Public Spending (Hansard, 8 February 1993)

The Minister of State, Department of Transport (The Earl of Caithness)
My Lords, with the leave of the House I shall now repeat a Statement being made in another place by my right honourable friend the Chief Secretary to the Treasury. The Statement is as follows:
"With permission, Madam Speaker, I would like to make a Statement about public spending. The Government are committed to a rigorous approach to public spending. We set out in our manifesto for the last election our objective of reducing the share of national income taken by the public sector.
"As part of this, on 14th May last year, following a discussion on public spending, the Cabinet decided that once the 1992 public spending round was completed I should be commissioned as Chief Secretary to conduct a long-term exercise involving in depth reviews of the public spending programmes of each department of state. It was anticipated that these reviews would take much of the period of this Parliament to complete.
"My right honourable friend the Prime Minister mentioned the exercise in a speech last week. He noted how easy it was for the state to settle into habits of spending which outlast their purpose and outrun their budgets.
"The exercise will require Secretaries of State in each department to conduct searching studies of their programmes in co-operation with me. The process will start this year with four of the largest programmes. The departments involved are the Home Office, and the Departments of Health, Education and Social Security. The particular aim is to distinguish clearly between the essential costs 438 of high priority spending, which we will continue to fund, and avoidable spending which we cannot afford.
"Over the course of the Parliament we shall be looking at the direction spending on every programme is taking and whether its purpose remains right for the 1990s. We will be seeking to identify areas where better targeting can be achieved or from which the public sector can withdraw altogether.
"These fundamental reviews are not a substitute for the traditional process of public expenditure control. Rather they are intended to reinforce it. Their focus will be on the medium to longer term, though our aim is that their provisional findings should inform the next spending round in the summer.
"Madam Speaker, making progress towards our fiscal objectives requires us to exercise tight control over public spending. We have an absolute duty to ensure full value for money for the taxpayer from the £250 billion which we spend each year. We shall fulfil that duty."
My Lords, that concludes the Statement.

§ Lord Richard
My Lords, I am grateful to the noble Earl for repeating the Statement made by the Chief Secretary to the Treasury in another place. When we read the Statement and listen to it, we see such wording as, for example: to distinguish … between the essential costs of high priority spending … and avoidable spending which we cannot afford". When, in addition, the Statement talks about "better targeting", the noble Earl will understand that we are not unreasonably suspicious of what the Government are up to in this review. It is an admission of defeat by this Government, a panic response to a failure of economic policy after 14 years of Conservative Government. No one on these Benches can fail to be aware that the party opposite has governed the country now for 14 years. We now have a budget deficit running at £1 billion per week; a trade deficit forecast of over £19 billion for 1993; over 3 million people are out of work. And the Government choose now to announce a major review of expenditure. Is the economic situation so beyond the Chancellor's control that this separate review must be carried out?
It is not even a review of the Government's economic policy. It is not an attempt to take positive steps to end the recession; it is not a review of industrial policy; it is not an attempt to formulate a strategy to revitalise manufacturing industry; it is not a plan to reduce the unprecedented trade deficit and to reassure those who live in fear of unemployment. It is a review of expenditure.
Where will that review fall? Who will be worst affected by it? Not the richest—never the richest—whose wealth has grown under the Government; once again it will fall on the poor, the sick and the elderly.
Ministers have already said that the future of child benefit will be closely scrutinised—it may be taxed; that the private sector will play a bigger role in providing hospital services; prescription charges are 439 set to rise; workfare—which was smiled on by Mr. Lilley over the weekend—will force unemployed people into low paid work and force workers into unemployment. Further changes are to be made to the state earnings related pension; private insurance against unemployment and sickness will be encouraged; perhaps the basic state pension will be means tested; and invalidity benefit may be taxed. After pouring scorn upon this Party last April for daring to suggest that taxing the better-off in this country was a legitimate way to maintain public investment, the Government now seem set to raise taxes and to cut public expenditure as well.
With refreshing candour—I must give him that—the Secretary of State for Social Security, Mr. Lilley, admitted over the weekend that the Government may depart from their manifesto promises. I give the basis on which the Government now apparently approach their manifesto. Mr. Lilley said that pledges should be kept if possible. I emphasise, "if possible". Pledges made in the manifesto as recently as 10 months ago should be kept if possible. That is the position in which the Government now find themselves.
That manifesto promised economic growth, reduced taxes, and a commitment to child benefit, basic state retirement pensions and a balanced budget. Do they still stand by those manifesto undertakings? Or is the Statement yet another indication that they were elected on the basis of a false prospectus?
Growth seems last on the Government's list of ways to balance the books and end the recession. There is a vacuum on this matter at the heart of government policy. Some Conservatives who never approved of the welfare state seem to be seizing this opportunity now to dismantle it. If they have their way, this will be not a classless society, but a two-tier society. There will be two tiers, not just in healthcare, but in unemployment and invalidity benefit, and in old-age pensions. There will be those who have to take workfare places and those who can afford to contract out of state provision.
Now is not the time to review expenditure in a last ditch attempt to save Government money at an immeasurable cost to the people of this country. Now is the time to try to reduce unemployment and reduce the trade deficit, not by cutting expenditure, and not by punishing the poor yet again, but by investing in industry, capital projects and jobs to reduce the high cost to the Treasury of high unemployment. That is the way to recovery and in the long term to reduce the budget deficit.

§ Lord Ezra
My Lords, I too thank the noble Earl for repeating the Statement. But I also express anxiety about its implications.
The Government have just completed an arduous review of expenditure. They are now about to launch into another one. Although it is explained that this is to look at the medium-and the longer term, nonetheless it looks as if the Government are to devote an undue amount of their time to a permanent review of expenditure. How much time will they have left to govern the country and get on with the growth 440 developments to which the noble Lord, Lord Richard, referred? So there is worry about how this fits in with the normal review of expenditure rounds.
Secondly, there is anxiety, as the changes will affect so many people in so many walks of life, as to how public the inquiry will be. How much will people know about the pros and cons which the Government will consider in coming to their conclusions and which, if cuts are to be made, could potentially reduce the assistance given to many groups of the population.
Thirdly, how does the Statement link up with the pledges made in the manifesto? The point was referred to by the noble Lord, Lord Richard. Newspaper articles have suggested that proposals emerging from this review will be introduced in the next Parliament. If that is correct, it will still mean that we will have the election pledges to consider. We should like to know exactly where we are on that point.
Finally, I should like to raise the question of private sector finance, which can help in many ways to maintain the impetus in various directions of public expenditure. But in my experience here I declare an interest because I am in the business of promoting energy efficiency—when we have tried to invest private capital in improving the energy efficiency of installations in public buildings and public works, the Treasury rules mean that this should count against the capital allocation of the body concerned. So the third party financing, which is how this is described, has very little impact.
If the private sector is to be brought in, the Treasury rules must be very substantially modified. There are many areas of public expenditure, particularly in buildings, construction and energy efficiency, where the private sector can help. But the rules need to be modified accordingly.

The Earl of Caithness
My Lords, I was a little surprised at the half-hearted welcome that the noble Lord, Lord Richard, the Leader of the Opposition in this House, gave to the Statement. He said that now was not the time to look at expenditure. I think now is exactly the time to look at expenditure. It is only through an exercise of this kind that we can deliver our manifesto commitments to reduce public spending as a proportion of national income.
When one looks at the public spending of the four departments that are the subject of this initial exercise—with education at £10 billion; the Home Office at about £6 billion; health at about £30 billion (although that has increased by 60 per cent. in real terms since 1978–79); and social security at the high cost that it is—it was a very prudent undertaking to look very carefully at the amount of public spending.
The purpose of the exercise is to achieve better targeting of the scarce finances that are available. It is right to look at good housekeeping. That is what every sensible company does on a regular basis, and there is no reason why government should not do exactly the same. We should look for better housekeeping; we should look to eliminate waste; and we should see whether better targeting can be achieved. We need to question whether programmes meet the needs of the 1990s and beyond, and whether there are some areas from which the Government should withdraw. I put it 441 to the noble Lord, Lord Richard, that not to do so is to let down the taxpayer who presents the money for the Government to spend on the old and the poor. It is only through better targeting that we provide the better services for them.
I welcome some of the comments of the noble Lord, Lord Ezra. We welcome an input into this exercise. He mentioned in particular Treasury rules. I shall certainly draw that point to the attention of my right honourable friend the Chief Secretary. I believe that I answered many of the points of the noble Lord, Lord Ezra, when I dealt with the noble Lord, Lord Richard.

§ Lord Boyd-Carpenter
My Lords, is my noble friend aware that there are many who definitely do not share the view of the noble Lord, Lord Richard, that this is not a time for control of public expenditure? On the contrary, many of those who went through this experience years ago know very well that it is just the occasion on which the firmest grip on public expenditure by government is required. It is for that reason that we very much welcome the Statement and the indication that the Government are facing up to this difficult problem.
It is always painful to restrain public expenditure, much of which goes in popular directions. But a government which do not go for control of public expenditure when faced with the present type of situation, are failing in their duty. I am very glad that the Statement has been made.
I add only one point of detail. My noble friend will be aware that legal aid, although a relatively small item in the national budget, is an item which, in proportion, has increased more over the past few years. I hope that the Government will take a very firm view on the growth of legal aid.

The Earl of Caithness
My Lords, I welcome what my noble friend has said. He has great experience in these matters as a former Treasury Minister. Of course it is very much easier in some respects not to tackle a problem, especially a difficult problem like public expenditure, but a problem must in the end be faced up to. That is exactly why the Government are carrying out this review. I note what my noble friend said with regard to legal aid. I shall certainly pass that on to my noble and learned friend the Lord Chancellor.

§ Lord Stoddart of Swindon
My Lords, it ill becomes the noble Earl and the present Government to talk about the control of public expenditure and to presume to lecture my noble friend on the Front Bench. Is he aware that, when the last Labour Government left office, public expenditure as a percentage of gross national product was 38 per cent? It is now touching 42 per cent. So we know who better controls public expenditure. But is he further aware that the Government are the authors of this country's problems? By running a fixed exchange rate with far too high a value for the pound against other currencies they have destroyed at least 1 million jobs and have therefore reduced the country's income, or the income 442 that the Treasury gets from people in employment. They have been the authors of the problems of this country.
Finally, is he aware that the reports of this public expenditure review have caused great worry and indeed fear among the section of the population who need most protection —that is, the old? They, having seen the income from their savings slashed through low interest rates, now fear that this Government will means-test the pensions which they have paid for throughout their lives through the National Insurance system. Will he give an assurance—a firm assurance —that pensioners will not under any circumstances be disadvantaged, that they will continue to enjoy their pensions without means tests and that they will share in the prosperity, if there is going to be any, of the country by ensuring that there will be a continued annual uprating of pensions from now on and into the foreseeable future?

The Earl of Caithness
My Lords, I am pleased to give my support to the request by the noble Lord, Lord Stoddart, for reduced public spending as a share of national income. I agree with him that we need to get it down from its present level. We need to get it down from the level that he remembers under the Labour Government. It is too high and therefore it needs to be looked at. One of the ways to look at it is through the review which my right honourable friend is about to undertake.
With regard to the noble Lord's second point on the ERM, I do not think that he would want me to comment any further. We have debated it across the Floor of the House on many occasions. I am sure that there will be a suitable opportunity to discuss it again. On the noble Lord's third point, let me say to him so that the situation is clear. The manifesto commitments with regard to child benefit and pensions uprating will be honoured.

§ Lord Renton
My Lords, as this necessary Statement is to be followed by a debate on the Community policy on migration, can my noble friend say how much we are already spending on unemployment?

The Earl of Caithness
My Lords, I have to say to my noble friend that I cannot answer his question without a little notice on that point.

§ Baroness O'Cathain
My Lords, I should like to welcome the Statement, which sets out, in effect, good management practice. Every organisation should from time to time ask the following two questions. Is what we are doing really necessary; and, if it is really necessary, are we doing it in the right way? I see these fundamental reviews as looking at those two things. It is gratifying that the public sector is now doing what a lot of people in the commercial sector have been doing for years.
I should like to ask the Minister two questions. Is it reasonable that a fundamental review should be carried out by the department itself? I submit that any fundamental review should be carried out by people with, and I quote, "Open ears, open eyes and open minds". I am not saying that the people in the 443 department do not have those, but it would be much easier for people to come in from outside to have a look. I am not necessarily saying that they should be consultants either, but perhaps there should be a task force of people from other parts of the Civil Service to carry out these fundamental reviews. I am not questioning the impartiality, I hasten to say, but I think it would be easier for other people not tremendously involved in the particular area to carry out the review.
Secondly, is it realistic to expect any really valuable results in such a short period of time? If, as has been set out in the Statement, the Government want the results to contribute to the summer analysis of the public expenditure review, I think that that is too short a time. I fear that it will probably be doing a more scanty job than is required.

The Earl of Caithness
My Lords, I am grateful for the noble Baroness's support. She is right to say that this is just normal good management practice which every-day business does on a regular basis and that there is no reason why government should not undertake it too. With regard to her question about the use of outside people—I say "people" advisedly so as not to use the word "consultants"—it is up to each Secretary of State to decide whether to use outside help to look at this problem. I shall draw that point to my right honourable friend's attention.
With regard to the results, the purpose of the exercise is more to look at the medium to long term of a department's expenditure. But if there are lessons to be learnt in the short term that could affect the normal annual review, then of course it is vital that we learn those and take them into account.

§ Lord Dean of Beswick
My Lords, in the Statement the Minister gave figures for the three highest spending departments—and they were quite substantial figures indeed. But he did not make any reference to the £7 billion plus that went down the plughole on Black Wednesday, which was due solely to an action of the Prime Minister and the Chancellor of the Exchequer. Can he tell us whether the loss by their actions of that enormous sum of money will affect the procedure that is now to take place?

The Earl of Caithness
My Lords, the noble Lord said that these figures for the expenditure of the four departments that are to be the subject of the initial review were big figures. Indeed it is because they are so big that it is quite right that the Government should look at them urgently. With regard to his second question, which was very considerably wide of the purpose of the Statement, it is a matter that we have debated in the House before.

§ Lord Mackay of Ardbrecknish
My Lords, does my noble friend realise that this announcement will be widely welcomed by those who know that there is a tendency in government for expenditure to increase without positive decisions being made? There is an even greater tendency—we hear it in your Lordships' House every day at Questions—for the party opposite and others to demand ever-increasing expenditure 444 without their having any concept of the total amount of spending we can have in a growing and vibrant economy.
One point worries me: I wonder whether my noble friend can help me. I would be concerned if I thought that the Treasury alone was to conduct this review. Its track record on controlling public expenditure over time and on highlighting the priorities requiring public expenditure has not been a singularly successful one. I wonder whether my noble friend can help me as to exactly who inside government will carry out the review.

The Earl of Caithness
My Lords, I am grateful to my noble friend for his support on the principle of the review. He is right to say that it should be undertaken. As to his concern, it will be the Secretary of State in charge of the specific department who will be in the lead on the review. Of course the Treasury has an interest—that is right—and, as a former Treasury Minister, I can say that it does a pretty good job overall.

§ Lord Ashley of Stoke
My Lords, is the noble Earl aware that I am surprised that he is surprised about the half-hearted response of my noble friend Lord Richard? Judging from ministerial statements this last few weeks, we are very suspicious on this side of the House about the aim and object of the review. In view of the fact that the effect of tax reliefs on the PSBR is exactly the same as that of benefits, except that they affect the better off, will tax reliefs be brought within the orbit of the review?

The Earl of Caithness
My Lords, I know well the expertise of the noble Lord in these matters and I tread with special care when discussing this topic with him. But there is a big social security expenditure of £80 billion a year—nearly one-third of government expenditure—and it has been growing by more than 3 per cent. a year in real terms since 1978–79. Therefore any look at public expenditure must take into account the social security expenditure. I repeat what I said to the noble Lord, Lord Stoddart of Swindon, regarding our manifesto commitments.

Lord Bruce of Donington
My Lords, does not the noble Earl agree that after some 40 years it is a little remarkable, especially after receiving £100 billion in North Sea oil revenue and realising public assets to the tune of £49.5 billion, that the Government should now be put to this pretty pass? Will the noble Earl bear in mind that his Party has always taken expenditure on ideological terms? The expenditures supported ideologically are always referred to in terms of taxpayers' money; those of which they approve are normally referred to by way of percentages of total income.
In view of the parlous position in which the country admittedly now finds itself, and in view of the noble Earl's devotion to examining everything in great detail with a view to assessing cost benefits and value for money, will he please examine in detail the justification for the payment of taxpayers' money to the tune of £1.75 billion every year to the European 445 Community, which cannot control its own expenditure and is subject to widespread fraud? Can the noble Earl give the House an assurance that that will be examined and put to the same rigorous test as any other expenditure?

The Earl of Caithness
My Lords, I welcome the comment of the noble Lord regarding our ideological look at expenditure. That is why I am proud that spending on the health service has increased by 60 per cent. in real terms. The noble Lord and I have debated fraud in the EC on numerous occasions and he knows full well the measures that we have instigated to try to mitigate that problem. He will be aware of, and be the first on the opposite side to congratulate my right honourable friend the Prime Minister on the reduction of the aspirations of the European Community as to expenditure in the recent agreement.

§ Lord Rix
My Lords, I am not against a review of public spending per se. Indeed, I hope that, if targets are reached, they will include the people whom I represent—those with a mental handicap or learning disability. On the other hand, two points were raised by my noble friend and by the noble Lord, Lord Ezra, to which I should like to refer.
The Minister made a reference to the provisional findings that will be acted upon in the Autumn Budget. Secondly, the noble Lord, Lord Ezra, asked how public the debate about public spending will be. I hope that we shall be given time to debate the issue in public 'twixt the Summer Recess and the Autumn Statement. Too often we have found that many changes in legislation are announced to us just before the Recess of this House or the other place and we are not given time for public debate or, as it were, to get our act together.

The Earl of Caithness
My Lords, I am grateful that the noble Lord, Lord Rix, realises that one of the purposes of the review is to see whether we can target the money that we are spending—a large sum per day —in a better way. However, he may be mistaken in thinking that it will require changes in legislation. There may be changes in legislation as a consequence of the survey being conducted by my right honourable friend hut, on the other hand, there may not.

§ Lord Elton
My Lords, given that this is what I understand my right honourable friend the Prime Minister called the "year of charities", will my noble friend seek to ensure that all Ministers conducting those separate inquiries establish what contributions their departments in the past made over a period of years to the voluntary sector? Can they establish also whether that proportion has diminished and, if so, whether that diminution is desirable?
While I accept that there are activities in the voluntary sector which do not deserve public sector support, there are many activities which are vital to the wellbeing of our society and which the voluntary sector can pursue far more effectively than government. That is partly because the people doing it are not "them" but "us"; partly because their activities generate income from somewhere other than the taxpayer's pocket.
446 There appears to be an undeclared and possibly unconscious change in government policy towards the voluntary sector to which I have alluded in previous debates and to which other noble Lords have referred. It is regrettable and probably unintentional. That results in a reduction in the total amount of government contribution to the voluntary sector. Can my noble friend undertake that that will be part of the review?

The Earl of Caithness
My Lords, the review will be a wide-ranging one. I take full note of what my noble friend says with regard to charities. It was always something about which he and I agreed—that there are people outside government, particularly those in the voluntary sector, who can assist government in helping many people. I have many memories of the work the voluntary sector did in my time at the Home Office, in the Department of the Environment and particularly in the Foreign Office. Without that help we should not have achieved the progress that we did. I shall therefore draw my noble friend's comments to the attention of my right honourable friend.

§ Lord Williams of Mostyn
My Lords, the Minister indicated that the figure of £7 billion given by my noble friend Lord Dean was wrong. What is the right figure?

The Earl of Caithness
My Lords, I said that we had debated the matter on a previous occasion and now was not the time to continue the debate.