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House of Commons

Wednesday 26 May 2010

The House met at half-past Eleven o'clock


[Mr Speaker in the Chair]

Government Spending Cuts

11.33 am

Mr Alistair Darling (Edinburgh South West) (Lab) (Urgent Question): To ask the Chancellor of the Exchequer if he will set out the measures that will be implemented across government to deliver the more than £6 billion of in-year spending cuts announced earlier this week?

The Chief Secretary to the Treasury (Mr David Laws): Mr Speaker, I am extremely grateful, both to you and to the shadow Chancellor, for this early opportunity to set out to this House the action that this Government are taking to deal with the urgent economic situation and, frankly, the economic mess that we have inherited from our predecessors. I refer to the House to the written ministerial statement that I laid in the House this morning, which sets out the details of this early action.

The previous Government were borrowing at the rate of an additional £3 billion per week-that is an unsustainable rate. Those huge public debts threaten financial stability and, if left unchecked, would derail the economic recovery. We need not look far across our own continent to see that action to tackle our budget deficit is both urgent and necessary, and this is only the first step in a long road to restoring good management of our public finances.

I set out in a written ministerial statement this morning the details of the spending cuts that we will make for Departments in 2010-11. We have found cuts totalling £6.243 billion-that is £243 million more than originally targeted. However, the budgets for health, for international development and for defence will not be reduced. In addition, because we have been effective in finding savings, we have been able to take the important decision to protect the budgets for schools, Sure Start and 16 to 19-year-olds in 2010-11, which I am sure Labour Members will welcome.

The devolved Administrations will have the option of making their savings this year or deferring their share of the savings until the next financial year, and they will also receive their share of the additional spending that has been agreed as part of this statement. We will help local government to deliver its savings by removing the ring fences around more than £1.7 billion of grants to local authorities in 2010-11. That is consistent with our belief in giving more freedoms to local government.

Our first priority has to be to cut waste; we cannot expect difficult decisions to be taken on spending until we have eliminated the waste. We expect Departments to make savings, which will include £1.15 billion in cutting discretionary areas, such as consultancy, travel and advertising costs. In addition, £1.7 billion will come from delaying and stopping contracts and projects. That will include immediate negotiations to achieve
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cost reductions from the 70 major suppliers to government. Some £600 million is being cut from the cost of quangos and at least £120 million will be saved through freezing civil service recruitment. We will drive those and other savings through a new efficiency and reform group, which will work with the Cabinet Office and draw on expertise within government. The shadow Chancellor will be pleased to learn that this will be funded from within existing budgets. This action is designed to send a shockwave through Departments to focus Ministers and civil servants on whether spending in these areas is really a priority in the difficult times that we are now facing.

As well as reducing waste and the costs of government, we have started to scale back lower priority spending. We have taken the tough decision to pass legislation to end child trust fund payments-that will save £320 million in 2010-11, with the figure rising to £520 million in 2011-12. The House will be pleased to learn that, as part of the net savings, we will be reinvesting money to provide respite breaks for disabled children.

Quangos across government will have to make major savings in their budgets, and regional development agencies will have to cut back on the spending that has the lowest economic impact. Finally, we have decided to allocate, out of these savings, £500 million this year to measures to invest in improving the country's growth potential and building a fairer society: £150 million will be used to help to deliver up to 50,000 adult apprenticeship starts; following the complete shambles of the colleges capital programme under the previous Government, an additional £50 million will be allocated to help to fund capital investment in the further education colleges in greatest need; and we are allocating an additional £170 million to fund investment in social rented housing in 2010-11 to help to deliver 4,000 social housing starts-Members on both sides should welcome that. We will also freeze the backdated business rates payments under the eight-year schedule of payments, including in respect of businesses in ports, until April 2011, and we will consider any further action in this area and bring forward any plans before the freeze ends.

These are only the first steps that will be needed to put our public finances back in shape, but I believe that the public and most Members of this House will welcome the fact that we finally have a Government with the guts and determination to take these difficult decisions.

Mr Darling: First, I am grateful to the Chief Secretary-I am just sorry that the Chancellor of the Exchequer could not make it. It is important, especially as the Government have difficult decisions and announcements to make over the next few months, that the Chancellor should be ready to come to this House to justify what he is doing. Will the Chief Secretary accept that there is no good reason why the announcement made at a press conference on Monday could not have been made in a statement to the House, where it could have been scrutinised by Members of the House? Will he undertake that, in future, announcements of this magnitude will be made in this House and not through a press briefing?

Secondly, everyone knows that it is necessary for countries across the world-ours included-to reduce the amount of borrowing but to do it in a way that does not damage growth and that does not damage the economic fabric of this country. That is why I believe
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that to halve our deficit over a four-year-period was the right thing to do, because it would have enabled us to secure the recovery, which is still fragile. Does the Chief Secretary understand that although during the general election campaign the Conservatives said that they would not cut beyond eliminating what they called waste and inefficiency, they have gone far beyond that today? Does he not accept, too, that he campaigned explicitly on a platform of not reducing expenditure this year? Will he tell the House how cutting 10,000 university places can possibly amount to the elimination of waste and inefficiency? That is not being wasteful or inefficient; that is cutting the investment that we will need to ensure that we have the skills in the future.

Will the Chief Secretary also tell us where the Government said that they would cut the job prospects for young people in particular? The future jobs fund meant that young people coming out of university had the prospect of getting work. Instead, tens of thousands of young people will not have work and their first experience in working life will be of being on benefits, not of going into work. How on earth can that be described as cutting waste or inefficiency? Equally, how on earth can the child trust fund be described as wasteful or inefficient, especially when we are talking about low-income families and about getting those children the best possible start in life?

Does the Chief Secretary accept that the House and the country are entitled to know exactly what these reductions, allocated to each Department, amount to in terms of changes to services or provision? What he has done today is to come out and reread the press statement that he delivered on Monday, but he must know when each Department signed up to specific numbers what that would mean. For example, in education, will he confirm whether funding for personalised teaching, including one-to-one tuition, is being protected? In transport, is it right that more than £100 million could be taken from London's transport or that maintenance on the motorway network will be curtailed? Will he tell us how many jobs will go in the course of this year as a result of the freeze in jobs that was announced and where those jobs will fall?

The Chief Secretary must accept that although it is necessary to ensure that we live within our means, as I have always said, and although it is necessary for us to reduce our borrowing, it would be unforgivable if action were taken by this Government that damaged growth and investment in the future so that instead of getting a long-lasting recovery we found that we risked that recovery at a time when it is fragile. I hope that in future the Chancellor or the Chief Secretary will come to the House to explain what they have done. There will be an awful lot of explaining to be done over the months to come.

Mr Laws: I am grateful to the shadow Chancellor for the points that he has raised and I shall seek to address as many as I possibly can. Before I engage in those arguments with him, this is the first opportunity that I have had to address him in his new role as shadow Chancellor and I want to say to him that many people on both sides of the House respect him and respect the work that he sought to do as Chancellor. We appreciate
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that he took over the economic position and the Treasury at a difficult time and also had to deal with the difficult circumstances of having a Prime Minister of the type that the last Prime Minister was. I pay tribute to the work that he did.

I was very interested in the points that the shadow Chancellor made in response to my statement, but the only thing missing from all the questions that he asked was any acknowledgment of what his colleague, the former Chief Secretary, was able to acknowledge to me in the letter that he left on my desk-the former Government left a situation in which there was no money left. I say to the shadow Chancellor gently that the only thing missing from his statement was a single serious proposal about how to deal with the huge financial deficit, with £156 billion-worth of borrowing and £3 billion-worth of borrowing each week. He is an intelligent enough man to know that there are only three ways of tackling the structural deficit-we can cut spending, cut welfare payments or raise taxes. There was not a single clue in the statement that we just heard from him about how he would address those challenges.

May I also respond to the shadow Chancellor's point about making statements in the House? Of course, Mr Speaker, we want, wherever possible, to make these statements first and to be held to account for them, but if he is so passionate about this, can he explain why it was the case- [ Interruption. ]

Mr Speaker: Order. [ Interruption. ] Let the Chief Secretary resume his seat. These discussions are already becoming far too inflamed. I am trying to help the House by enabling these matters to be the subject of scrutiny. Members do not help me or the House or themselves if they shout from a sedentary position. If they think they are going to do that and still get called to ask a question, they have another think coming.

Mr Laws: I am grateful to you, Mr Speaker. I gently point out to the shadow Chancellor that in 1997, the Labour party announced its policy of Bank of England independence not to this place but outside it. That was not even a policy that the Labour party had stood on in its manifesto, so there is a very considerable difference with the proposals that we brought.

Let me also say to the shadow Chancellor that it should be clear, in relation to his questions on schools, that we have protected the schools budget. I would have thought that he would welcome that. The definition that we have used on the schools budget is exactly consistent with the definition that was used by the last Government.

In relation to the changes that there have been over the past couple of months, I also point out gently to the shadow Chancellor that anyone, including someone with his expertise and experience, would know just how much the international situation has worsened in the past couple of months and just how much the sovereign debt risk means that countries that are seen not to be taking action on their public finances are at risk of having an adverse reaction in the international markets. Had we had that, the consequence, inevitably, of that loss of confidence would have been difficulty in auctioning the gilts that we have to sell to fund this deficit, higher costs of auctioning those gilts and therefore higher costs in the public finances. Money that could have
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been spent on schools, the national health service and defence would have had to go on debt interest rather than on investment in front-line public services.

Finally, may I say that I am very disappointed that the shadow Chancellor has failed to acknowledge the additional package of measures that we announced, which will nurture recovery? Measures such as the 50,000 additional starts for apprenticeships and our dealing with the problems of the colleges capital programme that was left to us by the previous Government will help with investment in skills and will help to ensure that we can bring down the deficit and protect economic recovery at the same time.

Several hon. Members rose -

Mr Speaker: Order. Understandably, there is intense interest in this subject, with a very large number of Members wishing to contribute. If I am to have any chance of accommodating even a significant proportion of those who are standing, I require from each Back-Bench Member a single, short, supplementary question. I know that there will be an appropriately economical reply from the Chief Secretary.

Michael Fallon (Sevenoaks) (Con): Does my right hon. Friend accept that although there were, obviously, extenuating circumstances on Monday, it is always best if these announcements can be made to Parliament first? Will he also confirm that the economic recovery is unlikely to be jeopardised by cuts to the cost and bureaucracy of quangos? It is far more likely to be put in danger by a Government who would simply sit on their hands for the next 12 months.

Mr Laws: I agree with both my hon. Friend's points. First, he is right that we will seek, wherever we can, Mr Speaker, to make sure that these statements are made in the House, and we welcome the scrutiny from Members on both sides.

Secondly, I agree with my hon. Friend about the importance of cutting quangos. No serious economist believes that the actions we have taken this week will jeopardise the recovery. If the shadow Chancellor were being straightforward with us, he would acknowledge that the previous Government were already taking action to seek to deal with the deficit by tightening policy-for example by putting the rate of value added tax back up to 17.5%.

Mr David Blunkett (Sheffield, Brightside and Hillsborough) (Lab): By definition, ring-fenced and specific funding to local government, whether from the Department for Communities and Local Government, the Department for Education or others, is directed specifically at the most disadvantaged and deprived. Will the Chief Secretary tell us precisely what he believes he is doing in cutting more than £1 billion of that specific funding and by unring-fencing the rest, allowing those specific priorities to be eroded?

Mr Laws: The right hon. Gentleman is simply wrong if he thinks local government is incapable of making efficiency savings. All the people I know in local government believe that significant efficiency savings can be made. He does not allow for the significant change that the Government have announced, which will mean that by ending ring-fencing, there is more freedom for local
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government to decide where those cuts fall, and to make sure that they fall in the areas that are not priorities. I should have thought that as a former Education Secretary, he could have brought himself to congratulate the Government on the way that they have managed to ring-fence the schools budget and the Sure Start budget.

Mr Edward Leigh (Gainsborough) (Con): I welcome the return to the Treasury of stern, unbending Gladstonian Liberalism. Will the Chief Secretary confirm that if we are to restore the nation's finances, all Departments, including Health, Education, International Development and Defence, must play their part? For instance, such has been the catastrophic decline in productivity in health over the past 10 years that we can make significant efficiency savings without endangering front-line services.

Mr Laws: I am grateful to my hon. Friend for his kind comments about Gladstonian Liberalism. I hope that this is not only Gladstonian Liberalism, but liberalism tinged with the social liberalism about which my party is so passionate.

In the savings that we make, we are seeking to ensure that we cut with care. We have demonstrated this week that we can find efficiency savings and also put money into the areas that many of us in the House are passionate about-protecting education and putting more money than the previous Government did into social housing. We have shown that we can deliver both of those, but I agree with my hon. Friend that we must make sure that even those areas where the overall budgets are protected are driving out efficiency savings. There are considerable efficiency savings that can be made in the Ministry of Defence, in health and in education, and we must make sure that even as we protect the totality of those budgets, we shift money to the front-line services that matter most.

Ms Angela Eagle (Wallasey) (Lab): Will the Chief Secretary confirm that the announcements that he made on Monday, about which he is talking to us today, will mean the end of one-to-one tuition for pupils who are falling behind?

Mr Laws: No. That is complete nonsense. What we are doing is protecting the schools budget. Unlike the previous Government, who thought it made sense to dictate to every school and head teacher how to use its budget, we will give freedom to schools so that they can spend the money in the best way. We on these Benches believe-I am sorry that the hon. Lady does not seem to-that people on the front line know better than Government Ministers how to spend public money.

Jo Swinson (East Dunbartonshire) (LD): Most people realise that to tackle the deficit, cuts will be inevitable, but it is important that they do not fall hardest on the most vulnerable in society. Will my right hon. Friend tell us whether he has already rejected any cuts on the basis of the impact on the most vulnerable, and whether he will ensure that the principle of fairness is uppermost in his mind as he faces the difficult task of finding future cuts to tackle the deficit?

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