Comprehensive Spending Review

Lord Newby Excerpts

Monday 1st November 2010 Lords Chamber

[Lord Newby]

My Lords, no doubt the CSR makes me, like many other noble Lords, angry and frustrated—angry that the US and British banking systems landed us in a major financial and economic crisis; angry that the previous Government had been spending like there was no tomorrow, with big government deficits in every year since 2002; and angry and frustrated that in attempting to clear up the mess we have often been portrayed, as the noble Lord has just done, as latter-day scrooges who take a perverse delight in reducing public expenditure, when nothing could be further from the truth.

There is no doubt that the deficit had to be tackled decisively. We can argue whether the aim should be to eliminate it over the lifetime of this Parliament or over a slightly longer timescale. Labour argues that the timescale that we have adopted is a gamble. Perhaps it is, but Labour’s policy—to the extent that we can discern it—is simply a gamble of a different sort. The noble Lord today failed yet again to spell out how Labour would save even £1 of the tens of billions of pounds which it is committed to cut from public expenditure. Frankly, until it does, it has no credibility with me.

These arguments are, however, in my mind now secondary to the main challenges facing the British economy and the operations of the state when it comes to taxation and expenditure. There are two principal challenges which I believe we face and against which this CSR should be judged. First, almost every aspect of our taxation and expenditure systems is no longer fit for purpose. Secondly, we have not responded effectively to the fundamental change in the world economy that is now in full swing.

Take the way we do things. Almost wherever one looks, our public expenditure and regulatory systems have become so complex that they cannot deliver effectively the outcomes that they seek. We have a benefits system that makes the Schleswig-Holstein question look like child's play; we have a pensions system that is confusing and obscure; we have a tax system that is now the most complex in the world and which almost certainly no one—literally no one—fully understands; and we have a regulatory system that stifles initiative in almost every area of public life.

Because we have to cut public expenditure, we are being forced to look afresh at the way we do all these things. This is long overdue and can lead to positive outcomes. I shall give examples. The Building Schools for the Future programme is being cut, but not before another 600 new schools are built. It has been announced that these schools will have to be built at 40 per cent less cost than has been the case until now. This sounds an impossible aim, until you read the document produced by Balfour Beatty that explains how it thinks it can save 30 per cent on new-build schools, and a massive 60 per cent on non-structural refurbishment, simply by being more efficient in the process.

In social care, Sandwell healthcare, a social enterprise, was able literally to halve the costs of delivering services previously run directly by the local council, with no loss of pay or other conditions for the staff, by among other things being able to reduce the number of sick days per employee from 32 to one. The challenge now is to ensure that this kind of saving is identified and delivered across the whole range of public spending.

On benefits, the Government have embarked on fundamental reforms. I welcome the plans to introduce a universal benefit and the plans for a citizens' pension, as they are major simplifications of the system and will mean that many people who currently lose out—in the case of the citizens' pension, principally women who stayed at home to have children—will for the first time get the benefits they deserve.

The second challenge we face is how to rebuild the economy in circumstances where the main drivers for growth are the emerging economies and not simply, or even primarily, the US and Europe.

Analogies are often drawn between the current crisis and the 1930s. They are largely misconceived because they ignore the fact that large parts of the world economy are booming and are likely to continue to grow strongly, whatever happens in Europe and the US. Emerging markets now account for a third of the world economy and two-thirds of its growth, which helps to explain why the world economy is now larger than before the financial crisis. All the evidence shows that companies are planning for further cross-border growth. A recent study by BDO showed that 95 per cent of ambitious mid-cap companies are confident about international growth for the year ahead. This is a far cry from the 1930s.

The high levels of growth in the BRICs and the appetite for international expansion by companies offer the UK huge opportunities, but ones that under the previous Administration were simply not adequately exploited. This is not simply or even primarily a matter for government, but government has a crucial part to play. The new Government appear to recognise this potential and have taken some positive steps towards realising it. The early visit of the Prime Minister to India was a good start. However, there is much more to be done. For a start, we must stop making things more difficult for those wanting to trade with or invest in the UK.

Over recent weeks, we have exhaustively discussed the immigration cap, but the current policy, which among other things denies multinational companies with large-scale operations here the opportunity to bring in the highly skilled staff they need to expand their activities, is highly damaging and must change soon.

We must also create the conditions that help companies to grow. We need, for example, a 21st-century infrastructure. In this area, the transport infrastructure announcements are highly welcome, but they deal with only part of the need. The establishment of the green investment bank is also a welcome development, but it needs to attract significantly more capital if it is really to bring our infrastructure up to speed. This should be possible as pension funds, other fund managers and sovereign wealth funds are all looking for long-term, secure vehicles in which to invest. Like the noble Lord, Lord Myners, I was pleased to read of my noble friend’s success in discussions with sovereign wealth funds in this area.

We also need a more highly skilled workforce. Here the Government’s announcements on the science budget, on funding part-time higher education students on the same basis as their full-time equivalents and on expanding funding for apprenticeships are welcome developments. However, the new system for the bulk of university students needs to include incentives for those of modest backgrounds to attend all our universities if we are to make the best use of the talent which we as a country possess. We also need to do more to reduce the level of functional illiteracy among school leavers and the adult population as a whole.

Regional development is clearly going to be crucial if we are to get a more balanced overall economy. The Government have introduced the regional growth fund but, with less than half the funding of the RDAs and an apparently weak bias towards spending outside London and the south-east, it will struggle to make much of an impact. Indeed, it was rather depressing to see that the initial local enterprise partnerships announced last week covered nearly all the south-east, including some counties already doing extremely well economically, but not large parts of the north. It is hoped that those gaps will be filled, but it is crucial that the limited money available goes to the parts of the economy with the largest amount of spare capacity.

In the CSR, the Government have set out a clear programme for this Parliament. If they meet their stated aims of making the delivery of our public services more effective and efficient and of creating the conditions for businesses to grow, they will deserve to succeed.