The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, in another place, my right honourable friend the Chancellor of the Exchequer set out the conclusions of the Government’s spending review. This represents a clear plan to tackle the nation’s deficit and demonstrates the Government’s commitment to investment in growth, in jobs and in the future of the British economy. It is a plan that has at all times been guided by three core principles: growth, fairness and reform. These are the right priorities for making some of the most difficult decisions that any modern Government have had to make. We should never forget the financial position that we inherited when we came to office. Our country was borrowing £1 for every £4 that we spent. We had the largest budget deficit in our peacetime history and interest payments on our debts will total £43 billion for this year, or £120 million a day.
We need to take control of our country’s finances and put them back on a sustainable path because, if we lose that control, our priorities will be determined no longer by the needs of our people but by the demands of our debtors. This loss of control would threaten higher interest rates, rising inflation and more cuts in the future. Indeed, failing to restore credibility to our finances is the most fundamental threat to the recovery, to our jobs and to the growth of our economy. Therefore, I dispute the claim, which some have made, that there is a choice between fiscal discipline and supporting growth. That could not be further from the truth. The choice is between a sound platform to support growth and a lack of control that would undermine it.
In June’s emergency Budget, the Government therefore set out the road map to recovery. The independent Office for Budget Responsibility looked at these plans and forecast the economy growing and unemployment falling in every year. It has also assessed that we are on course to eliminate the structural current deficit and see debt falling by the end of this Parliament, one year ahead of our mandate. The emergency Budget set out the Government’s credible plan to balance the books, while the spending review has shown how we will deliver on it and find £81 billion of savings by 2014-15.
The Chancellor’s Statement set out the levels of departmental budgets for the next four years. I will not repeat every decision here. Instead, I want to focus on our priorities: growth, fairness and reform. They have guided our every choice. We are a pro-growth Government who have focused our capital resources on key infrastructure projects in transport and green energy. We are a Government with fairness at our heart and we are a reforming Government who leave no stone unturned in the search for waste, while devolving power and funding away from Whitehall. I shall address each of these principles in turn, starting with growth.
Before I do, among all the contributions to today’s debate I will be particularly keen to hear what principles the party opposite would apply to spending reductions and what specific measures it would propose. I will also be listening with particular attention to the maiden speeches of the noble Baronesses, Lady Nye and Lady Healy of Primrose Hill, and to that of my noble friend Lord Allan of Hallam.
On growth, I have already said how our plan as a whole will deliver macroeconomic stability, which is crucial to restoring growth and giving businesses the confidence to invest. However, we are not standing on the wayside waiting for growth to happen. We have prioritised spending on the areas that will deliver the best returns to growth. Over the spending review, capital spending will be higher than that planned by the previous Government. With investment in transport capital across the country, more cash will be spent over the next four years than the past four. We will maintain, in cash terms, resource spending on science. A new green investment bank will lead the way to the economy of the future. Last week, we also published our Local Growth White Paper, which included a £1.4 billion regional growth fund, focusing our resources on the areas that need them most. These actions, and many others, form a major part of our strategy to secure and support sustainable economic growth.
Our second priority is fairness. Fairness means that, across the entire deficit reduction plan, those with the broadest shoulders will bear the greatest burden. It means that, even in tough times, we focus our resources on extending the ladder of opportunity. It means that we look carefully at whether we are doing right by those who receive welfare, as well as by those working families whose taxes pay for it. These are our aims and we have met them in full. We have published distributional analysis that clearly demonstrates that those on the highest incomes will contribute more towards the consolidation. This is not just in cash terms but also as a proportion of their income and consumption of public services combined.
Our progressive approach also places responsibility on the banks to make their fair contribution. We will continue pressing banks to do more and bring forward reforms that improve our financial system. That is why we have introduced the bank levy. Because banks need to follow the spirit, not just the letter, of the law, we have engaged in a concerted effort to get our banks to sign up to the code of practice on taxation by the end of November.
We must ensure that everyone pays their fair share. That has been the motive behind agreeing a new £900 million package for HMRC. This investment will fund a clampdown on criminal behaviour, bringing in £7 billion each year by the end of the Parliament. There is no place for tax cheats in our society and there is no place for people who cheat the benefit system.
That brings me to welfare, with a budget that accounts for nearly £1 in every £3 that we spend. It is certainly right that the Government should help those who need it most. However, in many cases, the current approach has trapped people in a system where it simply does not pay to work. These are people who have been dumped on benefits by the previous Administration and then left there, indefinitely, with no prospects for improving their position. That is not fair on them and it is certainly not fair on the taxpayer. The case for reform is clear; the real question is how we can strike the balance.
Our approach has been this: we are moving to a universal credit system over the course of two Parliaments to do away with the complexity of the current system, ensuring that work always pays. We will introduce a new work programme to provide personalised support to those who need the greatest help back into employment, with private and third sector providers paid on the basis of the additional benefit savings that they secure. We will fund significant increases to the child tax credit to ensure that this spending review has no measurable impact on child poverty over the next two years.
Through the welfare reforms in the spending review, we will find £7 billion net savings on top of those identified at the Budget. Some £2.5 billion comes from removing child benefit from households with a higher-rate taxpayer. This is the most progressive welfare measure in the spending review, but we are making other reforms, too. For instance, we will cap household welfare payments at the average earnings for working households. This has to be right. The welfare system should provide an effective safety net, but it should not pay some workless families far more than the amount that most working families earn. Our reforms mark a historic shift from state dependency to independence.
Throughout this review, we have been clear on one thing: our decisions need to be fair and, in being so, to improve the chances of the poorest and most disadvantaged in our society. Fairness is about opportunity—a chance for a better life, especially for the next generation. Therefore, we have chosen to invest in our children. We have introduced a new pledge for 15 hours’ childcare for disadvantaged two year-olds. Cash spending on Sure Start services will be maintained, with a renewed focus on life chances. Although it has meant a greater challenge for other departments, the schools budget will not just match but outstrip inflation in each of the next four years. When you factor in reduced pressures from pay restraint and back-office savings, that amounts to a very significant boost for the classroom. A new £2.5 billion pupil premium will target additional resources on those with the most to gain, because fairness runs through the very heart of this spending review.
I now move on to our third principle: reform. It manifests itself in three separate ways. The first is by bearing down on back-office costs. Each main government department has found at least 33 per cent in administrative savings. We have announced our plans to share services, cut down on waste and abolish unnecessary quangos.
Secondly, we will oversee a massive devolution of power from the centre. Apart from in schools and public health, we will end the ring-fencing of all government grants to local authorities from April next year. We will reduce the number of separate core revenue grants to councils from 90 to fewer than 10. Our new tax increment financing borrowing powers will allow councils to fund key projects and, last week, we announced that we are considering options to enable local authorities to retain locally raised business rates. This puts more power into the hands of local government—the people who know best what is needed in their own towns, villages and cities.
Finally, reform means recognising where the old ways of doing things were not working, so we will overhaul the failed system of social housing. The terms for existing tenants, and their rent levels, will remain unchanged, but some new tenants will be offered intermediate rents nearer to market levels. Together with capital investment, that will enable a more flexible and responsive model, enabling the Government to deliver up to 150,000 new and affordable homes over the next four years.
There will be reform, too, in the justice system. We have a prison population that has been steadily rising out of control. This is not right, let alone affordable. The guilty must be punished, but rehabilitation should not be ignored. In fact, it should be the priority.
I conclude by saying that the coalition Government faced the worst economic inheritance in modern history. The debts that we were bestowed threatened every job and every public service in the country. Our response has seen us make some tough choices on spending, but we have protected health, schools and investment in growth. We have cut welfare and waste, pulled the country back from the brink of bankruptcy and put it on a more stable footing. Ours is the right plan and it is a plan that will help to build the more dynamic, prosperous and sustainable economy that this country deserves.