Comprehensive Spending Review

Helen Goodman Excerpts

Thursday 28th October 2010 Commons Chamber

[Danny Alexander]

I agree wholeheartedly with my hon. Friend. If we had not tackled the deficit, the poor in this country would have suffered most.

[Helen Goodman (Bishop Auckland) (Lab)]

Will the Chief Secretary give way?

[Danny Alexander]

I will give way to the hon. Lady, and then I will press on.

[Helen Goodman]

I am grateful. The Chief Secretary has pointed to the forecasts made by the OBR. He will know that between 1994 and 2008, the private sector created 100,000 jobs a year. In that period, growth was 2.8%. The OBR projects growth of 2.4%. How, then, is it possible that 1 million jobs can be created in the forthcoming period?

[Danny Alexander]

In fact the OBR forecast more private sector jobs than the hon. Lady suggests. She will know that in the past two quarters several hundred thousand jobs have been created in the private sector. I will explain later in my speech the measures that we are taking to support the private sector.

--- Later in debate ---

[Mr John Redwood (Wokingham) (Con)]

At the end of the period, in 2014-15, the Government plan to spend £92 billion a year more, on current spending, on services than Labour did in its last year—that is a large 15% increase in the amount of cash. We need to ask ourselves why it is that every year public spending increases, yet the Government are proposing some extremely difficult or, in some cases, undesirable choices to be made in subsequent years to try to live within that rather big figure. I suggest to the Government that there are three areas that they could work on, and that their doing so would be in all our interests in this House, because if they could manage them better, they might not need to make so many of those difficult choices in the later years and would still be able to live within their totals and get the deficit down.

The first reason why there is a squeeze on some programmes that many Members do not want to see squeezed is the big rise in money allocated to pay for inflation; the plans assume quite a lot of public sector inflation over the five years. If the Government can do better at buying in goods and services—they are a very big purchaser and they say they are going to do so—they might reduce the average price of bought-in things. Instead of having positive inflation, they would have negative inflation on that part of the programme. If they can do a good deal with their employees, reassure them and get them to accept the kind of measures on pay that are being suggested—I believe that they are talking about a two-year pay freeze, for example—that will take a lot of extra inflation out of the system, because the biggest single item in these budgets is of course pay. Again, the more that we in the public sector can share the pain by moderate means, such as accepting pay restraint, the less we will have to take the difficult choices in later years that are built into the programme.

The next thing is staff numbers. A lot has been made so far in what passes for a debate in this House about having 490,000 fewer jobs in the public sector by the end of the period. These are not 490,000 redundancies. Given the large rate of resignations and retirements in the public sector to which the Chancellor has referred, I hope that most can be taken care of by eliminating posts after people have resigned or left.

[Helen Goodman]

I am most grateful to the right hon. Gentleman for giving way. Of course, in a very small-minded way, what he says is right. If those jobs are cut, where does he think that young people will get the new jobs that they need?

[Mr Redwood]

In the private sector, which is already generating tens of thousands of jobs every month. That is what we need to do. I am not saying that there should be a complete staff freeze. For example, if 480,000 a year are leaving, which was the Chancellor’s figure in the Budget, 250,000 people could be hired while still achieving half the reduction in the first year. I think that the Chancellor might have been a bit optimistic, but he referred to an 8% rate. If the percentage was half as great, the reduction could still be made in the first two years. There could be reductions of 250,000 without a single redundancy.

I urge my right hon. and hon. Friends not to pursue the redundancy route wherever possible. It is expensive, unpleasant and disruptive. I do not want to see lots of people retiring early from the administrative services on big pensions, and I do not want to see redundancy payments made with people coming back into the public sector at a later date, leaving us to wonder why all the cost and disruption has been incurred.

The next big area that puts pressure on the increased money is debt interest. I entirely agree with the Government, and with Opposition Members who knew this when they were in government, that we have to bring the deficit down before it kills the whole budget. If we allow the deficit to keep on rising, as the Opposition originally proposed, debt interest will take more and more of the increased spending and we will have to make unpleasant cuts to the things that matter. How can we reduce that debt interest burden more quickly? If we can get more cash into the public sector, starting today—we do not need to wait to start the programme next year, as is implied in the figures—we will reduce the increase in the debt day by day. If we sell more assets, we will not have to raise so much money in the debt markets, which will keep the debt down.

It is very good news that the Government’s programme has restored a lot of confidence in the markets, so that the rate at which they now have to borrow is now lower. That will obviously make a contribution to getting the debt interest rate programme down.

I have to say to the Government that I do not think that we can afford to give £80 billion to foreign countries over the CSR period. If we add the overseas aid programme to the European Union programme, the total is £80 billion over the period. I do not want to take any money away from the poorest countries or from humanitarian aid. Those are good things and I fully support the Government’s intention to carry on with them, but I do not think that there is any need to subsidise China, India or Russia—nuclear weapons powers with, in the case of China, $2.5 trillion in the bank. It is a bit odd to give China a grant when we then have to borrow the money from China to pay the grant to China. That cannot make any sense.

I believe that the Government are now going to remove the aid to the richer and more successful countries. Cannot we pocket that for a couple of years and then become more generous when we have the deficit under control? May we please get the European amounts down? They are the most unforgivable ones; poor people in Britain are paying tax to offer grants to rich countries in Europe, and that is not acceptable in the current conditions.

The more that these pressures—the grants abroad, debt interest, costs, inflation and staff numbers—can be abated, the more we will have money available to do better things with the growing programmes. It is good news that nine of the Departments have level or rising cash throughout the period, but it is bad news that one or two other Departments will find that the shoe pinches a lot. That is why I think that we need to make more rapid progress in controlling costs and staff numbers, particularly in administration, and in dealing with the debt interest programmes, so that we have a bit more free to ease those areas that will be very tight in future years.

I do not for one moment believe the figures from 2013 to 2015 anyway, because I think that they will be subject to subsequent revision because of the pressure of events. As inflation changes, we will need to revise them. As the state of the economy changes, we will need to revise them one way or the other. Let us hope it will outperform and we will have a bit more scope.

As an election draws near, politicians tend to want to spend more, so we should discount the 2013-15 figures and concentrate on what is happening now. Will the Government please bring forward as many of the reductions as possible to this year, and not wait until next year? The more we save now, the less we borrow and the more the pressure is reduced on subsequent years’ programmes.

--- Later in debate ---

[Mr Dominic Raab (Esher and Walton) (Con)]

I commend Ministers on the spending review, because finally we have a Government who are prepared to address the big picture.

In the last four years of the previous Government, Britain dropped from third to 13th on the international rankings for economic competitiveness, partly because of rising global competition, but also because of the excessive inflation of the public sector. As a result, British productivity lags behind our major international competitors. According to EUROSTAT data, between 2000 and 2008, European Governments who spent 42% or less of GDP created 27% extra jobs. Governments who spent more than 42% had jobs growth of just 6%. In that period—before the banking crisis—Britain jumped from the high-jobs-growth camp to the low-jobs-growth camp. The amount of GDP consumed by the UK Government rose by 11% to 48%, and sure enough jobs growth was a paltry 5%. The evidence is plain: we cannot spend our way to economic growth.

There is nothing ideological about wanting to create jobs, and there is nothing socially fair about the welfare trap. I hear the calls every week from Opposition Members to soak the rich, but today the top 5% of earners in this country pay almost half the country’s income tax. If that is not a fair share, fine, but where would the Opposition raise taxes, and by how much? The real risk with their strategy is that the brightest talent will flee this country, if they believe that talent and graft are punished rather than rewarded. The brain drain does nothing for social fairness. The July Budget and this deficit plan have brought Britain back from the cusp of default.

Yesterday, we saw Standard & Poor’s triple A rating restored from negative to stable, and the task now is to drive economic growth and competitiveness. However, the spending review also addresses fairness at three levels. First, there is the snapshot of winners and losers that there will be in any budgetary process, and the matter of protecting the lowest-paid public sector employees from the pay freeze, the pupil premium and the triple lock on pensions. We must address the glaring unfairness in pay not only between the public and private sectors, but within the public sector. The best paramedic in this country can earn just one tenth of what the top NHS manager can earn. What does that say about our priorities? Some are bucking the trend. Sir Norman Bettison, the chief constable of West Yorkshire, described the idea that the public sector is competing with the private sector for talent as “costly and irresponsible nonsense”. He proposes to address public sector pay restraint incrementally, starting with the highest paid 25%. His proposal merits close consideration.

The second dimension of fairness in the CSR relates to the intergenerational allocation of resources. According to the National Institute of Economic and Social Research, a failure to tackle the deficit would leave each member of the next generation having to pay £200,000 extra in taxes just to enjoy the same level of public services that we and previous generations have enjoyed. What is fair about leaving our children with a tax bill of £200,000 each?

[Helen Goodman]

What is fair about those of us who had a free university education not paying extra tax while our children are to be burdened with extra debt?

[Mr Raab]

I thank the hon. Lady for her intervention, but the problem is that the university budget as it was configured under the previous Government was simply unsustainable. That is but one of the many examples of where they ducked the problem of reform and we have addressed it.