§ 7.55 p.m.
§ Lord McIntosh of Haringey
My Lords, with the leave of the House, I shall now repeat a Statement that has been made in another place by the Chancellor of the Exchequer. The Statement is as follows: "The public spending allocations for 2001 to 2004 that I am announcing today are possible because, having eliminated the £28 billion deficit that we inherited and having reduced the national debt, the state of our public finances is strong.
"In the economic cycles of the past 30 years, the current budget deficits averaged £109 billion, the national debt doubled and rose to 44 per cent of national income in 1997 and stop-go in the economy meant stop-go in the public finances.
"So our first task was to create stability and sustainable public finances. Having set clear fiscal rules over the economic cycle—a current budget in balance, borrowing only to invest within prudent and cautious limits—today we not only have low inflation and stable growth but year-on-year current budget surpluses and debt falling below 40 per cent of national income; indeed, debt being repaid this year and next.
"And it is this sustained and sustainable improvement in our public finances that makes possible a sustained and sustainable improvement in our public services.
"Our second task was to encourage the work ethic and secure rising employment. Today, with the assistance of the New Deal, unemployment is at its lowest for 20 years and almost 28 million people, more people than ever before, are in work in our country today.
"Now, building on the foundation of stability and strengthened economic fundamentals, we can move to the next stage in creating a better future: to make good the damage done by the legacy of decades of under-investment across our public services; and to realise long-term national goals that we have set for a decade, to close the productivity gap with our competitors, to deliver and sustain full employment, to secure higher education for a majority of our young people, to halve and then abolish child poverty and to build strong public services as we create a Britain where there is security and opportunity not just for a few but for everyone.
900 "The first conclusion of this year's spending review is that prudent targeted long-term investment is not only a social good, but also, in a changing and often insecure world, an economic necessity.
"It is only by investment in education, in science and in the future of our children that we can equip ourselves for future economic success and ensure that there is opportunity for all. It is only by investing in health, transport, the environment and in law and order that we can ensure a more productive economy and security for all.
"And just as stability and economic strength make possible investment, so, too, new investment reinforces stability and creates longer-term economic strength. So, while we will raise current expenditure only in line with our neutral view of trend growth—by 2.5 per cent a year we propose to tackle the long-term neglect of investment in our country with a step change in capital investment for education, science, health, policing and in our transport and infrastructure.
"As I announced in the Budget, net capital investment will more than double, rising from £7 billion this year to £19 billion by 2004, within a ceiling for public investment of 1.8 per cent of national income, as we renew our public services.
"The second conclusion of our spending review is that it is by tying new resources to reform and results, and by locking in incentives, penalties, inspection and information that we ensure new investment goes to front line services: in secondary as well as in primary schools, new targets for literacy and numeracy and IT; in hospitals, new systems of inspection; in law and order, reforms to criminal justice; in defence, implementing the next stage of the Strategic Defence Review; with local government, new public service agreements; and in transport, a new partnership between private and public sectors. At every stage money will be tied to output and performance.
"Let me give full details of the financial background. In the Budget I confirmed the current surpluses from 2000 onwards would be £14 billion, 16, 13, 8 and £8 billion. My Budget also confirmed net borrowing will be minus 6.5, minus 5, plus 3, plus 11, plus £13 billion, lower borrowing in every year than in any year of the previous Parliament.
"I said that, as a share of national income, debt will be 35 per cent, 34, 33, 33, 33 and thus even with our programme of public investment we meet both our fiscal rules and do so even on the most cautious case and a cautious view of trend growth at 2.25 per cent.
"In accordance with the code of fiscal stability, I will publish the second fiscal forecasts of the year in the autumn. But I can already report that since the Budget the fiscal position has further strengthened. For the year ending March 2000, the current surplus is healthier than originally forecast at the time of the Budget—not £17.1 billion, but £20.4 billion.
901 "Debt as a share of GDP has been reduced even more, from 37.1 to 36.8 per cent. Indeed, I will use a further underspend of £2.5 billion in annually managed expenditure to repay debt. Two billion pounds in departmental expenditure can be carried forward. However, on grounds of prudence, I have decided to allow a carry forward of only £1.5 billion and to allow spending of only half of that this year and half next year—and to allocate the remaining sum to repay more debt.
"It is only because we have put the public finances on a sustainable footing that I can raise spending today. It is this same discipline that allows me to inform the House that this year we have repaid £6.2 billion more debt than the £11.9 billion originally planned—in total, a debt repayment of £18.1 billion, the largest repayment of debt in any year since the war.
"We have not and will not relax our discipline. So I have three policy announcements to underpin the strength of the public finances. Further limited sales of spectrum will take place by the end of 2001. We shall not repeat the mistakes of the North Sea oil windfall and of the privatisation sales where receipts were immediately used up in current spending. I can confirm that all the capital proceeds will—as with the £22 billion from the first sale—go to further reduce the burden of debt.
"As debt is reduced, so, too, are debt interest payments. The first spectrum sale alone will reduce the bill for debt interest by a further £1 billion a year by 2003–4, money that—as I shall confirm later this afternoon—will, year after year, go directly to improving public services.
"Secondly, departments and authorities will make asset and property sales of £4 billion a year over the next three years—4 billion a year released by realising unproductive assets we do not need to fund service improvements we do need. Because money is tied to modernisation, the new public service agreements signed with departments—and for the first time with local government—will not only specify agreed outcomes but precise timetables for making necessary reforms.
"I can tell the House, as a result of the fall in the share of administration costs in total government spending, new money makes possible a substantial shift in spending to the front line services—to recruit more nurses, doctors, teachers, classroom assistants, and police, more staff in our front line services.
"With the success of the New Deal, the bills for social and economic failure are now £3.5 billion lower, enabling us to transfer £3.5 billion each year from paying unemployment benefits to funding public services.
"With this improvement comes a radical shift in the composition of public spending. Our promise was to reduce the costs of failure—the bills for unemployment and debt interest—in order to reallocate money to the key public services.
902 "In the two decades from 1979 until 1997, rising debt interest and unemployment and social security accounted for 42 per cent of all extra public spending and that meant that 42 pence in every additional pound spent was not available to the key public services.
"In the coming three years, unemployment, social security and debt interest payments will account for not 42 per cent but now only 17 per cent of extra public spending, even as we direct more money to child benefit and the minimum income guarantee. That leaves around 80 per cent of new money for health, education, transport, policing and other public services—extra resources now available to us, not at the expense of our prudence, but because of our prudence.
"So within our fiscal rules and within the envelope I set in the Budget and have strictly adhered to, I can announce that spending on public services—what is called the departmental expenditure limit—is able to rise from £195 billion this year and our previously planned £203 billion next year to £212.1 billion and then to £229 billion in 2002–3 to £246 billion in 2003–4. By 2004 an extra £43 billion a year will be allocated to front line services. Sustained improvements in public services are now made possible because with stability and strengthened economic fundamentals, and lower debt interest and lower unemployment, we have sustained improvements in our public finances.
I now turn to the departmental allocations. In recent years, in addition to their conventional responsibilities, Britain's defence forces have taken on a new and valued role in international peacekeeping and in conflict prevention, promoting human rights and peace throughout the world, including in Sierra Leone and Kosovo.
"To complete the restructuring agreed in the Strategic Defence Review—to fund new equipment and to increase the mobility and efficiency of our front line forces—defence spending, which has been failing in real terms every year since the end of the Cold War, will now increase in real terms. The allocations are £23.6 billion next year rising to £25 billion in 2003–4.
"The rise in the Foreign Office budget from £1.2 billion next year to £1.32 billion in 2003–4 will not only finance the proper representation and promotion of Britain abroad but also the Foreign Secretary is announcing today that the British Council will receive extra funds and the budget for the BBC World Service will rise substantially from £174 million this year to £180 million next year, to £210 million by the end of the period to achieve our new target of 153 million World Service listeners by 2002.
"Because we take seriously our international responsibilities to the environment, the Government are announcing today a special £85 million fund to assist nuclear clean up at Chernobyl. The international community's clearest duty and 903 greatest challenge is to halve world poverty by 2015 and make primary education universal for every child.
"Our international aid budget will rise from £2.8 billion this year to £3.1 billion next year, then £3.3 billion and £3.6 billion by 2004, a real terms rise of 6.2 per cent a year, in contrast to the falling share of national income devoted to overseas aid from 1979 to 1997. There is a rising share of national income today and in the future, as we honour in full our commitment to debt relief and our obligation to the poorest countries of the world.
"I turn to our second set of decisions, new investment to build stronger communities. The Home Office budget will rise from £8.2 billion this year to £9.6 billion next year, to £10.3 billion the year after, to £10.6 billion in 2003–4, an annual rise in real terms averaging 6.4 per cent a year. Tomorrow the Home Secretary will set out both his targets and how this allocation will be spent.
"To implement fully the Good Friday agreement, an extra £316 million over three years will help fund the modernisation of policing and criminal justice in Northern Ireland, and in this way help underpin peace and future prosperity.
"Every community in the land is weakened by the evil of drugs. In return for challenging new targets to cut drug related reoffending by 50 per cent over the decade and to treat twice as many addicts through the new National Treatment Agency, the new anti-drugs budget will be set at £870 million in 2001–2 and then rise to £931 million and £996 million by 2004, an average annual real growth rate of 10 per cent.
"Strengthening our local communities involves a new partnership with local government based on increased investment and new targets. The three year settlement for local government—an annual real terms rise of 3 per cent over and above inflation—will he set out in full by the Minister for Local Government. Ministers in Scotland, Wales and Northern Ireland will make related announcements.
"Local and national government need to work even more closely in a new partnership for reform and improvement in our poorest areas. For decades our whole country has been scarred by deep and persistent deprivation and under-achievement in high unemployment communities.
"While much previous spending has been directed to dealing with the consequences of economic and social failure, it is time now to invest in tackling the causes of failure—poor school results, poorer standards of public health and low levels of economic activity. Today our poorest council estates suffer unemployment four times and burglary rates three times the national average, with mortality rates 30 per cent higher. These unjustifiable and divisive inequalities cannot be tolerated. Both government and communities must 904 raise their sights, with a new target to raise the poorest areas up and thereby narrow the gap between these areas and the rest of the country.
"So we will not only extend the New Deal for communities but strengthen the institutions—from our schools to our health centres—on which communities depend. In return for local public service agreements that require new minimum standards in school attainment, public health, law and order and job creation, a new neighbourhood renewal fund will provide, by 2004, new resources worth £400 million a year.
"In this spending round, housing—and our objective of decent affordable housing for all—will receive the priority it deserves and resources it needs—an additional £1.6 billion of new investment by 2004, a real terms rise averaging 12 per cent a year.
"Across the social sector, we will ensure that half a million more houses will be modernised or repaired, part of a 10-year plan to eliminate all substandard housing. And as we implement key recommendations of the Rogers report, reclaimed brownfield sites will account for 60 per cent of all new housing, creating thousands of new construction jobs.
"Investment in the future must mean investment in a cleaner environment. To meet our climate change commitments the Environment Minister will announce how new resources will promote emissions trading and energy efficiency in Britain's homes, and there will be further announcements on the use of renewable energy and recycling by local authorities.
"In rural communities the new rural transport fund has extended the rural network with 2000 new or improved bus services. And the rural transport fund will be increased from an annual allocation of £60 million to £95 million. And there will be an announcement of new finance available for maintaining the Post Office network in both rural and urban areas.
"And as farming restructures and deals with BSE and meets challenging targets to move from the old farm production subsidies to the new environmental improvement payments, the agriculture budget, including the Intervention Board, will increase from £1 billion this year to £1.35 billion by 2004, an average annual real terms rise of 6 per cent. And the Food Standards Agency will see its budget rise from £87 million this year to £111 million by 2004.
"Extending access, particularly for our young people, to the arts and to sport will strength every community. With a 4.3 per cent annual real terms rise in the budget of the Department of Culture, there will be significant improved funding for the arts, and the Secretary of State will give details of new funding to encourage children to use our libraries, museums and arts and to encourage sports in schools and in our communities.
905 "Strengthening communities must involve strengthening our social services and our health service. Our NHS plans will be announced next week. There will also be a major package of investment in services for elderly people—including the Government's response to the Royal Commission on Long Term Care. The Health Secretary will announce the detail of this and other allocations from the health and social services budget next week.
"I can also confirm that in the autumn the Government will publish their proposed plans for a new pensioner credit with a view to further announcements on a Budget timetable.
"The strong civic society we seek is built not by rights alone but by rights and responsibilities. So we will match our Budget tax reliefs to encourage the giving of money with new measures today to encourage the giving of time, extra resources of £60 million by 2003–2004, with a clear aim—to encourage 1 million more of our citizens as volunteers in community service in our country.
"I turn now to the investment we must make in our economic future. Britain has great strengths—the best place in Europe to do business, with world class companies in science and technology—but to build for the future we must put in place the long-term investment which is the precondition of a strong economy and of bridging the productivity gap with our competitors and avoid the short-termism of the past.
"Working with business, the role of modern government is not to subsidise loss-makers or to attempt to pick winners. The new role of government is to invest in science and innovation, to promote competition, small business development and enterprise for all, to encourage balanced regional development and meet the pressing needs of transport and infrastructure and most of all to invest in the greatest driver of prosperity—education and skills.
"First, investment in science. With our investment in a £1 billion public private partnership with Wellcome to re-equip university science and extra resources to support pioneering medical research, we will raise the science budget by 5.4 per cent a year in real terms.
"And to ensure invention in Britain leads to manufacturing in Britain and jobs in Britain, the Secretary of Industry will announce new resources for the University Challenge fund that commercialises inventions and for university-based regional enterprise centres.
"Britain's small businesses are the backbone of our local economies. And to offer new services businesses have themselves requested, the budget of the new Small Business Service will rise substantially from £197 million this year to £277 million by 2004. This will include a national Internet service offering comprehensive business advice and a consultancy 906 service for start-ups, worth up to £2,000 for start-ups in high unemployment areas. So the numbers of small businesses who employ people, and which have already risen from 1.2 million in 1997 to 1.3 million, can expand in every area of the country.
"The newest and most decisive challenge in the new century demanding higher levels of investment is to master and lead in the new information technologies. To make Britain best for electronic training and to bridge the growing digital divide, the review has agreed a three-year programme of rapidly rising investment in our schools and our communities and a new fund that the Prime Minister will announce to ensure that by 2005 Britain will have all government services offered on line.
"Investment in innovation, infrastructure and skills is essential in every region if there are to be high levels of productivity in Britain and full employment throughout our country.
"To secure balanced regional development, regional development agencies will receive new resources, their budgets increased by £500 million a year by 2003–2004. These will not only be new funds but new flexibilities they have themselves identified: in the North West promoting innovation and research; in the North East, increasing entrepreneurship; in Yorkshire and Humberside, small business development; in the East Midlands, information and communications technology; in the West Midlands, modern manufacturing; in the South East and South West, as in Scotland, Wales and Northern Ireland, with their devolved decision-making, the promotion of clusters of growth; in every region, new support for skills, employment and for schools and colleges to promote enterprise open to all.
"The overall settlement for Scotland provides for an increase of £3.4 billion a year by 2003–2004, an annual real terms rise of 4.4 per cent. A separate announcement will be made by the Scottish Executive.
"For the Objective 1 areas in the United Kingdom—in Wales, Cornwall, Merseyside, south Yorkshire—and for Objective 2 and 3 areas, I am announcing a new approach that will raise their levels of investment. Within our departmental allocations we are making today the Government will ensure funding for the European share of Objective 1, 2 and 3 projects. For EU structural funds this is estimated to total £4.2 billion over three years, including an estimated total of £600 million for new Objective 1 programmes in English regions.
"The settlement increases funding for Wales by a total of 5.4 per cent a year in real terms and allows for match funding—and includes a special allocation to ensure funding of the European share of Wales' Objective 1 needs, an allocation to Wales of £80 million, £90 million, £102 million over the next three years. I am also transferring management of the European Social Fund allocations for Wales of £149 million over the next three years to the Welsh Assembly.
907 "It is because of the importance to all regions of modern transport and infrastructure that we will now make a step change in investment in public transport. In the Budget we removed the automatic fuel escalator and extra money was allocated to roads and public transport this year. Now we are able to raise spending on roads and public transport by significant extra sums to meet the needs of business and the public, from £4.9 billion this year to £6 billion next year, then to £7.4 billion and £9.1 billion in 2003–2004, a real terms rise of 20 per cent a year to 2004.
"Details of the targets to improve rail and bus services and to cut road congestion and of the allocation of funds will be set out in the ten-year plan to be published by the Deputy Prime Minister on Thursday.
"The modern economy can succeed only when it uses all the talent of all its people. Any potential squandered is a resource denied to the country's future. In this review we allocate new funds to advance our goal of full employment. For 70,000 employers, nearly 500,000 young people and for Britain, which has seen long-term youth unemployment fall by 70 per cent, the New Deal has been succeeding, a central building block for our policy of full employment. So long-term youth unemployment, which rose to 500,000 in the 1980s, is 50,000 today.
"The windfall levy raised over £5 billion, with £1.6 billion allocated to schools and £3.5 billion to employment creation. Because the New Deal has been even more successful than forecast, with more getting back to work more quickly, there is an underspend, enabling us to fund the New Deal well into the next Parliament and to transform what started as the New Deal for the young unemployed into a permanent deal for all long-term unemployed.
"Having helped 500,000 on the New Deal, we now set plans to help the next 500,000. Next year and until 2003, I expect £1.7 billion to be available from the windfall levy to do more to coach the hard-to-employ young unemployed and systematically to create new opportunities for our long-term unemployed, nearly 1 million single parents and thousands of disabled men and women who want to work.
"To bring both childcare and employment within the reach of more parents, childcare investment will rise from £66 million this year to £200 million by 2003–04, as we deliver our national childcare strategy.
"Because of our success in cutting unemployment, social security spending, which grew by 4 per cent a year in the previous Parliament, is growing by 1.5 per cent a year over the next three years and the budget for unemployment-related benefits is falling. To make further social security savings by tackling fraud and error, we are announcing new investment in staff and technology. Having cut errors in income support claims by half, 908 we now plan to cut fraud and error in the job seeker's allowance and income support payments, first, by 25 per cent by 2004 and then 50 per cent.
"I turn now to investment to ensure that all children have the best start in life. Today's children will be tomorrow's doctors, scientists, engineers and nurses—our future workforce. By investing in children, we are investing in our country's future. Having invested £7 billion a year more in families—raising child benefit by 35 per cent, guaranteeing a minimum family income under the working families' tax credit and from next April the new children's tax credit, giving the typical family £442 a year—it is time to take further steps.
"The war against child poverty requires not only additional cash but the support and encouragement of all forces of care and compassion in every community. It can be won only by the combined efforts of parents and private, voluntary, charitable and public sectors working together. So in a unique initiative, and after consultations with charities and voluntary organisations, we will create a national children's fund with a budget over three years totalling £450 million to help children and young people at risk. The children's fund will work with national children's charities and local community organisations—secular and faith based—and support those dedicated staff and committed volunteers who offer one-to-one help to young people, and parents, at risk. Seventy million pounds will be allocated to a network of 50 local and regional children's funds.
"I turn to investment in education. With the funds the Secretary of State for Education allocated from the first spending review he has made reforms in education, ensuring nursery education for every four year-old, cut class sizes for five to seven year-olds, raised literary and numeracy standards for 11 year-olds by six and 10 percentage points and reformed and expanded higher and further education. Education qualifications are, in the modern world, the surest route to opportunity and security for all.
"All children should be ready to learn when they reach school. From the first spending review came Sure Start, now lifting 50,000 children and their parents out of poverty. In this second review, and tied to targets for improving child development and parental responsibility, we will, by 2004, and with a budget of £500 million, expand the number of children helped to 345,000. And with nursery places already increasing from 200,000 in 1997 to 400,000 in 2002, the Secretary of State for Education and Employment will announce funds for the next stage in the expansion of nursery education.
"Having improved standards in our primary schools, the next task is now to raise standards as decisively in the secondary schools. The expansion of resources which the Secretary of State for Education and Employment will announce for all schools is designed to back up reform and to bring about radical improvement within the 909 comprehensive system to ensure opportunity for all means the highest standards for all. We will now consult on and fund a new target for our secondary schools. By 2007, not today's 60 per cent but 85 per cent of 14 year-olds must meet literacy, numeracy and computer standards.
"To raise Britain's appallingly low school staying-on rate, we are setting aside £150 million a year for education maintenance allowances worth up to £40 a week. Our new and challenging target is by 2004, 80,000 more young 16 to 18 year-olds in education and by age 21 nearly 60 per cent of young people having left school or college with A-levels or their equivalent.
"Under the New Deal for Schools, 17,000 of our schools will have had some improvement, modernisation or renovation by 2002, and every one of our 32,000 schools will be linked to the Internet, with the objective of, by 2004, 500,000 more computers in our schools. By 2010 we want the majority of young people to go on to higher education. The Secretary of State is today allocating £100 million extra to higher education in 2001–02, making a 4.6 per cent real terms increase in total. The review provides further finance that will raise the numbers in part-time and full-time higher and further education towards our goal of 50 per cent.
"State school pupils secure two-thirds of the top A-level qualifications but only half the places in some of our leading universities. To bridge this gap the Secretary of State for Education is today setting a new objective to improve access. The Higher Education Funding Council will provide financial help for universities submitting plans for year-on-year improvements in widening access. Two million adults have a reading age of seven or less. Adult illiteracy is not just a failure of our society but, as business leaders round the country have told me, an economic inefficiency that cannot any longer be tolerated. In the coming weeks, the Secretary of State for Education will announce the new resources provided to tackle these barriers to opportunity and earnings.
"The best education for all, from early learning to lifetime learning, is not only a time-honoured social ideal but in today's world an absolute economic necessity. That is why we have decided to make increased investment in education the priority of this year's review and to back sustained long-term reform with a sustained increase in resources. In the Budget I was able to allocate new resources to the NHS, amounting to a rise of 6.1 per cent a year in real terms over four years to 2004. I was also able to allocate an additional £1 billion to UK education this year. Today, in return for new targets for improved standards, we can allocate further resources for UK education for the next three years.
"Under the previous government, UK education spending rose by an average of only 1.5 per cent a year in real terms. Over the next three years, UK education spending will rise by 5.4 per cent a year in real terms. Spending will rise from last year's £40.6 910 billion and this year's £45.8 billion to £49.5 billion next year, £53.4 billion the year after and then £57.7 billion. The money I announced in the Budget and now today will deliver, over the four years up to 2004, an average annual increase of 6.6 per cent in real terms, an annual rate of growth far in excess of the 1.5 per cent achieved from 1979 to 1997.
"I have one further announcement. In March the Secretary of State for Education made special payments direct to headteachers for books and equipment ranging from £3,000 to £9,000 for primary schools and from £30,000 to £50,000 for secondary schools—£290 million in total that went direct to the headteacher, to be spent by the school for use in the classroom. The Government have decided to continue this innovation. But next April the Education Secretary will allocate to our headteachers not £290 million but £540 million. As a result, head teachers in every one of our smaller primary schools will next year receive not £3,000, but a payment of £6,000; the larger primary schools, not £9,000, but a payment of £20,000. For the smaller secondary schools, there will now be payments of £50,000, rising, for the larger secondary schools, to payments of £70,000. These payments will now be made not only for one year, but for every year until 2004.
"So we have made our choice. It is now for those who oppose our spending plans to state clearly where their cuts would fall. The Government have been prudent for a purpose. Our choice is stability, employment and sustained long-term investment now and into the next Parliament to create a Britain of security and opportunity for all. I commend the Statement to the House".
My Lords, that concludes the Statement.
§ 8.30 p.m.
§ Lord Saatchi
My Lords, wow! That was £43 billion of extra spending. So many billions, so many noughts; is it not marvellous? However, perhaps a question then arises: if it is so marvellous, why is not a grateful nation falling at the Government's feet in gratitude? Why do people appear not to be happy? Why does Gallup's "feelgood factor" stand at minus 15? Why has the Government's lead in the polls halved? Why is the Prime Minister's satisfaction rating now negative? Where is the gratitude?
There appear to be three possible reasons for the mysterious lack of gratitude. I should like to consider them. First, it may be that people just do not believe the figures. Could it be that, as was stated in The Times:When people discover they have been deceived, they are apt to become angry"?Or is it that they believe what was said in the Daily Mail, that the Government were "bending the truth"? How shocking; how can people be so cynical?
Is it because the Government, in their last Budget report, claimed that,The tax burden on the average family will fall to its lowest level since 1972"?911 Only later did people find out that the Government's calculation included only direct taxes—which the Chancellor had cut by £30 billion a year—and excluded indirect taxes—which the Chancellor had quietly raised by £70 billion a year? Or is it because the Government claimed last year that they were increasing spending on health and education by £40 billion? It then turned out that the increases had been triple counted and that the actual increase was only half that figure?
Could it be because the Government said that they would raise petrol tax and pensions by the rate of inflation? Only later did people find out that the Government had used the historic rate of inflation for pensions—up 1.1 per cent—but the forecast rate for petrol tax—up 3.3 per cent.
We should not be so cynical. Let us take the figures at face value. That could bring us to a second possible solution to the case of the missing gratitude. Could it be that, even if people do believe the figures, they may be sophisticated enough to ask themselves: where is all this money coming from? Is it the strong economy? It is not that, because our economy is now growing more slowly than that of either France or Germany. On the plans announced today, government spending will grow by 3.3 per cent per annum, but the UK economy will grow by only around 2 per cent per annum. Thus, on today's spending plans, the Government are opening up a dangerous gap between government expenditure and national income.
Noble Lords will recall the dictum: annual income £20, annual expenditure £19–19s–6d, result—happiness; annual income £20, annual expenditure £20–6d, result—misery. Could people have worked out that, to fill the "misery gap", taxes are rising by the equivalent of 5.3p on the basic rate of income tax? Of course the Government do not put it that way. They rely instead on so-called "fiscal drag", a delightfully invisible aspect—from the Treasury's point of view—of our complex tax system, whereby tax allowances rise more slowly than earnings. Tax receipts to the Government rise faster than the growth of GDP. This year, as was the case last year, the Government's tax receipts are rising by 9 per cent, three times faster than the growth in GDP and three times faster than earnings. That is how the miracle to which the Minister referred—that of the allegedly "strong public finances"—is in fact being delivered. This Comprehensive Spending Review is ill named. It should be called the "Comprehensive Taxing Review".
However, let us once again be generous. Let us say that one does believe the figures and understand that the additional money has to come from tax. Because one is a public-spirited soul in a post-materialist age, one accepts that. Then a third question arises: what are they actually doing with all this money? Surely people can see that the money is not creating shorter hospital waiting lists, better cancer survival rates, more policemen and fewer violent crimes. What are the Government doing with the money?
One clue might be found in the Guardian newspaper which, each Wednesday, produces a supplement called "Society". It details job vacancies in the public sector.
912 We have been monitoring this publication over the past month. Taking this week's issue—a typical issue—we find that the Government are advertising 394 jobs at salaries which will cost the Government £9.7 million a year. I can assure noble Lords that a similar number of positions at similar salaries are advertised every week. This year alone, taxes will have to rise by £500 million just to pay for the Government's jobs being advertised in that newspaper alone.
For the first time since 1979, employment in the public sector is on the increase. According to new figures I have today received from the Office for National Statistics, the number of state jobs rose by 44,000 in 1999. As I have said, that represents the first increase since 1979.
How marvellous that would be if those jobs all represented more policemen, doctors or nurses? However, we see that they are instead, "dignity at work consultants" at salaries of £28,000 a year, or "training zone trainer administrators" at £22,000 a year, or "multi-agency facilitator team leaders" at £24,000 a year. The reason why people are not falling on the floor with gratitude is because they do not believe the spending figures, they are not inclined to pay more in taxes for them and even if they were, they cannot accept more tax with results that are imperceptible to the naked eye. That is a triple whammy from which I cannot see how the Government will recover.
Is there any way in which Members of your Lordships' House could help the Minister in his plight? Well, there is one body in the land that could help to restore some credibility to the presentation of the Government's finances, but sadly, that body is excluded from the process. I refer, of course, to your Lordships' House.
I am told that this short debate will last for around 40 minutes, or perhaps a little longer. On that basis, that means that your Lordships' House will be passing judgment at a rate of £1 billion a minute. Because of the expertise and experience represented on all sides of your Lordships' House, this House is one of the bodies in our constitution best equipped to deal with the details of financial matters. However, it is not called upon to do so. Our debate today will probably last for less than an hour. The 572 pages contained in two volumes of the Finance Bill 2000 will be dealt with in this House in two hours or so at 11 a.m. on the last Friday of this Session.
Why is that? Is it not because the Parliament Act 1911 deprived your Lordships' House of the right to scrutinise money Bills? The then government's express argument for that Act was that the House of Lords was undemocratic and illegitimate, because it was packed with hereditary Peers. Did not the House of Lords Act 1999 remove that impediment? Does not the Leader of your Lordships' House say that our new House is more democratic, more legitimate and more authoritative? In the light of that, is it not perhaps time to revisit the relevance of the Parliament Act 1911 to today's House of Lords?
There are many ways in which your Lordships' House could exercise its scrutinising skills—which are undoubted and visible on all sides of the House—to 913 improve the details of all financial legislation. I hope that the Minister will allow us to debate these matters along with the details of the Bill when we come to our all too brief discussion of the Finance Bill on 28 July.
§ 8.40 p.m.
§ Lord Taverne
My Lords, one thing that is clear from the Minister's marathon Statement is that we should revise the procedures of the House. It should be possible for a Minister to say, "We have all read the Statement. Let's read it into the record. Any questions?" That would save an awful lot of time and would save the Minister an awful lot of breath.
It is fair to acknowledge that there are many good things about the Statement. Let us start with them. The increases in public expenditure are welcome. That should—not necessarily, but it should—make this country a more civilised society. Among the many particular items that we welcome, I wish to mention the increase in expenditure on the World Service, the increase in the science budget, the increase in overseas aid and the support given to the Good Friday Agreement.
However, we have one fundamental criticism of the Statement and government policy. The Chancellor may have avoided stop-go in overall economic management but he has not avoided stop-go in the management of public expenditure. We have had stop-go in public expenditure in spades.
Last year, public expenditure was 38.3 per cent of gross domestic product, which is a 35-year low. The record of the growth of public expenditure over the whole Parliament will not be particularly impressive. That low figure might please the Conservatives but it is reflected in the appalling state of many of our public services. Stop-go is the reason why the Government have failed to achieve smaller classes, with an average size of 25. It is the reason for the shortage of nurses and hospital beds and for longer waiting lists. It is also the reason for the Government's failure so far to realise their promise to increase the size of the police force. What has increased, of course, is the prison population, because the Home Secretary seems determined to follow the policy of his predecessor and lock up just about anyone in sight whom he can lay his hands on. That is not the right way to deal with crime and the causes of crime.
Stop-go in the management of public services leads to havoc in public services. We hope that we are now going to see an increase in the number of policemen, but a number of experienced policemen will leave and we will have new recruits instead. The police force as a whole will suffer. The same applies to nurses.
Perhaps the worst failure, which is not mentioned in the review, is on pensioners. For our relative wealth, our state pensioners are the worst-off in the European Union. My colleagues will return to that subject time after time.
I do not wish to say anything else about the Statement at this stage. We have gone on long enough. Finally, I turn to one part of the Statement with which no one can quarrel. The Minister said: 914It is now for those who oppose our spending plans to state clearly where their cuts would fall".The Conservatives should state where they will find the £20 billion of cuts in these spending plans. If they do not, we can only infer that their programme will mean fewer nurses, fewer beds, fewer police and bigger classes. It is time to come clean.
§ Baroness Hogg
§ 8.44 p.m.
§ Lord McIntosh of Haringey
My Lords, surely the noble Baroness, Lady Hogg, is not going to deprive me of the pleasure of responding to those contributions. I was described as being in a plight. Having read that Statement, I am a happy man. I am happy because all the things that I have worked for throughout my life in politics are starting to work out. I shall show that not only is the Statement in pursuit of our ideals and objectives; it is the right way to protect our economy and our society.
The noble Lord, Lord Saatchi, asked why the population was not falling about. Apart from the obvious answer that we cannot afford the services of M&C Saatchi, I wonder whether he has looked at the opinion polls recently. I wonder whether he has noticed that, for the first time since polling began, three years into a Parliament, the government party is significantly ahead. Of course there is criticism of the Government's style. If the papers cannot get at the substance, they have to criticise the style. That is what they have been doing and good luck to them; it is their job. We do not have to take that very seriously in this House. The Government should not be deterred from pursuing their economic and social policies by the tittle-tattle that has been going around in the press for the past few weeks and months. If the question is why there is a lack of gratitude, I answer that the people of this country are more sensible than the people who provide them with their news and gossip.
The noble Lord, Lord Saatchi, has three solutions for his non-problem. First, he says that people do not believe the figures. He did not provide very much evidence for that. He looked at the difference between petrol tax and pensions and pointed out that, in September 1999, a forecast produced a lower increase for pensions than an actual figure produced for an increase in petrol tax. He did not look at 1998 or 1997 or observe that there has been an almost even balance during this Parliament, with the balance being in favour of higher rises for pensions. Unless the noble Lord has more evidence than that, we should not take too seriously his claim that people do not believe the figures. He rightly went on to say that we should not be cynical.
The noble Lord's next point was about the gap between available income—that is, growth in the economy—and public spending. There is no gap between the projected growth in the economy and in public spending. The figure for public spending is 2.5 per cent, which is the same as a neutral view of growth. In any case, there is a margin of error so that the fiscal rules will still work even if growth is only 2.25 per cent. 915 I ask him to look back at the Red Books of Conservative governments over the 1990s, when the forecasts for growth and income from taxes were grossly exaggerated year after year.
The noble Lord described this as a comprehensive taxing review. We shall come on to taxing in due course. He did not notice that we have stopped using the word "comprehensive".
The third question was what we were doing with the money. The noble Lord made a curious argument about the number of public sector jobs rising, citing in evidence the Wednesday Society supplement of the Guardian. He did not look in the Nursing Times, The Times Educational Supplement or any of the journals that advertise jobs for people in the front line of public services. If he looks at the real figures he will find, for example, that there are 5,000 more doctors than there were when we came to office and 10,000 more nurses. There are many more examples. If the party opposite seeks to make progress by revising the Parliament Act 1911, I do not think they can be taken seriously as economic critics.
The remarks of the noble Lord, Lord Taverne, were even more interesting. He argued that, because we accepted the Conservative spending plans not only in the first year, about which had no choice, but also in the second, that somehow represents what he called "stop-go" in public expenditure.
The noble Lord ought to look back at his own party's manifesto for the 1997 election. He ought to look at Liberal Democrat targets for public expenditure on education, health, policing and a whole series of public expenditure issues. What he will find, time after time, is that the Liberal Democratic Party is the party of low public spending. It ill becomes the Liberal Democratic Party now to complain when the prudent management of the economy shows that we can, within strict fiscal rules and without abandoning prudence in any way, surpass the objectives which the Liberal Democratic Party thought it proper to put before the people in May 1997.
§ 8.50 p.m.
§ Lord Lipsey
My Lords, did my noble friend by any chance notice the opinion poll in the Economist, the Angus Reed poll, which indicated that voters in Britain, uniquely in the world, put higher public spending ahead of lower taxes in their list of priorities? Does he therefore agree that the Chancellor has today set out excellent terrain on which the Government can fight the next general election against an Opposition whose attitude to public services and public servants was so graphically displayed by the noble Lord, Lord Saatchi?
§ Lord McIntosh of Haringey
My Lords, it is not for me to go further than I have done in analysing the achievements and motives of noble Lords opposite. I respond to them only because they say these things and it is open to me to respond. I do not think that it is open to me to respond when my noble friend makes equally valid points. Certainly, the value of public service was 916 allowed to decay very seriously over the past 20 years. We are seeking to restore it, and I believe that in these spending plans we have the means to do so.
§ Baroness Hogg
My Lords, I must offer an apology to the Minister, first, for interrupting him, and secondly, for missing the beginning of the Statement. I can assure him that I had read the Statement and indeed listened to it in another place.
Perhaps I may ask the Minister to elucidate a couple of points in this well-padded but in some ways uninformative document produced by the Treasury. Perhaps I may raise one point on which I gave the Minister notice. There is talk in the Statement, rightly, of increases in public expenditure. However, before turning to the statistical annex to the document and looking at what is actually happening as a result of this announcement in the year that is just beginning, I find that, so far as the Chancellor of the Exchequer is concerned, charity seems to begin at home. The only department whose expenditure is increasingly significantly in this year as a result of the plans set out in the Statement is the Chancellor's department. Will the noble Lord explain why that is the case?
A more general point on which I should be grateful for the noble Lord's explanation is the relative weight of the figures given today for real terms increases and for cash figures. We heard a great deal in the Statement about increases in real terms over a period of up to three years. In the document, however, figures are given in cash terms. Therefore, without wishing to labour the point, will the Minister say to which of those the Government are committed? This is particularly relevant, if I may give an example, when we look at the figures for defence. There is a great deal of talk in the Statement about the first real terms increase in defence spending. When we look in the document, we discover that the real terms increase averages 0.3 per cent over the next three years. If it is the cash numbers to which the Government are committed, it takes only a small variation in the rate of inflation over this period for this real terms increase to disappear. If on the other hand it is the real terms increase to which the Government are committed and they have moved away from a long period of cash budgeting, we should be told explicitly that these real terms increases are precisely what the Government are committed to.
When we come to the measurement of inflation in relation to all the increases, perhaps I may ask the Minister one more question. It relates to an Answer that he gave me recently at Question Time on how inflation is measured. I asked him why it was the case the new statistics commission had had excluded from its remit a consideration of the measures of inflation collected in relation to the retail prices index. His response was that when the commission was set up, he was sure that it would be able to look at whatever it wanted. I wonder whether he can confirm that to me, because the Treasury tells me otherwise.
917 Finally, I rarely disagree with the noble Lord, Lord Lipsey, but he cast some aspersions on the attitude—
§ Lord Bach
My Lords, will the noble Baroness give way? I am sorry to interrupt her, but the convention is fairly clear. Comments and questions for no more than two or three minutes from each Back-Bencher is considered the norm—
§ Lord McIntosh of Haringey
§ Lord Bach
"If that", my Lords, as my noble friend with much more experience than I tells me. I wonder whether the noble Baroness would mind winding up her questions now.
§ Baroness Hogg
My Lords, I shall certainly do so, and I shall take up my point with the noble Lord, Lord Lipsey, later. I ask the Minister to have reference to the comment of the Secretary of State for Education on civil servants before casting aspersions elsewhere.
§ Lord McIntosh of Haringey
My Lords, the noble Baroness did indeed, in the corridor a few minutes before I entered the Chamber and before I had a chance to check any figures, draw my attention to the figures for the Treasury. As she well knows, the Treasury is a very small organisation with well under 1,000 staff and very few capital assets. The expenditure under that heading is largely for the Inland Revenue and Customs and Excise. The test for that is surely how much it costs to collect each £1 or each £1 million of taxation or excise duty. I shall gladly write to the noble Baroness on the subject, but I think she will find that the cost of collection in those terms is not rising.
The noble Baroness asked whether the figures that I quoted are indeed real terms figures. Yes, they are. Every time that I said they were real terms figures, I referred to "real terms" in the light of forecast inflation. As the noble Baroness well knows, although her party does seem to be willing to admit it, inflation has been exceptionally stable over the past three years. While not giving any absolute assurance that it will continue to be stable, the policies of price stability appear to be working. So far as concerns the changeover from cash to resource accounting, we are still in the middle of it. These figures are presented in resource account terms. The noble Baroness will observe that resource expenditure and capital expenditure are separated out in the White Paper for each department. But there are still elements which it has not been possible to allocate as between capital and revenue, and those will fall into annually managed expenditure rather than departmental expenditure limits. It is the custom of this House that I should reply to only two questions, and I have done so.
§ Lord Ezra
My Lords, accordingly, perhaps I may put two questions to the noble Lord. First, I was amazed at his remark on the Liberal Democrat approach to public expenditure. I have spent a number of years in this House and throughout that period I 918 have pressed very hard for increased expenditure on infrastructure. A basic theme of our thinking has been affordable increases in public expenditure. Perhaps the Minister will comment.
Secondly, I should like to draw the Minister's attention to the difficulties that manufacturing industry presently faces, on which we shall have a short debate later. Will the noble Lord indicate what proportion of the extra expenditure announced today will be of direct benefit to manufacturing industry?
§ 9 p.m.
§ Lord McIntosh of Haringey
My Lords, I do not claim to be an expert on the expenditure plans of the Liberal Democrats. If any noble Lords on those Benches look at their manifesto for May 1997, they will find that their expenditure targets fall below the plans which the Government have announced today. The noble Lord, Lord Ezra, is a doughty defender of tax and spend, and I admire him for that. He should look at his own publications first.
As regards manufacturing industry, a very useful and sensible question has been raised which will be answered by my noble friend Lord Sainsbury in a following debate. I say to the noble Lord that there is direct support for manufacturing industry in the White Paper. I gave the example of the promotion of the Small Business Service as evidence of that. Most of the things that we are doing for manufacturing industry do not occur here, but in the Budget which is concerned with taxes. The fact that we have among the lowest rates of corporation tax and 100 per cent capital allowance for investment in information technology, and so on, is evidence of that although those provisions do not appear in this Statement.
A whole range of government expenditure on education, health, transport and other things is for the benefit of manufacturing industry. If people are to be available to work in manufacturing industry and if the industries are to be successful, they have to have investment, particularly in education and training, provided for in the spending plans.
§ Baroness Gale
My Lords, I congratulate my noble friend the Minister on bringing such good news to the House tonight. Part of that good news was investment in education and in our children's future and the continuing crusade by the Government to lift children out of poverty. Those factors are very good news. I especially thank the Minister for bringing to the people of Wales the good news of the biggest increase in public spending in Wales. I was particularly pleased to hear about Objective 1 funding for Wales. Does the Minister agree that that funding will go to parts of North Wales, west Wales and in the Valley areas, in which I am particularly interested as I live in the Valleys? Does he agree that that is one of the most deprived areas in the country? Objective 1 money will be of great assistance. I am sure that this settlement will be warmly welcomed by the people of Wales. 919 When they hear of it tonight and of Objective 1, there will be "Songs of Praise" to the Government from the people of the Valleys of Wales.
§ Lord McIntosh of Haringey
My Lords, I should have liked to hear that. It could not have come from anywhere better. My noble friend is right to draw attention to Objective 1 funding. We do not ourselves determine that funding any more than we have determined Objectives 2 and 3 other than by putting forward a good case. The really significant point about the Statement—this is the first time that it has ever happened—is that we have guaranteed that we shall provide the matching funding from public funds to ensure that we do not lose any European funding. We shall cover the full forecast increase in structural fund receipts. That has been a bone of contention in the more deprived regions of our country for many years. Quite a change is being made here and I am glad that my noble friend recognises how important that is.
§ Lord Sheppard of Didgemere
My Lords, I find it difficult to comment on the quality of spend because, understandably, there are so many things still to come. I hope that the transport strategy to be announced on Thursday has some numbers attached to it. Even more important than numbers, I hope that there is some action in the strategy. We have had a great number of words in the past three years. I do not know what it is like in Wales, but the economy of London is really suffering. The business economy is suffering. The business community has stated quite clearly what we need. A great deal of the money can come from the private sector. Shall we hear fewer words on Thursday and have some action on solving some of our transport problems?
§ Lord McIntosh of Haringey
My Lords, the distinguished service of the noble Lord, Lord Sheppard, in promoting business in London is well known. It is outstanding. The whole country is grateful to him and his colleagues for it. I have not seen the transport plans. I do not know what the balance will be between words and figures. Taking this White Paper as an indicator of what is going to happen at inter-departmental level, I believe the prospects for a sensible, action-based, realistic series of transport plans to be announced on Thursday are rather good. The noble Lord, Lord Sheppard, and I will both have to wait and see.
§ Lord Desai
My Lords, at £1 billion a minute, perhaps I may ask my questions quickly. I join many others in welcoming the increase in DfID's expenditure. I welcome the fact that the Government have now met the target of 0.3 per cent of GDP for foreign aid. Can my noble friend assure me that that figure will be sustained for the future? In addition, I welcome the cross-departmental initiative in helping conflict resolution. Can my noble friend assure me that the Government will keep to that innovation?
§ Lord McIntosh of Haringey
My Lords, I thought that my noble friend was going to ask more than two 920 questions. I should have had to deny him as I denied the noble Baroness, Lady Hogg. He was very restrained and I am grateful to him. We have announced today public expenditure figures for the years 2001 to 2004. There can never be any indication of what will happen after that. Even announcing the figures three years in advance is a very considerable improvement on what has been the habit of governments of all parties—this is not a party point—over many years.
My noble friend points out that we have achieved the first target that we set ourselves for international development and aid as a percentage of gross domestic product. I am sure that he and others will press for that to continue beyond the year 2004. I am sure that Clare Short will be very sympathetic towards that. I can confirm that in both cases the amounts of money which are to be allocated to international aid and conflict resolution will continue throughout the period of the spending review. That is as far as any government can ever go about future expenditure.
§ Lord Davies of Oldham
My Lords, does my noble friend agree that the characteristic feature of the proposals is the emphasis on investment? Is my noble friend aware of the contrast between that and the circumstances 20 years ago when the government were also well funded through increased oil revenues but used them to reduce taxation and not invest in the necessary services of the country?
§ Lord McIntosh of Haringey
My Lords, in a sense what is proposed for investment expenditure is an understatement rather than the reverse. What we now propose, and flagged up in the 1998 comprehensive spending review, is a doubling of public expenditure on investment as opposed to revenue. The changeover from cash to resource accounting makes it possible for the first time to identify investment and for investment expenditure to be amortised over the life of the assets created by investment. Beyond that, our success in encouraging the private finance initiative, and the only two large private/public partnerships for the London Underground and National Air Traffic Services, indicates that the total amount of investment in public projects, including public and private investment, will increase beyond the figures given in the White Paper.
§ Lord Northbrook
My Lords, I should like to put two questions to the Minister. First, I understand that the Government have projected economic growth at 3 per cent this year and 2.5 per cent next year. Is that not high by historic standards, particularly in view of the slow-down in the US economy? Secondly, unemployment, social security and debt interest account for only 17 per cent of additional spending. The assumption is that spending in these fields will increase by only 1.5 per cent each year compared with 2.5 per cent in previous plans. The Government's assumption is that they can keep social security spending from rising faster than the rate of inflation. Is that not risky in the longer term?
§ Lord McIntosh of Haringey
My Lords, I do not believe that any of these assumptions is risky, except in 921 the sense that none of us can be certain about anything in the future. The noble Lord's comments are rather surprising in the light of the fact that a few minutes ago his own Front Bench appeared to doubt our growth projections from the opposite direction. These are very prudent figures which take into account the possibilities of lower growth than our realistic median trend projection and lower receipts from taxation. If the noble Lord's greatest concern is social security expenditure, the fact that we have created 1 million jobs since we came into office will not be reversed in the timescale with which this review is concerned.