Spending Review

John Bercow Excerpts

Wednesday 26th June 2013 Commons Chamber

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

This coalition came into office with a commitment to address with firmness and resolve one of the biggest economic crises of the post-war era. The action we have taken, together with the British people, has brought the deficit down by a third, helped a record number of people into work, and taken our economy back from the brink of bankruptcy; and it allows us to say that while recovery from such a deep recession can never be straightforward, Britain is moving out of intensive care, and from rescue to recovery.

Today we announce the latest action to secure the recovery. We act on behalf of every taxpayer and every future taxpayer who wants high-quality public services at a price our country can afford. We act on behalf of everyone who knows that Britain has got to live within its means. We have applied three principles to the spending round I will set out today: reform, to get more from every pound we spend; growth, to give Britain the education, enterprise and economic infrastructure it needs to win the global race; and fairness, making sure we are all in it together by ensuring those with the broadest shoulders bear the largest burden and making sure the unfairness of the something-for-nothing culture in our welfare system is changed.

We have always understood that the greatest unfairness was loading debts on to our children that our generation did not have the courage to tackle ourselves. We have always believed, against much opposition, that it is possible to get better public services at lower cost—that you can cut bureaucracy and boost enterprise by taking burdens off the back of business. In the face of all the evidence, the opposition to these ideas has collapsed into incoherence. We have always believed that the deficit mattered—that we needed to take tough decisions to deal with our debts—and the opposition to that has collapsed into incoherence too. Today I announce the next stage of our economic plan to turn Britain around.

Let me start with the overall picture on spending. In their last year in office, the previous Government were borrowing £1 in every £4 that they spent. It was a record for a British Government in peacetime and a calamitous risk with our economic stability. As the note we saw again this week from their outgoing Chief Secretary put it,

“I’m afraid there is no money.”

So we acted immediately. Three years ago, we set out plans to make savings and to reduce our borrowing. Instead of the £157 billion the last Government were borrowing, this year we are set to borrow £108 billion pounds: that is £49 billion less in borrowing. That is virtually the entire education budget.

So we have made real progress, putting right what went so badly wrong. But while we have been acting, the challenges from abroad have grown: a eurozone in crisis, rising oil prices, and the damage from our own banking crisis worse than anyone feared. The truth is that we have to deal with the world as it is, not as we would wish it to be, so this country has to continue to make savings. I can report to the House that the biggest single saving we have made in government is the £6 billion a year less we are paying to service our debts than the previous Government budgeted for. Bear that number in mind when you hear the Opposition complaining about cuts.

The deficit has come down by a third, yet at over 7% it remains far too high, so we must continue to take action—not just because it is wrong to go on adding debts to our children’s shoulders, but because we know from the global turbulence of the last few years that the economic risks are real and the recovery has to be sustained. If we abandoned our deficit plan, Britain would be back in intensive care. So the figures today show that until 2017-18, total managed expenditure—in other words, the total amount of Government spending—will continue to fall in real terms at the same average rate as it is falling today.

The task before us today is to spell out what that means for 2015-16. Total managed expenditure will be £745 billion. To put that huge sum into context, consider this: if Government spending had been allowed to rise through this Parliament at the average rate of the last three decades, that total would have been £120 billion higher. This Government have taken—[Interruption.]

[Mr Speaker]

Order. The Chancellor must not have to shout to be heard. Members know that I will always accommodate the interests of Back Benchers on both sides in scrutinising these matters intensively, but the Chancellor and, in due course, the shadow Chancellor must be properly and fairly heard.

[Mr Osborne]

This Government have taken unprecedented steps to achieve that expenditure control. Now we need to find £11.5 billion of further savings. I want to pay a personal tribute to my right hon. Friend the Chief Secretary for the huge effort that he has put into delivering them. Finding savings on that scale has not been easy. These are difficult decisions that will affect people in our country, but there never was an easy way to bring spending under control. Reform, growth and fairness are the principles. Let me take each in turn.

I will start with reform and the obligation that we all have in this House to ensure that we get more for every pound of taxpayers’ money that we spend. With the help of my right hon. Friend the Minister for the Cabinet Office, we have been combing through Whitehall, driving out costs, renegotiating contracts and reducing the size of government. Cutting money that the previous Government were spending on marketing and consultants, reforming Government IT and negotiating harder on behalf of the taxpayer have already saved almost £5 billion. In this spending round, we will find a further £5 billion of efficiency savings. That is nearly half of the total savings we need to achieve.

We are reforming pay in the public sector. We are holding down pay awards, and public sector pay rises will be limited to an average of up to 1% for 2015-16. However, the biggest reform that we will make on pay is to automatic progression pay. That is the practice whereby many employees not only get a pay rise every year, but automatically move up a pay grade every single year, regardless of performance. Some public sector employees see annual pay rises of 7%. Progression pay can at best be described as antiquated; at worst, it is deeply unfair to other parts of the public sector that do not get it and to the private sector that has to pay for it. So we will end automatic progression pay in the civil service by 2015-16, and we are working to remove automatic pay rises simply for time served in our schools, NHS, prisons and police. The armed forces will be excluded from those reforms.

Keeping pay awards down and ending automatic progression pay means that, for every pound we have to save in central administration, we can better limit job losses. I do not want to disguise from the House the fact that there will be further reductions in the number of people working in the public sector. The Office for Budget Responsibility has forecast that the total number of people working for the Government will fall by a further 144,000 by 2015-16. I know that for those who are affected that is difficult. That is the consequence of the country spending far beyond its means.

When I presented the spending round three years ago, I said that about half a million posts in the public sector were forecast to have to go. That is indeed what has happened, and we are saving £2 billion a year, with a civil service now smaller than at any time since the war. I also said three years ago that I was confident that job creation in the private sector would more than make up for the losses. That prediction created more controversy than almost anything else at the time, including with the Opposition. The shadow Chancellor called it “a complete fantasy”. Instead, every job lost in the public sector has been offset by three new jobs in the private sector. In the last year, five new jobs have been created for every job cut in the public sector. The central argument of those who fought against our plan is completely demolished by the ingenuity, enterprise and ambition of Britain’s businesses. I pay tribute to the hard-working people of this country who proved their pessimism wrong.

In this spending round, the Treasury will, as one would expect, lead by example. In 2015-16, our resource budget will be reduced by 10%. The Cabinet Office will also see its resource budget reduced by 10%. However, within that we will continue to fund support for social action, including the National Citizen Service. Ninety thousand places will be available for young adults in the citizen service next year, rising to 150,000 by 2016. It is a fantastic programme that teaches young people about their responsibilities as well as their rights, and we are expanding it.

Local government will have to make further savings too. My right hon. Friend the Communities and Local Government Secretary has set an example to all his colleagues by reducing the size of his Department by 60% and abolishing 12 quangos. He is a model of lean government, and has agreed to a further 10% saving in his resource budget. But we are committing to more than £3 billion capital investment in affordable housing and we will extend the troubled families programme to reach 400,000 more vulnerable families who need extra support. We are proving that it is possible to save money and create more progressive government. That is the right priority.

Here is another of the Government’s priorities: helping families with the cost of living. Because we know that times are tough, we have helped to keep mortgage rates low, increased the personal allowance, cut fuel duty and frozen council tax. That council tax freeze is due to come to an end next April. I do not want that to happen, so I can tell the House today that because of the savings we have made we can help families with their bills. We will fund councils to freeze council tax for the next two years. That is nearly £100 off the average council tax bill for families, and brings savings on these bills for families to £600 over this Parliament. That demonstrates our commitment to all those who want to work hard and get on.

There is one more thing that we can do to help with the cost of living in one part of the country. For years, Members from the south-west of England have fought on behalf of their constituents who face exceptionally high water bills. Nothing was done until we came to office. Now we have cut those water bills by £50 per household every year until 2015. My hon. Friend the Member for Camborne and Redruth (George Eustice) and many others have campaigned to extend that rebate beyond 2015. I am happy to confirm today that we will do that. Taking money out of the cost of government and putting it in the pockets of families—that is what we mean by reform.

Local government has already taken difficult decisions to reduce staff numbers, share services and make savings. I pay tribute to Sir Merrick Cockell for all he has done in showing how this can be achieved. We were told by the scaremongers that savings in local government would decimate local services. Instead, public satisfaction with local council services has gone up under this Government. That is because, with our reforms, communities have more control over their own destiny. That is because we have devolved power and responsibility to manage budgets locally. That is because we have let councils benefit from the tax receipts that come when the local economy grows. Today, we give more freedom, including greater flexibility over assets, and we will drive greater integration of local emergency services. I thank my hon. Friend the Member for Bournemouth East (Mr Ellwood) for his fresh thinking in this area, which has helped to inform us.

We are also embarking on major reforms to the way we spend money locally through the creation of the single local growth fund that Lord Heseltine proposed. This will be £2 billion per year, which is at least £10 billion over the next Parliament. Local enterprise partnerships can bid for that sum, and the details will be set out tomorrow. Our philosophy is simple: trust people to make their own decisions and they will usually make better decisions. But in return for those freedoms, we have to ask local government for the kind of sacrifices central Government are making. The local government resource budget will be reduced by 10% in 2015-16, but when all the changes affecting local government that I will set out are taken into account, including local income and other central Government funding, local government spending reduces by approximately 2%.

I set out today the block grants to the devolved Administrations. Because we have prioritised health and schools in England, this feeds through the Barnett formula to require resource savings of about 2% in Scotland, Wales and Northern Ireland. The Scottish resource budget will be set at £25.7 billion, and Scotland will benefit from new capital borrowing powers of almost £300 million. Being part of the UK means that Scotland will see its capital spending power increase by almost 13% in real terms in 2015-16. It is rightly for the Scottish Parliament to decide how best to use it. That is devolution within a United Kingdom delivering for Scotland.

The Welsh resource budget will be £13.6 billion, and we will shortly publish our response to the Silk commission on further devolution of taxation and borrowing. When we do so, we will be able to say more about the impressive plans to improve the M4 in south Wales that my hon. Friend the Member for Vale of Glamorgan (Alun Cairns) and others have been campaigning for. The Northern Ireland resource budget will be £9.6 billion. We have agreed to provide an additional £31 million in 2015 to help the Police Service of Northern Ireland tackle the threat posed by terrorism. Those police officers do an incredibly brave job on our behalf, and we salute them. Separately, we will make 10% savings to the Scotland, Wales and Northern Ireland Offices.

We believe that the cultural heritage of our nations is not just an economic asset, but has intrinsic value. When times are tough, they too must make a contribution to the savings this country requires. The Department for Culture Media and Sport will make savings of 7% in its resource budget. Elite sports will be protected and the funding of community sports, arts and museums will be reduced by just 5%, but because we recognise the value of our greatest museums, galleries and English Heritage, we are giving them much greater freedom from state control, which they have long called for, applying our reforming principles across the board and empowering those on the front line who know best—what the director of the British Museum called:

“good news in a tough economic climate”.

And while we are at it, we will make sure that the site of the battle of Waterloo is restored in time for the 200th anniversary to commemorate those who died there and to celebrate a great victory of coalition forces over a discredited former regime that impoverished millions.

We still have the finest armed forces in the world, and we intend to keep it that way. The first line of national defence is sound public finances and a balanced defence budget, and my right hon. Friend the Defence Secretary is helping to deliver both. He and his predecessor, my right hon. Friend the Member for North Somerset (Dr Fox), have filled the £38 billion black hole they inherited in the finances of the Ministry of Defence. We will continue to ensure we get maximum value for money from what will remain, which, at over 2% of our GDP, is one of the largest defence budgets in the world. The defence resource budget will be maintained in cash terms at £24 billion, while the equipment budget will be £14 billion and will grow by 1% in real terms thereafter. We will further reduce the civilian work force and their allowances; renegotiate more of the hopeless private finance initiative contracts signed in the last decade; and overhaul the way we buy equipment.

My right hon. Friend the Prime Minister has rightly been clear throughout, however, that he is not prepared to see a reduction in Britain’s military capabilities. This spending round not only protects those capabilities, but enhances them with the latest technologies. We will not cut the number of soldiers, sailors or airmen—we need them to defend our country—and we will give them the best kit to do that job: new aircraft carriers, submarines, stealth fighters, destroyers and state-of-the art armoured vehicles. We also make a major commitment to invest in cyber. It is the new frontier of defence and a priority for the Government.

We will look after families who have lost their loved ones and those injured protecting us long after the wars they fought in are over. We previously committed to fund the military covenant for five years, and today I commit to funding the armed forces covenant permanently. We will do that with the money we have collected from the LIBOR fines, so those who represented the very worst values will support those who represent the very best of British values. Our veterans will not be forgotten.

The intelligence services are on the front line too. Silently, and often heroically, these fellow citizens protect us and our way of life, and so we will protect them in return, with a 3.4% increase in their combined resource budget. The Foreign Office is the public face of our diplomacy, and my right hon. Friend the Member for Richmond (Yorks) (Mr Hague) is quite simply the best Foreign Secretary we have had in a generation. He, too, has demonstrated how we can make our taxpayer pound go further. While making savings in his budget, he has managed to expand our network of embassies in the emerging world and focus his diplomats on British commercial interests. There will be further savings in that budget of 8% in 2015, but he is still committing to strengthen our embassy network in high-growth markets, from Shanghai to Abuja.

The Foreign Office projects our values abroad, and the Home Office protects our values here in Britain.

--- Later in debate ---

[Mr Osborne]

One thing is for certain after that performance: the right hon. Gentleman is the worst shadow Chancellor for a generation, and we want to keep him right where he is. What is amazing is that he spoke for 11 minutes and never said Labour wants to borrow more. Did anyone hear that in his comments? That is his argument: he wants to borrow more. Why does he not have the courage to get up and make his economic argument at the Dispatch Box? He finds himself in a situation where the entire argument he has been advancing for the last three years has completely collapsed. Where was the reference to the temporary VAT cut? Abandoned. Where was the reference to the five-point plan? Abandoned. He complains about all the cuts; here is a very simple question. We shall spend £745 billion in 2015; what will he spend? Does he match those plans or not? Hands up on the Labour Benches from those who want to match our spending plans. On Saturday, the Labour leader—

[Mr Speaker]

Order. May I just say—[Interruption.] No help from the hon. Member for Colne Valley (Jason McCartney) is required; he would not have the foggiest idea where to start. Let me just say to the Chancellor of the Exchequer that there is a way in which these matters are handled, and it is not by the Minister responding to questions posing a series of questions. That is in breach of parliamentary protocol, it is not proper, and it must stop right away—and others, including at the very highest level, ought to take note of that for future weeks. Let’s be clear about it.

[Mr Osborne]

I will leave it to the country to ask these questions. I make this point. In this spending plan I have set out total managed expenditure of £745 billion, and it is up to all Members of this House to decide whether they support that. We do not know the position of the Opposition, because on Saturday the Labour leader said there would be no more borrowing, but on Sunday the shadow Chancellor said “yes, of course” there would be, so we will see what the position of the Opposition is on this.

The shadow Chancellor mentions what has been said in this House before. Well, let us be clear about what he said in this House before, and how we have responded to it in this spending plan. On 6 June 2011 he said there would be a return to mass unemployment. We have set out welfare plans that help people get back into work. Does he support those or not? That is the question the public will ask of him. He said in October 2010 that we were taking a huge risk with crime. Crime is down 10% or more. He said in July that year that the university reforms would shut out those from disadvantaged backgrounds from university, but actually a record proportion of pupils from disadvantaged backgrounds applied to go to university. He said, in his own words, that the cuts to the border agency would mean we would be unable to enforce our immigration policy. That was wrong, too. Every prediction he has made, including the prediction that there would be no more boom and bust, has proved to be completely wrong, so why would anyone believe a word he has got to say about this?

The simple point is this: we have set out our plans—we have set out our economic strategy, we have set out our spending plans—and those who disagree with them should advance an alternative or retreat from the battlefield, because the shadow Chancellor finds himself in no man’s land. He has abandoned his economic argument but stuck with a disastrous economic policy of borrowing more, and in the end, if we want to know why, we only need to hear what he said this month:

“Do I think the last Labour government was profligate, spent too much, had too much national debt? No, I don’t think there’s any evidence for that.”

All people want Labour to say is, “We’re sorry, we got it wrong, we borrowed too much and we spent too much, and we won’t do it again.”

To answer the specific question that the shadow Chancellor asked me, yes we will have free museum charges—so that people can go to our museums and see the antiquated economic policy advanced by the Opposition, which brought this country to its knees and gave us the worst economic crisis for a generation, and they can learn how this Government cleared up that mess.

These reductions and the control of public expenditure are absolutely essential. That will bolster the credibility of fiscal policy in the markets and it creates room for the private sector to lead the recovery and create the jobs we need, particularly in small businesses in our constituencies, which are desperately trying to find the funding to expand.

--- Later in debate ---

[Mr Osborne]

Bank bonuses are down 85% since the previous Government left office. We have curbed irresponsibility in our City, which was rife when the shadow Chancellor was City Minister. In all the years for which the hon. Gentleman was a Member of Parliament for Croydon and sat on the Government Benches, I do not remember him getting up and saying, “I want a higher top rate of tax, Gordon Brown”—sorry, I mean the right hon. Member for Fife. We did not hear that. The truth is that the tax rate for rich people is higher under this Government than it was when the hon. Gentleman represented the good people of Croydon.

[Mr Speaker]

It is good of the Chancellor to refer to the former Prime Minister by the title of his constituency, but it is an even better idea to get it right as Kirkcaldy and Cowdenbeath.

[Steve Baker (Wycombe) (Con)]

The Bank of England’s Andy Haldane recently told the Treasury Committee:

“Let’s be clear, we have intentionally blown the biggest government bond bubble in history.”

What contingency plans have the Government made to cope with that bond market bubble bursting?

--- Later in debate ---

[Several hon. Members]

rose—

[Mr Speaker]

Order. I am keen if at all possible to accommodate all remaining colleagues, but also to start the next business, the Second Reading of the Bill, by 2.30 pm. There is therefore a premium on brevity.

[Sir Bob Russell (Colchester) (LD)]

Previous defence cuts mean that our Army is heading towards being smaller than it was at the battle of Waterloo, so that is hardly a triumph. Will the Chancellor confirm that there is now no need, based on his statement, for any cuts to any Army bands and will he also make a statement on why the family housing lived in by our brave soldiers is not being modernised?

--- Later in debate ---

[Several hon. Members]

rose—

[Mr Speaker]

Order. There are still a lot of colleagues standing. May I please ask colleagues now to put a single-sentence question, without preamble—in other words, a genuine short question, which I know will be accommodated by the Chancellor with a short reply?

[Julie Hilling (Bolton West) (Lab)]

With 300,000 more children in absolute poverty, how many more will be in poverty by 2015?

[Mr Osborne]

Child poverty projections are made independently, but I say to the hon. Lady that we are doing everything we can to give children from poorer backgrounds the very best start in life, with measures such as the pupil premium.

[Mr Speaker]

Following the example of the Hilling handbook, I call Mr Andrew Selous.

[Andrew Selous (South West Bedfordshire) (Con)]

Will the Chancellor confirm that there will be a cap on benefits and not on the state pension in future?

--- Later in debate ---

[Charlie Elphicke (Dover) (Con)]

As so little has been done about problems of tax avoidance over the past decade, can the Chancellor confirm that HMRC will have the resources and the cultural enthusiasm it needs to tackle tax avoidance? Does he agree—

[Mr Speaker]

Order. One question is enough.

[Mr Osborne]

The short answer is yes, and the Exchequer Secretary is doing an excellent job in changing that culture, with the Department.

--- Later in debate ---

[Mr Osborne]

As I said, we are maintaining capital investment in the way that I set out in the statement.

[Mr Speaker]

Fifty-five Back Benchers contributed in 47 minutes of exclusively Back-Bench time, so I am grateful to colleagues, including, of course, the Chancellor.

Bill Presented

Railways Bill

Presentation and First Reading (Standing Order No. 57)

Caroline Lucas, supported by John McDonnell, Ian Lavery, Katy Clark, Jeremy Corbyn, Mr Elfyn Llwyd, Jonathan Edwards, Hywel Williams, Kelvin Hopkins, John Cryer, Grahame M. Morris and Martin Caton, presented a Bill to require the Secretary of State to assume control of passenger rail franchises when they come up for renewal; and for connected purposes.

Bill read the First time; to be read a Second time on Friday 18 October, and to be printed (Bill 81).