HL Deb 15 July 2002 vol 637 cc977-99

4.2 p.m.

Lord McIntosh of Haringey

My Lords, with the leave of the House, I shall now repeat a Statement being made in another place by the Chancellor of the Exchequer. The Statement is as follows:

"The long-term funding we announce today for Britain's public services is possible because the bills of economic failure in unemployment and debt have been radically reduced; the state of our public finances is strong; and, despite uncertainties in the global economy, inflation is under control, interest rates have been low and stable, and employment and growth continue to rise.

"In this period in global financial markets of greater instability, our task and our determination—as always—is to remain vigilant and committed to sustaining monetary and fiscal stability, with the strength to take the right long-term decisions. And I can tell the House that over the economic cycle we will not only meet all our fiscal disciplines and rules but we are on track to meet our fiscal disciplines and rules with a margin for prudence even on the most cautious case and even on the most cautious assumptions.

"Indeed, it is so that we can steer a course of stability across the economic cycle that we have reduced net debt from 44 per cent of British national income in 1997 to 30.4 per cent last year—in contrast to 41 per cent in the US, 53 per cent in the euro area as a whole and 59 per cent in Japan.

"So, as we set out in the Budget, Britain's debt has been reduced to the lowest level of national income in the G7 and the lowest of all our major European competitors.

"Having last year paid off more debt in one year than all of the previous governments in the past 50 years, I can report that this year debt interest payments will be lower as a share of national income than they have been at any time in nearly a century.

"Twenty years ago, debt interest payments consumed 4 per cent of national income. Debt interest is now half that: just 2 per cent—a saving worth £20 billion a year. Those extra resources have made it possible to recruit more nurses, more doctors, more teachers and more police than at any time in the past two decades.

"Twenty years ago—indeed, 10 years ago also—1.6 per cent of national income was spent on the costs of unemployment. I can report today that this year we will spend just 0.4 per cent, savings worth a further £10 billion a year.

"It is through maintaining a steady hand on the public finances at all times that we are able to meet our fiscal rules and match our reforms with new resources so that efficient, strong public services play their part in delivering a modern Britain of greater opportunity and security not just for some but for all.

"I can report to the House that, holding strictly to the total spending envelope I set out in the Budget, we are raising departmental spending from £240 billion this year to £263 billion next year, to £280 billion in 2004–05, and to £301 billion in 2005–06. In total, by 2006, there will be £61 billion a year more for improved public services.

"While 10 years ago only 50p of every pound of additional expenditure went to the public services, the rest having to be spent on debt and social security, in this review almost 80p in every additional pound is going directly to improving public services—and of the remaining 20p most is being spent not on debt interest or unemployment but on improved pensioner and children's benefits.

"In each area of service delivery, from housing to education and from policing to defence, we are tying new resources to new reform and results, developing a modern way for running efficient public services: setting demanding national targets; performance monitored by independent and open audit and inspection; front-line staff given the power and flexibility to deliver; extending choice; rewarding success; and turning round failing services.

"I can also tell the House that, over the next three years as we reverse the backlog in investment, our projections—other than the commitments to health paid for by national insurance—from 2006 are based on real terms increases in spending on public services at 2.5 per cent a year.

"With this review's decisions we not only will continue to address past decades of chronic under-investment in education, health, transport and housing but we will rise to new challenges in a changed global environment—challenges internationally including the essential duty of fighting terrorism, and challenges here at home as global economic competition brings vastly increased opportunities but also increased insecurities: the role for government—by expanding educational, employment and economic opportunity and by encouraging stronger communities—to enable and empower people to make globalisation work for their families and their future.

"First, to respond to global insecurities and the new fight against terrorism, the Secretary of State for Defence is announcing that the budget for our Armed Forces who have served our country overseas with courage and distinction, not only in Afghanistan but recently in Kosovo, Macedonia and Sierra Leone, will rise from £29.3 billion this year to £32.8 billion by 2005–06: £3.5 billion a year higher. That is the largest sustained real terms increase in defence spending in 20 years.

"Since the tragic events of September 11th, international co-operation—and, led by the Prime Minister, Britain's international engagement—has assumed a new importance. So the Foreign Secretary's budget will rise from £1.3 billion this year to £1.5 billion by 2005–06. Within this we will strengthen the work of the British Council, whose budget will rise from £157 million a year to £185 million—and the budget for the BBC World Service, whose 160 million a week audience is now its largest ever, will be £38 million a year higher by 2005–06.

"In meeting the urgent moral challenge of combating international poverty, the question is how a strengthened commitment by our country can inspire a step change in aid from all the richest countries in order to fulfil the millennium development goals: to halve poverty, cut child mortality by two-thirds and deliver primary education for all.

"So the Secretary of State for International Development is announcing a rise in UK aid from the £2 billion it was in 1997, and the £3.3 billion last year, to £4.9 billion by 2006—the biggest ever rise. That is a 35 per cent real terms increase since 2001 and a 93 per cent real terms increase since 1997, from the 0.26 per cent of national income we inherited and 0.32 per cent today to 0.4 per cent by 2006. And by untying aid and targeting aid on the poorest countries, we ensure that more money goes to tackle poverty than at any time in the history of British aid.

"Starting with our dialogue with Churches and non-governmental organisations next week, onwards to September's Johannesburg summit and IMF-World Bank meetings, we want this new finance from our country to be an encouragement and a signal for a new 50 billion dollar international financing facility involving all rich countries: a new alliance against poverty which recognises that by meeting our moral obligations to the poorest of the world we advance opportunity and security for all of the world.

"At the heart of our spending decisions this year is a set of major economic reforms to expand our national wealth so that Britain can be more productive and prosperous and make the most of new opportunities in the global economy. Invention and innovation are the key to long-term national competitiveness, so in partnership with the Wellcome Trust we will create and fund a new national centre for excellence in science teaching and, after rigorous selection of priorities within the industry budget away from the old loss-making subsidies of the past, I can announce a 10 per cent real terms annual rise in the science budget and, by 2005–06, £1.25 billion extra a year for science.

"Britain must not make the mistakes in science education in the next generation that we made in the last and so, to fund a new generation of young British scientists, we will implement the Roberts report—on average a £4,000 rise in science post-doctoral research council pay, with the average stipend for research council PhD students rising to over £13,000 by 2005–06—even after inflation, twice what it was in 1997.

"We will encourage a third role for universities beyond teaching and research—the commercialisation of new discoveries—with the Higher Education Innovation Fund rising to £90 million a year by 2005–06 to ensure that more British inventions become British manufactured products, creating British jobs.

"To remove barriers to productivity growth in the north and south of our country, the Deputy Prime Minister will this week announce reforms to our planning system, including new business planning zones to ensure development and create jobs in high unemployment areas. He will also announce new funds and plans for meeting housing needs south and north—throughout the country—ensuring we make good use of the space in our existing towns and cities while protecting valuable countryside around them.

"Because a successful rural economy is vital to both rural areas and our entire economy, the Secretary of State for Environment, Food and Rural Affairs is announcing today she will implement the core recommendations of the Curry report to promote sustainable farming. To make this possible, and to improve Britain's flood defences, her budget will rise from £2.5 billion this year to £2.9 billion in 2005–06—an annual average rise of 2.7 per cent a year after inflation.

"To secure balanced economic development in every region—tackling regional weaknesses, building on regional manufacturing and industrial strengths—we must decentralise decision-making out of Whitehall. I can announce that our nine regional development agencies will now have a strengthened local role in transport, tourism and housing. To pilot further devolution from Whitehall for services to small businesses and adult skills, and to reverse decades of indifference to and neglect of our regions, budgets for RDAs will rise from £1.6 billion this year to—by 2005–06—£2 billion a year, as local people make more of the decisions about meeting local needs.

"Addressing the long-term under-investment and neglect of transport is vital to both economic prosperity and our quality of life. To deliver the 10-year plan, the transport budget will rise from £7.7 billion this year to £11.6 billion in 2005–06—in total, over the next three years, a 12 per cent a year real terms increase. The Transport Secretary will also consult on the long-term need to increase airport capacity.

"To secure a more competitive environment and to root out anti-competitive practices, the budget of the Office of Fair Trading will increase from £34 million this year to £55 million by 2005–06. We are determined that everything is done to ensure the highest corporate standards and next week, in the light of Enron, the Secretary of State for Trade and Industry will put before the House the interim report on accounting and audit reforms.

"There are now 1.5 million more men and women in work than five years ago and unemployment in Britain is now lower than in Japan, lower than in America, lower than in every other major European country. For the first time for 50 years Britain has the lowest unemployment of any major industrialised nation. But, because we will never be complacent as long as people who can work are out of work, we need further reforms matching rights and responsibilities to help people acquire more flexible skills and new jobs so they can succeed in the changed global economy.

"Having in the last five years ensured that 1,750,000 men and women have benefited from the New Deal, the Secretary of State for Work and Pensions will roll out nation-wide by 2006 the successful Jobcentre Plus one-stop service, helping young and adult unemployed, lone parents and the disabled seeking work.

"Having already raised further education student numbers to 4 million and raised modern apprenticeships from 75,000 in 1997 to 220,000 today, the Secretary of State for Education and Skills will announce new money and tough targets to reform further education, improve workplace skills and expand modern apprenticeships to over 300,000 in 2004.

"To ensure British business has the skills it urgently needs today, the Home Secretary will expand the work permit system for key workers from 50,000 in 1997 to an expected 175,000 next year.

"While overall there are 60,000 more small businesses than there were in 1997, even more British people should have the opportunity to become self-employed or start their own firm. So the corporate tax cuts in the Budget and the stamp duty exemptions for high unemployment areas are matched in this review with new help for start-ups by raising the Small Business Service budget and by extending and increasing the Phoenix Fund from £100,000 to £150,000.

"To meet our long-term aim that in every area of the country every pupil is introduced not just to the world of work but to the world of business, we will fund an expansion of enterprise education from less than 1,000 schools today to all our 3,500 secondary schools.

"One of the greatest challenges to our future is to protect and safeguard our environment through sustainable development and to advance towards our 2010 targets—20 per cent less carbon dioxide emissions, 10 per cent of electricity from renewable sources. The spending review will, in addition to financing the £100,000 fund for the development of renewable technologies, provide in 2005–06 an additional £38 million for sustainable energy initiatives.

"Let me now turn to the public service investments this spending review makes to help those who contribute through public service to build stronger, more secure communities.

"We know that an enterprising economy with opportunity for all requires a fair society where there is security for all. But we also know, those of us who believe in the importance of public services, that we have a special duty to make sure public money is spent wisely and efficiently, and we are as determined to secure value for money as we are to secure money for services.

"So, first, the Government are today publishing new public service agreements setting out agreed outcome targets and reforms for each department. Second, with independent audit and statutory inspection, departments and agencies will be fully accountable for performance against targets. So in addition to the new Police Standards Unit we are creating the new health and social care inspectorates, a reformed criminal justice system inspection regime and a single Housing Inspectorate. Third, in each service area the review's decisions promote choice and devolve responsibility, authority and flexibility from the centre out to local and regional decisionmaking—to primary care trusts, head teachers and governors in schools, police commanders, and local service providers.

"One essential feature of this year's spending decisions is that voluntary, charitable and community organisations will also receive significantly increased funding to support their chosen role in delivering local services.

"Just as sustained economic growth demands responsibility in setting private sector pay, so too a sustained commitment to better public services demands responsibility in setting public sector pay.

"When a service is underfunded or when it is under-performing, people are let down. So 'while public service providers who perform well will be given more resources and more authority to innovate, in this review departments have set as a condition for more resources that failing institutions will be dealt with early and decisively.

"Poor-performing schools will be subject to takeover by new leadership or by a neighbouring school, or closed and reopened as a new school. Failing local education authorities will be subject to takeover by high-performing authorities. Poorly performing colleges will be subject to loss of funding from learning and skills councils with provisions for necessary college mergers. Poor-performing social services and housing departments will have new directors and senior managers. Poor-performing local authorities will first be subject to a recovery plan to tackle bad performance and, if this is insufficient, will be subject to new managers or takeover of functions. Just as the Home Secretary is taking power for police reform, prisons that under-perform will need to improve or face new management drafted in. But in every case at the same time we will also incentivise and reward success, with high-performing institutions receiving new resources and greater autonomy, new freedoms and more flexibility.

"So just as in the Budget resources for health were matched by reforms in health, so too behind each decision we are making today—from housing to crime, from urban renewal to education—the Government's standard is clear: for more given in resources, more is required in results. This is our modern vision for public services. I can now announce new investments that will improve our services and strengthen our communities.

"After long decades of persistent neglect that left Britain's housing stock inadequate and substandard, since 1997 we have increased our investment in housing from £2.3 billion to £4.8 billion this year. Now, as the demand for new and better housing grows in a growing economy, it is time for a further step change, with the most sustained rise in housing investment for 25 years.

"On Thursday the Deputy Prime Minister will make a Statement to the House on his reforms: new homes for social tenants and key workers, including low-cost home ownership in London and the South East and plans to tackle homelessness and upgrade old properties in all regions where housing need exists. To pay for this, by 2005–06 we will invest £5.9 billion a year—a 105 per cent real-terms rise in housing budgets since 1997.

"Neighbourhood renewal is not just about bricks and mortar; it is about renewing community life. This depends on more economic activity, more businesses and more jobs. Having raised investment in social and economic regeneration in 88 hard-pressed neighbourhoods to £300 million this year, we will increase the Neighbourhood Renewal Fund again to £525 million a year by 2005–06.

"As we sign public service agreements with our local authorities to match resources to reform, the Deputy Prime Minister will set out details on Thursday of an annual real-terms rise for local government of 4.2 per cent a year over and above inflation—well above the average settlements until 1997.

"The mark of a decent society is the dignity it accords its elderly. So the Secretary of State for Work and Pensions is announcing the extra resources necessary to deliver the pension credit to nearly half all pensioner households from October next year—worth up to £14 extra per week for single pensioners. That is a measure for which I hope there will soon be all-party support. Following the Pickering and Sandler reports, a consultative Green Paper will be published in the autumn, while the Secretary of State for Health will announce how the extra 6 per cent real-terms growth in social services budgets will improve community care for the elderly.

"Britain's disabled need and deserve a better deal. So I can also announce that, having created the Disability Rights Commission to oversee and enforce the rights of disabled people, we will raise its budget to 2006 by 14 per cent in real terms.

"I have said to this House that our children are 20 per cent of our population but 100 per cent of our future. So to realise our goals of nursery education, better childcare and a sure start for the very young, I am announcing, after a major interdepartmental review, details of a new integrated budget for children—for childcare and early-years learning—worth by 2005–06 a total of £1.5 billion a year. Following the review, there will be new ministerial arrangements for childcare policy.

"By October 2004, every three and four year-old who needs it will have a nursery school place. We are also expanding Sure Start to meet the needs of up to 400,000 children. We will now increase investment in childcare, with funding for an additional 250,000 childcare places.

"Parents have said to us that communities are far stronger and children far more secure where there is a focal point for a wide range of children's services. So I can announce that we will fund the creation of children's centres across the country, providing services for an additional 300,000 children by 2005–06.

"At the heart of the next stage of children's services are voluntary and community partnerships that are increasingly a vital link between the needs children have and the help they receive. In each of our constituencies there are hundreds of voluntary and community organisations. Throughout the country, hundreds of thousands of volunteers help millions of people, giving everyone in Britain at different times in our lives the chance to serve, to get the balance right between what we do for our country and what our country does for us.

"So that the vitality and independence of the charity, community and voluntary sector can grow and flourish, the Chief Secretary is today announcing details of a new three-year fund of £125 million that voluntary organisations can draw upon for their public service work. I can also confirm that the budget for the children's fund, helping volunteers and charities assist vulnerable children, will be £200 million a year to 2006. There will be an additional £25 million over three years to support the growth of local parental support. We are also extending the £20 million support to community amateur sports clubs, not just for one year, but for each year to 2006.

"Since museums were opened free to the public there has been a 75 per cent rise in attendances. The Secretary of State is announcing a budget increase for culture, media and sport, including additional funds for tourism, from £1.3 billion this year to £1.6 billion by 2005–06. With this increase, Britain will maintain free access to national museums, invest in regional museums, expand local creative arts partnerships and, to open up sport to all, there will be not only additional support for sports clubs but funds for much needed investment in school sports facilities and new finance for extra sports coaching in the years to 2006—in time for the next World Cup. Similar allocations are necessary and will be made for Scotland, Wales and Northern Ireland.

"Stronger communities must be safer communities where rights are matched by responsibilities. So we are committed to getting more police out on to the streets and to making crime fighting more effective. With his new reforms in place, the Home Secretary will announce the details of the rise in the Home Office budget from £10.7 billion this year to £13.5 billion by 2005–06— an increase of nearly £2.9 billion a year by 2005–06. This will ensure that, in addition to police numbers rising next year to 130,000, there can be reforms to speed up the asylum system, to strengthen internal security and to enable the criminal justice system to tackle both crime and the causes of crime.

"The long-term vision for the criminal justice system—and how we match policies for opportunity for all with policies for security for all—will be provided by the Home Secretary when he publishes the criminal justice White Paper.

"Ministers in the devolved administrations will make separate announcements outlining their plans to allocate the additional £4.1 billion a year set aside by 2005–06 for all devolved functions in Scotland, £2.3 billion pounds a year more by 2005–06 for Wales, including continued funding of Objective 1 by 2006, and £1.2 billion a year more by 2005–06 for Northern Ireland, including funding of the European peace initiative.

"I turn to education. What happens in our schools in this decade will shape our society and our economy for much of this century. We cannot equip children for the 21st century in classrooms built in the 19th. So capital investment to modernise our schools, which was raised from £680 million in 1997 to £2.25 billion last year, will be raised again to £4.5 billion a year by 2005–06—a 400 per cent real-terms increase since 1997 in capital investment, hacking up our additional 20,000 teachers.

"The increased funds for investment, improved access and excellence in further and higher education—including our universities, building on the 100,000 additional students since 1997—and the reforms essential to meet our targets will be announced by the Secretary of State for Education and skills. But we will only achieve our goals for further and higher education if we persuade more young people to stay on at school. Thirty years ago, the school leaving age was raised to 16. But Britain cannot reach its full potential as long as nearly a quarter of 16 to 18 year-olds are not in education or training. For decades Britain has suffered the worst drop-out rate from school of any industrialised country.

"The Secretary of State for Education and Skills has set out reforms to the curriculum for 14 to 19 year-olds. We must now ensure that no one is prevented from staying on for the qualifications they need through lack of income.

"Already, in one-third of England, income-related education maintenance allowances have substantially raised staying-on rates. So I can announce today that, from September 2004, we shall extend this successful experiment to all the country with, for those who stay on and study, education maintenance allowances worth up to £1,500 a year. We shall fund this major advance in educational opportunity from savings that we have made from our success in reducing unemployment and debt. Demanding the highest standards for all is the modern route to realising opportunity for all.

"Those of us seeking improvements in education are determined that the numbers in the education budget are matched by reform to secure better results for pupils in schools all across the country. As we said in detail in our 1997 manifesto, resources and reform are equally important—one cannot be achieved without the other.

"Having helped teachers and children to achieve a step change in standards in primary schools—today 75 per cent achieve the expected literacy standards at the age of 11 compared with just 57 per cent five years previously—the Education Secretary will tomorrow announce her reforms to raise standards, enhance choice and diversity, and tackle poor pupil behaviour in our secondary schools so that schools can develop the talents of all We shall back those reforms with resources.

"In the 2000 Budget, the Government introduced a single payment direct to schools starting at £15,000 for primary schools. I can announce that to help to deliver schools reforms, the details of which will be set out by the Secretary of State for Education, the typical primary school will receive £50,000 next April—£ 10,000 higher than this year—and £50,000 each April for the next two years to 2005–06.

"Head teachers of the typical secondary school, who this April received a payment of £115,000, will receive next April a payment of £165,000 —£50,000 more—rising to £180,000 each April for the next two years. Over three years, for the typical secondary school, a total of £0.5 million in direct payments will be paid to every head teacher to be used for each school's priorities.

"We must also back good leadership, which is raising achievement levels in the most challenging areas, and help schools that are behind to catch up as we set minimum targets for improved standards at 14 and 16. So, for 1,400 secondary schools we shall match demanding new performance targets with an extra annual payment of an additional £125,000 direct to each school and direct to each head teacher. For those 1,400 schools, combining this leadership incentive grant and the direct payments that I have already announced, the budget for head teachers will rise to £300,000 a year. Over three years almost £1 million will allow our schools to replace weak leadership, attract the best teachers and improve their facilities.

"For this Government, reform and resources go together. We know that to demand reform when you would deny resources is a betrayal of our children. So I can now announce the total new resources for education. Compared with growth of lower than 2 per cent a year in the 18 years to 1997, there will be a real terms rise for education in England, even after inflation, of 6 per cent a year for each of the next three years—the biggest sustained rise in a generation.

"The education budget for England, which was £29 billion in 1997 and £45 billion this year, will rise year on year over the next three years to £49 billion, £53 billion and then £58 billion. That is what we mean by "education, education, education". By 2005–06, £15 billion more a year will be available for UK education and £13 billion more in England.

"Spending per pupil, which was just £2,700 a year in 1997 and £3,500 last year, will rise to £4,900 per pupil by 2005–06. After inflation, that is 50 per cent more per pupil than in 1997. I challenge anyone in this House to claim that public services are their priority and then to say that £4,900 per pupil is too much to invest in our children's and this country's future.

"This is a Budget for the health service, a spending review for education, and, as we promised, schools and hospitals first. I commend the Statement to the House".

My Lords, that concludes the Statement.

4.34 p.m.

Lord Saatchi

My Lords, first, I congratulate the Minister on his delivery of the Statement and wish his sore throat better as soon as possible. I also say straight away that there are several aspects of the Minister's Statement that we want to study in more detail and others to which we are happy to give a welcome immediately—in particular, the extra spending on the war on terrorism and defence and also the increased budget for international development.

Of course, as the Minister said, it is also a fine and worthy aim to help students to stay longer in school. Perhaps he will comment later on how that might be paid for and, in particular, whether child benefit will continue as a universal allowance.

Having said that, I wonder whether, after that stirring performance, the Minister would be disappointed to learn that in the latest research in word association tests, in which people are invited to select the word from a list which they most identify with the Government, the word that they now pick is "disappointment". That may be because this is the third time that the Government have announced the results of a major spending review; it is the third time that people have heard how much more money is to be spent department by department; and it is the third time that the Chancellor has made promises about improving our schools, hospitals, transport and so on.

But, after six Budgets, five years in office and three spending reviews, the outline of an unattractive conclusion is beginning to form in people's minds; namely, the Government may not know how to bring about the improvements in public services that they want to see. Therefore, as I believe the Government say, this Statement is a defining moment for them.

It was in this year's Budget that the Government, ever watchful of the public mood, sensing the danger and running out of the clever taxing and accounting devices on which they had relied successfully for many years, hit on a startling new plan. In this Budget, a new concept emerged in the Government's mission statement—a most blasphemous of possibilities that one hardly dares whisper its name. It was "sincerity".

Before this Budget, any impertinent functionary in the Treasury who embarked on the route of openly justifying tax rises, perhaps with a page of prose of engaging frankness, would find that a bolt of lightning struck the pen from his hand. But now, perhaps unable to find more invisible tax rises and nervous that the public might see through them in any case, the Government declared that in order to pay for all the spending about which we have just heard there would be more tax in the form of national insurance contributions which would be spent, in particular, on health. What mean-spirited curmudgeon, they reckoned, could disagree with that?

But the eye of the public, which is always restless in its quest for a true picture of the activities of our Government, sees instead that the money being raised is either not spent on health or, if it is spent, is ineffective. I refer your Lordships to a particularly helpful page in the Government's Budget Red Book which shows the impact of the national insurance contribution increases as raising personal tax by £4.6 billion. But one searches in vain for the equivalent amount being spent on health. Instead, in the same table one finds that the exact same amount—that is, £4.6 billion—is shown to have been spent not on health but on the Government's tax credits. Therefore, all the money ostensibly being raised for health is not being spent on hospitals but on benefits.

The Minister will say shortly that other money is being spent on health. "No", he says, "it's not hypothecated money to health", but "yes", he says, "it will be spent". Therefore, the question remains: why does it seem to have no effect and why are the public disappointed? The answer lies in what I believe to be the most accurate gauge of public sector inflation. For some reason, it is known as the "GDP deflator for government consumption". In the five years to 1998 it rose by 2.2 per cent a year. By the end of 1999 it was running at 4 per cent, rising to 5.75 per cent in 2000. In the last financial year to the end of March the figure was 6.5 per cent. That is three times the economy's overall inflation rate of 1.8 per cent.

Coming up to date, in the first quarter of this year public spending rose at an annual rate of 11 per cent. How can such a large increase have so little effect? It is because 59 per cent of that sum was eaten up by higher wages and prices in the public sector. So the effective rate of increase in spending was only 4.2 per cent year on year.

The Government now find themselves on a ratchet. They spend; they fail; so they spend even more. The public can see that too and that is why the clear message from pre-Budget and post-Budget polls is of scepticism about the direct link between spending and outcome. People have worked out that it is possible to spend more, much more, without success. For example Scotland, Wales and Northern Ireland all have spending levels per head which are much higher than those in England and, indeed, above the European average for health. But waiting lists in Wales and Northern Ireland are much longer than those in England and waiting times in Scotland are actually going up.

So the growing fear with this Government, perhaps reflected in the research I described, is that while they wear their heart on their sleeve about care, they do not seem to know how to make their good intentions come true. Take, for example, what the Chancellor calls, The first challenge is to increase our productivity".—[Official Report, 25/11/97; col. 773.] That was five years ago, and what happened? The latest figures actually show a fall in productivity in the first quarter of the year. The Government see that productivity gap with our competitors as an opportunity. They say it gives us, "increased room for catch-up". To avoid catch-up problems in the public services the Chancellor says that he is going to have new reviews and reports, targets, procedures and checks, and inspectors and audits. But in a striking passage in the Statement on the subject of value for money in the public services, the Minister described a system of rewards and punishment that would follow success and failure in delivery. In saying that he reminded us of what the Chief Secretary said; that is, Money will only be released if the Government are satisfied we are getting the returns we want". That was four years ago.

Do the Government think they will increase the productivity of the public services if they issue a new regulation every 20 minutes, as they do for business? Or will they issue 4,440 pages to hospitals next year—17 pages of rules every day—as they did to schools last year? Or will it be a czar that will make all the difference or a new No. 10 delivery unit? The public can see that the strategy has not worked and they can see why: that is, without real reform spending is not the answer.

Perhaps I can leave to one side the question of why the spending does not seem to have worked and why people may be disappointed with the results and turn to another aspect of the Statement which may be equally of interest. It concerns the effect of the failed spending effort on the economy as a whole. Let us consider the example the Government are setting to households in Britain. They say in the Statement that we can spend more than our income. So with government income (on their own estimates) growing by 2.5 per cent, they will spend 4.3 per cent more a year. The public duly take their cue.

The size of outstanding household debt, including mortgage debt, has soared. As a ratio of annual disposable income it is at an all-time high at more than 100 per cent. Non-mortgage consumer credit is growing at 12.4 per cent a year while mortgage lending is growing at 9 per cent a year. As with the Government, underlying incomes are growing more slowly at only 5 per cent, so household finances are becoming stretched. So are the Government's.

How much more will the Government need to borrow to meet the plans we heard set out in the Statement? The Statement said that the spending plans were possible because of what the Government had achieved in debt reduction. Why then do the Government plan to borrow over the next five years twice as much as they repaid in debt in their first few years? That is according to their own figures. More realistically, according to economists, undershooting tax revenues because of an economic slow-down suggests that we could expect the PSNB to approach £20 billion this year, £30 billion next year and £35 billion in 2004–05.

As we are all aware, independent forecasters have been steadily downgrading predictions for GDP growth this year. Consensus expectations have dropped to 1.7 per cent compared with 1.8 per cent in June. Some forecasts are now as low as 1.2 per cent. Remember, the Chancellor's Budget forecast on which this spending plan is based is for a growth of 2.5 per cent this year and 3 to 3.5 per cent next year.

The spending plans in the Statement threaten all the theoretical economic foundations on which the Chancellor's framework is built. The framework's three main pillars—the independence of the Bank of England, the symmetrical inflation target and the code for fiscal stability—are all much less solid than the Minister might like to think.

Can we be saved by the EU and its growth and stability pact which sets limits on government spending? I doubt that. The pact only applies to small countries. For big countries, as Francis Mer, the new Finance Minister of France, said, "Le pacte de stabilityé Européen n'est pas inscrit dans le marbre". So we are not going to endorse the Government's failed approach to public services today. Our Benches will not support their policy of spending without change. That does not mean that we are against spending more on education and the other services the Minister described. But we are against his plans to spend more without real reform because, as the record seems to show, it does not work.

If this gathering gloom were not enough, the Chancellor will soon face a stark reminder of the dark days of industrial strife. On 17th July 1.3 million public sector workers, supposed to be the beneficiaries of the Statement, are planning a one-day pay strike—the biggest industrial action for more than 20 years. The Government must be disappointed. If they would tax more, spend more and achieve something, that would be fine. If they would tax less, spend less and leave things alone, that would be finer still for some. But to tax more, spend more and make things worse is not going to be acceptable for long. O si sic omnes: if only everyone were sick of it.

4.48 p.m.

Lord Newby

My Lords, we on these Benches in general welcome the principles which underlie the Comprehensive Spending Review; namely, the need for greater levels of expenditure on our main public services and, secondly, the need to raise levels of general taxation which provide for that. That was the basis on which we fought the election (incidentally, it was not the basis on which the Government fought the election) because we believed that the key concerns of all sectors of British society—prosperous Britain, middle Britain and poorer Britain—had to do with the quality of public services which they were receiving. The quality of private goods and services they bought were often much higher than the public goods and services from which they benefited and, as with consumer goods, they wanted better quality services and were prepared to pay for them.

As consumers of public services we all want to know two principal things. First, how well will our taxes be spent; secondly, how fairly will our taxes be raised?

Today is not primarily about raising taxes, although the level of planned increase in expenditure raises important issues about what happens if the Government's growth targets are not met and also what happens at the end of the period. Have we reached nirvana at the end of the CSR period or are further expenditure and tax increases planned?

Today's key questions relate to how effectively the increased expenditure is distributed. In my view it is hardly surprising that up to now we have not had much to see for the increased spending under this Government, at least in some services. In 1999 many institutions were in debt, and in the case of schools, many of them illegally so. Many staff, particularly at the lower end of the scale, were extremely badly paid. I cannot disagree too strongly with what the noble Lord, Lord Saatchi, said on Friday in criticising the Government for allowing public sector pay to increase compared with private sector comparators. The Tories, as an act of policy, held down public sector pay disgracefully, and a correction was sorely needed. So much of the increased expenditure of the past three years has been making up the ravages of what went before.

For the period of the CSR, very large additional amounts will be spent and we must see results. The Government seek to improve their effectiveness by organisational change and, even more importantly, by targets. Why should we believe that the targets will be more effective in the future than in the past? A large proportion of the targets set under the Government's public service agreement have simply not been met. The 1945 Labour government believed that the gentlemen in Whitehall knew best; this Government tend to believe that only the gentlemen—it is still nearly always gentlemen—in the Treasury know best and they are setting down ever more targets for hard-pressed public sector workers to follow.

How do the Government believe that the changes that they seek can be met by micro-management from Whitehall? What kind of sense provides for no political accountability, for example, in the health service between the lowest organisational level and the Secretary of State? Why, for example, did the Government in the recent White Paper on regional government envisage that in health and in education, to name but two, there would be virtually no role for regional assemblies? When the Statement says that they seek to reverse decades of indifference and neglect of our regions by modest increases in the budgets of RDAs, who are they kidding? People across the regions need to be engaged; it cannot be done simply by giving a little more money to unelected RDAs.

On the subject of local democracy, is it a coincidence that the only time the phrase "local authority" appears in the Statement is when the Government explain what they will do with local authorities that they appear to have failed? On the general matter of delivery and the allocation of resources, why does the review contain no review of the Barnett formula? Why is there no attempt to match grants for the English regions to their specific needs?

On education I have two questions. First, when the Government talk about 1,400 secondary schools receiving an additional payment of £125,000 direct to each school, they refer to schools that will, match demanding new performance targets". What on earth does that mean? Does it mean that those schools are failing schools which they want to improve? Does it mean that they are specialist schools that they want to become beacons? Does it mean that they are educational priority schools? The paragraph is typical government speak which, frankly, is completely incomprehensible at first sight.

Secondly, where does the CSR leave the Government's plans for 50 per cent of school leavers to attend university? Why will the Government not admit that the negligible increase in numbers applying to universities in England last year—less than 1 per cent—was because many potential students from poorer families feared that a debt of £12,000 to £15,000 at the end of their studies was insupportable?

In the absence of a greater willingness on the part of government to devolve decision making in public services, to set professionals free to manage without constant interference from Whitehall and to give local communities greater say, our fear is that the justifiable increases in expenditure in this review will not be most effectively spent and that the case for well-funded, universally available public services will be seriously damaged. The challenge for the Government is to prove that fear unfounded.

4.54 p.m.

Lord McIntosh of Haringey

My Lords, on Friday when we had a rather short, ill attended, but high-quality debate on the Finance Bill. I was impressed by how little either opposition party had learned about the way in which Finance Bills are constructed or the way in which the 2002 Budget was constructed. Today I am reassured in the sense that both the noble Lords, Lord Saatchi and Lord Newby, in their speeches, appear to have taken account of what I said on Friday. But, so far as I can see, they have not taken any account of what the Chancellor said today. Perhaps we need another debate so that they can catch up.

In what appeared to me—I know that I am prejudiced, but you will allow that—to be an outstanding description, not only of plans for the future, of resources, and of targets, but also of achievement over the past five years, the Chancellor, every time he addressed an issue of public policy or an issue of public service, was saying not only what we shall do over the next three years, but also what we have done over the past five years.

What did noble Lords opposite believe that the Chancellor was saying about primary schools? Do they not believe that increases in literacy targets are important? What did they believe was being said about the growth in employment, the closing of the employment trap, the way in which we have, over the past five years, attained a figure of a million and a half more people in work? That could be done with a favourable economy inherited from a benign previous government: it could all be to the credit of Mr Kenneth Clarke. But that excuse has now worn thin. The noble Lord, Lord Saatchi, knows that that is not true, as does the noble Lord, Lord Newby.

They know that what is true is that there has been an increase in employment and that we have the lowest unemployment in the developed world because of the policies of this Government. The Government have made that possible through economic stability, through the minimum wage, through making work pay, through employment credits and through the encouragement of business and manufacturing industry. The Government have achieved those extraordinarily—I use the word advisedly—successful results. I heard in the speech of the noble Lord, Lord Saatchi, no recognition, and in that of the noble Lord, Lord Newby, little recognition of that catalogue of success that the Chancellor was able to give to the House of Commons this afternoon.

Every time the Chancellor talked about increased spending, he talked about improved performance. I take the example of health, although that was dealt with in more detail at the time of the Budget rather than in the Statement. The noble Lord, Lord Saatchi, says that increased expenditure on health is accounted for by higher wages. The increase has not resulted in higher wages per doctor, but there is a higher wages bill because we have more doctors, more nurses and more people working in our hospitals and because more operations are being carried out and more patients arc being treated. That is the reason for higher expenditure in our National Health Service.

I wrote down in capital letters what the noble Lord, Lord Saatchi, said as it struck me as a real give-away: "Without real reform spending is not the answer". Later he said, "We will not support spending without change". What on earth did he believe the Chancellor was saying? What was the 30-minute Statement about except to say that without real reform spending is not the answer and the corollary that without a commitment to the resources necessary all talk of reform is a sham. Frankly, unless the Conservative Party makes up its mind whether it supports the expenditure that we believe necessary for our public services and unless it either supports or says what it will do if it does not support us on the spending plans, no one will listen to what it says about reform.

Dr Liam Fox has wandered around Europe. He has come to a stop in Germany. Apparently he thinks that the peculiar blend of social insurance which Germany has—and which has been working rather badly since the incorporation of East Germany—is the solution. He will come forward to us with that solution in due course.

We know—because we know the truth and it became apparent—that Dr Fox's idea was first to convince people that the health service was not working in order to convince them that there was some magical solution other than public expenditure on health.

I do not think that much has been learned by the party opposite in the past five years. The same old charges come up. The noble Lord, Lord Saatchi, talked about 11 per cent public sector inflation. Public spending has risen overall by only 2.1 per cent in real terms each year over the past five years. Higher expenditure on services is due to the low growth in social security and the huge fall each year in debt interest payments. Public sector pay, which the noble Lord believes is where all the money will go, is projected to rise by just 1.6 per cent in real terms each year. So public expenditure is not being swallowed up by pay.

The accusation, which is never quite openly made, is that somehow we are working towards a crisis in our public finances and that it will all end in grief. The noble Lord, Lord Saatchi, did not quite come out in the open with that. He knows as well as I—and as the House knows perfectly well—that our projections for the period up to 2006 show us with a credit balance. At every stage in the past five years we have said that we would have one. We have proved that to be right.

In the Red Books of the last couple of Conservative Chancellors—I shall say only the last couple in order to be kind to some of the earlier ones—the public finances projections made have proved every time to be not just over-optimistic but wildly over-optimistic. They were never achieved year on year. Ours have always been achieved.

Fundamentally, our targets are about setting clear goals for services. There is not a multiplicity of targets. Public spending agreements have gone down from 200 to 130. They let devolved management get on with the job. I believe that that is the right way. I do not believe that the comments of noble Lords opposite have even started to dent the Chancellor's determination.

5.4 p.m.

Lord Jones

My Lords, I welcome this remarkable Statement. Does my noble friend the Minister discern the determination by Her Majesty's Government to promote, assist and defend Britain's manufacturing base? I remind my noble friend of the difficulties of the steel industry in Britain, and not least of the many jobs lost in Wales. Does my noble friend agree that Britain's premier exporting industry— aerospace—is worthy of a larger grant for research and development? A Britain shorn of her manufacturing will lose her greatness. But I end as I begin—overall, it is a remarkable and welcome Statement.

Lord McIntosh of Haringey

My Lords, I am grateful to my noble friend Lord Jones for what he says about the Statement in general. I acknowledge the difficulty through which manufacturing industry has been going, and in particular the industries to which he refers. He will have been as encouraged as I was to learn that after a difficult period we are returning to growth in manufacturing industry. After a period of virtually no growth since the year 2000 there are signs of an upturn in the manufacturing industry.

My noble friend will also appreciate—he will have a chance to read this in more detail—that the spending review encourages the manufacturing industry at its base rather than at the front line. It is the increase in the science budget, the reforms in science teaching and the credits for research and development which are surely the way that a manufacturing industry in the future—which may not be the same as a manufacturing industry in the past—will flourish. That is what the Chancellor is determined to achieve.

Lord Boardman

My Lords, does the Minister recall that the Chancellor in his speech claimed credit for his prudence and good management in reducing the public debt to a level below that achieved by many governments in the past? What he failed to do was to explain on any of these occasions how he managed to do it. Of course the reduction in public debt was largely due to the, unanticipated Spectrum receipts", to which he did not refer, which as one can glean from the Red Book with care, amounted to a reduction of £22 billion—422,000 million. The Government achieved that windfall by the sale of licences for the use of telephones. The Chancellor has never given any credit to that sum in his financial statements, which he frequently makes about the reduction of government debt.

Does the Minister feel that if the Chancellor were more frank about that windfall profit—and came clean instead of claiming prudence and good management—there would be more belief and more trust in the figures that he has quoted today?

Lord McIntosh of Haringey

My Lords, I start by expressing surprise that such a distinguished capitalist as the noble Lord, Lord Boardman, who ran a major bank with great distinction for a number years, should object to the Government getting £22 billion by selling Spectrum. I should have thought that he would be rather pleased about it.

The Government have always recognised that a significant part of the improvement in the public finances came from the sale of Spectrum. But by no means mostly, as the noble Lord would have us believe. It was a one off. If it can be achieved again for a fourth generation, I hope that we shall have his support.

The improvement in the public finances is much greater than the result of Spectrum's sales. The improvement in them by the reduction in payments for unemployment is much greater. The social as well as the financial effects are of enormous importance.

Lord Walker of Worcester

My Lords, in his Statement the Chancellor stressed the importance of encouraging voluntary movements. There is perhaps no greater example of voluntary effort in this country than the hospice movement. Is the Minister aware that when the Government came to power 40 per cent of capital and current expenditure of the hospice movement was funded from public expenditure? It has been reduced every year and is now down to below 28 per cent. Is there any chance that as a result of this Statement the hospice movement will start to receive the assistance that it used to receive?

Lord McIntosh of Haringey

My Lords, I am as strong a supporter of the hospice movement as is the noble Lord, Lord Walker. I think that the noble Lord may be a patron of the North London Hospice, as I am and as is the noble Baroness, Lady Thatcher. I cannot remember: it is a long list. I agree with the noble Lord that public expenditure is of enormous importance. It is difficult for the hospice movement because so much of it is labour-intensive. Clearly, it is as important for the hospice movement as it is for home care for the elderly and the disabled.

I hope that the noble Lord, Lord Walker, will have noticed that in the spending review Statement reference was made to the £125 million extra which is to be made available to the voluntary and charitable sector for the public services it performs. I can assure him that hospices come under the definition of public services performed by the voluntary and charitable sector.

Baroness Sharp of Guildford

My Lords, perhaps I may say how unequivocally pleased we are that extra money is going to education. That is long overdue and the extra £15 billion is vital if we are to maintain our competitiveness worldwide. How much of that money will go directly to schools and how much will go through local education authorities?

Lord McIntosh of Haringey

My Lords, my right honourable friend the Chancellor gave the detailed figures for how much will go to each school. I suppose that I could add them all up and multiply by 3,500 secondary schools to give the noble Baroness a figure, but that would be unfair. My right honourable friend the Secretary of State for Education and Skills will make a Statement tomorrow and it is better if that comes authoritatively from her rather than from me.

Baroness Dean of Thornton-le-Fylde

My Lords, I welcome the Statement. It was a broad Statement which by any objective assessment could have been made only by a Chancellor who was successful in his position, as the present Chancellor surely is and has been in running the economy since 1997.

My noble friend said that schools and hospitals come first, as they surely must. I certainly welcome that, but I also welcome the fact that the third leg of the stool, as it were, in the Statement was housing. Without decent housing, the first two services are difficult to deliver for children. As chairman of the Housing Corporation, I welcome the confidence that the Statement gives us about delivery in the difficult circumstances of increased housing needs and deprivation. I look forward to the Statement promised on Thursday by my right honourable friend the Deputy Prime Minister on planning and the whole area of housing.

Baroness Carnegy of Lour

My Lords—

Lord McIntosh of Haringey

My Lords, it is my turn, I think. I am of course grateful to my noble friend, who has been a distinguished chairman of the Housing Corporation for several years. With his characteristic modesty, my right honourable friend the Chancellor did not spell out what the increased housing expenditure will actually mean. I understand that it will mean virtually a doubling of the Housing Corporation's budget by 2005–06, which is an extraordinary change in the level of support for public housing.

I am sure that my noble friend and the corporation will use that money wisely to deal with the long overdue problems of repair to existing housing and to secure affordable housing for people, especially in the South East of the country, for whom it is short. The lack of such housing is affecting our productivity. That is now up to the Housing Corporation.

Baroness Carnegy of Lour

My Lords, I am an innocent in these matters and I listened to the Statement with wonderment. I wondered whether the heading at its top was not, "All this and heaven too". It seems important to an ordinary person such as me to know what the Government will have borrowed by 2006.

Lord McIntosh of Haringey

My Lords, the noble Baroness does herself an injustice, but the answer is that borrowing will still be in within the limits that we have always set. We have always said that there will be no net borrowing for revenue purposes over the course of the economic cycle. At the same time, we have said that borrowing for investment—in other words, for capital—which is now properly distinguished from revenue under the resource accounting being introduced this year, will be increased. I hope that the noble Baroness agrees that that is necessary.

Baroness Harris of Richmond

My Lords, did the Minister detect the Chancellor's characteristic modesty when he did not allow himself to spell out whether the extra money that he will provide for policing takes account of the deepening crisis in police pensions?

Lord McIntosh of Haringey

My Lords, once again, the extra money being provided for policing will be much better dealt with in detail in the Home Secretary's Statement on Wednesday, but it provides for an increase in live policing, so to speak, rather than pensions funding, up to 130,000 police. Clearly, the proportion of money going to policing that goes on police pensions is a matter of continuing concern.

Lord Barnett

My Lords, first, I apologise to my noble friend because I have been upstairs in a Select Committee and was unable to be present earlier. Given that, as I understand it, there is to be major reform along with the welcome increase in expenditure, does that reform include the abolition of the Barnett formula?

Lord McIntosh of Haringey

No, my Lords, there is no suggestion of the abolition of the Barnett formula. If there were to be such a change, it would not take place in the context of a spending review.

Lord Roberts of Conwy

My Lords, can the Minister tell us a little more about the inspection arrangements, which I believe are to be introduced in health and education to ensure that the Government's targets are met? Will those inspectorates be statutory bodies or will they be related to the auditing services?

Lord McIntosh of Haringey

My Lords, I hope for the sake of all of us in the House that most of the things to be done will not involve primary legislation. We are sometimes too ready to embark on new primary legislation instead of making better use of the tools that we have. No, the real thrust will be in improved use of existing audit and accountancy bodies—the National Audit Office, which, of course, is not under government control, the Audit Commission and so on.

Lord Brooke of Sutton Mandeville

My Lords, I declare an interest as the deputy chairman of the council of the University of London. This country has historically had world-class Armed Forces, financial services and universities, but the world-class position of the universities has been under greater threat than has been the case for the other two services. Can the Minister be more expansive and specific than the Statement allowed him to be about what the Government will do about the universities during the next three years?

Lord McIntosh of Haringey

No, my Lords, not really. That matter will become more apparent in the Statement to be made by my right honourable friend the Secretary of State for Education and Skills. The Chancellor allowed himself—and I do not blame him, because it is a matter of enormous importance—to be a little more expansive about resources for science, research and the budgets of the research councils. Of course, that forms a significant part of expenditure on higher education. My right honourable friend went into some detail about that in the Statement, but for the sort of more detailed analysis for which the noble Lord asks, it is better to await the Statement from the relevant Secretary of State.