Proposed Public Expenditure Cuts

Bob Russell Excerpts

Monday 13th September 2010 Commons Chamber

[Bob Russell (Colchester) (LD)]

(Urgent Question): To ask the Chancellor of the Exchequer if he will make a statement on his additional proposals for cuts in public expenditure. I am grateful to you, Mr Speaker, for allowing this urgent question.

[The Chancellor of the Exchequer (Mr George Osborne)]

I am grateful for the opportunity to update the House on the progress of the spending review, and to remind people of the context in which we make these difficult decisions.

The previous Government left Britain with the largest budget deficit of any major economy and no credible plan to deal with it. That was a major cause of instability and uncertainty that threatened any prospect of economic recovery. It was reflected in the substantially higher market interest rates that British families and businesses were being charged compared with those for families and businesses in countries that were regarded as less exposed to sovereign credit risk. The new Government had to take urgent steps to restore stability and allay fears about our country’s ability to pay its way in the world. In the words of the previous Labour Prime Minister,

“if we fail to offer a convincing path out of debt, that...will itself plunge us into stagnation”.

Those views were echoed in the comments this weekend from the International Monetary Fund, which said that

“fiscal consolidation remains essential for strong, sustained growth over the medium run”.

That is why in the Budget I announced decisive steps to get the deficit under control. I believe that that Budget has restored stability to the British economy and provided a sound basis for a sustainable recovery. It has helped keep down the market interest rates that Britain pays on its debts, which are today more than half a percentage point lower than at the general election. In other countries, such as Spain, Portugal or Ireland, these same rates have stayed broadly flat or gone up since then.

Because of the measures that we are taking, independent forecasters are increasingly confident about the British economy. Last week the OECD predicted that the UK would see the strongest growth in the G7 this quarter and the second strongest growth next quarter. I can also tell the House that today the EU predicted that the UK will see the strongest recovery in the second half of this year of any major European economy. These, of course, are just forecasts and all this hard-won stability would be put at risk if we did not now implement the components of our Budget plan.

Let me remind the House of the measures that we took at the emergency Budget and the steps that we now have to take. We are set to tighten the public finances by a total of £113 billion by 2014-15. Of this, £29 billion will come from tax measures, including the increase in VAT, higher capital gains tax and a new permanent levy on banks. A further £11 billion will come from the welfare reforms announced at the Budget. Another £10 billion will come as a consequence of paying lower interest charges on the national debt as a result of our plan—£10 billion that those who opposed the Budget plan would have to find to pay the holders of Government debt.

That leaves £61 billion that will come from reductions to departmental expenditure plans. It is worth reminding the House that £44 billion of that £61 billion was assumed in the figures left to us by the previous Government. In other words, for all the synthetic noise and fury that we hear, £3 of every £4 that we are having to cut were cuts that the Opposition were planning to make. Unfortunately, not a single one of those pounds was allocated to a specific programme.

Our job now is to allocate those departmental budgets. That is the purpose of the spending review that is under way, and I will announce the full results to the House of Commons on 20 October. The review is informed by the largest public consultation exercise ever undertaken on public expenditure. More than 100,000 substantive ideas have been received from members of the public. Teams at the Treasury have been sifting through these ideas over the past six weeks and some are already being implemented.

We have also created a mechanism for collective discussion of spending issues across the Cabinet, which is something of an innovation, so the Prime Minister—[Interruption.] Well, there was a Cabinet Committee on life chances, on talent and on democratic renewal under the previous Government, but no permanent committee on public expenditure. The Public Expenditure Committee of the Cabinet has already met twice this month and will meet again this week.

Of course, some decisions that shape the spending review have already been taken. We will protect the budget of the NHS with real increases, we will honour the commitments on international aid that we have made to the poorest in the world, and we will protect capital investment in our economic future. We have not reduced capital spending in future years beyond the plans that we inherited, and as we take further decisions, we will strive to ensure that those support economic growth, promote reform and local control, and are fair—fair between different sections of society and between different generations.

Let me say something about welfare spending—[Interruption.]

[Mr Osborne]

I will heed your injunction, Mr Speaker, but the question was a very general one about an update on the public expenditure review.

I shall say something about welfare, if the Speaker will allow me. The welfare bill has risen by 45% in the past 10 years and almost £1 in £3 that the Government spend goes towards welfare. The current system is not protecting those who genuinely cannot work, nor is it helping those desperately looking for work to find a new job quickly. Close to 5 million people are on out-of-work benefits, more than half of whom have spent at least half of the past 10 years in this situation. Rather than rewarding work and supporting the vulnerable, we are wasting the lives of millions of people. That is why my right hon. Friend the Secretary of State for Work and Pensions is working with me and other Cabinet colleagues to see what we can do fundamentally to reform the welfare system so that it rewards work and supports aspiration, as well as saving the taxpayer on what someone once called the bills for social failure. When we have decisions to announce, we will bring them to the House and, of course, we will want to keep the House informed in other ways.

I have already given the Treasury Committee an unprecedented power to veto my preferred candidate to chair the independent Office for Budget Responsibility, Mr. Robert Chote, and I can tell the House today that I have asked my hon. Friends the Members for Gainsborough (Mr Leigh) and for Southport (Dr Pugh) to draw on their considerable expertise on the Public Accounts Committee in the last Parliament to advise the Government on how to improve the financial management systems that we have inherited, and in turn improve accountability to the House.

We have many difficult choices to make, but one thing is clear: one party created this mess; two parties are working hard to clear it up.

[Bob Russell]

If the Chancellor wished to give a full statement to the House, he could have done so last week rather than giving a cursory one to the BBC and having to be dragged here today. I acknowledge that 75% of the cuts are Labour’s cuts, but we have not as yet had the spending review. Clearly, none of the cuts will affect the quality of life of Members of Parliament, but they will certainly affect the disadvantaged in society. We know that there will be higher food costs in the coming year, and other costs will rise. I have no time for the welfare cheats, but to try to blame this country’s financial ills on that small category of the population is unethical. It would be more ethical to act with equal determination towards those who cheat on tax, whether it be income tax, value added tax or corporation tax. There is now a whole industry of financial experts advising people on tax avoidance.

The turf war between the Chancellor’s office and that of the Secretary of State for Work and Pensions is somewhat immature. Children living below the poverty line and people on low incomes, the disadvantaged in society, do not want these fun and games, they want fairness.

[Mr Osborne]

The position on welfare is exactly as I set out in my Budget speech at this Dispatch Box when I said that if we could find further savings on welfare, we would be able to reduce the pressure on other Departments. That was what we were planning to do over the coming months as part of the spending review, and that is exactly what I said in the television interview to which my hon. Friend refers.

Secondly, it would be impossible to conduct a spending review without looking at the welfare bill. Whether one is looking for £61 billion of savings or £44 billion, welfare spending accounts for a third of the entire Government budget, so one has to look at the welfare budget. That is what we are doing, but we are looking to do it in a way that reforms welfare, to help those millions of people who have been trapped for a decade or more on out-of-work benefits into work, to help those with aspirations to improve their income, to make sure that work is rewarded by the benefit system, and to do that while we are protecting those who cannot work and protecting the most vulnerable in our society. I would argue that the failure on welfare reform over the last decade was one of the greatest failures of the previous Government.

Despite the lurid headlines in some newspapers, the relationship and the co-operation between the Treasury and the DWP is strong. There is a perfectly natural—[Interruption.]