Comprehensive Spending Review

HL Deb 11 June 1997 vol 580 cc925-34

5.43 p.m.

Lord Haskel

My Lords, with the leave of the House, I should now like to repeat a Statement made by my right honourable friend the Financial Secretary in another place. The Statement is as follows:

"With permission, Madam Speaker, I would like to make a short Statement about our approach to public spending in the medium term and the Comprehensive Spending Review promised in our manifesto.

"We set out our spending plans for this year and next in our manifesto. We made it clear that tough decisions would be needed but that such an approach was essential. We shall maintain that approach. This Statement looks beyond the next two years to the medium term.

"We will deliver prudent and sound management of the public finances to provide a stable platform for investment and growth. And we will ensure that public spending achieves the objectives we have set ourselves—objectives which are based on our key principles of opportunity, fairness, employment and investment. To achieve that, we must put the public finances into proper shape.

"Since 1990, public sector debt has almost doubled as a proportion of national output. In 1994 we were told there would be Budget balance in 1998–99, in 1995 we were told it had slipped a year to 1999–00, and last year it slipped again to 2000–01. As a result, after five years of growth, we are still borrowing to cover our current spending; the current deficit was about £20 billion last year and the last Budget forecast that we would stay in deficit for the next two years despite making some questionable assumptions. In order to rebuild public trust in the management of the public finances, my right honourable friend the Chancellor has asked the National Audit Office to review the forecasting assumptions he set out in the House on 20th May.

"The public has a right to know not just that total spending is affordable and prudent but that their money is being spent on their priorities; that it is being spent efficiently; and that the spending is effective. The Government spend over £300 billion, equivalent to over £5,000 a year for every man, woman and child in the country. We will reorder that £300 billion to meet our objectives, which were endorsed by the people on 1st May.

"Public spending needs to be clearly focused. And we will achieve that objective. There is no better time for a root-and-branch reappraisal of public spending priorities than at the start of a new government. We showed the way when we were in opposition. We said that we would provide nursery places for all four year-olds. We will find the money by scrapping nursery vouchers. We promised to cut waiting lists in the NHS. We will release the funds by releasing savings from red tape and bureaucracy. We promised to reduce class sizes for five, six, and seven year-olds. We will find the money to pay for it by abolishing the assisted places scheme. And we have already made a start in delivering these promises just weeks after the election.

"We will continue this approach in government. stripping out ill-targeted spending programmes that benefit only the few, and redirecting spending towards the priorities of the many.

"The Comprehensive Spending Review which I am announcing today will carry on that process. It will set out clear objectives for all departments. It will examine how we can achieve our objectives of modernising the welfare state, getting people into work, improving standards in education—in short, delivering our manifesto commitments as efficiently and effectively as we can. Every department will scrutinise its spending plans, in detail, from a zero base, and ask: how does each item of spending contribute to the Government's objectives as set out in our manifesto? Why are we spending this money? Do we need to spend it? What is it achieving? How effective is it? How efficiently are we spending it? Every objective will be costed—and departments' effectiveness in achieving them will be scrutinised. We will make sure we know how much we are spending on each objective—and that we can demonstrate to the public what we have achieved as a result.

"We will consider how best to provide services: what should be provided by the public sector, the private sector, or a combination of both in public-private partnerships. As my right honourable friend the Prime Minister has said, "What counts is what works."

"As well as looking at spending in each department separately, we will also look at issues which cross departmental boundaries. These cross-departmental reviews will ensure we are not hidebound by the existing structure of government. The review will be co-ordinated by the Ministerial Committee on Public Expenditure, which will look at spending across departments. We will look in particular at departments' efficiency at making the best use of their assets. We have asked departments to draw up an inventory of their assets—something no government has ever achieved before. We need to know what the Government own and whether they need these assets. If not, we shall reallocate the proceeds where they are needed most.

"This review will be thorough and far-reaching. All departments and all Ministers will be involved. It will take 12 months to complete, and its conclusions will inform a new set of public spending plans for the rest of this Parliament—a set that reflects our priorities and meets the country's needs beyond that. It will take the long term view.

"The review process is already under way. Terms of reference for the departmental reviews will be published shortly. The Government have already shown their determination to achieve their objectives. The Comprehensive Spending Review will provide us with a clear sense of direction and the long-term view that every government needs. We will ensure that the Government spend public money wisely and fairly, so that public spending matches the people's priorities."

My Lords, that ends the Statement.

5.51 p.m.

Lord Mackay of Ardbrecknish

My Lords, I am sure that the whole House is grateful to the noble Lord, Lord Haskel, for repeating this Statement. I very much appreciate the trouble to which he has gone to get up to speed with a Statement from a department for which he has no ministerial responsibility. I am a little puzzled as to why the responsible Treasury Minister is not here to deliver the Statement this afternoon.

If I had seen this Statement earlier in the day I am not sure that I would have troubled the scorer in having it repeated (to use a cricketing term). It is simply a series of soundbites and statements with which we can all agree. We will deliver prudent and sound management of the public finances to provide a stable platform for investment and growth". I suspect that I too said that on innumerable occasions. The public has a right to know … that total spending is affordable"— too right it has— [and] that their money is being spent on their priorities, that it is being spent efficiently, and that the spending is effective". "Efficient and effective spending" were words that passed my lips on a fair number of occasions when I spoke from the opposite side. Every department will scrutinise its spending plans in detail Of course they did. They did it every year; it was called the public expenditure round. We will ensure that the Government spend public money wisely and fairly". The number of occasions on which I said that when I led for the Department of Social Security was almost without number.

Perhaps I may deal with some of the other parts of the Statement to see whether they have any meaning. I look at the part that deals with the public sector debt which appears quite early on the first page of the Statement. I draw the noble Lord's attention to table 4.2 in the red book which shows the public sector finances. The noble Lord will see the decline in the PSBR forecast in the last Budget. Is he able to confirm that the decline is faster than is predicted in table 4.2, partly because revenues have been a good deal more buoyant and partly because unemployment has fallen at a very fast rate, including another 18,000 in the announcements today?

I should like to know whether the critical words in the Statement about the borrowing requirement mean that the Government intend to take steps to make it fall faster than table 4.2 indicates, even as revised on the basis of the better figures recently produced. If so, how will they achieve that? Will they cut government spending or increase taxation? In the Budget on 2nd July will taxes be increased in order to cut the borrowing deficit quicker? Does that include income tax, against the background of election promises to the British people that income tax would not be increased? Perhaps the noble Lord can put flesh on the bones of that particular part of the Statement.

Further on the Statement refers to a review of government assets and the work of government to be shared between the public and private sectors. One wonders how this Statement—which, if it means anything, gives support to the private finance initiative—squares with the considerable cut in the PFI hospital programme that one reads about in this morning's Financial Times. As I have said before from this Dispatch Box—in this new configuration, as I have described it—how is that to be squared with the views of the Scottish Labour Party and some Ministers in the Scottish Office on the Skye bridge? They continue to attack that project of privately-funded infrastructure. If the Statement meant anything, I should have thought that that would be something that they should applaud. If so, will they tell their friends in Scotland to stop attacking that example of privately-funded infrastructure?

Perhaps the noble Lord can also tell me whether I am to read into this review of the assets that, for example, there will be a halt to the PRIME project in the DSS which is about the disposal of assets. That project is now under way. When one looks at the decision on national air traffic control, does it mean that the Government intend to proceed with the privatisation of that activity?

I have another question that perhaps looks forward to next week's debate on the referendum in Scotland and Wales and all the other debates to come. The Statement says that all departments and Ministers will be involved in this review. Further, it states that every department will scrutinise its spending plans. I presume that that includes the Scottish Office. If the Scottish Office scrutinises its spending plans, what happens if it comes to a different conclusion from that arrived at according to the Barnett formula? Let us assume for a moment it concludes that spending in Scotland is markedly ahead of spending in England; indeed, the same is true in Wales. If it concludes that spending in Scotland from that zero base does not meet what the Barnett formula suggests should be given to Scotland, will the Barnett formula be reviewed down the way to make sure that the Scottish budget is reduced to meet the spending plans arrived at from this zero base?

Finally, I refer to table 2.1 in the red book which is the important table indicating the Government's general expenditure as a percentage of GDP. If the noble Lord refers to that he will see that on our spending plans that percentage of GDP was predicted to drop to 40 per cent. in 1997–98 and then to proceed downward until it reached 36.75 per cent. in 2001–02. Nothing is said about that important part of the test of government expenditure; that is, affordability, effectiveness and sensible control of government expenditure. Is this review to be consistent with table 2.1 of the red book? Further, are the Government determined to get government expenditure down below 40 per cent.?

These are serious questions that require answers. They should have been answered in this Statement. Instead, the Statement looks like many of the other answers given both in this House and the other place. When one comes to asking about policy, all the answers are about reviews. It looks like the Windmill policy—the review that never closes.

Lord Ezra

My Lords, from these Benches we welcome the fact that the Government are to embark on a comprehensive spending review. We believe that it is right that at the start of their period of office they should do so. We hope that it will be possible for us to be kept informed of progress and to have a major debate at the end of the review.

We are told that the objective is to re-focus the spending of public funds. I hope however that it will not just be a cost-cutting exercise and that there will be identification of those areas not only where expenditure can be properly reduced but where additional expenditure is urgently required. In particular, when one talks of additional expenditure one is bound to have in mind the health and education sectors. I take it that in making their assessment the Government will take full account of public/private participation—indeed, it was mentioned in the Statement—and make a realistic reassessment of what private funding and services can provide. Very shortly a report is due out on this. I believe that a reassessment is called for.

Do the Government also recognise that there is another major sector where additional expenditure is urgently required; that is, the housing sector? The noble Lord, Lord Dean of Beswick, asked two days ago about the release of capital receipts. Poor housing is costing us much more than would be expended were we to try to put that housing right. These are costs in terms of health, education and crime prevention. I hope that those aspects will be taken into account in the review. I conclude by saying that we support this concept. We hope that it will cover areas where costs can be reduced, identify where additional costs are required and indicate how those costs might be met.

Lord Haskel

My Lords, I thank the noble Lord, Lord Mackay, for his comments. Although to him what I had to say amounted to soundbites, the difference between our soundbites and his soundbites is that we mean it and we will do it. I believe he knows that when taking over a new organisation every responsible management has a comprehensive spending review. It is a prudent thing to do. That is why we are getting on with doing it. He asked about public sector debt and whether we shall be raising money through taxes to adjust the PSBR. This review is about spending. It is not about money raising. We will consider the position once we have all the details from the review.

The noble Lord asked about the PSBR and hospitals. He mentioned the article in today's Financial Times. He will be aware that we have taken the decision that all PFI projects do not have to be assessed from the point of view of public/private finance, and that we have taken 11 of the 45 NHS projects, because they are the ones that seem to be the most viable, to have the best chance of success and to be the most affordable.

The noble Lord asked about the Scottish Office and the Barnett formula.

Lord Barnett

A very good formula, my Lords!

Lord Haskel

My Lords, my noble friend Lord Barnett will be aware that that formula has been in place for some 20 years. There is no intention to make any alternation to the Barnett formula until the review has been completed.

Lord Barnett

My Lords, I am delighted to hear that.

Lord Haskel

My Lords, it shows that my noble friend was very sound when he introduced his formula.

The privatisation of air traffic control is already in the financial plan. It is the Government's intention to continue with the plan.

The noble Lord, Lord Mackay, referred to table 2.1 in the red book. He asked whether we are going to reduce the percentage of GDP taken in taxation to below 40 per cent. In our manifesto we target 40 per cent. as being the objective that we are determined to achieve. We shall try to achieve it. One important step towards achieving that objective is to have this comprehensive review.

The noble Lord, Lord Ezra, welcomed the review, and I thank him for that welcome. This is not a cost-cutting exercise; it is a simple, straightforward exercise in determining what is the expenditure. As such, it will be up to each departmental Minister to decide how to reallocate his or her resources. There is no intention that this should be a cost-cutting exercise. So far as concerns additional expenditure on health and education, there is a slight increase in the health budget in the two-year spending plans to which we are committed to adhere, and that will be carried out. On education, as I said in the Statement, by eliminating nursery vouchers we will increase expenditure in education to reduce class sizes for five, six and seven year-olds. Any further education expenditure will be a matter for the department to reallocate its expenditure.

So far as concerns the release of capital receipts from housing, we will honour our manifesto commitment to reinvest the receipts from the sale of council housing received but not spent by the councils. Spending will be phased to match the capacity of the building industry and in the interests of prudent economic management. A Bill has been published paving the way towards the implementation of that initiative. The review will address the policy framework for reinvesting the receipts. I shall make just one final point about housing receipts, because it is something to which the noble Lord, Lord Mackay, has referred in the past. It is not part of the PSBR because it is outside the control total.

I return to privatisation of air traffic control. We will look at the options on their merits. Our approach will be pragmatic rather than the doctrinaire approach of the previous government. We shall be reviewing air traffic control, and I am sorry if I misled the House.

6.8 p.m.

Lord Clark of Kempston

My Lords, I wonder whether the Minister will be kind enough to answer a few questions. I agree with my noble friend Lord Mackay that this seems to be a Statement full of policies but short of facts on how the action will be taken. Will the inventory that is to be produced include the cost of whichever asset is on the inventory? Will there be an estimate of the amount that might be obtained from the sale? Presumably the reason for obtaining an up-to-date inventory is to sell off some of the assets; that is, privatise them. Will the Minister explain why it was that when the Conservative Government were privatising, the Labour Party opposed it tooth and nail?

Lord Haskel

My Lords, the purpose of the inventory is to inform the Government as to what assets are available. There is no question of it being a matter of privatisation. If those assets are not being used efficiently, they will be reallocated.

Lord Swinfen

My Lords, in the early part of the Statement, the Minister repeated his party's promise to reduce class sizes. Obviously that will mean that a large number of new teachers will be required. Where do the Government intend to get those new teachers? Will they give the House an undertaking that they will not do as I understand from a man who was at that time a lecturer at Nonington Teacher Training College was done and instruct the colleges not to fail students who were applying to become teachers, no matter how bad those students were?

Lord Haskel

My Lords, I am afraid that I cannot answer the last part of the noble Lord's question within the context of this spending review. As regards where the money will come from to pay extra teachers, my right honourable friend the Minister for Education will have to reallocate resources within his department and find the money to pay the teachers. He will do so in the way he believes to be best.

Lord Swinfen

My Lords, before the noble Lord sits down, it was not a question of where the Minister will find the money but where he will find the teachers. Far more teachers will be needed in order to reduce class sizes.

Lord Haskel

My Lords, many teachers were recently made redundant and therefore there may be a pool of teachers. Furthermore, presumably the teacher training colleges and the universities are training teachers.

Earl Russell

My Lords, the Statement indicated that the Government will be harsh on ill-targeted spending programmes. I hope that when they rearrange the cheques on the deck of the Treasury they will be equally harsh on ill-targeted savings cuts. The Minister will be well aware—I have reminded noble Lords of it many times—that a Treasury guideline states that those who are planning reductions in spending in one department must consider the cost implications for other departments. I hope that the Government will observe that guideline much better than their predecessors did. In particular, I hope that they will interleave this review with today's welcome announcement of a review of the territory covered by the Black Report. I hope that if they contemplate any savings in the Department of Social Security they will consider any possible costs that those savings may create for the Department of Health.

Finally, I hope that they will consider a paraphrase of the advice which my honourable friend Mr. Foster once gave to Mr. John Patten; they should not think that jam the day after tomorrow will get them out of a pickle today.

Lord Haskel

My Lords, I am sure that we will not be thinking about jam getting us out of a pickle! As regards the targeting of savings, I am not sure that that is a matter for this review. It is a matter for taxation. As regards the last part of the noble Earl's question relating to the Black Report, one of the purposes of the review is that it will take an approach across government departments.

Lord Taylor of Blackburn

My Lords, when as a director or chairman of a company I have been involved in the takeover of another company, what was set out in the books at the time has been accepted. However, afterwards it is the custom and practice to review the books in order to see whether they are correct and to make sure that everything is in order. It is common custom and practice. Surely, the Statement reiterates what is a common practice in most companies which have been taken over by a new organisation. That new organisation makes sure that what is in the books is correct. That is all that the Statement does.

The things that have been said by the Members of the Opposition—and I hope they remember that they are Members of the Opposition and that they were in power for 18 years—are rightly being checked by us. After all, they did little during the past 12 months and we are making sure that everything in the books is correct.

Lord Haskel

My Lords, I thank my noble friend for that comment. When a company takes over an organisation it certainly does as he suggests. The whole purpose is to re-target the expenditure to the objectives of the new management—to the objectives of this new Government.

The Earl of Caithness

My Lords, as this is the first time that I have spoken in the House since the election, perhaps I may take the opportunity to congratulate the noble Lord and the Opposition Front Bench team on their appointments—

Noble Lords

Government!

The Earl of Caithness

My Lords, I refer to the former Opposition. It is difficult after 18 years suddenly to realise that there are changes for the noble Lord's party as well as for mine. I agree with the noble Lord, Lord Taylor, that one is duty bound to look at the books. However, I say to the Minister that there is nothing new in the Statement. As my noble friend Lord Mackay said—and as the noble Lord, Lord Barnett, will know—we have all done this exercise before.

I take issue with the Minister that it will be "a simple and straightforward exercise". It will be anything but simple and straightforward because we know how difficult it is. However, the noble Lord's party will do it.

Will the Minister ask the government departments to take a more private sector view of what is capital and what is income? I believe that the public are concerned to know more about that. Secondly, will he ask departments to take a more long term view; longer than three years? I do not believe that many private sector companies take a three-year view but must take a longer-term view. Thirdly, the private finance initiative has implications for what is revenue and what is capital, in particular when the terms of the agreement come to an end after 20 or 25 years. Will the review highlight what will be capital and what will be revenue? What will be the effect on public expenditure at the end of the term of the various agreements? Finally, if the Government are serious about being effective and taking care of public finances, as they have said, surely they should take full and sole responsibility for creating the money supply.

Lord Haskel

My Lords, I thank the noble Earl for his kind words. He inferred from my comment that this was a simple review, that there would be nothing new. I respond by saying that we are carrying out the review with new objectives. The Government have come to power with policies to which public spending must be adapted. The purpose of the review is to start carrying them out. The difference between this review and all the others is that we are undertaking it with those objectives in mind.

Regarding the noble Earl's comments about capital and income, I am not qualified to get into an argument over the minutiae of accountancy. However, I would point out that we are introducing resource accounting, which the noble Earl has mentioned on previous occasions, and I remind him that it was the Tory Government which reduced the budgeting period from five years to three years.

Lord Desai

My Lords, first, I congratulate my noble friend on his role in this House. Contrary to what was said by the noble Lord, Lord Mackay, I believe that it does not matter. My noble friend is sufficiently versatile to handle the Treasury as well as any other department. I know that a spending review will not deal with the question of capital and revenue. However, will he say to his right honourable friend the Chancellor that it is perhaps time to undertake a thorough review of the definition of the PSBR so that we are clear that capital and revenue accounts are kept separately and when we spend on the capital side, we do not have to add it to the PSBR? That should relate only to revenue deficit.

Lord Haskel

My Lords, I thank my noble friend for his remarks. I shall certainly pass on his comments to the Chancellor. The difference between capital and revenue will be dealt with by the introduction of resource accounting and budgeting.

The Earl of Mar and Kellie

My Lords, does the Minister agree with me that the use of the PFI to build infrastructure in remote areas, such as the Skye Bridge, is rather misguided policy? Does he agree that the creation of a viable economy in a remote area such as North West Scotland is not helped in any way by a return toll charge of more than £10? Can he assure me that the PFI will be used only for infrastructure projects in well-populated areas?

Lord Haskel

My Lords, I cannot undertake to say where a PFI project will or will not take place. The noble Earl believes that the Skye Bridge project is misplaced. I do not know whether that is true or not. We are committed to proceeding with the PFI but it will be more selective and will be used for those projects where there is a proper return. It will be used only for worthwhile projects. I cannot say where the location of those projects will be.