jobs and more than £1 billion to the wages bill.

As The Times has commented, it was said of the Holy Roman empire that it was not holy, not Roman and not an empire, and likewise, the comprehensive spending review is not comprehensive and not a review, but an intensely political exercise, better termed "the big spend".

The public sector is now larger than Scotland. Whatever the Chancellor may say this week will not change anything, because he cannot give up his obsession with trying to manage and control everything from the centre—his only alternative to having the power of the Prime Minister. It is the medium and long-term economic damage caused by the Chancellor's big Government that is of the greatest concern.

The legacy inherited by this Government did not consist only of tightly controlled public spending, a greatly reduced bureaucracy and a public sector current balance. It also, and more fundamentally, consisted of an economy much more vibrant and better placed to compete than at any time in Britain's recent history. Taxes were lower, and regulation was lighter. Huge and profitable businesses had emerged from the ashes of failing nationalized industries. Britain's productivity growth rate was on a par with other major industrial competitors. Britain's household savings rate was respectable by international comparison, and we were fourth in the international competitiveness league. Now we have dropped to 15th and our productivity growth and savings rates have virtually halved.

The foundations of our economy are being eroded by over-regulation, over-taxation and excessive government. The vitality of the British economy has been increasingly smothered. According to figures from the Organisation for Economic Co-operation and Development, the UK public sector now accounts for more than 42 per cent. of national output, making it the largest state sector in the Anglo-Saxon world, where our growth rate is now the lowest.

In the long-awaited Gershon report, there is also a gaping lack of credibility as to how to deliver the suggested efficiency savings. The Chancellor's announcements on Monday added a further seven agencies and cooked the figures on civil service reductions. We need to cut away layer after layer of unnecessary government activity and layer after layer of bureaucracy. We need to remove swathes of regulation instead of continuing to add to them. That is the brief of the David James review.

The next Conservative Government will take office with more comprehensive plans for downsizing bloated government than ever before in our history. That Government will require overall adherence to our medium-term expenditure strategy and the progressive reduction of the proportion of our GDP consumed by the state in order both to eliminate the structural deficit that the Chancellor knows he has created at a time when the economy is at full capacity and to prevent the massive increase in taxation that would be required if Labour secured a third term.

Our objective is to give Britain smaller government that does less but does it better and a more vibrant and competitive economy, which alone can sustain first-class public services in the long term.

3.41 pm

Mr. John McFall (Dumbarton) (Lab/Co-op)

I welcome the Government's spending review, especially the commitment to public services. I think that I speak for all Members on the Labour Benches when I welcome the extra 2,500 children's centres to be set up by 2008 and the extra £2.1 billion to tackle crime. Following the Barker review, an extra 50 per cent. will be invested in social housing, where we have described the situation as a scandal. As a scientist, I welcome the indication that £1.5 billion more will be spent on science and research in 2008 than in 2004—05.

The dividing lines for the next general election are clear. The Labour Government promise higher, better-quality public services. On the other hand, the shadow Chancellor, in his speech on 16 February outlining the Conservatives' medium-term expenditure strategy, said: I have agreed with my Shadow Cabinet colleagues that the baseline for spending across all of these department budgets will be 0 per cent. growth for the first two years. The electorate will find that the Conservatives will not be spending on defence at a time of increased terrorism and insecurity; they will not be spending on crime at a time when we have to bear down on that problem; and they will not be spending on education when we need extra skills so that more young people can enter the work force.

The Government have said that we must match investment with reform. I agree, but we must cast a critical yet constructive eye over the plans. Sir Peter Gershon advocates public sector efficiency goals of 2.5 per cent. over the next three years and efficiency gains of £20 billion in front-line services by 2007–08. As has been said, that will require the loss of 84,000 civil service posts and the relocation of 20,000 posts away from London. In his foreword to the efficiency review, Sir Peter stated that this will result in a significant loss of employment opportunities over a relatively short period. It is important that these reductions are managed well both for the individuals concerned and to sustain the commitment and motivation of the whole Civil Service in light of the invaluable functions it performs". What discussions about those reductions have taken place with staff? How are staff savings on that scale possible? Will the Minister provide a regional breakdown of the proposed staff cuts?

The history of such efficiency savings does not leave much room for comfort. Civil service numbers have exceeded Treasury plans in every set of annual public spending projections since 1999. For example, if the plans published by the Treasury in May 2002 had been achieved, there would be 45,000 fewer civil servants than now. The Rayner scrutiny, the financial management initiative, market testing and Executive agencies have all been trumpeted as major sources of efficiency savings. Each of them promised £500 million in savings, but they resulted in the delivery of less than 50 per cent. of those savings. Those schemes are dwarfed by the Gershon review, so it is important that we have a transparent process to follow the progress and to introduce the recommendations sensitively. Many of the people in the posts that will be lost are relatively low earners. A number of my friends in my constituency have worked in the Department for Work and Pensions for 12 or 15 years. Their earnings are £17,000 or £18,000, and they are married people with children, so it is important that the consultations are sensitive and done properly.

I also note that the Lyons report asked for jobs to be moved from London, but again, I suggest to the Minister that we must ensure that we act more efficiently in such cases. I bring to his attention the DWP pensions centre in Liverpool, where more than 300 civil servants will lose their jobs on Merseyside. That news comes just three months after the Lyons report recommended that extra civil service jobs should be moved from London to Liverpool. The pensions centre in Breckfield only opened in December 2002 and the 316 staff deal with inquiries and claims for the state pension credit, but we now find that the plans that were trumpeted in December 2002 have been revised. That does not augur well for the efficient use of resources by the DWP and I look to the Minister and, indeed, the Chancellor when he appears before the Treasury Committee tomorrow, to answer those points.

It is appropriate to consider the golden rule because the spending review is taking place against a background of increased deficits in the public finances. We have to ask whether the spending commitments are affordable if the Chancellor is to stick with his fiscal rules. How much margin for error against the golden rule does the Treasury have if the public finances turn out worse than expected? We can refer to tax receipts on that issue. The forecasts in the 2004 Budget assumed an ambitious rise in receipts from 37.8 to 38.7 per cent. of GDP, but last year's out-turn—37.6 per cent.—caused our current receipts to be £1.6 billion lower than expected. Tax receipts could surprise us on the upside, particularly if the economy grows rapidly this year, but if so, the output gap will become an issue.

Evidence that the Treasury Committee took from the Governor of the Bank of England and others shows that the output gap is narrower than expected this year, so meeting the golden rule will be harder to achieve, with growth running faster than trend. The Treasury indicated a 3 to 3.5 per cent. growth rate in the Budget. We have also seen increased employment in the labour market. Although those figures are positive, they put pressure on the output gap. Is it the case that the output gap will be eliminated by this summer—a year earlier than indicated in the Budget? The Treasury Committee will examine the Chancellor on that question tomorrow and in the future.

May I make a point about the time scale of the spending review on behalf of the whole Committee? We are dealing with an enormously compressed schedule and I question whether that adds to the scrutiny of the exercise. For example, the public expenditure out-turn White Paper will not be produced until next week, yet such information is needed to gather the full picture. The Atkinson review on public sector output, productivity and associated prices has not yet been published. Given that it will focus on whether growth and spending have fed through into increased output and improved services, it will be important when we examine the spending review. I make a plea to the Minister—I shall also raise the matter with the Chancellor tomorrow—for adequate time to examine spending reviews adequately.

The Treasury Committee held two meetings this morning with Treasury officials and our experts. The aim of Select Committees is to ensure that there is an informed debate in the House, so a Select Committee report should be available for hon. Members to debate and to help them with the process. We will take evidence from the Chancellor tomorrow, but given our other commitments, we will not produce a report on the matter. That represents an omission, and it is due to the time scale that the Treasury and the Chancellor have imposed. I ask for that lesson to be taken on board so that we may have a decent amount of time to examine reviews in their entirety—I cannot stress the importance of that enough.

One aspect of the spending review that has received little publicity is the establishment of the financial inclusion fund, which I welcome greatly. The Treasury Committee will examine financial inclusion over the coming months. Almost 7 million people are currently financially excluded and, in today's society, people who are financially excluded are also socially excluded. I wait with interest for the Government's development of the fund.

The Opposition have made several vigorous points against the Government, but it is important for an Opposition to have credibility and sound judgment. When I read the Sunday papers this weekend, I was appalled to discover that the shadow Chancellor would abolish the Financial Services Authority.

Mr. Flight

I, too, was appalled to read the headline. If the right hon. Gentleman had read the story, he would have realised that the headline was completely stupid. My right hon. Friend the shadow Chancellor made it clear that the FSA was over-burdened with the requirements of law and the Treasury, and that that was arguably leading to over-regulation, but nothing was said about abolishing the FSA—that is not our intention.

Mr. McFall

I take it from the hon. Gentleman that although there has been an absence of clarification from Tory Front Benchers over the past few days, the Conservative party is committed to a single regulator—the FSA.

Mr. Flight

I can confirm that.

Mr. McFall

It was rather unfortunate that the headlines went well beyond that, so the hon. Gentleman's clarification was useful.

The shadow Chancellor has claimed that official statistics are politicised, but he should apologise for saying that. He made a personal attack on both the head of the Office for National Statistics, Len Cook—he appears before the Treasury Committee and sometimes feels a bit traduced by us—and Tony Atkinson.

I note that the Cabinet Secretary, Sir Andrew Turnbull, wrote to the shadow Chancellor on 27 April, saying: there has not been any political interference with official statistics and the suggestion that the important work being done by a figure of Sir Tony Atkinson's stature is being used for political ends is untrue and deeply unhelpful. The shadow Chancellor has been personally assured by Len Cook that the work that the ONS and Sir Tony Atkinson are carrying out to improve current measures of productivity is completely independent. He was also told by Len Cook that any changes would be subject to peer review and in line with international guidance and the national statistics code of practice.

The hon. Member for Arundel and South Downs (Mr. Flight) could do two things. He could confirm that the shadow Chancellor will apologise for those personal remarks and ensure that we have both integrity and soundness of judgment when we scrutinise the work of figures such as Len Cook, Tony Atkinson and the ONS staff.

Mr. Flight

I understand that the shadow Chancellor had a conversation and meeting with Len Cook and the misunderstandings have been sorted out.

Mr. McFall

So I take it that a private apology has been made.

The Chancellor has committed the Labour Government to devoting 0.7 per cent. of national income to international development by 2013. That is a massive move forward. We must remember that the Government have increased spending on international aid by 140 per cent. since 1997. An extra £6.5 billion will be spent by 2007–08, but there is still an awful lot of work to do.

It is important that the signal that the 0.7 per cent. gives out is loud and clear. It should be made into a manifesto commitment. That has still to be discussed by the Cabinet, but I put it strongly to the Minister that that is what is needed. When the Treasury Committee visited Washington two or three weeks ago, we spoke to Mr. Rodrigo de Rato at the International Monetary Fund and Jim Wolfensohn at the World Bank. Jim Wolfensohn said that third-world countries must see the developed countries give a commitment for the future. If the 0.7 per cent. commitment were given in the manifesto, that would be of enormous benefit. It would be symbolic and help people around the world. It would also help the Chancellor's international finance facility proposals, which are appropriate.

Hon. Members may know that the Chairman of the International Development Committee wrote to me and asked whether we could take a joint approach to our American colleagues and others to ensure that that IFF commitment is made. The United States Administration are against it, but it is important to keep lobbying and to continue the political contact between ourselves, our European colleagues and our American colleagues. The establishment of the 0.7 per cent. figure is a great step forward. Let us turn it into a manifesto commitment so that we have domestic prosperity and an international commitment for the future.

3.58 pm

Mr. Kenneth Clarke (Rushcliffe) (Con)

This debate is the second part of the Budget. Indeed, before 1997, both the tax changes and the public spending changes for the coming year were announced at the same time in November. So this is the second arm of the Chancellor's explanation to the House of Commons of the fiscal policy that he is producing and how he intends to meet his fiscal rules. In my opinion, that is the most important thing that we should address. It is highly unlikely that the Chancellor will meet his fiscal rules. He is getting ever more ingenious in trying to disguise from the outside world what little margin he has and what he is likely to have to do after the election if he fails to comply with his golden rule and his other fiscal rules.

At the time of the Budget, the Chancellor tried to explain how the rapidly deteriorating public finances would not lead to his breaking his golden rule. He forecast a sudden and dramatic acceleration in the collection of revenue, but he explained that that would not require a tax rise, which the public might find uncomfortable. Instead, he would stop avoidance, and there would be a dramatic rise in tax revenues over the next few years. At the same time, he said in the Budget that there would be a remarkable deceleration in the growth of public expenditure. Policy changes or diminution of the delivery of public services would not be required, as the public might find any such announcements uncomfortable. We were therefore told that 2.5 per cent. efficiency savings would be achieved over the next few years as the result of the great work of Sir Peter Gershon and his team. We are considering those proposals today, but I still doubt whether the Chancellor's tax revenues will accelerate over the next few years as he has forecast. I shall not give the House my figures, because they are different from those given by the right hon. Member for Dumbarton (Mr. McFall). We have been told that the tax take will increase more rapidly than the growth in gross domestic product, with particularly remarkable accelerations in the collection of corporation and income taxes, but I still fail to believe that that is the case.

Sadly, I doubt very much whether the proposed reduction in the growth of public spending will not have any effect on Government activity. I do not accept that that slow-down can be achieved by improvements in efficiency without affecting delivery rates. Politics is not like that—policy changes are needed.

The golden rule, which I have criticised in the past, is extremely lax and elastic. I prefer, as do the International Monetary Fund and the Organisation for Economic Co-operation and Development, to seek to balance the public budget over the cycle. However, we have a golden rule that we should borrow only to cover capital investment and never for current investment. Even if the Chancellor's figures turn out to be right, he has left himself a tiny margin for error. No one can ever get their forecasts exactly right. I remember the Labour party being amused by my remark, when I was Chancellor, that forecasts of deficits and surpluses involved such enormous figures that one had to give or take £10 billion either side. That is still true, so the Chancellor's tiny margin for error is almost incredible.

I fear that we will carry on with the pretence of an explosion of tax revenues and a surge of public sector efficiency until the election. Afterwards, a Chancellor who has consistently denied that he will have to raise taxes will do so if he returns to office. Let us face it—that is what he did in 1997 and 2001. The public cannot say that they have not been warned if they vote Labour next year and find that the same thing happens after 2005. However, substantial reductions in the growth of public expenditure are required, but the Chancellor has not done well enough. I shall not invoke the name of the Governor of the Bank of England, save to say that I agree with my hon. Friend the Member for Arundel and South Downs (Mr. Flight). Mervyn King is, of course, independent of the Government and the Opposition—he is his own man, and I admire that. He talks in the delphic tones of governors of central banks, but his recent remarks are the closest that he has come to a warning and reproof that if we are to get mounting inflationary pressure in the economy under control and, more importantly, to maintain economic stability and consistent growth, the central bank, which is in charge of monetary policy, and the Chancellor of the Exchequer, who is in charge of fiscal policy, must pull in the same direction while they make their contribution. The Chancellor's contribution is not good enough.

When the Chancellor made his statement on Monday, I made disparaging remarks about the consistency of his policies. He has been quite successful, I do not deny, as the British economy has performed moderately well over the past 10 years or so. He has been extremely lucky, but he has also shown the most remarkable ability to change the entire basis of his approach to policy. When he first came into office, prudence was the guiding watchword of everything he did. He applied, in a rather mechanical way, which had not been anticipated, the strict fiscal controls that he inherited, and we saw a substantial and rapid tightening of public expenditure limits.

In 2000, or thereabouts, the Chancellor went in for a complete reversal. That came in the run-up to the 2001 election and in response to the political pressures of the Prime Minister in particular, and quite a few of his political colleagues. From 2000, the iron Chancellor was gone and prudence deserted, and since 2000 or thereabouts, we have had four years of spend, spend, spend, on a quite extraordinary scale.

We are now about to enter the third phase. There has been a sudden, sharp reduction in the growth of public expenditure, and a new Chancellor of the Exchequer has emerged—a man committed to efficiency, cost control, the quality of performance, cuts in bloated payrolls and so on. I find this third phase very unconvincing and, like the first two, not adequately described.

The key to understanding the Chancellor, which is true to a certain extent of all Chancellors of the Exchequer, is in recognising that he is, above all, an intensely political man. Here we are, with the Chairman of the Select Committee and several members of the Committee that is about to start the serious business of parliamentary scrutiny of the public accounts, and we are debating a statement about public expenditure that made some references to the public accounts, gave some indications of what was to happen and set departmental limits, but was actually political pantomime. It was entirely aimed at creating a whole new basis for debate and seemed largely aimed, and still is, at trying to have a go at the Conservative party on the basis of a slightly deluded representation of what the Conservative party is supposed to be saying instead. That does not really help us to get to what the Government are doing.

In my opinion—again, I mentioned this on Monday so I will not labour the point—the Chancellor would dearly have loved to go in for another pre-election spending spree. The classic thing, particularly for Labour Chancellors and, alas, occasionally for Conservative ones, is suddenly, when the election is coming up, to start spending a lot more public money to bribe the electorate out of their own pockets, get their party re-elected and deal with the consequences afterwards.

The Chancellor cannot do that now because he did it last time, and he is dealing with the consequences. So this time, as a pre-election stand, we have Gordon the champion against waste, the new drive for efficiency, better government, more into the front line and so on, all of which is a worthwhile sentiment, but is political sloganising. It is all based on the assessment that the public feel strongly, and quite rightly, in my opinion, that they have not been getting value for money from the increased taxation that they have been paying.

Of course, the public services are getting modestly better. The Government cannot keep increasing spending on the health service at 7 per cent. in real terms each year without getting something for it, but most members of the public realise that they are not getting value. Gordon feels vulnerable or the subject of waste. He decides to address that, and suddenly the most extraordinary targets are set for improving performance and shifting money to front-line services.

The Chief Secretary today and the Chancellor on Monday almost passed over the fact that the key decision was the slow-down in the growth of public spending. We have two new years being brought into the public expenditure survey. We have been told that in those two years the rate of growth of public spending will almost be halved. Departments such as the Ministry of Defence will unarguably see their spending as a proportion of GDP reduced as a result of the announcement. New Labour has never seen anything like it. If they get themselves re-elected, some of the more veteran Members may be reminded of the first two or three years, when the figures began to dawn on them. They are entering a new world of a marked slow-down of public expenditure. I seriously doubt whether anything of that kind, although desirable in principle, can be achieved so dramatically and so quickly without policy changes to improve efficiency. With the greatest respect, anyone who has been in this House for any length of time has heard hon. Members from all political parties try to square the circle on how they will constrain the cost of their policy proposals by saving on waste and increasing efficiency. I can see hon. Members on both sides of the House who have held the responsibility of office, some at national level and some at local level, and none of us believes it. We should learn from experience and realise that more must be done.

That is not to disparage Sir Peter Gershon's work. I have praised him and, although I do not know him well, I am sure that he is an admirable man, and he and his team of keen, young accountants have been doing their best to deliver the remit presented to them by the Chancellor of the Exchequer. I have the Gershon report here, and it and the Butler report are two documents that will embarrass the Government in the longer term. As observers outside the machine, it is difficult to believe that Sir Peter and his team can transform delivery in every Department, and most of local government too, in anything like the terms described. Most of Sir Peter's proposals are sensible, and he goes for obvious areas such as backroom services and procurement. The sentiments are perfectly worthy, and the comments on management are good.

On Monday, we were encouraged to believe that from now on every Department of State from the Treasury to the Scotland Office, local authorities, every branch of the NHS, the Ministry of Defence and all will embrace the principles of the Gershon report and—most importantly, given the Government's publications and public expenditure review—hit spot on the figures that we were given. Some of those figures were slightly alarming, such as the number of jobs that will be lost, and some of them are important to the Chancellor, such as the billions of pounds of efficiency savings. To believe those figures is to believe in magic, and events will not occur in that way.

I am happy to concede that the report will prove to be a worthwhile influence on those parts of the public sector where officials genuinely wish to improve efficiency, to take on board experience from the management of other large outside organisations and to argue with the Treasury about how they have applied some of the Gershon principles. We will never know whether the Gershon report is delivered. It emphasises that delivery should be measurable and that an audit trail should be left, so that we can turn back in 2008 and see that it has been delivered, but I do not believe it.

We have been promised that technical guidance will be given by each Department to enable us to audit and measure what the Gershon report delivers. I do not believe it, and I shall give some examples why. We have been given gross figures on staff savings, which must be alarming to Labour Members who are particularly close to the white-collar trade unions. Never fear, we do not know the net figure, and many of those jobs will be saved, although the people will work somewhere else, and some administrative posts have already been redefined as front-line posts.

On Monday, one of my hon. Friends asked a sensible question about how many of those jobs will be outsourced, which, particularly if one goes in for information and communications technology, is obviously the way for large organisations to go. Outsourcing often means that the same man or woman continues to do the same job in the same building, but they no longer work for their first employer and are transferred to a new employer.

The targets include giant organisations that are not within the Government's direct control. Some local authorities strive to improve their efficiency, and a few have succeeded. I look forward to the process by which different authorities are persuaded to pool their backroom functions. The transformation of procurement across local government will not be delivered: in my opinion, much of local government was untouched by the Thatcherite managerial revolution of the 1980s, let alone by the Gershon report of 2004. Their reaction has not been to welcome with joy the idea that they should make these efficiency savings. This morning, the Local Government Association is reported to have commented that the total is at least £1 billion less than it requires to hold council tax increases below 7 per cent. a year. I continue to believe, and say so to all my colleagues, that unless and until someone comes up with a proposition that will credibly restrain local government expenditure and increases in local government taxation to anything like the rate of inflation, rate-capping is the only way to improve efficiency and to limit the cost to many of my constituents of the ever-rising demands of local government.

As for the national health service—the largest employer in western Europe and a giant oil tanker of an organisation—the delivering of all these targets in relation to various NHS trusts is not under the direct control of Government. I find an extraordinary contrast between the highly desirable talk on all sides of localising more responsibility and the production of central documents mandating parts of such a huge organisation to produce particular efficiency improvements in particular ways. The principle of managing any giant organisation is that one devolves responsibility locally as much as possible, so long as local bodies remain accountable to the centre and one can give them clear objectives regarding the standards and quality that they are meant to deliver. One cannot give a bottom line in the public services as one can in a private company, but one can set quality standards such as waiting time targets, pupil achievement targets or rates of detection targets for those who deliver the service.

Localism has now been taken to an extreme degree, with hon. Members on both sides of the House advocating that all central responsibility should be passed on to locally elected groups or locally appointed people who are to be allowed to go their own way. It is very unlikely that they would all be able to deliver Gershon efficiency improvements.

Mr. Fallon

Does my right hon. and learned Friend find it as telling as I do that of more than 100 local authorities and 100 NHS trusts consulted by Gershon in his review, only 12 local authorities and 12 NHS trusts responded?

Mr. Clarke

I did not know that, but it is a telling fact that gives some indication of how they intend to respond once our debates are over and the report has been put, together with many others that now reach them, on the shelves of the chief executive's office in county halls and NHS trusts up and down the country.

This process is not even new—it has been tried before. The underlying drive behind the Gershon review, is on page 10 of the report: The focus on productive time of frontline professionals reflects existing initiatives to reduce bureaucracy and significant investments in workforce reform and ICT across the health, education and police sectors in the 2002 spending review. The same things were put forward in the 2002 spending review, when we were given value-for-money public service agreements. In 2004, those have become efficiency agreements, but they are essentially the same, although much bigger numbers have been put on to them.

Nevertheless, I hope that some good comes of Gershon and the other attempts to consider central government efficiency, because they are much overdue. My hon. Friend the Member for Arundel and South Downs cited several examples to show that we have been going in the opposite direction in the past four years of spend, spend, spend.

Some things, many of which are very important, we will never measure. In making efficiency savings, a great deal depends on improving the productive time of staff, especially professionals. That would be valuable because the productive time in most professions has not increased in the recent years of massive increases in expenditure. We are all used to meeting teachers, doctors, nurses and policemen who say that, despite the recent vast increases in expenditure, the amount of time that they spend on their productive work is decreasing. Increasing that time is one of the principal and desirable objectives of the review. However, the Government have been going in the other direction for some time.

Whatever the case for many of the changes that the Government have made in the name of reform, they have not tended to increase the productive time of our professional staff. For some reason, they renegotiated the contracts of all the key professionals in the national health service. I do not know why the Government bothered to do that. My experience of negotiating contracts with NHS professionals showed that it is a Pandora's box—the lid is best left where it was. The Government's negotiators lost. The guys from the British Medical Association are tough characters. The main achievement of the new contracts is to increase salaries and reduce work load significantly.

In education, the Government take credit for the large number of classroom assistants. They were not employed to improve efficiency but because the National Union of Teachers complained about teachers' work load. Extra people were brought in because the NUT complained about that. Extra people were employed to shift from teachers' shoulders the burden of work and share it with them.

Alan Howarth (Newport, East) (Lab)

rose—

Mr. Clarke

I do not want to argue the merits of the case. My former right hon. Friend might be passionately in favour of all the improvements in professionals' working conditions, but they do not increase productivity. It is no good changing the statistics, as the Government have done, to try to prove that, because everyone works shorter hours with fewer duties, productivity is increasing. It is not.

Alan Howarth

My former right hon. and learned Friend, who is also a former Secretary of State for Education, takes a broad-brush view. However, has not he noted that the NUT is the one teachers' union that did not want the classroom assistants?

Mr. Clarke

That is a fair point.

Let me give examples to conclude my point. We will never know how the extraordinary figures will be delivered. Let us get behind them and examine the so-called efficiency improvements and savings. How will we know, when we get to the end of the period whether, for example, NHS staff are making better use of their time? That is one of the Gershon objectives. Under that heading, half the Department of Health's total efficiency targets will be delivered. Anyone who could produce some means of auditing that would be the most brilliant accountant or work study consultant that I had ever met.

The front-line professionals in schools, colleges and higher education institutions will use their time more productively, according to the report. That accounts for 30 per cent. of the total figure put down for the Department for Education and Skills.

How will we know whether our police services become 3 per cent. more efficient? It would be interesting to have a conversation with one's local police commander about how he would demonstrate that he was 3 per cent. more efficient in three years as a result of Gershon. We should be glad to know that local authorities will achieve further improvements in the productive time of their staff. Figures are attached to those headings. Of course, it is highly desirable that all those things should happen, but we will never have the first idea about whether they have been delivered.

Mr. Kelvin Hopkins (Luton, North) (Lab)

I am enormously entertained by the right hon. and learned Gentleman's speech. He talks about efficiency, which is obviously a good thing in one sense, but improving public services often means higher staffing ratios. If we want better teaching in schools, we need smaller classes. In hospitals, we need more staff per patient to improve the service. In one sense, that decreases efficiency, but it makes for a better service.

Mr. Clarke

I accept that that can sometimes happen. A sensible approach to efficiency in government should be a permanent duty of every Minister. It should not be based on arbitrary figures for staff reductions or on conjuring imagined monetary values for proposed productivity improvements.

Every Government have their different methods. If I were really going in for dèjàvu, I could tell the House about the Rayner reviews in the early days of Margaret Thatcher, when I was a departmental Minister. In those days. it was not Sir Peter Gershon but Sir Derek Rayner who came round and explained to us how to run our Departments, along with some bright young accountant who was still trying to find out what the responsibilities of the Department were. I hate to say it. but I went in for staff number reductions. I did it in the NHS—often specifying how many jobs had to go—in despair of anyone attempting to raise productivity.

I agree, however, that what is required is a wholly different approach to policy from the one that we have seen over the last seven years, in which the control of running costs, and the balance between administrative costs and what is being delivered by front-line staff, is a permanent feature of policy, to be built in to what is being done. I share the view of those critics who say that this Government, who lecture us on improving public sector efficiency, have actually been neglecting it for the last seven years.

Before this debate is over, I shall no doubt hear more examples of all the areas in which things have gone in the wrong direction, even in my old Department, the Treasury, which I hold in very high regard. One day, the Chief Secretary must explain to me why even the central Treasury, which does not employ very many people, seems to have increased by at least half as much again since I was there, and now has about 600 more civil servants than it did on the day I left it. I have no doubt that the Minister has found productive ways of employing the time of all those officials, and I suspect that I would find that situation reproduced across Whitehall if I were to look at the way things have been going in the last seven years.

The required policy changes would need a whole new speech to specify them, but I would advise my right hon. Friends to add some policy changes when they produce the James report and we all concentrate on efficiency again. To give an obvious example, we have far too many quangos. I would like to see a list produced by both sides, and by the Liberals, of the quangos that should be rapidly abolished. Of those quangos that now send me literature, I have often never heard of the acronyms of organisations that are now responsible for some comparatively obscure part of the public service. I would even get rid of some of those that have got themselves a certain dubious public popularity. The Electoral Commission drives me up the wall—it already has 150 staff, it is spending several million pounds and I am not sure what it is for—and there are a whole lot of other quangos that ought to be addressed.

We do not even know how many regulatory bodies we have; it is thought to be between 140 and 150. I would like both Front Benches to produce a list of at least half of them that could be abolished or amalgamated. I agree with the Liberals about getting rid of the Department of Trade and Industry. It would have some residual functions—but no great budget—which could be put among other Departments. The Chief Secretary told us about the increased budget of the regional development agencies; I would abolish them. I do not think that they make worthwhile use of public money or serve any worthwhile purpose. It is the old regional planning stuff all over again. As for the proposed new tier of regional government that some people are having referendums on in the autumn, I would kill it off now, if we are really trying to improve the efficiency of government in the country generally.

I suppose that this is true of many people at my stage of life, but over the last few years I have found myself genuinely feeling—all politics aside—that I am living in a country that is increasingly governed by regulation. I am increasingly faced with forms to fill in for all sorts of routine parts of my life. I increasingly have to deal with public bodies that I have never heard of, but which have suddenly found that their participation is essential in whatever I am doing. Far too much of the world nowadays seems to be run by a second-rate bureaucracy that is over-manned yet still growing. That is what the Government need to tackle, and that is what I am sure that my right hon. and hon. Friends will tackle. Smaller, better government is what we require in the modern world—it has been growing too fast—and that way lies the health of the public finances and the long-term sustainability of growth in the British economy.

4.28 pm

Mrs. Lorna Fitzsimons (Rochdale) (Lab)

I feel rather humble to be following the right hon. and learned Member for Rushcliffe (Mr. Clarke), with his august Cabinet history. I clearly have not held any august office—I am just the lowly Back Bencher who represents Rochdale—and all that I want to comment on is the impact of the comprehensive spending review on my constituency, where I have lived all my life, apart from a blip when I went to university.

The CSR has made a huge, long-lasting, significant and long-overdue difference. After all the hyperbole about what Gershon and everyone else says, we need to cut to the heart of what the CSR means, in real-speak, to real people's lives. When I was elected, unemployment in my constituency fluctuated between 9 and 11 per cent., depending on the point in the cycle. Now, it is never much more than 3 per cent. Youth unemployment and long-term unemployment have been cut so drastically that they are virtually impossible to measure. In terms of school results, we have the best in my constituency's history. Yes, they have a long way to go, but they have come a long way. The investment in schools is phenomenal and is set to continue.

So phenomenal is this Government's investment in my constituency that my local paper will not even publish the figures, because it thinks that they are too incredible. The local development agency, at its annual general meeting this year, published a figure of £2 billion worth of investment by 2010 in the borough of Rochdale. The vast bulk of that was public money, but it will lever in a significant amount of other money. That figure is indeed incredible, but it can be broken down to projects all around the borough, and specifically in my constituency. We need to safeguard that investment, and I will do all in my power to support the CSR that has been laid before the House to do so. We need to build on that investment.

In my constituency, there are initiatives that need to be enlarged, but there are also those that we need to celebrate. For example, we have a new hospital, which has more doctors, more nurses and more people being treated in it. Yes, change means uncertainty in terms of certain profiles of service, but it does not mean lack of growth. We are developing extra services in Rochdale—more than we have ever had. For example, Rochdale has more police than it has ever had in its history. We have a bigger policing budget and a bigger and far more effective drugs treatment programme, and we hope to be beneficiaries of the Chancellor's announcement about neighbourhood wardens. The more local and specific the policing, through partnerships in law and order, the more effective it is, as the evidence shows.

On housing, I welcome the wonderful announcement in the CSR. Rochdale is a net beneficiary in the housing market renewal project, arm's length management organisations and investment in better social housing. Housing market renewal is a real test in the pilot areas. It is a huge leap of faith in the amount of Government money that has been invested, but the difference that it will make will revolutionise communities that time forgot, and certainly the Conservative party when in government forgot. The reality is that those communities live in circumstances that most of us would not even tolerate, and they have been in that position not for five or 10 years, but 20 years and more.

We need to ask specific questions of the Liberal Democrats about area-based initiatives, of which Rochdale has a lot: housing market renewal, single regeneration budget round 5, new deal for communities and neighbourhood renewal fund. The Liberal Democrats' economic policy contains a specific little clause—those are the interesting ones—proposing to scale back area-based initiatives. I would like to know what that means for constituencies such as mine, which need specific targeting. It is not the whole borough of Rochdale that needs those initiatives, as it houses two dramatically different communities. Norden and Bamford, which is in the constituency of my hon. Friend the Member for Heywood and Middleton (Jim Dobbin), has 0.03 per cent. of the richest population in the country. Wardleworth, in my constituency, has 0.03 per cent. of the poorest population, and we need area-based initiatives. I wonder what the Liberal Democrats mean by their economic policy.

On the specifics of the statement, I wonder whether my hon. Friend the Minister will answer a few questions about area-based initiatives such as housing market renewal. One of the things we have learned through earlier programmes such as SRB5, and are still learning, is that the Treasury needs to allow flexibility—through the Office of the Deputy Prime Minister—to the regional development agencies, and organisations such as English Partnerships, in local spending on, for instance, housing market renewal. There is no doubt that that must be based on housing outcomes, but houses are about communities. and communities cannot be sustained without community facilities.

Two years ago, 48 per cent. of Wardleworth's population were under 16, but there were no significant youth or sports facilities in the area. We have had to put bids together for the sports lottery. We have just secured £1 million, which is wonderful. It is £2 million short of our bid, but it is still £1 million, and we are not going to say no to it. What we need, though, is the flexibility that I mentioned. Housing market renewal, English Partnerships and the regional development agency will then be able to add to the money we already have. We can use our initiative, with the help of brilliant local officers in both the RDA and the council, to capitalise on that. Yes, we are going to have mixed-market economy new homes, but they will not sustain a community without real youth facilities. I hope that my right hon. Friend can throw some light on that because we need detailed answers.

I may have misheard, and I have heard no further details, but I believe that the statement referred to community facilities. I understood that a fund provided through the ODPM might help. Specific funds such as the housing market renewal fund are aimed at specific targets, and it might be as well not to deviate too far from those targets. This fund, however, might be used to provide much-needed health services and youth facilities. I should very much like to hear more about it.

The extension of the neighbourhood renewal fund for three years is very welcome. As my right hon. Friend will know, one of the problems with some of the initiatives—although we do not suggest in any way that we do not want them—is that they involve short-term amounts. Anything that can be done to put chunks of money together and make the provision more permanent and sustainable will add to the undoubted impact of many NRF projects in our patch and across the country, and make them even more beneficial to the communities that they are intended to help.

I am very pleased about the extra investment in early years and family facilities. It makes so much sense. Anyone who has worked in education or child development, or takes an interest in antisocial behaviour, will know that the most important investment is made in the first six years of a child's life. I am lucky to represent a constituency that has received wave upon wave of Sure Start support. It is so good that people think they designed it themselves. It is probably the most successful of all Government policies.

I would welcome any additional investment from the CSR to extend the reach of Sure Start to all communities. The child poverty review acknowledges, among other things, the importance of investing in families. Although all the evidence suggests that poverty is a huge indicator of a child's health—including mental health—educational attainment and life chances, we must not assume that all parents, regardless of wealth or lack of it, do not need help with parenting. Nor must we assume that all children involved in antisocial behaviour come from poor backgrounds. Many children in my village who cause a neighbourhood nuisance—I would not place it on the same scale as the antisocial behaviour that some people must put up with—do not come from deprived backgrounds. Nevertheless, investment in youth facilities, in the extension of schools and in parenting assistance would accord with Government policy that is already making huge inroads in constituencies such as Rochdale.

In places such as Rochdale, economic regeneration is also very important. We are very lucky in having Kingsway business park, which is the biggest economic development in the north of England. I thank the Northwest Development Agency, English Partnerships, the Treasury and the Office of the Deputy Prime Minister for creating that huge development, which has used £35 million of taxpayers' money to lever in hundreds of millions of pounds of private money. As a result, a very deprived area of north Manchester enjoys untold investment in new economies.

However, we need to capitalise on that investment. My right hon. Friend the Chief Secretary alluded to investing in the Northern Way, which forms part of the Deputy Prime Minister's vision. Can my right hon. Friend assure me that consideration will be given to capitalising on the public money that has already been invested in the Northern Way, and in places such as Kingsway business park? As I said, we have £35 million of Government money and hundreds of millions of pounds of private money, yet a certain tension exists, in that there are those who are focusing on investment in the major cities. We should note that the poverty index shows that the northern part of Greater Manchester is one of the poorest conurbations in the entire country.

There is another Greater Manchester organisation, Knowledge Capital, into which the Government are pouring a lot of money; in addition, there is the merging of the universities. It would be a tragedy if we failed to widen the aperture a little—if we failed to combine these elements in order to ensure that we bring the Deputy Prime Minister's Northern Way vision to fruition. We need to make use of the substantial investment that the Treasury has made in places such as Rochdale, Oldham and north Manchester. I ask the Treasury to look into this issue and to ensure that we join up such investment. There is only a matter of miles between these locations; it would be a real shame not to capitalise on that investment.

Constituencies such as Rochdale have not only thriving Church communities but huge and diverse ethnic populations, so I welcome the great interest that the Government are showing in international affairs. It is impossible to overstate the importance of their historic level of investment in international development. Cutting to the chase, such investment is also investment in security. My constituency is one of the biggest recruiters for the British Army, so it has a huge interest in defence. In the light of that and of my international development work, it is clear to me that we need to invest in other countries, because eventually somebody else's poverty becomes one's own lack of security.

I pay tribute to the Government's approach to international investment. People talk about the war and describe us as the great devils, but we are the biggest single investor in Palestine. We are holding things together, yet no one else is putting their money where their mouth is. Indeed, we are about to become one of the biggest investors in Africa. I say to the Government: please do not stop making such investment. Some people argue that investing in Palestine and Africa undermines jobs and prosperity in this country, but the reverse is true; indeed, such arguments endanger community cohesion in places such as Rochdale. That investment ensures jobs and prosperity in this country, because the richer we make the rest of the world, the richer we make ourselves. I am not a religious person, but I do believe in the principle that we should do as we would be done by, and that one should give in order to receive. I commend such investment; it is morally valuable in itself, but it also constitutes a defence policy.

Be it housing, regeneration, schools, families, law and order or international development, the comprehensive spending review builds on policies that make me proud to be a member of the Labour party, and proud to be a Member of a Labour Government who are remembering forgotten communities such as Rochdale.

4.44 pm

Dr. Vincent Cable (Twickenham) (LD)

I shall first respond directly to the hon. Member for Rochdale (Mrs. Fitzsimons) who threw a question at me. She is right, and I have never concealed the fact that I believe that all parties, whether in government or in opposition, have to make choices. That means saying that we cannot solve all the problems of government by eliminating waste. I entirely agree with the spirit of the comments made earlier by the right hon. and learned Member for Rushcliffe (Mr. Clarke). That is why we have said that there are certain things that the Government should get out of.

We have paid considerable attention to area-based initiatives. It may well be that the one in Rochdale is brilliant and I commend it if it is, but our experience has been—it is not an academic analysis, as there are Lib Dem councils in northern cities as well as in the south-east—that many of the area-based initiatives duplicate and centralise many of the functions of local government. They should therefore be cut back. The hon. Lady is right that we are arguing in favour of cutting back those initiatives.

The former Chancellor, the right hon. and learned Member for Rushcliffe, made wise and helpful comments. He rightly started off by placing the discussion in the context of macro-economic policy. Discussion about waste is important, but we have to look at the macro-economic context. It is certainly true, at least on the surface, that the budgetary position is very good and the debt position is comfortable. The golden rule appears to be being met.

My concern about the macro-economic position is that, although the British economy as a whole has been fairly stable, the Budget has been highly unstable. We have had a lurch from famine to feast. We saw public spending at roughly half the growth of the economy as a whole for the first few years, then it greatly exceeded the overall growth of the economy, and we now have the third phase. The Government have not pointed out clearly that public spending plans are front-loaded with a big increase for 2005–06 and then a sharp slowdown subsequently.

It is not simply that instability is a problem in itself, because enormous costs are associated with it. One of the biggest causes of waste in government is not so much bureaucrats—we will get round to them in a minute—but the £1 billion a year that we pay on excess charges in the NHS for agency nurses. There are several reasons for that. One of the reasons why there are so many agency nurses is that key decisions on nurse recruitment and education were not taken five or six years ago. We are paying the price for that today.

Another example is that we are currently talking about paying £60,000 for a maths teacher, again because the problem of scarcity was not identified earlier on in the Government's term of office. It takes a long time to take a child through from A-levels, to university, teacher training and then into teaching—and it is only now that the problems have been identified. We are now paying the costs and the price of the instability when we lurched from under-funding to over-funding within the public services.

Mr. Hopkins

On nursing, a chief executive of a hospital trust told me that if he could take the same global sum of money that he spends on nursing and pay a higher rate to all his nurses, he would have a full permanently employed nursing staff. He would not need to employ agency staff. Unfortunately, he is not able to do that, so he has to have a lower level of pay for his nurses and buy in agency nurses.

Dr. Cable

There is a lot of wisdom in what the hon. Gentleman says, but he knows that there is an overall problem of supply, which traces back in time to failures of recruitment.

Our debate today has focused primarily on the concept of waste in public services. It was particularly evident in what the Conservative spokesman said, but it has been equated by virtually everyone with the cost of administration. We can argue about too much administration and too much bureaucracy, but waste is a wider concept than that. The Government are right to point out that some elements of waste have fallen. We have less unemployment, fewer debt interests and we are avoiding policy areas such as the poll tax.

The concept of privatisation was also slipped into the Government's litany of Conservative crimes. I was rather surprised by that: as I understood it, one of the key elements in the Government's spending plan is £30 billion worth of asset sales. I think that that is privatisation, so I do not understand why it found its way into the list.

Other elements of waste have not been mentioned. We heard the Prime Minister's statement earlier today. For some of us, the £3.5 billion spent on the war could be classified as a sort of waste—not simply because the war was fought, but because if it had been fought properly under multilateral rules, it would have been funded internationally, as the first Gulf war was.

Yesterday we debated energy. What was not spotted by too many people was the fact that the Government have now put into the public domain, admittedly over a long period of time, liabilities of a minimum of £50 billion, because electricity—particularly nuclear electricity—was not properly costed. That waste, both physical and financial, is now dumped back into the public sector. Waste is multi-dimensional, and not only to do with bureaucracy.

Mr. Flight

I said that there were two types of waste. One is defined in the narrow and traditional sense and investigated by the Public Accounts Committee and the National Audit Office; the other requires major policy change to address, as my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) pointed out. It is highly important that we all are clear what we are talking about. I certainly meant the word "waste" to be taken in its widest sense.

Dr. Cable

I agree, and I will develop the point now.

The key point in the debate is the assumption that public sector productivity can grow by 2.5 per cent. a year. In the private sector, which has additional incentives, service productivity growth is only 1.5 per cent. The Government assume that the public sector will be much more productive than the private sector, even without the incentive structures. The figures are elusive, but I understand public sector productivity growth is close to zero. That means that some pretty heroic assumptions are being made.

I often call to mind the old story about the economist stranded on a desert island with tinned food and nothing else. When asked how he will survive, he says, "Let's assume the existence of a tin opener." Essentially, that is what lies behind the Government's plan. They are saying, "Let's assume the existence of 2.5 per cent. productivity growth—plausible or otherwise."

The Chief Secretary helpfully clarified a confusing element in the statement. I refer hon. Members to page 13 of the published version. He said that the £20 billion Gershon savings, which include savings from the dismissal of a net total of 70,000 civil servants, will be outside the spending review. Therefore, the savings made from the sacking of civil servants and implementing the Gershon report will be over and above the spending limits. The Government's strategy is to feed those savings back, in some sense, into public services.

That raises some important questions. How will the Gershon dividend be paid? What is the mechanism? I offer a simple example involving the Department for Work and Pensions. I do not want to go into the pros and cons of the matter, but by sacking 40,000 civil servants costing roughly £25,000 each the Department will save £1 billion a year. What will happen to that money? Will it go into improved services in work and pensions? Will it go into pensions, or back to the Treasury? How does the dividend get paid?

There is a bigger question for the economy as a whole. I hope that Ministers will correct me if I am wrong, as I am trying to understand what is going on, but the Government have said that the £20 billion a year generated in additional savings and extra productivity will all be spent on public services, and that it will not go back to the taxpayer. Is not the logic of that that the share of public spending in gross domestic product will rise as a result of the successful implementation of Gershon? I should be happy to be corrected if I have misunderstood the proposition, but we need to be very clear about how the Gershon dividend will operate, at both micro and macro level.

My second question is about conditionality, and it relates in part to what the right hon. and learned Member for Rushcliffe said. How do Departments get their spending allocations in the context of the Gershon reforms? Let us suppose—it may not happen—that the Department of Health performs extremely badly in respect of all the Gershon reforms, and that it does not achieve its IT or procurement targets and so on. Does that mean that the funding in the spending review will be withheld, or will it be increased because of the Department's underperformance? There has always been much ambiguity about what public service agreements mean, but what rewards and penalties exist in the system to ensure the implementation of the Gershon improvements? How the conditions work is massively unclear.

The right hon. and learned Gentleman asked another question: how do we know when reform has been implemented, and how do we measure performance? I am delighted that Professor Tony Atkinson, who is an underestimated and important academic, will be brought in to try to help answer those questions. However, economists have been worrying for 20 years about how to assess public sector productivity.

The attempts to improve productivity in the public sector can be very daft. Shortly before I became an MP, I visited my local borough police commander. He was a bright young thing who had just come out of a refresher course at the police college and was buzzing with management speak about productivity. He told me that he had been thinking through his borough's strategy and that he intended to get rid of beat policing. He gave me a little homily to the effect that the chances of a burglar being caught by a beat police officer were as remote as the chances of being hit by an asteroid. That proved to him that good management and improving productivity meant getting officers back into the police station so that they could go out in their cars in emergencies. He called that high-productivity policing, but we all know in retrospect that it was just daft. The police have since done a U-turn on that policy, and we are no closer to understanding how we could improve productivity in policing.

Further education is another example. The head of my local FE college tells me that it has been subject to productivity targets from the Treasury, via the Department for Education and Skills, for the past five years. The sector already has a 2.5 per cent. productivity target. The college achieves the target by increasing class sizes—more students, same number of staff. Is that what the Gershon reforms will mean?

The Financial Secretary to the Treasury (Ruth Kelly)

indicated dissent.

Dr. Cable

Well, it is not clear who will decide how the target should be achieved and how Departments will be rewarded or penalised if they succeed or fail.

The immediate action—as opposed to the general commitments in Gershon—is the dismissal of 84,000 civil servants. How much will that actually save? We hear some confusion about numbers. The BBC said that it would save £5 billion. However, a little mental arithmetic suggests that the loss of 84,000 people who are paid an average of £25,000 a year—who would all be paid redundancy money—would save only £2 billion. That suggests that Digby Jones is right to suggest that the 84,000 would be only a tiny fraction of the job losses necessary to meet the Government's objectives.

Can the Government tell us a little more about the civil service cuts? Who will suffer them? Will it be the people who have been brought in over the past two years, many of them to do IT work? What will be the split between senior and junior civil servants? That will make a big difference to the cost savings, but we have no specific information at present.

Can the Government tell us something about the deeper aspects of the Gershon reforms and how they will be delivered? From the documents that I have read it appears that one of the key arguments is that we will see a big leap forward in information technology. However, the Government's record in that area is abysmal. The National Audit Office suggested in a report a couple of years ago that only a third of Government IT projects succeed. We all remember the Passport Office story, and the courts and the Post Office have suffered fiascos in that area. To their credit, the Government have introduced a much improved procedure, including the gateways, and the level of error has been reduced. However, many of the projects are still highly doubtful. People close to the industry, such as Computer Weekly, are concerned that the IT programme will unravel badly with disastrous consequences, especially for the NHS. One of my reasons for arguing that the Home Office should abandon its plans for identity cards—apart from the civil liberties aspect—was the management issue. How would a Department that has conspicuously failed to manage big IT projects in all its other operations be able to handle one that would be even more complicated and difficult?

The other element in Gershon that is very important—the hon. Member for Arundel and South Downs (Mr. Flight) highlighted it too—is the centralisation of procurement. It will be a key part of the process. In business, centralisation of procurement has gone in and out of fashion, but Gershon goes in for it in a big way. A move from 400 to four major civil service procurement centres is planned. Is that feasible? At the end of the debate, may we have an indication as to the Government's progress in centralising procurement and how it will work? My understanding is that few councils or agencies have agreed to undertake that process.

The Government and the Conservatives place great emphasis on the idea that somehow or other they can achieve great savings by getting rid of the back-office staff and concentrating on the front line—to use the jargon. However, I have never been wholly clear as to the distinction between the two; nor are the Government, because they have just reclassified £5 billion in that regard.

One of the things that most shocked me when I became an MP was visiting my local police station and seeing big, brawny, fully-trained police officers doing their own typing. We were in the wake of cuts in the Metropolitan police; at the time, the current Conservative leader was Home Secretary and we had just gone through a period of downsizing, so when I asked why those officers were typing instead of being out on the streets, I was told, "We decided we needed to get rid of our civilian support staff to concentrate resources". However, somebody had to do the clerical work—the police officers.

One of the new fashions that the Government have adopted and the Conservatives are advocating is to get rid of local education authorities—those parasitic, bureaucratic tiers of management. They claim that great savings will be made by getting rid of LEAs. In my area, I discovered that the LEA is small. I am not making a political point, by the way; the local council is a Tory one. The LEA occupies one floor of a multi-storey building and comprises fewer people than the James committee, yet it is responsible for all the borough's education administration. Which of those people would the Government get rid of? Who would do their tasks when that "unproductive" layer of management was stripped out?

Perhaps we do not need the LEA's four inspectors, although it is self-evident that schools need inspecting—they cannot wait for Ofsted every three years. A few people handle student grants and a few deal with special needs. Those people cannot be stripped out with no consequences. Other people deal with the payroll and staffing. If their posts are abolished at the LEA, they will reappear in schools, so where will we see the savings from stripping out that layer of management?

Both the Government and the Conservatives have created the illusion that these changes can be easily made. I have been in a big company that was McKinseyed and saw the process at work. Management consultants decide that many functions can be stripped out, but it cannot be done, and senior managers end up doing their own secretarial work. In business, that is called "managing your own function" and it is often extremely inefficient. There is much glib talk about savings from eliminating waste and stripping out management. Of course, there are things that should be done, but much of what is actually achieved is worryingly superficial.

It is my view, which I have also argued as my party's spokesman, that the Government must get out of certain activities. Although arguments about waste are important and we have to be on the ball about such matters, we have to make political choices. One of the reasons that my colleagues and I focused on the Department of Trade and Industry is that although it is not one of the biggest Departments, it raises the biggest questions about whether the Government have any basic competence in that field. It has a budget of £5 billion and it is supposed to help business and industry.

When I attended a conference recently I was struck by the comments of one of our leading Asian entrepreneurs, Ghulam Noon. He turned to the Secretary of State for Trade and Industry, who was in the audience, and said: "Will the Government please stop trying to help us? Just let us get on with our job. Make sure the infrastructure works. Keep taxes reasonable, but please stop trying to help us."

The Chancellor is passionately committed to science, innovation and research and development schemes, but many of those things are unproductive. The OECD did some good research recently, which showed that support for R and D distorts and completely displaces private sector R and D. It adds no value in the economic sense. I would not go quite that far; there is a residual role for the DTI, but much could be taken out.

We really need money for pensions, which are a big priority; they must be lifted out of means-testing. We have to find the money from somewhere. That is the kind of choice we have to make.

5.5 pm

Alan Howarth (Newport, East) (Lab)

The hon. Member for Twickenham (Dr. Cable) calls for perfect forecasting and perpetual stability. All Governments would like to achieve that but, of course, government is very difficult. This Administration are decent and outstandingly capable, and the spending review demonstrates their intellectual and moral energy. The review is based on seven years of experience, during which a matured and successful strategy for government has been developed.

The fiscal stance seems to be sound and that is confirmed by a rather better judge—the markets, which are unperturbed by the spending review. The right hon. and learned Member for Rushcliffe (Mr. Clarke), my former right hon. and learned Friend, has the ability, amiable indeed, to make apocalypse sound very jolly, but I think that he will be disappointed. There is every reason to suppose that my right hon. Friend the Chancellor will successfully adhere to his fiscal rules and he has proved a better forecaster than most of his critics in recent times.

An independent umpire, the Institute for Fiscal Studies—all hon. Members could accept its objectivity and competence—tells us that, as total public expenditure rises to a planned £580 billion by 2007–08, it will represent 42.3 per cent. of national income. That figure is below the average of 44 per cent. of national income that prevailed in the years of the Conservative Administration. It is in line with OECD standards and lower than the figure found in many European countries.

The sustainable investment rule should be met. Public sector debt is expected to rise to no more than 36.5 per cent. of GDP—well within the 40 per cent. limit that my right hon. Friend the Chancellor sets himself—and public sector net investment is planned to rise from 2 to 2.25 per cent. I note that that is well out with the rules of the stability and growth pact. The borrowing requirement will clearly exceed the requirement of the stability and growth pact that a balance or surplus should be achieved over the cycle, taking into account public investment. Thank goodness, we are outside those constraints, and my right hon. Friend the Chancellor has kept us out of that financial morass. Given the dismal history of deflation and wasted potential in the eurozone, surely we cannot now wish that we were part of that system. It is interesting to note that the flat-earthers in the Commission were upheld yesterday by the European Court of Justice. Will they then proceed to impose penalties on France and Germany, compounding the deflation for which they have been responsible through their policies in past years? The answer is no. They would have had a go at that a couple of years ago; they will not do so now, thanks to the pressure for reform created by my right hon. Friend the Chancellor.

Mr. Hopkins

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

Alan Howarth

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The issue is whether we can renew our enlarged universities, of which so much is expected, to an acceptable quality. The Government have paid more heed to the Roberts report on the supply of people with scientific, engineering and technological skills, but we must balance the needs of the arts and humanities with the need for science. We should be wary of going down the US route of simply paying more for teachers with marketable skills. I readily acknowledge that there has been a good settlement for academic pay this year, but where are the funds in the plans properly to restore academic pay? Where are the funds to make sure that our remarkable new laboratories will have remarkable scientists in them? How are we to pay for the costs of higher education? If every course charged the full £3,000 allowed under the new tuition fee regime that would bring in a maximum of £1.4 billion after 2009, which should be set against the shortfall in higher education funding of £8.8 billion cited by Universities UK. I do not expect the Treasury to agree with the latter figure, but the disparity is still huge.

I hope that the Government will at least fund the recommendations in the Thomas report, which looked at the possibility of creating endowments for our universities. It recommended that the Government provide time-limited match funding to pay for the costs of establishing development offices in universities and training in fund-raising techniques. It also recommended that they look again at tax relief. It is noteworthy that the largest endowments enjoyed by universities in the United States of America have, in the main, been built up in the past 20 years. Although it would be a long haul and a difficult task to raise endowments on a significant scale for our universities, we should certainly try to do so. If higher education in the United Kingdom achieved the same share of individual giving as higher education in the USA, our universities would be £600 million a year better off.

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

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

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

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

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

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

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

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

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

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

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

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

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

5.32 pm

Mr. Michael Fallon (Sevenoaks) (Con)

It is a pleasure to follow the right hon. Member for Newport, East (Alan Howarth). I hope that Front Benchers noted some of his points about science and higher education, with which I agree. This afternoon's debate seems to be turning into an old Department of Education and Science reunion, although some of us have not changed our positions. I begin by declaring my business interests, as recorded in the register.

I note that the review is no longer called the "comprehensive" spending review, which is probably a wise omission because it does not give us a picture of public expenditure as a whole. As the Chairman of the Treasury Committee pointed out, the spending review has been published before departmental out-turns are available. We heard evidence this morning that that is an accident, because 14 days' notice must be given to the National Audit Office, the Office for National Statistics or somebody, so the departmental out-turns cannot be published until Monday. That is either incompetence or conspiracy, or, as I prefer to think, the spending review is a political exercise that has been rushed forward in this particular year to try to influence the results of tomorrow's by-elections.

The review does not include the all-important Atkinson report on public sector productivity, and I do not know why the Government could not wait for its conclusions, which would have enabled all of us more accurately to examine the efficiency targets. On the targets themselves, we have been told that the measures, which are now called the efficiency technical notes, will not be published until October. Sir Peter Gershon, an admirable man, has toiled away for a year on his report, and the Government have had two years in which to prepare the spending review, so I do not understand why the efficiency technical notes are not ready to be published alongside the efficiency targets.

That point is all the more important when one considers some of the woollier targets. The Department for Culture, Media and Sport is pledging itself to save some £260 million a year by 2007–08. It has four plans to achieve that, the fourth of which is simply to work with its sponsored bodies, local authorities and other Departments to facilitate the delivery of these … gains. That is not a specific plan. Such an objective should be properly measured: that is why the efficiency technical notes should have been finalised and published alongside it.

The spending review document does not include crucial information that we need about the uprating of benefits. The Government blandly commit themselves to yet another reduction in child poverty, which is a very important target, but the totals for managed expenditure given in table A1 reveal that for the second two years 2006—07 and 2007–08—there is no assumption that tax credits, including the all-important child tax credit, should be uprated by any more than inflation. In other words, there is no assumption that the child tax credit will be uprated by the level of earnings growth, as is necessary if the target is to be met. The document has serious weaknesses, and I suspect that it has been rushed forward for political purposes. I regret that it does not provide the supplementary information that we need and that it does not give the Treasury Committee sufficient time to produce a report, as we normally would have done, that might better have informed the debate.

It emerged in evidence given to the Committee this morning that the reduction in head count through the sacking of 100,000 civil servants will provide only between 10 and 15 per cent. of the proposed efficiency savings—the magical figure of £20 billion. In other words, 85 to 90 per cent. of the £20 billion has to come from everything else that is promised—better procurement, better working, lower sickness rates and so forth. In reality, better procurement often means more centralised procurement. The Government have already run into difficulties in forcing their way towards better NHS procurement because of objections from the devolved and empowered primary care trusts.

On better working, I am, like my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), sceptical about how some of the targets will be met. In the case of the Department for Education and Skills, we are told that 30 per cent. of its £4.3 billion savings—a total of £1.3 billion—will be provided by teachers and college lecturers working harder. I see nothing in Gershon or in any other document to give us any comfort about those savings being delivered in practice. It is noteworthy that when Sir Peter Gershon consulted the devolved units on the efficiency gains that they could deliver—contacting more than 60 police authorities, more than 100 health service trusts, and more than 100 local authorities—only 12 health service bodies and 12 local councils responded. I suspect that the Government will find it much harder to enforce such savings on the devolved public services.

The 2.5 per cent. efficiency saving is an enormous amount—I agree with the hon. Member for Twickenham (Dr. Cable) about that. The annual average productivity improvement in the economy over the past 40 years has been 2.1 per cent., yet we are suddenly told that the public sector will be 2.5 per cent. more productive. Like my right hon and learned Friend the Member for Rushcliffe, I suspect that that is a rain dance.

I want to consider the fiscal position, to which there are three keys. Each is critical to the Government's obeying its fiscal rules and our being spared the additional tax burden that Conservative Members feared and that was realised after the last two elections.

The first key is that tax revenues have to come in. There is already evidence that they are not coming in as the Treasury forecast that they should. Secondly, the Government must deliver the asset sales that they promised. The document mentions a total of £30 billion of asset sales, yet I cannot find a single list of what will be sold to deliver them by 2010. As we found in Government, asset sales get harder as one goes on. One sells the land and privatises the industries but the search for the £4 billion, £5 billion or £6 billion of asset sales that one needs every year gets increasingly harder. It should therefore perhaps be no surprise that the Government have not even listed where the asset sales will be made. They are unlisted, unquantified and will become much harder to achieve. As I said earlier, if efficiency savings—the third key—are not achieved in full, we shall be in trouble.

The Government will be in trouble because the one certainty is not asset sales, tax revenues or efficiency savings, but spending. The spending is guaranteed and will now begin to flow, whether or not efficiency savings are realised, asset sales are pocketed and tax revenues come in. If the three keys are not achieved, taxes and borrowing will have to increase all over again.

As my hon. Friend the Member for Arundel and South Downs (Mr. Flight) said, we have the largest state sector in the Anglo-Saxon world. We have a public sector that is larger than Scotland and we have slipped down the competitiveness league. It is a stark fact that if British GDP per head were measured against that in each of the American states, we would come 45th. Only four American states have a lower GDP per head than ours.

We have had seven years of rising administrative spending. The Chief Secretary tried to bluster his way out of the figures, and I commend the table in this morning's Financial Times to him. It clearly shows that administrative spending has increased from 4 per cent. to 4.5 per cent. The right hon. Gentleman promised to reduce it to 3.7 per cent. but the table shows how the Government have always promised to reduce it and always failed.

There has been a lack of genuine, radical reform in our public services and a massive increase of more than 500,000 jobs in the public sector. That is real Labour. They start by spending and hiring more and more public servants and end so desperate to find savings that, suddenly and without warning, they send out 100,000 redundancy notices to their civil servants. Those 100,000 civil servants will see through the Government when they are put out of work. When the rest of the country sees through the Government, they will be put out of work, too.

5.44 pm

John McDonnell (Hayes and Harlington) (Lab)

I preface my remarks with the traditional statement of fealty or loyalty to the Chancellor and all his works. From the Budgets that he has introduced since 1997, my constituency has gained for the under-fives a Sure Start centre, a neighbourhood nursery and an early excellence centre. We have gained three schools—a primary school and two secondary schools—although I have to say that one was a private finance initiative that was imposed on us. I met the head of that school this morning, and we are not sure whether Jarvis will go bust over the summer so we are slightly anxious about that. My constituency has gained two medical centres, one of which I opened last week, and a mental health unit. We are also bidding for a new hospital. There is now neighbourhood policing in some of our wards, and it is developing throughout the others.

That represents a programme of traditional Labour policies of investment in the community, of which I am proud. Especially welcome this week was our commitment to the development of international aid to a level that this country has not seen before and for which the United Nations has been calling for a number of years.

However, the Budget statement and the spending review statement were tarnished by the treatment of the Government's own staff. They are the very people who deliver all those services and policies in my constituency and across the country, and we have treated them badly. We have used some of the worst employment practices of the worst employers. In the Budget, without any consultation, discussion or negotiation with the trade unions, the Chancellor announced 40,000 job cuts. In the spending review, it was announced—again without consultation—that there would be 100,000. Is it 100,000, 84,000 or 96,000? I am not sure. Certainly, it is now acknowledged that there will be compulsory redundancies. We need clarification on the precise numbers. The Scots have already revolted, and Jack McConnell has said that the 20,000 job cuts will not be imposed on Scotland by an English decision. What does local government have to say about the individual impositions of job cuts that will be made, council by council?

I have always found the staff who work for the Government throughout the civil and public service to be committed, dedicated and hard working. They are generally overstretched, and often over-stressed. I believe that we have the best civil service in the world—certainly in terms of probity, efficiency and dedication to the work that it does. I accept, however, that any organisation—whether a government or private sector body—will periodically need to examine how its staff deliver the objectives of that body. That is healthy and worth while, although reorganisation can sometimes become a displacement activity for real performance.

Nevertheless, it is worth focusing our minds on how we deliver new methods and increase efficiency, and that is usually done in one of two ways. The first involves external intervention. We had that in local government through rate capping, and it can also occur in the private sector when a company's share price drops and there is a need for urgent reform. Such external intervention demands a response, although the response is often to slash and burn, as has been mentioned in previous debates.

The alternative is internally generated reform, which is what I would have expected from this Government. It is a more inclusive form of change, whereby we challenge the role of organisations and involve managers and staff at every level. In particular, we involve the union representatives of those staff members to discuss the resources that are needed and how they are to be deployed and developed to achieve the organisation's objectives.

With Gershon, we seem to have an approach that epitomises the former—the external threat—but which is dressed up as the latter, that is, some form of organic efficiency response based on discussion. There is a suspicion that, instead of the development of the real objectives that we want to achieve and the resources that we need, the Gershon approach is based on the achievement of a cuts level, forcing the Departments to stack up the sacrifices to be delivered over the coming period. I found it somewhat enchanting that it was dressed up in consultancy-speak. For example, "change agents" are to be placed in every Department, and I look forward to examining the "generic reform maps" and "e-enabled channels" in more detail as we go along.

The staffing element of the proposals smacks of a political manoeuvre, in which we are involved in some kind of Dutch auction with the Conservatives on how brutal we can be towards bureaucrats, and how many staff we can cut, in a competitive game in which the numbers increase month by month. They have increased from 40,000 in the Budget statement two months ago to 100,000 in the spending review. What I find unpalatable is that we now wrap that up in the mythical division between backroom and front-line staff, whereby slashing backroom staff will in some way free up growth of front-line staff. We now have a similar concept to that of the deserving and undeserving poor: deserving frontline staff and undeserving civil servants working in the backroom.

From my experience of working in the public sector, and even in the private sector, and of engaging with those civil servants who serve my constituents, I cannot see the breakdown between deserving front-line staff and undeserving back room staff. In my local jobcentre, the pension worker who meets and greets, obtains information and provides immediate advice is of course valuable, but we also require the back-up of those backroom specialists who will analyse and process the payment, address the details of that claim, and ensure that it is done efficiently. The experience of Members is not that there are too many staff at the moment delivering benefits, pensions and so on—most of us have to deal with problems in our surgeries of ensuring that sufficient staff attention is given to our constituents because of the overstretch of existing staff.

The announcements in the Budget and the spending review must be demoralising for existing staff, and must arouse fears among our constituents about service delivery. Those fears will be justified—services will be affected if we go for this scale of cuts. It is also an act of provocation to the unions. The union response, however, has been considered and has shown admirable restraint. I pay tribute to the general secretary of the Public and Commercial Services Union, Mark Serwotka, for the statements that he has made in the media about the need to achieve a rational approach by the Government, and about his willingness to negotiate and get involved in consultations. I appeal to the Government to start again that process of reform as a rational process, in which we engage the staff, their managers and their unions. This could be a real opportunity for reform and a renewed direction in the civil service, if that is what we want to achieve, but it must be done with the encouragement and participation of all the staff, particularly through their trade union structures, in which they have confidence. We have that opportunity, but it could be lost if threats of job losses and compulsory redundancies are handled in this brutal manner.

On Monday, I requested a meeting with the Chancellor to discuss with the PCS parliamentary group the implications of his announcement. His response was that we had met the Economic Secretary days before. That is slightly inaccurate—we had met a couple of months before, and it was a meeting with the Economic Secretary about the pay round in the Department for Work and Pensions and across government; it was not about staff cuts. I would welcome a meeting with the Chancellor and any other Minister to discuss this in some detail. There is a real opportunity to get back on course in a reform and renewal process that will deliver the objectives of Government and that may deliver an element of savings, too. Those will be achieved efficiently and effectively only if we take the staff with us—they will not be achieved if we announce that we are going to decimate their employment opportunities for the future.

Finally, there is failure by the Government to acknowledge that if we want staff to undertake work effectively and efficiently, we need to pay them a reasonable rate for the job. In the Department for Work and Pensions, for example, 90,000 staff earn less than £15,000 a year, and the starting rate for many of those posts is £10,000. Many of them pay themselves the benefits that they must administer, because they are on low pay. There is a chance for a fresh start for our civil service, but it will not be brought about by threats of job cuts or by underpayment in this scandalous way.

5.54 pm

Adam Price (East Carmarthen and Dinefwr) (PC)

It is good to follow the hon. Member for Hayes and Harlington (John McDonnell). As a fellow member of the PCS parliamentary group, may I echo his call for an urgent meeting to discuss the Government's proposals? I was as horrified as he was by the scale of the job reductions, the manner in which they were announced, and the impact that they would undoubtedly have on communities throughout the United Kingdom if the Government proceeded with their proposals.

"Tax and spend" has always been something of a lame clichè when used to describe the fiscal stance of a social democratic Government. "Axe and spend" is something of a departure for a Government who still purport to be a Government of the centre left. However, I have learned that it is always a good idea to start with a few warm words of welcome, and I welcome one feature of the spending review. A public service agreement target for regional economic policy, introduced at the time of the last spending review, is still there and indeed has been strengthened in a sense. The Government have committed themselves to demonstrating progress in reducing the persistent gap in growth rates, albeit between English regions. I think that it should be extended to cover the whole United Kingdom because the Treasury retains that wider responsibility for economic performance; but the target is there, and progress must be demonstrated by 2006.

While I welcome that target, however, I must ask how the Government will achieve it. We have the Lyons report, but the right hon. Member for Dumbarton (Mr. McFall) drew attention to the inconsistency between Lyons and Gershon—the fact that the Government are giving with one hand and taking away with the other. That is borne out by the details of the proposals. The biggest job cuts involve the Departments that are most dispersed, and least represented proportionally in London and the south-east of England. As Sir Michael Lyons points out, the most dispersed is the Department for Work and Pensions, just 17.5 per cent. of whose employees are in London and the south-east. The Ministry of Defence has 28 per cent. in London and the south-east, and the Chancellor's Department 25 per cent. Those three Departments, which were ahead of Lyons—which had already dispersed many jobs outside London and the south-east—are the very ones targeted by Gershon.

What is the impact of that? The right hon. Member for Dumbarton asked for a regional breakdown of the efficiency review job reduction targets, and we should like to see one, but I have made a quick calculation myself. Thanks to the Lyons report, we have a detailed breakdown of the proportion of staff in the various Departments who are in London and the south-east vis-à-vis the rest of the country. If those figures are applied to the departmental breakdown in the Gershon report, it emerges that 63,000 of the 84,000 jobs lost will be lost outside London and the south-east.

The poorest, most economically disadvantaged parts of the UK will bear the brunt of the Gershon proposals, and will do so disproportionately. At present 70 per cent. of civil servants are based in the rest of the UK, while 30 per cent. are in London and the south-east. Under the Gershon proposals, 75 per cent. of jobs will be lost outside London and the south-east. Lyons offers us 20,000 jobs, but 63,000 will be lost in the north and west of the UK. There will be a net loss of 40,000, and given the multiplier effect of 1.5 in the Government's own Lyons review, another 20,000 will be lost in the private sector.

Of course, we cannot even be certain about the 20,000 jobs mentioned in the Lyons review. Only 30 per cent. of Departments are able to state whether such relocations will happen by 2010. Sir Michael Lyons himself says that, as a result of the Gershon review, one implication … is that the figure of 19,700 may come down somewhat". Such a lack of precision about the relocation of jobs is in contrast to the steely determination that the Chancellor has shown in carrying out the cuts. He said that the civil service unions should be in absolutely no doubt that the Government will go ahead with these reductions, and that they are both necessary and going to happen. So there we have it: there is certainty in respect of the cuts, but doubts abound about the relocations.

I agree with the hon. Member for Hayes and Harlington that the lack of consultation with work force representatives was appalling. That is true not only of the first tranche of losses, which were announced in the Budget, but of the second and wider cull that formed part of the spending review. Yesterday, Dave Prentis of Unison rightly said: These issues should be dealt with through the established procedures and not announced through the media, which add to people's insecurity". The Government have been quick enough to condemn—and rightly so—private sector companies that announced large-scale redundancies in the media without advance consultation. I am thinking of Corus, Rover and Marks and Spencer. The Labour party manifesto of 2001 stated: When large-scale redundancies are being considered, there is an especially strong case for consultation. On Monday 7 July 2003, Labour's website ran the following article: Workers set to gain consultation rights … Trade and Industry Secretary Patricia Hewitt said she wants the changes to lead to an 'no surprises' culture at work and 'an end to the climate where people only hear about job losses from the media, over their breakfasts. If that were not enough, the Leader of the House said in "Progress", the Brairite in-house magazine, that because Labour believes in rights at work, it will extend information and consultation rights to end the scandal of workers learning that they have lost their jobs by text message. So there we have it: redundancies over breakfast conveyed in the media and by text message are wrong when carried out by the private sector; but redundancies at teatime conveyed by ministerial statement in this House are okay when carried out by the Government. Indeed, they are better than okay. According to a Wales Office press release, they were an "exceptional result" for Wales and a "once in a generation" step change. In one sense, they were exceptional—exceptionally bad—and it certainly was a once in a generation announcement. To my mind, it was the single biggest Government announcement of public sector job cuts since the pit closure programmes of the 1980s.

To sack one's own employees is bad enough, but to sack somebody else's beggars belief. We were not only told of 84,000 job losses, but reference was made to the curious figure of 20,000 losses across the devolved Administrations and in local government. Rhodri Morgan, the First Minister of the Welsh Assembly, has been busily backtracking on those figures. He said yesterday: They are not estimates we have come up with and we are the responsible body in Wales. He was clearly surprised and, I would imagine, probably a little angry about being bounced into that by the Chancellor. It now seems that the Treasury is saying that it plucked the figure out of the air. It was some sort of nominal, indicative figure and the Treasury had not consulted the local government bodies or any of the devolved Administrations.

All that happened despite the anxiety caused for employees of the Welsh Assembly Government and despite the fact that it undermines the autonomy and authority of the devolved Administrations. It even breaks the memorandum of understanding signed by the Government on communication and consultation. According to that memorandum: All four administrations are committed to the principle of good communication with each other, and especially where one administration's work may have some bearing upon the responsibilities of another administration. Yet Rhodri Morgan did not even know that the Chancellor was going to make a statement about job reductions in Wales and elsewhere across the UK. We also have to ask whether the devolved Administrations were consulted on embracing the idea of local pay, as contained in the spending review. We not only get fewer jobs, we get existing jobs at reduced pay with no consultation with the workers or the National Assembly for Wales.

I did not disagree with every single line in the spending review. It states on page 178: Performance in public service delivery and economic development varies across the regions and countries of the UK". It most certainly does. We have had dismal economic growth records. Growth in Scotland, for example, has been half that of the UK over the past seven years, and Welsh NHS patients face an appalling waiting gap. Pauline Purdey from Bargoed has been waiting nine and a half years for a hip operation and is still waiting.

Why is there such varied performance across the UK? The reason is clear and it is the Treasury's responsibility because the Barnett squeeze is biting very hard in Wales. The figures in the spending review show the increase in the National Assembly's budget over the period covered as 4.5 per cent., compared with 7.1 per cent. for the NHS in England. The only way in which the Labour Administration in Cardiff will be able to match the increase in England is by raiding other budgets. The same applies to education. The increase is 5.7 per cent. in England—so if Wales is to match those improvements and is so far behind, it will have to raid other budgets.

Mr. Grieve

I am intrigued to hear the hon. Gentleman refer to the Barnett squeeze. As he and I are aware, the Barnett formula delivers substantially more expenditure per head of population in Wales than it does in England. Admittedly, it is on a falling graph, moving towards a position of eventual parity in about another 20 years. Is the hon. Gentleman suggesting that, in the meantime, Wales is disadvantaged in respect of per capita expenditure?

Adam Price

The hon. Gentleman is right that it is an equalisation formula, so year on year the gap that he describes gets less. That is the Barnett squeeze. If we look, for example, at per capita health spending, most people would accept—it is borne out by the figures on chronic sickness—that Wales has one of the worst health profiles in the UK. Of the 12 standard UK regions, we are now fifth in respect of per capita health spending. We were third only four or five years ago and have been overtaken by the north-east of England. London has far higher per capita health spending than Wales but, as I say, we have been overtaken by the north-east and we will be overtaken next year by the north-west of England. There is currently only £5 per head difference.

The Barnett squeeze is having a real effect in Wales. It is impacting on the Welsh Assembly's ability to reduce waiting times. The public service agreements for health refer to a period of 18 weeks, but 18 months is the standard in Wales, and the waiting gap has increased. The only way to correct matters is to reform the Barnett formula. The spending review refers to Professor MacLean of Nuffield college, who is one of the strongest advocates of scrapping the Barnett formula, on the ground that it does not deliver territorial justice across the UK's regions and countries.

I end by noting that the First Minister of the Welsh Assembly this afternoon announced that there will be a bonfire of the quangos. It will be dramatic: the Welsh Development Agency, the Wales Tourist Board and the Welsh Language Board will all be abolished. I hope that that is not how he intends to meet the job reduction targets, but I urge the Government to add the Barnett formula to the bonfire. We will never achieve territorial justice for Wales, for the south-west or north-east of England, or for any part of the UK while that formula stays in place.

6.11 pm

Mr. Tom Clarke (Coatbridge and Chryston) (Lab)

I have listened to almost all the debate, but I apologise to the hon. Member for Twickenham (Dr. Cable) and to my right hon. Friend the Member for Newport, East (Alan Howarth), as I had to leave the Chamber to chair an all-party group on disability with Lord Rix.

The debate has been very interesting. The right hon. and learned Member for Rushcliffe (Mr. Clarke) has left the Chamber, having been here for most of the afternoon, but his remarks were of particular interest. Like other Opposition Members, he found himself in some difficulty. I recall how, when in government, he was defeated when he sought to persuade the House to increase the value-added tax on pensioners' fuel to 17.5 per cent. He predicted that the most dreadful things would happen if we did not approve his proposal. He also made dire predictions about what would happen if we introduced the minimum wage.

The right hon. and learned Gentleman, in opposition, has repeated those terrible predictions over the past seven years. I am sure that he will forgive me if I say that they have become even less convincing, given his record in terms of astrology, if not of economics.

The Opposition have had to deal with the problem that the statement by the Chancellor was an indication that he has succeeded in reforming the economy. For example, the low level of inflation must fill the former Chancellor with envy. The consistently low level of interest rates has helped those of my constituents who aspire to home ownerships. Interest repayments on debt are much lower, and growth is high. All those factors have contributed to the economy's strength and stability.

I shall concentrate on what is happening in my constituency of Coatbridge and Chryston, especially in respect of employment and the new deal. The transformation that has taken place in my area would not have been possible without the economic policies that the Chancellor has pursued.

Before 1997, debates such as today's were dominated by the problem of unemployment. How could it be otherwise? My constituents accounted for more than their fair share of this country's total of 3 million unemployed—even at a time when we enjoyed the benefits of North sea oil revenues. Whatever disagreements might have emerged in the debate, I am delighted to say that today we are focusing on employment. We are rightly talking about job potential in terms of the new deal. We are thinking of a new agenda, as well as of what has been achieved. We are thinking of how the new deal can be improved to offer better quality jobs to those who benefit from it. I invite the House to focus on how we can build further on the excellent achievements of the new deal. Discussions on the new deal can appear somewhat abstract, but nearly 90,000 young people are participating in it as we speak. In Scotland, some 129,200 starts have taken place, 10,200 of which were for young people. In my own constituency up to March 2004, the new deal appealed to 2,031 people.

Those statistics—we must not forget that they deal with real people and families—show that we are well on our way to full employment. The Beveridge ideal is an idea whose time has come. That fall in unemployment offers the foundation for this year's spending review: by freeing up resources that would otherwise have been spent in propping up unemployment, we are able to invest in those essential services—health, education and transport—that are so important to my constituents and throughout Britain.

It is important to build on the success of the new deal so that the tremendous progress we have achieved can be enhanced still more. My constituents want to see that happen, and I hope that Department for Work and Pensions will ensure that the additional resources that the Chancellor made available in his announcement on Monday will allow it to focus on how it can improve still more on its approach to the new deal.

There are three key elements to that improvement. The first is ambition. We should all do more to encourage people's ambition to achieve better paid, more secure jobs. We should invest in skills and training so that people have the opportunity to obtain qualifications and move on to better jobs. I extend my plea for ambition to employers, who should be encouraged to become involved in the design of the new deal programmes. Rightly, employers have had plenty to say through their various organisations, including the CBI, but they should play an important part in providing the demand for highly skilled jobs. Our people will respond to that.

The second element is leadership. We need to see more evidence of leadership in providing higher quality jobs through the new deal and other schemes. We need leadership to involve more people from disadvantaged groups, people with disabilities and those from ethnic minorities. Business and commerce today are capable of providing that leadership, especially in my constituency.

The third element is capacity. The biggest employers in my constituency are the health service and North Lanarkshire council, which offers an excellent example by making skilled jobs available.

There is an even greater challenge: to recognise that the resources made available matter as much to the users of services as to employers, and indeed to the House itself. As a former civil servant, I am sure that when the Chancellor said that there would be full consultation, he meant it. I look forward to that nationally and locally.

Some weeks ago, I introduced an Adjournment debate on laryngectomy and talked about people who suffered from throat cancer and had to use voice boxes for the rest of their life. I referred to the work of the charity, Macmillan Cancer Relief, which had established that £20 million in benefits were not being taken up by cancer sufferers. The Lanarkshire Laryngectomy Association informed me that benefits of £2 million were not being claimed in the area, although people with cancer should have been receiving them.

In light of Gershon, the Chancellor's announcement about shifting resources to the front line is extremely important. Benefits forms are comprehensive so people such as those cancer sufferers should have the opportunity of one-to-one interviews, with as much assistance and advice as possible. I know that the Government want to achieve that and that the House will endorse that view.

In that spirit, I welcome the Chancellor's statement. It provides opportunities for my constituents and for people throughout the country. More than that, however—because employment leads to growth—it means that we are recognising, at long last, our international responsibilities. The Chancellor's record on that is unprecedented.

6.22 pm

Mr. David Ruffley (Bury St. Edmunds) (Con)

I apologise for not being in the Chamber for the Chief Secretary's opening speech; I was in Room 12 whipping a statutory instrument Committee.

The Holy Roman empire was neither holy, Roman nor an empire. So it is with the independent review of public sector efficiency by Sir Peter Gershon; it is neither independent nor a real review, and it does not have much to do with efficiency in the real world. Gershon's review is a form of gesture politics, politically inspired by the Chancellor to con us that he is serious about inefficiency and waste—the inefficiency and waste to which he has contributed over the past seven years.

Let us take civil service numbers. More than 500 new civil servants were hired every week in 2003. Civil service numbers increased on the Chancellor's watch from about 475,000 in 1997 to more than 515,000 at the end of 2003. Have we any faith that he will achieve civil service head count cuts of up to 100,000? Not really. It is much more likely that those posts will be rebadged and recycled. Serious cuts to the level that the Chancellor is predicting will not happen.

For several months, permanent officials in Whitehall—one or two of whom I keep in touch with—have privately been deriding the Gershon review. As one of them told me, it's all a bit of a joke—Gershon did a PowerPoint presentation a few months ago and made a few telephone calls to Departments on the back of it. You will find the document produced on the day of the CSR a bit thin. How right that official was.

Gershon is short on serious detail. Why? Because Departments will not be able to tell us until the end of October exactly how those efficiency gains will be delivered. Why did the Chancellor not wait until that work had been done before announcing his figures? I will tell the House why. He was running scared of the Tory attack on waste. He was behind the game, and he realised that the James review was making the running. We will identify how profligate the Chancellor has been in the use of taxpayers' money over seven years.

As my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) made clear, smarter IT systems, better procurement and even cuts in the headcount will not in themselves deliver £21.5 billion in efficiency savings. As he and those on the Conservative Front Bench identified, that requires policy change, which is what the James review is about and why our approach is so different from Gershon's. Yes, it involves looking at closing down, in whole or in part, Departments such as the Department of Trade and Industry—any residual function can be moved to another Department—and, yes, it involves closing down wholesale the regional development agencies: policy change, not paperclips.

Only now—perhaps the Minister will reply to this—have the National Audit Office and the Audit Commission been enlisted to draw up detailed plans on how each Department should meet its targets. Why did the Chancellor not do that years ago, or, better still, a few months ago? That would have been nice and helpful. All that looks like seat-of-the-pants stuff from where I am standing. Even worse, no one is sure how the monitoring of Departments' success or failure in meeting those targets will be measured. It is estimated that only 60 per cent. of the £21.5 billion target for savings is cashable—that is, a monetary value can be ascribed to each cut. It is very easy to identify what will be saved by cutting the headcount. It will probably be easy to identify more efficient, cost-effective procurement. However, let us take a look at the documents produced in relation to the Home Office, whose target for efficiency gains includes substantially increasing the proportion of officer time spent on front-line policing". Amen to that—an aim that we all share—but the Government cannot tell us exactly how it will be measured so that those efficiency gains can be counted towards the £21.5 billion efficiency savings total.

Everyone agrees that measuring public sector productivity is a complex intellectual inquiry, but why has the Chancellor taken seven years to get round to it? Farcically, the Treasury failed to meet its own target, set in 1998, of delivering 2.5 per cent. in efficiency gains—ironically, the same target for savings as that given to Departments in this year's CSR. At that time, the Treasury said that it could not work out how to measure its own output, and it cannot do so today. We must wait until October before it even gets close to telling us how that will be delivered and measured adequately. Ministers might reply that Sir Tony Atkinson will deliver his interim report. Yes, but he will do so next week, and the report is unlikely to give us the detail, Department by Department, on how the targets will be met. That is not just my point; it has been made on behalf of the Treasury Committee by the right hon. Member for Dumbarton (Mr. McFall), having heard all the objective evidence from witnesses this morning, and the point was echoed and reinforced by my hon. Friend the Member for Sevenoaks (Mr. Fallon).

The documents produced this week demonstrate that the Chancellor's approach is to spend first big time and ask the really detailed and important questions later—very much later. I trust that, when we publish the James review before the next general election, we will do what this week's set of announcements has not done: explain how serious efficiency gains can be delivered. That will require programme change and, above all, involve the introduction of the right to choose in our great public services—schools and hospitals. I look forward with relish to debating the James review and the Conservative alternative later this year.

6.29 pm

Mr. Dominic Grieve (Beaconsfield) (Con)

It has been a pleasure and, from my point of view as the shadow Attorney-General, an education to sit in on the debate and hear hon. Members' contributions. Generally speaking, my role confines me to the spending end of things, rather than looking at how money should be allocated.

Mr. Boateng

To what do we owe the honour?

Mr. Grieve

As I have a heavy involvement in the departmental responsibilities of the Home Office, in addition to my responsibility as shadow Attorney-General, which does not relate to a heavy-spending Department, I thought that it might be interesting to scrutinise the way in which the Chancellor has approached spending in the Home Office, which I shall address in a moment.

The debate has highlighted several interesting points of view, and I was struck forcefully by its aspects on which there was cross-party consensus. The right hon. Member for Dumbarton (Mr. McFall) pointed out with great care that he was extremely concerned about how the Chancellor was going to meet his golden rule on expenditure. His speech was made all the more compelling and interesting because it immediately preceded that made by my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), who said exactly the same thing and expressed exactly the same concerns, albeit using slightly different language.

It is apparent that the Government have taken on a phenomenal task. On the belief of speculative receipts, they intend to continue to increase public expenditure further. At the same time, they clearly feel constrained because they are worried about whether that can be delivered, so they are having to ratchet up more than £20 billion of savings to help to subsidise it. I can think of few worse moments to try to make efficiency savings in Departments than the time at which they are also asked to expand their expenditure. That will maximise the likely stress that such Departments will be under. The Government have thus taken on what can be described only as a mammoth project.

I listened carefully to the Chancellor on Monday. His speech contained all the traditional new Labourspeak—we heard of more bureaucrats, seven new agencies and 110 further targets. There will undoubtedly be more borrowing and we can be satisfied that there will be further taxation. We already know that higher council tax is inevitable and, although the Prime Minister tried to suggest today that that would affect only the wealthy, I am rather doubtful. I suspect that the council tax squeeze that will be experienced throughout the country will affect everybody, including the poorest. That is an inevitable consequence of the expansion of expenditure that the Chancellor has projected.

The publication of the Gershon report represented the first occasion since I came to the House when I suddenly realised that I was not at a significant disadvantage as a member of the Opposition. The Minister will know that Oppositions go through periods, especially close to elections when they have to set expenditure targets, which the Government usually rubbish. That process inevitably involves shadow Ministers identifying savings that might be made in the Departments that they are about to take over. I have been through that process at least once and I daresay that we are embarking on it again. I have been struck that, after meeting and speaking to people, one is always left with two situations. First, when nothing else can be cut, we say that we will make efficiency savings because that always sounds like the easiest thing to do. Secondly, we say that we are not confident that all our fact and figures are right. Of course, we say that because we do not have hordes of civil servants helping us. Yet when I opened Sir Peter Gershon's proposals, I saw that, in terms of content, the document is identical to the sort of document that I would expect an Opposition to produce without all the support services. It is about as thin a document as it could possibly be.

I do not know whether the Minister intends to publish the details of how the efficiency savings will be carried out, the guidance documents and the dialogue that has taken place. I simply say to him, in the spirit of cooperation, that if he wishes to persuade the House that the savings are deliverable, we will need something better than the managerial gobbledegook contained in the document which, frankly, does not amount to a row of beans. It is easy to claim that it is possible to make £20 billion of efficiency savings, but how those are carried out in practice is another matter.

If one reads Gershon or listens to the Chancellor, the one thing that does not appear to be the case is that the Government are carrying out a spending review that completely reassesses the activities in which they intend to get involved. There is none of that and, in those circumstances, Gershon is an extremely shallow document. I hope that the Minister will enlighten us on whether he will provide us with further information on which we can make a judgment as to its efficacy. My hon. Friend the Member for Sevenoaks (Mr. Fallon) also commented on that.

What brought me to the Dispatch Box was the matter of my own shadow spending Department. When one looks in detail at what is proposed, one can assess whether what is being offered by the Government is valid. The Treasury released a press statement on the Home Office that makes entertaining reading, including the statements on how everything is so wonderful in the best of all possible worlds. It went on to identify what the extra money will be spent on. It was at this point that my antennae started to quiver as I considered the astonishing omissions from future Home Office spending.

Let us start with the most basic, most important and probably least popular problem. The Government face the biggest crisis in prison numbers ever experienced. Some 75,000 people are in prison and the prisons are at breaking point. The Government cannot deliver the programmes that the Prison Service needs to rehabilitate offenders because of the churn, which means moving prisoners around from one prison to another. As long as that continues, all the Government's aims to reduce crime through rehabilitative sentences cannot work, but the press release makes no mention of a prison building programme.

We are told that correctional services will be modernised by creating the National Offender Management Service and reducing reoffending. That does not exactly reflect a Government who are getting to grips with one of the key issues in a spending Department. Then we are told that the money is going to be used to increase neighbourhood policing and provide 20,000 community support officers, from which I infer that the current increase in police numbers, which has generated 11,000 officers, is not going to be pursued.

We have had endless debates with the Government about the efficient use of resources, but if they want to reduce crime, which costs the country £60 billion per annum, they will have to target investment in the right place. My belief has always been that only a substantial increase in police numbers will enable the Government to introduce community policing on the American scale, which has a proven record of crime reduction. That is a classic illustration of the Government's failure on expenditure. They intend to spend more money but, when it comes to the crunch, they are unwilling to make difficult decisions that could result in long-term, substantial savings to the Exchequer as well as benefits for the national economy. It beggars belief that they should come up with a series of ersatz solutions to crime problems.

Most extraordinarily, we have been told that the money will be used to curb illegal immigration, as I mentioned earlier, even though the Government have never given us a target and cannot enlighten the House about the levels of illegal immigration. I would therefore be grateful if the Minister would ask the Chancellor of the Exchequer to tap the Home Secretary on the shoulder and say, "How can I measure your success in reducing illegal immigration when I have no statistics on the problem or, indeed, your efficiency in dealing with it?" In a spending review, such basic issues need to be addressed.

The hon. Member for Rochdale (Mrs. Fitzsimons) made an interesting speech about Sure Start.

Mr. Boateng

It was a very good speech.

Mr. Grieve

Indeed, but the hon. Lady highlighted the fact that Sure Start is area-based. There is a desire not to stigmatise children by targeting individuals who could benefit from the programme, so the area is targeted instead. I suspect that she is aware of the evidence that shows that Sure Start does not reach those who need it most. If the Government want to maximise their expenditure and become more efficient, the Home Secretary should talk to the Chancellor and introduce his own Gershon review to see whether targeting is working effectively. I am a great supporter of Sure Start's aims, but the programme has many inefficiencies.

Mrs. Fitzsimons

The hon. Gentleman may wish to reconsider his comments in the light of published evidence showing that all Sure Start programmes, even the newest ones, have a significant impact. The child poverty review refers to some of those programmes and I am sure that the Minister for Children can furnish him with examples because Sure Start is the most successful Government programme in this area.

Mr. Grieve

I was not suggesting that Sure Start was unsuccessful. I have seen some extraordinarily successful examples of the programme, but I have seen others that are not working very well—it depends on the area. Area targeting inevitably means that some members of the client group to which services are directed do not receive them. At the same time, people whose need is not as great are receiving those services. I simply wish to raise the issue and have a mature debate about efficiency. If the Government want to maximise efficiency, they need to look at that problem.

Turning briefly to the improvements in productivity and the envisaged release of resources to the front line, the Home Office is supposed to generate £2.3 billion of annual efficiencies along with the Department for Constitutional Affairs and the Crown Prosecution Service by 2007–08. That includes a contribution of £1.97 billion, from the Home Office, which is a colossal sum. How on earth will that be achieved? How does it square with the fact that the administration budget, on the Government's own projections, is due to rise from £697 million to £733 million before it peaks? The figures are completely unrealistic, so I would be interested to hear the Minister's justification.

I shall conclude, because I am conscious that I am running out of time and wish to hear the Minister's reply. On a completely different note, I listened carefully to the hon. Member for East Carmarthen and Dinefwr (Adam Price), who spoke about the health service in his constituency and the Barnett squeeze. My constituency, like the rest of the country, has had seven years of Labour government. It receives 18 per cent. less than the national average per head expenditure on health services. Over a seven-year period, the health service has been progressively impoverished and the quality has deteriorated, yet my constituents, because many of them are wealthy, are the principal milch cows that serve to fund Government spending. They are appalled at the way the Government have presided over the catastrophe.

I have one major hospital, which is riddled with MRSA. Its maternity and paediatric departments are being closed and moved 20 miles away. The quality of mental health care is abysmal. It is nothing short of a national scandal and is entirely due to the Government's mismanagement of resources. I share with the hon. Member for East Carmarthen and Dinefwr the view that the £34 billion of extra expenditure that the Government are spending per annum on the health service has been wasted. I should be delighted to know where it has gone, as I fear that most of the programmed expenditure will be wasted, too.

6.45 pm

The Economic Secretary to the Treasury (John Healey)

This has been a telling debate. The Conservatives pose as the party of choice, and it is clear from the contributions of those on the Opposition Front Bench and their right hon. and hon. Friends on the Back Benches that the British people are indeed offered a choice. That choice is between the vision and the plan set out by my right hon. Friend the Chancellor in the Budget and the spending review, and the prescription for failure set out by the shadow Chancellor in his speech to the Bow group in February.

The choice is between the Labour Government holding on to economic stability and tough fiscal rules, as set out by the Chancellor, meeting our commitments on taxation and planning to continue with historically high and rising investment in education, health and essential public services, and the prescription set out by the shadow Chancellor, who has said: I have agreed with my Shadow Cabinet colleagues that the baseline for spending across all of these departmental budgets will be 0 per cent. growth for the first two years". Two years of cash–freezing departmental budgets would mean real cuts for every Department. Instead, we plan to combine the longest period of sustained economic growth for two centuries with the longest sustained investment in public services for a generation. The Conservative alternative, as the hon. Member for Bury St. Edmunds (Mr. Ruffley) said, is driven by ideology and by the shadow Chancellor's fiscal arithmetic, returning to the same Tory policies that failed Britain in the past—under-investment in public services, charges for public services and deep, savage cuts in those public services and public investment. The choice is clear. Labour is committed to investment to secure the long-term strength and prosperity of the UK economy. The Tories are committed to cutting skills, training, investment in science, innovation and transport, and the new deal.

Labour is committed to investing in the public services that people need and want. The Tories are committed to cutting them. Labour is committed to investing in the security of our country and safety on our streets. The Tories are committed to cutting the funding essential to our armed forces, our security services and our police. The Labour party is committed to investing to halve and then eradicate child poverty, to guarantee elderly people safer, warmer homes, and to give the world's poorest countries a chance to develop. The Tory party is committed to cutting the very measures that are bringing relief from poverty and greater fairness to our country and to the world. That is the choice at the heart of this afternoon's debate. That is the choice that faces the country now, up to and at the next general election.

My right hon. Friend the Member for Dumbarton (Mr. McFall) set out a series of questions and concerns about how the efficiencies and reforms that my right hon. Friend the Chancellor announced would be put into practice. In particular, he asked about discussions with staff, and my hon. Friend the Member for Hayes and Harlington (John McDonnell) and the hon. Member for East Carmarthen and Dinefwr (Adam Price) made the same point. Each Department is discussing the work force changes with their employees and the recognised unions; each Department is examining the detailed staffing changes with the work force; and each Department is examining with the work force and the unions ways to ensure that the maximum opportunities are available for employees to reskill and redeploy.

My right hon. Friend the Member for Dumbarton said that it was important to have a transparent process. The hon. Member for Beaconsfield (Mr. Grieve) asked for further information, and it will be set out in the efficiency technical notes, which will be a key mechanism in ensuring accountability during progress towards the headline target of £20 billion of efficiency gains. In order to ensure that the House and the public have confidence and that the measures command credibility, the Government are currently inviting the National Audit Office and the Audit Commission to scrutinise departmental ETNs before publication. Progress towards meeting the efficiency targets will be publicly reported, so the Government and each Department will be accountable for their results. I am sure that the Treasury Committee, which is chaired by my right hon. Friend the Member for Dumbarton, will continue to play an active part in The scrutiny process.

I say to my hon. Friends in particular that I understand the work force's concerns and the concerns voiced by the unions, but the measure is the right thing to do. Putting resources into front-line services must be a priority for any Government, and any good Government make savings where they can. The measure is also required: if we want to invest in the provision of public services, it is necessary to free additional resources. The measure is right and it is required, and the changes and gains are realisable. The investment in technology and the redesign of some working practices show that it is possible to reduce backroom staffing and transactional posts while improving services.

My hon. Friend the Member for Hayes and Harlington voiced some characteristically strong words of admonishment, but I share his end objective. He said, "This could be an opportunity for real reform, if it is done with the participation and consultation of staff and their unions." I endorse that view, which is constructive, and as chair of the Public and Commercial Services Union parliamentary group, he may have an important role to play in helping to meet that challenge.

My hon. Friend the Member for Rochdale (Mrs. Fitzsimons) was right to remind us to "cut to the quick". In the end, what matters is what means most to people in their day-to-day lives. She argued for greater flexibility, so that plans and decisions are made not in Whitehall, but in the regions and local authority areas. I refer her to the series of devolved decision-making review reports, the latest of which was published alongside the Budget, and she will find that the approach set out in those reports is consistent with her arguments. She will have noted the continued support that my right hon. Friend the Chancellor set out for the neighbourhood renewal fund £525 million each year over the spending review period. She mentioned the safer and stronger communities fund, which is an opportunity for the ODPM and the Home Office to pool their budgets to make a difference locally, and I know that my right hon. Friend the Chief Secretary to the Treasury wants to write to her with more details.

My right hon. Friend the Member for Coatbridge and Chryston (Mr. Clarke) discussed the transformation in his constituency as a result of the Labour Government's economic policies since 1997. He also discussed the success of the new deal for work, and I am sure that he will welcome the new deal for skills, which we propose to develop during the spending review period and which will help with many of the problems that he identified.

The hon. Member for Twickenham (Dr. Cable) raised some serious, almost forensic, points, and I shall try to respond in kind. He asked about the make-up of cuts and the position of senior civil servants. We start from the point that it is right for Departments to decide on the exact details of staff changes and to do so in consultation with their staff and unions. All Departments have been set a flat or declining administration budget. Given that about 50 per cent. of administration costs are pay costs, they will need to control the overall pay bill, and that will be a factor in their decisions. The hon. Gentleman asked where the dividend, as he put it, would go from efficiency gains. Efficiency gains will remain within Departments. It will be for them to decide how to allocate those resources, and it will be their incentive to make those gains in order to redeploy to the priorities that they set out. I assure the hon. Gentleman that we have no illusions about the ease with which this can be done. It will be difficult, but it can be done.

The right hon. and learned Member for Rushcliffe (Mr. Clarke) expressed similar concerns about how the efficiencies could be delivered. First, Departments have developed their programmes with Sir Peter Gershon, who has agreed that they are deliverable at this stage. Every Department has the incentive to deliver the efficiency gains because that will release resources that they can then spend on their own priorities. Secondly, since 1997 we have invested £6 billion across Government in new technology that will facilitate many of the savings that we can make. Thirdly, Departments will be accountable for the results of the efficiency measures that they take, which will be auditable and transparent. The National Audit Office and the Audit Commission will have a role not only in auditing the assumptions that Departments make and the measures that they use, but their progress against the measures once they are taken. Finally, Departments will receive specialist support on implementation and be challenged if their plans drift off course.

My right hon. Friend the Member for Newport, East (Alan Howarth), who is a strong champion of his constituency, made a powerful case for Newport commanding the attention of Departments, in conjunction with Sir Michael Lyons, as a potential relocation venue for the 20,000 posts that will be redeployed from London and the south-east. I am glad that we were able to complete in the spending review the business that he left unfinished during his term as Minister. We have been able to extend the VAT refund scheme for university museums and to increase the budget of the national heritage memorial fund. I am glad that he welcomes those moves.

The hon. Member for Sevenoaks (Mr. Fallon) made some important points about the potential for efficiency gains in relation to productivity, administration costs and asset sales. Let me respond to those in detail. On productivity, he was right to say that service sector productivity has been around 3 per cent. each year over the past five years. Therefore, if we interpret 2.5 per cent. efficiency gains as a 2.5 per cent. gain in productivity, we are in effect asking the whole public sector to make improvements in productivity similar to those that have been achieved over the past five years in the service sector.

On administration costs, the answer that the hon. Gentleman and the right hon. and learned Member for Rushcliffe seek was published in the Budget. On a like-for-like basis, administration costs rose to more than 5 per cent. as a percentage of total expenditure under the Tories. They have been lower under Labour and are set to fall further to 3.7 per cent.—the lowest level since the running costs regime was introduced in 1986.

On assets, we are building on the existing framework. If the hon. Gentleman consults the document published for the Budget, he will see the pattern of asset sales that we have been able to achieve since 1997 and why that gives us the basis on which to be confident in the long term about the £30 billion figure.

I am glad that the hon. Member for East Carmarthen and Dinefwr found some warm words of welcome when he talked about the regional economic development public service agreement. He said that he did not disagree with every line in the spending review document, but I am disappointed that he reached page 178 before he found something that he could support.

The right hon. and learned Member for Rushcliffe asked whether the economic and fiscal forecast would be met. The full answer, which was given by the Chancellor in the Budget, is that there was 2.3 per cent. growth last year, with 3 per cent. to 3.5 per cent. growth forecast for this year and next year. Tax receipts are on target, and fiscal rules are also on target, with a built-in margin against the golden rule, and net debt is projected to stabilise just below 36.5 per cent. of GDP, comfortably meeting the sustainable investment rule.

As a result of today's debate and in the run-up to the general election, the British people have a choice. They can choose to have the services they need and the opportunities they deserve, with no one left behind. They will get that under a Labour Government with a vision of Britain that will succeed—

It being Seven o'clock, the motion for the Adjournment lapsed, without Question put.