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House of Commons

Wednesday 20 October 2010

The House met at half-past Eleven o'clock


[Mr Speaker in the Chair]

Oral Answers to Questions

Cabinet Office

The Minister for the Cabinet Office was asked-

Volunteering (Young People)

1. Mrs Sharon Hodgson (Washington and Sunderland West) (Lab): What recent steps his Department has taken to increase opportunities for young people to volunteer. [18048]

The Parliamentary Secretary, Cabinet Office (Mr Nick Hurd): In the current financial year, the Department has provided £39 million in grants to the v organisation. On 22 July, the Prime Minister announced the introduction of the national citizen service to give young people an opportunity to develop the skills needed to be active and responsible citizens, mix with people from different backgrounds and start getting involved in their communities.

Mrs Hodgson: I thank the Minister for his response. At a fringe event at the Conservative party conference, I understand that the Minister for the Cabinet Office was quoted as saying that in his opinion the big society would be "chaotic and disorderly". That being the case, I feel that his heart is perhaps not in it. How can he go on to encourage young people to volunteer so that they can pick up the right skills and be employed fruitfully in the future?

Mr Hurd: We are absolutely committed to that, and the national citizen service will be an extremely important opportunity to connect young people with their own power to make a difference in their communities. I know that the hon. Lady took a strong interest in that through her work on the Select Committee on Children, Schools and Families. If she had had the opportunity to talk to some of the young people who had taken part in this year's pilot, she would have been as impressed as I was by the transformative effect that it had on them and on how they view their community and their own power to make a difference. We are very excited about it.

Duncan Hames (Chippenham) (LD): Voluntary organisations in my constituency rely on the great efforts of many people who are retired, and they are crying out for younger volunteers. Those volunteers need not just be teenagers, however. What plans do the Government have to facilitate opportunities for volunteering by people of working age?

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Mr Hurd: We have planned a series of initiatives for the forthcoming years to promote wider volunteering and to connect people again with their own power to make a difference locally-that is the heart of the big society. I cannot be drawn on the detail of those plans, because they are subject to the spending review.

Mr Liam Byrne (Birmingham, Hodge Hill) (Lab): If voluntary service for young people is to work, the third sector has to still be alive. This afternoon the Chancellor is going to try to drive a steamroller over the big society. Can the Minister explain why, in answer to parliamentary questions from my hon. Friend the Member for Glasgow Central (Anas Sarwar), three quarters of Whitehall could not say what contracts they had in place with the third sector? How can the Department protect the third sector from cuts this afternoon if it does not know what contracts are in place? Is the Minister not, in effect, flying blind?

Mr Hurd: I suspect that the right hon. Gentleman will eat his words later when he hears the Chancellor. I do not see any steamroller in evidence in relation to the big society, which is absolutely central to the Government's mission. A central strand of that mission is to open up the public services to a more diverse set of providers, including and specifically contributions from the voluntary and community sectors. As the right hon. Gentleman well knows, they are in a position to add a huge amount of value. That is a specific commitment of this Government, and we are going to deliver on it.

Government Procurement

2. Stuart Andrew (Pudsey) (Con): What steps he has taken to increase the efficiency of his Department's mechanisms for Government procurement. [18049]

8. Julian Smith (Skipton and Ripon) (Con): What steps he has taken to increase the efficiency of his Department's mechanisms for Government procurement. [18055]

The Minister for the Cabinet Office and Paymaster General (Mr Francis Maude): Procurements of major projects by the British Government have typically taken 77 weeks. They have frequently involved the extensive use of external consultants. That process is costly and wasteful, excluding small businesses, social enterprises, and voluntary and charitable organisations. That results in procurements that are too often uncompetitive, delayed, expensive and ineffective. We are taking steps to streamline the process. In the meantime, we are renegotiating contracts with the bigger suppliers to the Government on a single-customer basis, thus leveraging the Government's buying power. That will deliver some £800 million-worth of savings in this financial year alone.

Stuart Andrew: Sir Philip Green's report showed just how little time the previous Government afforded to the basic principles of cost-effective commissioning and procurement. Does the Minister feel that that attitude is embodied in the ill-considered note left by the ex-Chief Secretary to the Treasury as he left his old job?

Mr Maude: If the last Government, including the right hon. Gentleman, had bothered to spend the time that we are spending getting into the unglamorous parts of Government spending to find out just how much money can be saved, he might not have felt it necessary
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to leave a note in quite the stark terms that he did, true though it was. The fact is that there is a huge amount of wasteful spending. Sir Philip Green has done a sterling service in picking up some stones and providing the evidence for that, and we will be acting on his recommendations to see how we can take costs out of the overheads of Government. That is the best way to protect front-line services and to protect the jobs of dedicated public servants, which the right hon. Gentleman claims to care about.

Julian Smith: Does my right hon. Friend agree that small business has been locked out of the procurement process for far too long? Will he start to give small businesses, particularly those in Yorkshire, a fairer crack of the whip?

Mr Maude: A big benefit arising from the changes that we are proposing to make to the way in which services are procured is that they will open the door to smaller businesses. Over-prescriptive procurements make it very expensive for small businesses to take the risk of committing to tendering, and they tend to be excluded on a self-selecting basis. We want to change that. It is our aspiration that 25% of contracts should be let with small and medium-sized enterprises. That is the direction in which we hope to go, and I am sure that my hon. Friend's constituents in Yorkshire will take full advantage of it.

Gordon Banks (Ochil and South Perthshire) (Lab): Will the Minister be able to publish information in future to show that his aspiration to help small business is not just an aspiration but a reality?

Mr Maude: One of the stark conclusions of Sir Philip Green's review was that the quality of Government data is lamentably poor. It is not easy to know exactly what the position is. The right hon. Member for Birmingham, Hodge Hill (Mr Byrne) referred to the lack of centrally held data about contracts with the voluntary and charitable sector; that merely begins to illustrate the problem.

Mr Nigel Dodds (Belfast North) (DUP): The Minister talks about small and medium-sized enterprises gaining more from Government contracts, but can he indicate what he is doing to ensure that there is a good spread of that throughout all regions of the United Kingdom?

Mr Maude: All regions and nations across the United Kingdom should be able to benefit from that aspiration. We are going to expose much more widely the tender documents that are available so that small businesses will find it much easier to take part in these sometimes quite intimidating processes that have excluded many of them in the past. [ Interruption. ]

Mr Speaker: Order. I understand that the House is eagerly anticipating later business, but when there is a constant hubbub it is very discourteous and most unfair both on the person wanting to ask the question and on the Minister deputed to answer it.

Non-departmental Public Bodies

3. Charlie Elphicke (Dover) (Con): What recent progress has been made on his Department's review of non-departmental public bodies. [18050]

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13. Chris Skidmore (Kingswood) (Con): What recent progress has been made on his Department's review of non-departmental public bodies. [18060]

The Minister for the Cabinet Office and Paymaster General (Mr Francis Maude): Last week I announced the first results of the Government's review of quangos. This is a work in progress; the principal aim is to increase accountability. We believe that where the state carries out a function it should be accountable to a Minister or to a local council unless one of three rigorous tests is met. To pass, the function must be purely technical, tasked with measuring facts or figures, or plainly required to be politically impartial. We reviewed 901 bodies and intend that nearly 200 will cease to be NDPBs, and we will merge a further 118 and substantially reform a further 171.

Charlie Elphicke: Does the Minister agree that the review should include the misuse of public funds by quangos and public sector balance sheet organisations in paying lobbyists to brief against the Government or elected Members in the execution of their mandates?

Mr Maude: Guidelines already limit the use of external consultants for those purposes, and we intend to tighten them further, because the public find it quite offensive that a quango should be spending taxpayers' money on hiring external consultants to lobby the Government to encourage them to spend more taxpayers' money.

Chris Skidmore: Will the Minister tell the House how many quangos were created by the previous Government and, of those, how many will remain as a result of the changes that he is introducing?

Mr Maude: As I said, we will reduce significantly the number of NDPBs. The right hon. Member for Birmingham, Hodge Hill (Mr Byrne) was bragging the other day about how many quangos he was planning to get rid of, but sadly the last Labour Government failed to act on their intentions.

Albert Owen (Ynys Môn) (Lab): Last week the Minister announced that many quangos would be done away with and their responsibilities transferred to third sector organisations. Will he assure the House and myself that those organisations, such as citizens advice bureaux, will be properly resourced so that they can provide people with specialised advice? Will he dispel the myth that this is being done on the cheap?

Mr Maude: The aim of the quango review is not particularly to save costs or money-although it will-but principally to increase accountability. When functions are transferred, such as consumer advocacy functions to CABs, there will be a transfer of resources. The hon. Gentleman will have to wait a little longer to hear the extent of those resources.

Mr David Lammy (Tottenham) (Lab): Why does the Minister intend to disembowel the Equality and Human Rights Commission? Does he not believe that its responsibility to promote equality on behalf of women and ethnic minorities is important? Why is he reducing it to a purely regulatory body?

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Mr Maude: Many people felt that that body was not spending taxpayers' money well. Its function is important and we concluded that it justified the EHRC continuing to exist as an independent body, but given that we are facing a situation in which, as the former Chief Secretary helpfully pointed out, there is no money left, significant savings have to be made. The EHRC will have to play its part in that.

National Citizen Service

4. Mary Macleod (Brentford and Isleworth) (Con): What recent progress has been made on establishing the national citizen service. [18051]

7. Charlotte Leslie (Bristol North West) (Con): What recent progress has been made on establishing the national citizen service. [18054]

The Parliamentary Secretary, Cabinet Office (Mr Nick Hurd): In July, the Prime Minister announced the start of the bidding process for providers of national citizen service pilots. We have been really pleased with the response, and in the next few weeks we expect to announce the successful bidders. We expect to provide places for about 10,000 young people, with a good geographical spread.

Mary Macleod: The national citizen service is a great example of how young people can make a difference in their local communities. What can I do to persuade people in Brentford and Isleworth to get more involved in the project?

Mr Hurd: I thank my hon. Friend for her interest. As I said, the successful bidders will be announced shortly. They will be responsible for recruiting local young people and communicating the opportunities in their area. If a pilot is run in her area, I urge her to support its provider, as I would urge all MPs to do. The experience of young people in the pilots that have already taken place just down the road from her in Hammersmith has been extremely positive.

Charlotte Leslie: In my constituency, some of the richest wards exist side by side with some of the poorest wards in the country. Can the Minister reassure me that children from more disadvantaged backgrounds will also be encouraged to get involved in the national citizen service?

Mr Hurd: I can certainly give my hon. Friend that assurance, and those children will be more than encouraged. Involving people from all kinds of backgrounds is a central aim of the programme and a key part of its value. As part of the commissioning process, organisations bidding to deliver a pilot next summer have been asked to set out their specific plans to support the broadest range of young people to participate. [Interruption.]

Mr Speaker: Order. There are still far too many private conversations taking place in the Chamber. I want to hear, and I hope the House wants to hear, Steve Rotheram.

Steve Rotheram (Liverpool, Walton) (Lab): As a former employee of a quango, I am following the Minister's much-vaunted "bonfire of the quangos", as he called it. Now that the comprehensive spending review is upon us, can he tell the House what the total savings will be?

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Mr Speaker: Order. Unfortunately, that question suffers from the disadvantage that it bears absolutely no relation to the question on the Order Paper. We must have another go, so I call Stella Creasy.

Stella Creasy (Walthamstow) (Lab/Co-op): The tender document for the national citizen service pilot sets out the Government's refusal to meet the total costs of the programme. Just how much of the bill does the Minister expect the voluntary sector and young people themselves to meet?

Mr Hurd: The cost of the pilots will be revealed as a result of the spending review. We are committed to two years of pilots to test a range of approaches to delivering the service, which will help us to identify the most cost-effective way forward. We will have a clear idea of the likely costs of a wider roll-out of the national citizen service once we have evaluated the two-year pilot phase.

Social Enterprises

5. Richard Fuller (Bedford) (Con): What assessment he has made of the likely effect on social enterprises of reductions in Government expenditure. [18052]

The Minister of State, Cabinet Office (Mr Oliver Letwin): Of course, social enterprises will be affected by the spending review. However, as part of our structural reform programme, we are bringing forward huge new opportunities for the social enterprises of this country-indeed, for the voluntary and community sector as a whole-to participate in the delivery of public services.

Richard Fuller: I am heartened by my right hon. Friend's response. He may be aware of the current uncertainty surrounding Foxgloves residential home, which provides respite care for families of children with epilepsy and autism. It is working well with the council to find a solution, but other solutions should come from the community. Are there are any plans to bring forward the use of unclaimed assets so that social enterprises can draw on them to provide alternatives, and the parents at Foxgloves can continue to use it and secure its future?

Mr Letwin: The sort of case that my hon. Friend raises is relevant to our concerns, and we are very focused on that. It is one reason for our introducing the big society bank, which will be partly funded in just the way that he describes, and can, in turn, fund social enterprises and voluntary and community service organisations that require funding in the interim.

Roberta Blackman-Woods (City of Durham) (Lab): According to research by the National Council for Voluntary Organisations, third sector organisations that provide education and training opportunities could be the most imperilled by public spending cuts. What is the Minister doing to ensure that training opportunities in the third sector remain? Has he pressed the Department for Business, Innovation and Skills and the Treasury on that?

Mr Letwin: I think that the reverse will turn out to be the case, in the sense that the Government are planning a huge and terribly important Work programme, which will focus heavily on not only getting people into jobs,
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but training them for jobs. We are also greatly enlarging the programme of apprenticeships, and there are various other elements, about which hon. Members will hear in the spending review announcement. Consequently, we anticipate more, not fewer opportunities for voluntary and community organisations to participate in training and employment.

Commissioning and Procurement

6. Stephen Metcalfe (South Basildon and East Thurrock) (Con): What recent progress has been made in delivering his Department's policies on Government commissioning and procurement. [18053]

The Minister for the Cabinet Office and Paymaster General (Mr Francis Maude): Commissioning is currently too prescriptive; tender documents can be immensely lengthy, specifying every detail of every step in every process. That stifles innovation, excludes new entrants to the market and adds wholly unnecessary cost. We intend that commissioning should be outcome-based, leaving much more scope for innovative providers from the social enterprise, voluntary, charitable and small business sectors to bid. Whenever possible, commissioning should be based on a payment-by-results model.

On procurement, I refer my hon. Friend to my reply to Question 2. [Interruption.]

Mr Speaker: Order. Once again, I understand the excitement and anticipation, but the House must come to order. Such conduct makes a bad impression on the electorate, whose support we so recently sought.

Stephen Metcalfe: I thank my right hon. Friend the Minister for his answer. Following his earlier comments, I seek assurance that small and medium-sized enterprises in my constituency can access Government contracts. Can he give me any examples of practical help now or in future that would make that easier to achieve?

Mr Maude: We certainly hope that that will be the case. It is our aspiration that 25% of Government contracts should end up in the small and medium-sized sector. We are committed to publishing online, in an easily accessible form, all Government tender documents. That will make it much easier for small businesses, which can otherwise be put off the process, to take part.

Jon Trickett (Hemsworth) (Lab): In terms of commissioning and procurement, the public sector procures £13 billion-worth of services from the charitable sector. On Monday, a think-tank suggested that the Government's statement today will wipe out about £5 billion of that procurement-the whole of the increase that was achieved in the past 10 years. What are the Minister's intentions for funding the voluntary sector? How does he reconcile cuts in that sector with the Prime Minister's aspiration for the big society?

Mr Maude: We are very aware of concerns in the sector. The Chancellor is very aware of them, and will have something to say about the matter a little later. However, there must be reductions in public spending for the simple reason that the former Chief Secretary set out with such uncharacteristic lucidity in his valedictory note.

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Public Services (Third Sector)

9. Catherine McKinnell (Newcastle upon Tyne North) (Lab): What recent assessment he has made of the effectiveness of the use of third sector organisations by local authorities in delivering public services. [18056]

The Minister of State, Cabinet Office (Mr Oliver Letwin): As I mentioned in my response to my hon. Friend the Member for Bedford (Richard Fuller), the Government believe that the voluntary and community sector has a huge role to play in providing public services. Indeed, our intention is vastly to enlarge the potential for that to occur.

Catherine McKinnell: Newcastle city council has reassured me of its commitment to using the voluntary sector, but what will the Minister do to ensure that the severe cuts to local authority funding do not mean that the big society is just an underfunded big con?

Mr Letwin: We are extremely conscious of the fact that there may be a gap between when we introduce the new reforms that I described and when the effect of the expenditure cuts is felt. My right hon. Friend the Chancellor will have very much to say on that when he makes his statement, and I would not want to pre-empt what he will say on how we will handle that situation.

Ben Gummer (Ipswich) (Con): Suffolk county council was recently part of the body that commissioned drug and alcohol treatment services in Suffolk. Unfortunately, a very small, excellent charity in my constituency-the Iceni Project-was excluded from that process because of its size. What can the Minister do to ensure that the Iceni Project will be included, and will he agree to meet it and me?

Mr Letwin: I would of course be delighted to meet my hon. Friend and the charity in question. As we restructure contracts in the way in which my right hon. Friend the Minister for the Cabinet Office mentioned-away from hugely prescriptive tender contracts and into payment by results-I hope we will find that there are huge opportunities for charities such as the small one in my hon. Friend's constituency to participate and deliver excellent results. We should not have the huge bureaucratic burdens that prevent the smaller voluntary and community organisations from participating.

Helen Goodman (Bishop Auckland) (Lab): I am sorry to say that the Minister sounds rather naive. I went to visit Crisis in Sunderland. Three quarters of its money comes from a combination of housing benefit and local government grant. When both those are cut, how can it maintain its services?

Mr Letwin: I think the hon. Lady is ignoring the extent to which our programme of structural reform will enlarge opportunities for people to participate in services from the voluntary and community sector- [ Laughter. ] Opposition Members may not believe that, but that is because they did not try to find ways to deliver services on the basis of payment by results, or to find ways that actually work. We know that voluntary and community organisations are capable of that. When they do it, they will find that there is access to a large amount of revenue that is currently denied to them.

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Departmental Procurement

10. Mark Pawsey (Rugby) (Con): What steps his Department is taking to share best practice in procurement among Departments. [18057]

The Minister for the Cabinet Office and Paymaster General (Mr Francis Maude): Procurement of basic commodities was carried out without any effort to leverage the scale and buying power of the whole Government- [ Interruption. ]

Mr Speaker: Order. I understand the excitement, but I hope that that practice, which was discontinued some time ago, will be discontinued in future. The Minister must be heard.

Mr Maude: That led to one part of the Government buying basic office supplies at seven and a half times the cost that other parts incurred. Allowing wasteful spending of that type to remain unreformed would mean that front-line services and the jobs of dedicated public servants would be more at risk. We are mandating that all Departments and public bodies should in future buy through supplier contracts negotiated on behalf of the whole of central Government. That will cut the costs of Government overheads by some- [ Interruption ]

Mr Speaker: Order- [ Interruption. ] Order. In so far as we could hear the Minister, I think we have got the drift of it.

Mark Pawsey: I thank the Minister for his reply in as much as I heard it. It is sound commercial practice to maximise buying power by adding together the purchases of all bodies within an organisation and to use that to drive down prices from suppliers, yet Sir Philip Green found waste arising from huge variation in the prices paid by different Departments. What steps will the Minister take to co-ordinate Government procurement in future?

Mr Maude: We will be mandating that all of central Government should buy through centrally negotiated contracts. That will save £500 million in the current year alone, and will drive savings running into billions of pounds in the years that lie ahead.

Dr Alan Whitehead (Southampton, Test) (Lab): Will the Minister ensure that best practice in sustainable and green procurement is part of his briefing in ensuring best practice in Departments, and does he consider that the abolition of the Sustainable Development Commission will help or hinder him in that process?

Mr Maude: We are committed to procuring in a way that is sustainable, but I do not agree with the hon. Gentleman that maintaining a quango is a guaranteed way to achieve that.

Prime Minister

The Prime Minister was asked-


Q1. [18063] Mr Peter Bone (Wellingborough) (Con): If he will list his official engagements for Wednesday 20 October.

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The Prime Minister (Mr David Cameron): This morning I had meetings with ministerial colleagues and others and, in addition to my duties in the House, I shall have further such meetings later today.

Mr Bone: During this Parliament, our contributions to the European Union will increase by £17.5 billion, so yesterday's cuts to the defence budget will not go to reduce the deficit, but to subsidise our European partners. This is obscene. What would the Prime Minister like to say to the European Union?

The Prime Minister: First, the point is that the previous Government gave away some £8 billion of rebate and got nothing in return. I am clear that we will not accept any increases in the EU budget in the next seven-year financial perspective. We have called for a cash freeze in the size of the EU budget for 2011 and we are working hard to make this case across Europe. Just yesterday, I spoke to the new Dutch Prime Minister as he is another ally in trying to ensure that, as we make difficult decisions at home, we do not spend extra money on the EU budget.

Edward Miliband (Doncaster North) (Lab): I want to start by asking the Prime Minister about something that the Justice Secretary said. Unfortunately, he has become part of the "squeezed middle" due to the logjam on the Tory Front Bench. Three weeks ago, the Justice Secretary-a former Chancellor-said:

On the same day, the Prime Minister said that the UK economy was out of the danger zone. Which of them is right?

The Prime Minister: First, let me compliment the Justice Secretary because he has something that I am not sure the Leader of the Opposition has yet acquired, which is bottom.

If the Leader of the Opposition read out the full quotation from the Lord Chancellor he would find that it referred to western Europe as a whole. That is the point. Perhaps he would like to read out the whole quote now.

Edward Miliband: The- [ Interruption. ] Let me be very clear about this. The Justice Secretary said:

because of global fear and crisis. He was talking about the United Kingdom. It is a very simple question for the Prime Minister. Who is right? Is it the Justice Secretary when he does not rule out the risk of a double-dip recession? Or is the Prime Minister saying that the Justice Secretary has put his foot-or his Hush Puppy-in it? Is he saying that the Justice Secretary was wrong to say that there was a risk of double-dip recession in the UK?

The Prime Minister: Of course, the Leader of the Opposition must ask the questions and I must answer them, but he must-if I may say so-ask a complete question which should include the complete quotation. Have another go.

Edward Miliband rose- [ Interruption. ]

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Mr Speaker: Order. I want time for Back Benchers, especially those on the Order Paper. Let us make some progress.

Edward Miliband: Look, the Prime Minister knows as well as I do that there are risks in the global economy, including to the United Kingdom. The Chief Secretary revealed yesterday that half a million jobs will be lost as the result of the Chancellor's announcements today. What people who are in fear of losing their jobs will want to know is what the consequences of the spending review will be for them. They will think that this spending review will be a failure if it leads to rising unemployment next year. Will the Prime Minister say that he agrees with them that the spending review will be a failure if unemployment were to rise next year-yes or no?

The Prime Minister: That is a much better question; I think we are making some progress. The whole point of the Government's approach is to take the British economy out of the danger zone, which is where it was left by the last Government. This is very important: the choice that we were left with when we came into power was to accept what the last Government had set out, but this is what was said about that. The Governor of the Bank of England said that it was "not a credible plan", the CBI said that it was not a "credible path", the OECD said that it was a "weak fiscal position", and the IMF said that it was not good enough. We had a choice: should we keep what we were left with or should we take bold action to get Britain out of the danger zone? That is what we have done. That is what today is all about, and it is time that the right hon. Gentleman asked something relevant to that.

Edward Miliband: The Prime Minister began by saying that it was a good question, then he said that it was irrelevant. Which is it? Let me give him another- [ Interruption. ] I know that he is getting advice from the Chancellor; he can answer the questions himself. Let me try the Prime Minister on another question, because he did not answer that one.

The Energy Secretary, who does not seem to be around-[Hon. Members: "He is here!"] Oh, he is there. Excellent. I am glad that he is here. The Energy Secretary says that the Government should not be "lashed to the mast" of the Government's tax and spending numbers were economic circumstances to change. Does the Prime Minister agree? In particular, if at the end of November the Office for Budget Responsibility were to forecast a rise in unemployment next year, does the Prime Minister think that the tax and spending judgments of the Government should change? Yes or no?

The Prime Minister: First, to respond to what the right hon. Gentleman said about me and the Chancellor, I know that it is a novel concept, but in this Government the Prime Minister and the Chancellor speak to each other.

On unemployment, the independent Office for Budget Responsibility-which we have established and which is fully independent-is forecasting that unemployment will fall next year, the year after and the year after that. It is forecasting that employment- [ Interruption. ] One question at a time, please. The right hon. Gentleman is very eager. The Office for Budget Responsibility also
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forecasts that employment will rise next year, the year after and the year after that. That is the independent forecast, and one of the reasons for that is that we have taken the economy out of the danger zone. He asks about the Energy Secretary, but what is interesting about this Government is that two parties have come together in the national interest to sort out the economic mess that was left by the other. That is what has happened, and that is why there is real unity in this Government in dealing with the mess that we inherited.

Edward Miliband: Let me give the Prime Minister another chance, because the truth is that the global economic outlook is uncertain, as the former Chancellor admits-the Prime Minister does not really want to admit it-and it could affect the UK. The question that people will be asking as they watch these exchanges is this: if things change, and if unemployment were to rise next year, will the Government revise their tax and spending plans? It is a simple question; the Prime Minister can just say yes or no.

The Prime Minister: Where the right hon. Gentleman is absolutely right is that we live in a dangerous world economy, and the outlook for the world economy is choppy and difficult. That is what the Justice Secretary was talking about and what the Chancellor has been talking about. The question for the Government is this: in an uncertain world economy, are we taking the British economy out of the danger zone? Are we doing the right thing to protect the long-term interests of people's jobs and livelihoods? That is what we are doing. What the right hon. Gentleman is doing is thoroughly irresponsible, and I think he probably knows it.

Edward Miliband: This is very interesting, because the Prime Minister used to say that he was a different type of Conservative, but I have given him the chance to say that he will change his plans if unemployment rises, and he has ducked the chance to do so. We all remember the catchphrases: "If it isn't hurting, it isn't working"; "Unemployment is a price worth paying." He sounds exactly like that. What we have is a Prime Minister lashed to the mast of the tax and spending plans. Should he not admit it? He is taking the biggest gamble in a generation-with growth, with people's jobs and with people's livelihoods.

The Prime Minister: We all remember some catch phrases: "No more boom and bust"-remember that one?-and "Prudence with a purpose", which left us with the biggest budget deficit in the G20. We remember that, and who was the economic adviser at the Treasury at the time? He is sitting right there- [ Interruption. ]

Mr Speaker: Order. The Prime Minister must be heard.

The Prime Minister: Let me give the right hon. Gentleman one simple piece of advice that I learned sitting in his seat for five years: if you have not got a plan, you cannot attack a plan. He has not got a plan, so he has got nothing to say- [ Interruption. ]

Mr Speaker: Order. Order. Be quiet now! I call Nicky Morgan.

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Nicky Morgan (Loughborough) (Con): Charnwood borough council has completed the online publication, three months early, of all its expenses over £500. In the light of today's announcements, is it not right that taxpayers want to know exactly how much is spent in their name and what the money is spent on?

The Prime Minister: My hon. Friend is absolutely right, and one of the ways that we will try to save money while not losing too many jobs in the public sector is by making sure that we are more efficient. One of the best tools for efficiency is transparency: putting online what is spent and how it is spent, and what people's salaries are can help to drive down costs in a way that makes public services better while saving money at the same time.

Q2. [18064] Chi Onwurah (Newcastle upon Tyne Central) (Lab): Many of my constituents fear for their jobs. Will the Prime Minister reassure them by explaining how cutting science funding is part of a strategy for growth? Germany is increasing its science funding by 7%. On jobs, is the Prime Minister's message to Newcastle: "Auf wiedersehen, pet"?

The Prime Minister: The hon. Lady makes a very good point, which is that, in making spending reductions-whoever had won the last election would have had to make spending reductions-it is vitally important that we try to protect economic growth. The last Government were committed to 20% departmental spending reductions, and I can say-without, I hope, pre-empting all of my right hon. Friend the Chancellor of the Exchequer's statement-that I hope she and the whole House will find that we have struggled hard but we have been able to freeze the science budget in cash terms, which is a good outcome for science.

Mr Oliver Heald (North East Hertfordshire) (Con): Will the Prime Minister join me in paying tribute to the work of Save the Children and other charities that deal with development work in some of the most difficult places in the world? Does he share my delight in today's news of the release of Frans Barnard in Somalia?

The Prime Minister: I do, and I am very grateful to my hon. Friend for raising this case. We have been in close contact with Save the Children over the kidnap of Frans Barnard, who is doing vitally important work on its behalf in Somalia, and we are delighted by the news that he has been freed by his kidnappers. Let me praise the professionalism of Save the Children and thank the Somali clan members who were involved in his release. I am sure that it will be good for him to be back with his family after what must have been a very frightening and difficult few days.

Q3. [18065] Sandra Osborne (Ayr, Carrick and Cumnock) (Lab): On the day when more than 2,000 supporters of Christian Aid, including some from my own constituency, have come to Parliament in support of a cross-party consensus on protecting the aid budget, does the Prime Minister agree that we should be leading a global crackdown on the tax-dodging that costs poor countries more each year than they actually receive in aid?

The Prime Minister: I do; on a day when I am sure that there will not be cross-party agreement on everything that is discussed, we should just take one moment to celebrate the fact that this country, almost alone among
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other countries, is going to meet the United Nations target of 0.7% of gross national income for overseas aid by 2013. We have made difficult choices under this Government in order to deliver that, and to keep our international promise to some of the poorest people in the world. Every party in the House can be proud of the role that it will play in ensuring that Britain stands up for aid in our modern world, and we can put pressure on other countries to do the same thing.

Jessica Lee (Erewash) (Con): Will the Prime Minister join me in backing the supporters of Ilkeston Town football club in my constituency who are working hard to put together a bid to save the club? If they are successful, it will be the first supporter-owned football club under the new coalition Government, and a real asset to us in Erewash.

The Prime Minister: My hon. Friend makes a good point. Many hon. Members will have football clubs in their constituencies that sometimes struggle financially, and seeing one owned by its supporters is a very positive move. I hope she will not mind if I spend more of my time on another football bid, which is the very important bid to make sure that England hosts the World cup in 2018.

Q4. [18066] Lindsay Roy (Glenrothes) (Lab): I have already briefed the Prime Minister on the likely impact of the interim cap on migrant workers on a leading-edge company in my constituency. The one graduate sponsorship licence issued has suddenly been withdrawn. Can the Prime Minister assure me that he will review this case urgently, as this expert is pivotal to growth and jobs in our community?

The Prime Minister: I thank the hon. Gentleman for giving me notice of his question. I will arrange for the Minister for Immigration to look urgently at this case. The point is that we have consulted business and other interested parties on how the limit should work. We have also asked the Migration Advisory Committee to consult on what the actual limit should be. The consultations are closed and we will announce the findings in due course. The reason for an interim cap is that it was important to have a temporary limit to ensure that there was no closing-down sale, as it were, before the final limit was introduced. I will make sure that the Minister for Immigration gets in touch with the hon. Gentleman about this case.

Q5. [18067] Mr Christopher Chope (Christchurch) (Con): May I ask my right hon. Friend a question of which I have given him prior notice? Will he tell the House why he believes that the first-past-the-post system for election is far fairer than the alternative vote system?

The Prime Minister: My hon. Friend tempts me into answers that will not delight everyone on this side of the House. I am clear that I have always supported the first-past-the-post system. I like to have the individual link between constituency and MP. In some cases, the alternative vote would have led to even more disproportional outcomes in national elections. Let me thank my hon. Friends who I know have misgivings about this referendum for allowing the Parliamentary Voting System and Constituencies Bill to go through. I think we should make this argument in the country rather than try to wreck the Bill in the House.

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Q6. [18068] Dr William McCrea (South Antrim) (DUP): Now that the final day of the Chancellor's judgment has arrived, can the Prime Minister assure me by confirming that the decision taken on the 50,000 savers of the Presbyterian Mutual Society will be both fair and equitable? Will he assure us that no sleight of hand will be used in delivering the full financial package promised by the previous Administration to the Northern Ireland Executive?

The Prime Minister: I thank the hon. Gentleman for his question. Having already announced one of the Chancellor's nuggets from his speech, it would be testing our friendship if I announced another. I gave my word about finding a settlement for the PMS. I know how important this is in Northern Ireland. I know that people lost money and that there was frustration that Ministers would stand at the Dispatch Box and say that no one had lost money during the financial crash-they did in the PMS. I hope that the hon. Gentleman will be satisfied by what the Chancellor has to say in a moment.

Dan Byles (North Warwickshire) (Con): Last week, I joined a parliamentary delegation to China, where I was able to pick up a copy of Chairman Mao's "Little Red Book". Is the Prime Minister interested to learn that Chairman Mao said:

If Mao Tse-tung supports coalition policy, does that not mean that the Labour party is in a minority of one?

The Prime Minister: I am glad that my hon. Friend has been travelling and seeing the world. [Interruption.]

Mr Speaker: Order. I want to hear the Prime Minister's views about Chairman Mao.

The Prime Minister: I am glad that my hon. Friend is travelling the world and learning so much. We learned a few weeks ago that even Cuba is making reductions in public spending, so I think this puts the modern Labour party somewhere between China and Cuba-but I am not quite sure where.

Q7. [18069] Michael Connarty (Linlithgow and East Falkirk) (Lab): Following a meeting with the Northern Ireland human rights commissioners yesterday, it is clear that this Government intend to breach the spirit and the letter of the Good Friday and the St Andrews agreements by refusing to bring in a Human Rights Act specifically for Northern Ireland, as recommended by the commission and supported recently by more than 80% of the Protestant and Catholic communities. How can the Prime Minister possibly excuse this betrayal of the people of Northern Ireland?

The Prime Minister: I thank the hon. Gentleman for his question. I will look at that carefully; I know that it has been discussed. It is a difficult issue and there are some problems that we need to resolve, but I will look at it and write to the hon. Gentleman.

Mr David Nuttall (Bury North) (Con): Does the Prime Minister agree that it is completely unacceptable that the European Union is expanding its bureaucracy while here in the UK we are cutting ours?

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The Prime Minister: I agree with my hon. Friend. This is a point that I have made at the European Council in the past and that I will make again at the next one. There are allies for these views in Europe. I talked about the Dutch Prime Minister; the Germans are also unwilling to see increases in the budget in future. We need to work with these allies to try to explain that it is just unacceptable. When we are making difficult decisions at home, Europe should be doing the same with its own budget.

Q8. [18070] Mr Tom Watson (West Bromwich East) (Lab): Is it wise and right that Ministers invest in offshore tax havens?

The Prime Minister: I think that that issue was fully raised by Channel 4, and fully answered by the Government. Everyone should obey the law; everyone should pay their taxes.

Q9. [18071] Philip Davies (Shipley) (Con): Despite the Prime Minister's earlier answers, can I tell him that at a time when we are cutting budgets in this country, it is absolutely unacceptable that the Government rubber-stamped an increase in the budget of the European Union? Given that he pledged at the general election that only two budgets would be ring-fenced-those for the health service and overseas aid-will the Government go to the European Union and say that we are not only talking about freezing the budget, but want it to take the pain and cut its budget?

The Prime Minister: My hon. Friend makes a fair point, but the fact is that we opposed the increase in the budget that he voted against the other night, and will go on opposing increases in the budget. The key is the next financial perspective: that is the best way in which to control the budget. We need to build allies for that, we need to build our argument for that, and we need to make sure that Europe starts to live within its means.

Q10. [18072] Mr David Anderson (Blaydon) (Lab): The North East chamber of commerce has reported that 17,000 construction jobs are at risk as a direct result of proposed cuts in local councils. For some of us in the House, unemployment is not just a subject for theoretical discussion. Some of us have lived through and experienced the real desolation that unemployment means. Will the Prime Minister now tell us clearly whether he believes today what he believed in 1992-that unemployment is a price worth paying?

The Prime Minister: I do not take that view at all. I take the view that we must do everything we can to get our people into good and well-paid jobs. I have to say, however, that if we do not tackle the deficit, every job in the country will be under threat. That is the point. We are not doing this because we want to; there is no ideological zeal in doing this. We are doing this because we have to.

The hon. Gentleman mentioned the British Chambers of Commerce. What the British Chambers of Commerce said at the time of the Budget was that this


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That is what the chambers of commerce think. They think that we are right to take this action, and they think that the Labour party is wrong.

Q11. [18073] Mr David Evennett (Bexleyheath and Crayford) (Con): Does my right hon. Friend agree that you do not need a basic economics primer to know that when there is a £44 billion black hole in the public finances, you should not propose additional commitments of £10 billion in speeches made outside the House around the country?

The Prime Minister: And in speeches after which they will not answer any questions, which is a novel approach.

My hon. Friend is right. We have a problem with the deficit in this country, and we have got to deal with it. We have set out the ways in which we are going to do that, and we have set out a plan. The Opposition do not have a plan, and you cannot attack a plan unless you have one yourself. If all you can do is come up with extra taxes for extra spending, you are completely irrelevant to the debate in the country today about how we pay down our debts. That is the question, and we have the answer.

Q12. [18074] Mrs Jenny Chapman (Darlington) (Lab): Given the Prime Minister's repeated assurances that the north-east has nothing to fear from him, his Government, and public sector job cuts because he believes that the private sector will thrive in the vacuum, can he name just three businesses in the north-east that he believes will be expanding their work forces in the next 12 months?

The Prime Minister: This week 38 businesses wrote to the papers backing the action. Those businesses were spread right across the country, but let me give the hon. Lady some satisfaction in terms of the north-east. I believe that the north-east has a great future in renewable energy, and she is about to hear that we are protecting capital spending so that the carbon capture and storage projects will go ahead and the investment in wind power will go ahead. As for the green investment bank, which lots of people have talked about, we will be putting proper money into it so that it can invest in the north-east and elsewhere in the country.

Q13. [18075] Nick Boles (Grantham and Stamford) (Con): Can my right hon. Friend reassure my constituents who rely on the excellent hospitals in Grantham and Stamford that he has rejected the advice of the shadow Chancellor, and will protect spending on our NHS?

The Prime Minister: I can absolutely give that guarantee. That is something on which we fought the election, something that is in the coalition agreement, and something that my right hon. Friend the Chancellor will be delivering.

We will have to make difficult decisions, including difficult decisions about the NHS, but what I can say is that we will fulfil our promise that national health spending will not be cut in real terms under this Government. That is a big contrast with what we hear from the Labour party, which has said in terms-particularly the shadow Chancellor-that protecting the national health service is wrong. We do not agree: we think that it is right.

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Mr Nick Raynsford (Greenwich and Woolwich) (Lab): When the Prime Minister accused Labour Members of scaremongering during the general election for highlighting the Conservative threat to take security of tenure from council tenants and impose massive rent increases on them, was he goading us to use unparliamentary language or was he simply being economical with the truth?

The Prime Minister: The right hon. Gentleman will hear in a minute what our plans are for bold housing reform that will lead to more social homes being built, but it does not actually involve changes to tenure. I do think that we have to look at new ways to get houses built. The fact is that under the last Government we had housing targets and vast amounts of investment in social housing, but house building was lower in every year of the last Government than it was under the previous Conservative Government. That is a common story: vast amounts of money spent, with very poor results.

Q14. [18076] Annette Brooke (Mid Dorset and North Poole) (LD): Last week, a special day was allocated to raising awareness of secondary breast cancer. There is an urgent need to collect good data on people living with secondary breast cancer in order to improve the outcomes for people living with that incurable disease. Would the Prime Minister be prepared to meet a delegation from the all-party group on breast cancer and a few people from the relevant charities?

The Prime Minister: I will be very happy to do that, and the hon. Lady is right to raise this issue. We do have a good record on cancer in this country, but it needs to be a lot better if we are to get it up to the best level in Europe. Part of that is about early diagnosis, which I have spoken about and on which I know the Health Secretary is taking action. However, as she says, all of us will have met in our own constituencies people with secondary breast cancer and we need to give the issue more attention. I will be happy to have the meeting she suggests.

Q15. [18077] Stephen Twigg (Liverpool, West Derby) (Lab/Co-op): Four years ago, Gary Dunne, from my constituency, was murdered in Spain. His parents, Lesley and Steve, have fought a long and ultimately successful campaign to have his body returned for burial in this country. Would the Prime Minister agree to meet Mr and Mrs Dunne to discuss proposals for changes in the law, so that no other family has to go through the ordeal that they went through?

The Prime Minister: The hon. Gentleman raises a very important case. Anyone who has lost a relative who has died overseas knows the enormous worry about how to deal with these issues and how to get things sorted out. On behalf of the whole Government and the House, I send my condolences to Mr and Mrs Dunne. I know that they have dealt with this case with great dignity and courage. I hope that the fact that they have now been able to bury their son in the UK will help them to start to come to terms with their terrible loss. I am very happy to meet them and try to work out what we can do to deal with sad situations such as this. There is a problem when different countries have different
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rules, particularly where the death has occurred some time before, but we should try to work it through and I am happy to meet them.

Duncan Hames (Chippenham) (LD): Does the Prime Minister agree that, if graduates are to be asked to make a greater contribution to the cost of their education, in order to be fair those with the greatest ability to pay should make the greatest contribution?

The Prime Minister: Yes, I completely agree. In the end, I think that almost everyone in this House wants the same thing: we want well-funded universities; we want universities that are able to exercise some independence; we want a growing higher education sector; we want people from low-income backgrounds to be able to go to the best universities in the country; and we want a proper element of progressivity. That is what Lord Browne proposes, and we are going to amend that to make it even more progressive. In particular, I think that moving the salary before you start to pay back from £15,000, which we had for many years, to £21,000 is a really big step forward. I hope that we can get all-party agreement for what would be a good and proper reform of higher education for the long term in our country.

Mr Virendra Sharma (Ealing, Southall) (Lab): I am sorry for not giving the prior notice to the Prime Minister, but I am confident that, given his reassurance on the NHS, he will be able to answer my question this afternoon. Does he agree with me and the Secretary of State for Health that it makes no sense to close Ealing hospital's accident and emergency department, given that 100,000 patients use this service each year? Will the Prime Minister also take this opportunity to end rumours of coalition plans to close the entire Ealing hospital?

The Prime Minister: I will have to get back to the hon. Gentleman on the detail of his question, but we believe that those top-down reorganisations that took place in the NHS, in which many accident and emergency units were closed without taking into account what local people wanted, were wrong. The whole point of the reform of the NHS is to put power in the hands of patients and doctors, so decisions about hospitals will be made on the basis of what local people want and not on the whim of Ministers.

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Andrew Selous (South West Bedfordshire) (Con): Many of my constituents are gravely concerned that when young people are found guilty of serious crimes and offences and get off with a caution no action is taken against their parents. Will the Prime Minister agree to consider that matter and perhaps to have words with the Justice Secretary about what could be done?

The Prime Minister: I am very happy to look into that issue. As we seek efficiencies and savings in the Home Office and the Ministry of Justice, we are going to have to be reformers. We are going to have to be more thoughtful and creative about how we have a criminal justice system that carries out punishment in which the public are confident, but that is not so wasteful of public money as what we have now. It is a challenge for us and it is a challenge that we will have to rise and meet.

Jim Sheridan (Paisley and Renfrewshire North) (Lab): It looks as if there is a possible end to the current industrial dispute at British Airways. Will the Prime Minister join me in sending a clear message to senior management at British Airways that should the cabin crew decide to return to normal working, there should be no harassment, no bullying and, most importantly, no recriminations?

The Prime Minister: I think the most important thing is that this strike ends-that this action ends-and that British Airways gets back to working properly. The fact is that there is a hugely competitive airlines sector out there and those of us who love our national carrier and want it to be a success want to see people go back to work and work out how to make it compete with others that are striving ahead in the world. That is what we need, and the last Government did not really say that.

Several hon. Members rose -

Mr Speaker: Order. Before the Chancellor comes to the Dispatch Box to make his statement, let me say to the hon. Member for Linlithgow and East Falkirk (Michael Connarty) that points of order come after statements.

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Comprehensive Spending Review

12.31 pm

The Chancellor of the Exchequer (Mr George Osborne): Today is the day when Britain steps back from the brink and when we confront the bills from a decade of debt; a day of rebuilding, when we set out a four-year plan to put our public services and welfare state on a sustainable footing for the long term, so that they can do their job of providing for families, protecting the vulnerable and underpinning a competitive economy. It is a hard road, but it leads to a better future.

We are going to bring the years of ever-rising borrowing to an end. We are going to ensure, like every solvent household in the country, that what we buy we can afford, that the bills we incur we have the income to meet and that we do not saddle our children with the interest on the interest on the interest on the debts that we were not prepared ourselves to pay.

Tackling this budget deficit is unavoidable. The decisions about how we do it are not. There are choices, and today we make them. Investment in the future, rather than the bills of past failure: that is our choice. We have chosen to spend on the country's most important priorities: the health care of our people; the education of our young; our nation's security; and the infrastructure that supports our economic growth. We have chosen to cut the waste and reform the welfare system that our country can no longer afford.

This is the context of this spending review. We have, at £109 billion, the largest structural budget deficit in Europe-this at a time when the whole world is concerned about high deficits and our economic stability depends on allaying those concerns. We are paying at the rate of £120 million a day, £43 billion a year in debt interest-this at a time when we all know that the money would far better serve the needs of our own citizens than those of the foreign creditors we borrow from. We have inherited from the previous Government plans-if one can call them that-that envisaged our national debt ratio still rising in the year 2014. Not a single penny of savings had been identified. Indeed, they were plans that envisaged the Chancellor of the Exchequer standing here in 2014, presenting a spending review that still had years of cutting public spending ahead of it. That is why, last year, the International Monetary Fund warned this country that it had to accelerate the reduction in the deficit. That is why the OECD, the Governor of the Bank of England and the CBI all agreed with the IMF.

The action we have taken since May has taken Britain out of the financial danger zone. The immediate reductions to in-year spending have bought us a breathing space in the sovereign debt storm. The creation of an independent Office for Budget Responsibility has brought honesty back to official forecasts. I can confirm to the House that the OBR and its new chair, Robert Chote, have audited all the annually managed expenditure savings in today's statement.

The emergency Budget in June was the moment when fiscal credibility was restored. Our market interest rates fell to near-record lows, our country's credit rating was reaffirmed and the IMF went from issuing warnings to calling our Budget essential. Now we must implement some of the key decisions required by that Budget. To back down now and abandon our plans would be the
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road to economic ruin. We will stick to the course, we will secure our country's stability and we will not take Britain back to the brink of bankruptcy.

In the Budget, I set out the tax increases we were prepared to make, including on capital gains at the higher rate, pensions relief on the largest contributions and, for the first time, a permanent levy on banks. We also had to increase value added tax, where, fortunately, we were able to benefit from the preparatory work in the Treasury of the previous Government. I made it clear that spending reductions rather than tax rises needed to make up the bulk of the consolidation. That is what the leading international evidence suggests works best. So I set out spending totals for the coming years and announced some £11 billion of welfare savings that would help to achieve them. I also set out a new fiscal mandate for the public finances to eliminate the structural deficit by balancing the cyclically adjusted current Budget over five years by 2015-16. We set a target of national debt falling as a proportion of national income by that same year. We explained how, for reasons of caution, we will achieve both these objectives a year earlier, in 2014-15.

I can confirm that the spending plans I set out today achieve a balanced structural current Budget and falling national debt on the same timetable. I can further confirm that the current spending totals I set out in the Budget for each of the next four years are the same as the current spending totals I set out today. They have not changed. Next year, current expenditure will be £651 billion, then £665 billion the year after and £679 billion the year after that, before reaching £693 billion in 2014-15. The House will note that current spending is rising, not falling, over that period. That is partly because, even with the measures we take today, debt interest payments continue to grow in these years. Debt interest payments will reach £63 billion in 2014-15-it takes time to turn around the debt supertanker-but I can now report to the House that against the plans we inherited, one of the departments which suffers the greatest cut today, and at the steepest rate, is the department for debt interest. Debt interest payments will be lowered by £1 billion in 2012, then by £1.8 billion in 2013 and by £3 billion in 2014-a total of £5 billion over the course of the spending review, which is equivalent to 16 new hospitals or the annual salaries of 100,000 teachers.

At the Budget, I also set out my plans for capital spending over the next four years. I can tell the House that capital spending will be at £51 billion next year, then £49 billion, then £46 billion and at £47 billion in 2014-15. This is about £2 billion a year higher than I set out in the Budget. Given the contractual obligations we inherited from the last Government, doing anything else would have meant cutting projects that would clearly enhance the economic infrastructure of this country. This has no direct impact on whether we meet the fiscal mandate or the year in which the debt ratio starts falling. So, total public expenditure-capital and current-over the coming years will be £702 billion next year, then £713 billion, then £724 billion and £740 billion in 2014-15. In real terms, public spending will be at the same level as in 2008. Our public services and our welfare system will be put on a sustainable long-term footing and we will make sure that the financial catastrophe that happened under the previous Government never, ever happens again.

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Let me now turn to the spending decisions and the three principles that we propose to apply to the choices that we have made. First, on reform, in every area where we make savings, we must leave no stone unturned in our search for waste, and we must deliver the changes necessary to make our public services fit for the modern age.

Secondly, on fairness, we are all in this together and all must make a contribution. Fairness means creating a welfare system that helps the vulnerable, supports people into work and is affordable for the working families who pay for it from their taxes. Fairness also means that, across the entire deficit reduction plan, those with the broadest shoulders will bear the greatest burden; those with the most should pay the most, and that includes our banks.

Thirdly, on growth, when money is short, we should ruthlessly prioritise those areas of public spending that are the most likely to support economic growth, including investments in our transport and green energy infrastructure, our science base and the skills and education of our citizens.

Let me explain now how those principles have guided our specific decisions. First, on reform, I believe that the public sector needs to change to support the aspirations and expectations of today's population, rather than the aspirations and expectations of the 1950s, so the spending review is underpinned by a far-reaching programme of public service reform. We saw over the last decade that more money without reform was a recipe for failure; less money without reform would be worse, and we are not prepared to accept that, so we have begun by squeezing every last penny that we can find out of waste and administration costs.

Our ambition in this review was to find £3 billion of savings from the administrative budgets of central Government Departments. With the help of the Green review and the work done by my right hon. Friend the Minister for the Cabinet Office and Paymaster General, I can tell the House that we have gone further than we thought possible in cutting back-office costs. Quangos will be abolished; services will be integrated; assets will be sold; and the administrative budget of every main Government Department will be cut by a third. The result is this: we promised £3 billion of Whitehall savings; we will deliver £6 billion.

Of course, there is a very understandable concern about the reduction in the total public sector head count that will result from the measures in the spending review. We believe that the best estimate remains the one set out by the independent Office for Budget Responsibility. It has forecast a reduction in the head count of 490,000 over the spending review period. Now let us be clear: that is over four years, not overnight, and much of it will be achieved through natural turnover, by leaving posts unfilled as they become vacant. Estimates suggest a turnover rate of over 8% in the public sector; but, yes, there will be some redundancies, and that is up to the decisions of individual employers in the public sector. That is unavoidable when the country has run out of money.

We feel responsible for every individual who works for the Government, and we will always do everything that we can to help them to find alternative work. In
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fact, in the last three months alone, this economy created 178,000 jobs. So we should remember that, unless we deal with this record budget deficit decisively, many more jobs will be in danger in both the private and the public sector.

The Cabinet Office and the Treasury will oversee the programme of Whitehall savings. Both Departments will lead by example. The core Cabinet Office budget will be reduced by £55 million by 2014-15. Additional allocations will be provided to fund electoral reform, support the big society projects, establish community organisers and launch the pilots for the national citizen service, which will give young people for the first time a right of passage to citizenship. In recognition of the challenges faced by the voluntary and community sector, I am establishing a one-year £100 million transition fund to help those facing real hardship. The Treasury will see its overall budget reduce by 33%, and we will share the Department's enormously expensive private finance initiative building, which my predecessor but one signed up to, by moving part of the Cabinet Office into the same premises.

The Chancellor is also a royal trustee, and I want to say something briefly about the civil list. As I outlined in the Budget, the 10-year settlement expired this year, and no provision for a new settlement had been made when we entered office.

Her Majesty has graciously agreed to a one-year cash freeze in the civil list for next year. Going forward, she has also agreed that total royal household spending will fall by 14% in 2012-13, while grants to the household will be frozen in cash terms. In order to support the costs of the historic diamond jubilee, which the whole country is looking forward to celebrating, there will be a temporary additional facility of £1 million. After that, the royal household will receive a new sovereign support grant linked to a portion of the revenue of the Crown estate, so that my successors do not have to return to this issue as I often as I have had to.

Central to this review- [ Interruption. ]

Mr Speaker: Order. All this noise makes progress slower and saps time that would otherwise be available for Back Benchers to question the Chancellor. Apart from anything else, it is unfair and discourteous.

Mr Osborne: Central to this review is the reshaping of our public services. First, there needs to be a dramatic shift in the balance of power from the centre to the locality. A policy of rising burdens, regulations, targets, assessments and guidance has undermined local democracy and stifled innovation. We will completely reverse that. We will give GPs powers to buy local services, schools the freedom to reward good teachers, and communities the right to elect their police and crime commissioners.

Secondly, we should understand that all services paid for by the Government do not have to be delivered by the Government, so we will expand the use of personal budgets for special education needs, children with disabilities and long-term health conditions. We will use new payment mechanisms for prisons, probation and community health services, and we will encourage new providers in adult social care, early years and road management.

For local government, the deficit that we have inherited means an unavoidably challenging settlement. There will be overall savings of funding to councils of 7.1% a
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year for four years, but to help councils we propose a massive devolution of financial control. Today I confirm that the ring-fencing of all local government revenue grants will end from April next year. The only exception will be simplified schools grants and a public health grant. Outside of schools, police and the fire service, the number of separate core grants that go to local authorities will be reduced from over 90 to fewer than 10. Councils and their leaders will remain accountable, but they will no longer have to report on 4,700 local area agreement targets.

The local government settlement includes funding for next year's council tax freeze to help families when their budgets are tight. We are also introducing tax increment finance powers, allowing councils to fund key projects by borrowing against future increases in locally collected business rates.

Some in local government have concerns about the financing of social care. I can announce that grant funding for social care will be increased by an additional £1 billion by the fourth year of the spending review, and a further £1 billion for social care will be provided through the NHS to support joint working with councils, so that elderly people do not continue to fall between the cracks of two different systems. That is a total of £2 billion of additional funding for social care to protect the most vulnerable.

We will also reform our social housing system, for it is currently failing to address the needs of the country. Over 10 years, more than 500,000 social rented properties were lost. Waiting lists have shot up, families have been unable to move, and, although a generation ago only one in 10 families in social housing had no one working, this had risen to one in three by 2008-09.

We will ensure that in future social housing is more flexible. The terms for existing social tenants and their rent levels will remain unchanged. New tenants will be offered intermediate rents at about 80% of the market rent. Alongside £4.4 billion of capital resources, this will enable us to build up to 150,000 new affordable homes over the next four years. We will continue to improve the existing housing stock through the decent homes programme, and we will reform the planning system so that we put local people in charge, reduce the burdens on house builders and encourage more homes to be built, with a new homes bonus.

Within an overall resource budget for the Department for Communities and Local Government which is being reduced to £1.1 billion over the period, priority will be given to protecting the disabled facilities grant. This will go alongside a £6 billion commitment over the four years to the supporting people programme, which provides help with housing costs for thousands of the most vulnerable people in our communities. In recognition of the important service provided by the fire and rescue service, we have decided to limit its budget reductions in return for substantial operational reform.

Let me turn now to reforms in our security and defence. Yesterday, my right hon. Friend the Prime Minister set out the conclusions of the strategic and defence review. He explained in detail how we will protect the British people, deliver on our international obligations and secure British influence around the world. This spending review provides the resources to do just that. The budget for the Ministry of Defence will reach £33.5 billion in 2014-15, a saving of 8% over the period. On top of this settlement, we will continue
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to provide out of the reserve the resources that our forces in Afghanistan require. As the Chancellor, I believe strongly that if we ask our brave servicemen and women to risk their lives on our behalf in active combat, then we will give them all the tools they need to finish the job.

Our international influence and commitment to the world are not determined only by our military capabilities; our diplomacy and development policy matter too. Savings of 24% in the Foreign and Commonwealth Office budget will be achieved over the review period by a sharp reduction in the number of Whitehall-based diplomats and back-office functions. There will be a focus on helping British companies win exports and secure jobs at home, and with the help of UKTI we will attract significant overseas investment to our shores.

I can also confirm that this coalition Government will be the first British Government in history, and we will be the first major country in the world, to honour the United Nations commitment on international aid. The Department for International Development's budget will rise to £11.5 billion over the next four years. Overseas development will reach 0.7% of national income in 2013; this will halve the number of deaths caused by malaria and save the lives of 50,000 women in pregnancy and of 250,000 newborn babies.

Whether working behind the counter of a charity shop, volunteering abroad or contributing taxes to our aid budget, Britons can hold their heads up high and say, "Even in these difficult times, we will honour the promise that we made to some of the poorest people in our world."

Our aid budget allows Britain to lead in the world. It may be protected from cuts, but it is not from scrutiny. I have agreed with my right hon. Friend the International Development Secretary a plan of reform that reduces administration costs to half the global donor average, ends the aid programmes that we inherited in China and Russia, focuses on conflict resolution and creates an independent commission to assess the impact of the money that we commit.

Let me now turn to security at home. Protecting the citizen is a primary duty of the Government. Our police put themselves in harm's way to make the rest of us safe, and we owe them our gratitude. But no public service can be immune from reform. Her Majesty's inspectorate of constabulary found in his recent report that significant savings could be made to police budgets without affecting the quality of front-line policing. Tom Winsor is leading a review of terms and conditions that will report on how the police service can manage its resources to serve the public even more cost-effectively.

Using independent forecasts for the precept, the settlement that I am proposing today will see police spending falling by 4% each year. By cutting costs and scrapping bureaucracy, we are saving hundreds of thousands of police man hours. Our aim is to avoid any reduction in the visibility and availability of police in our streets. Our new national security strategy judges terrorism to be one of the highest risks facing this country. Therefore I am prioritising counter-terrorism over the review period, both in the Home Office budget and the single intelligence account. We have been assured that this will maintain our operational capabilities against both al-Qaeda and its affiliates and against Northern Irish terrorist threats. This will enable us to meet the terrorist threat and to protect the Olympic games in 2012.

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Overall, the Home Office budget will find savings of an average of 6% a year. The Ministry of Justice's budget will reach £7 billion by the end of the four-year period, with an average saving of 6% a year. A Green Paper will set out proposals to reform sentencing, intervene earlier to give treatment to mentally ill offenders and use voluntary and private providers to reduce reoffending. Some £1.3 billion of capital will also be provided over the period to maintain the existing prison estate and fund essential new-build projects, but plans for a new 1,500-place prison will be deferred.

The Law Officers' Department will reduce its budget by a total of 24% over the period, with the Crown Prosecution Service greatly reducing its inflated cost base. Reforms will also be required to streamline the criminal justice system, close underused courts and reduce the legal aid bill. We do need fair access to justice but provided at a fair cost for the taxpayer.

All the reform that I have spoken of-to Whitehall and the way services are provided, to local government and to our defence, security and justice system-will improve both value for money for taxpayers and the service provided to the public. Next month, each Government Department will publish a business plan setting out its reform plans for the next four years, so that their priorities are clear and the public can hold them to account.

Reform is one of the guiding principles of this spending review-and so, too, is fairness. Let us be clear: there is nothing fair about running huge budget deficits and burdening future generations with the debts that we ourselves are not prepared to pay. How ironic that it was the last Labour Prime Minister himself who once observed that

not that he is here in the Chamber today. That is why we are restoring order to our public finances before that is allowed to happen.

A fair Government deal with the deficit decisively, and that is what we are going to do. A fair Government make sure that those with the broadest shoulders bear the greatest burden. The distributional analysis published today shows that those on the highest incomes will contribute more towards this entire fiscal consolidation, not just in cash terms but also as a proportion of their income and consumption of public services combined.

I completely understand the public's anger that the banks, which were so appallingly regulated over the last decade, and whose near-collapse wrought such damage to our economy, should now be contemplating paying high bonuses. We are overhauling the system of regulation that we inherited, so that the Bank of England, with its clout and reputation, is put in charge. We have set up the Independent Commission on Banking to look at the structure of the industry, and next year we will receive its report.

Today we set out very clearly, for all to take note of, our objective in taxing the banking industry going forward. We neither want to let banks off making their fair contribution, nor do we want to drive them abroad.
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Many hundreds of thousands of jobs across the whole United Kingdom depend on Britain being a competitive place for financial services.

Our aim will be to extract the maximum sustainable tax revenues from financial services. We will assess what those maximum revenues could be-not just in one year, but over a period of years. We have already decided, in the face of opposition from the previous Government, to introduce a permanent levy on banks. The legislation will be published tomorrow. Once fully effective, the permanent levy will raise more net each year and every year for the Exchequer than the one-year bonus tax did last year. I note that the previous Chancellor now admits that that failed to curb behaviour and was not sustainable.

However, that is not enough. We want the banks to pay not just by the letter of the tax law, but by its spirit. A year ago, the previous Government announced in a fanfare that they would require banks to sign up to the code of practice on taxation. I have asked the Revenue how many of our leading 15 banks actually signed up. The answer is four-four out of 15. That is what happened when they were in office-all talk and no action.

I have instructed the Revenue to work with the banking sector to ensure that the remaining banks have implemented the code of practice by the end of next month. We will also address the situation under the last Government where the gap between the taxes owed and the taxes paid grew considerably. So in this spending review, while the HMRC budget will be expected to find resource savings of 15% through the better use of new technology, greater efficiency and better IT contracts, we will be spending £900 million more on targeting tax evasion and fraud. This additional £900 million is expected to help us collect a missing £7 billion in tax revenues. Nor will fraud in the welfare system be tolerated any more. We estimate that £5 billion a year is being lost in this way-£5 billion that others have to work long hours to pay in their taxes. This week we published our plans to step up the fight to catch benefit cheats and deploy uncompromising penalties when they are caught.

That brings me to the wider welfare budget. A civilised country provides for families, protects the most vulnerable, helps those who look for work, and supports those in retirement. That is why one of the first acts of this coalition Government was to re-link the basic state pension to earnings and guarantee a rise each year by earnings, inflation or 2.5%. Never again will those who worked hard all their lives be insulted with a state pension increase of just 75p. But this guarantee of a decent income in retirement has to be paid for at a time when people are living much longer than anyone predicted. We should celebrate that fact, but also confront it. Lord Turner's report on pensions, commissioned by the last Government, acknowledged that a more generous state pension had to be funded by an increase in the pension age. Even since its publication, life expectancy has risen further than it predicted.

Before the summer, we launched a review on increasing the state pension age, and that review has now concluded. As a result, I can announce today that the state pension age for men and women will reach 66 by 2020. This will involve a gradual increase in the state pension age from 65 to 66, starting in 2018, and it will mean an acceleration of the increase in the female pension age already under
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way since this April. From 2016, the rate of increase will be three months in every four rather than the current plan of one month in every two. Raising the state pension age is what many, many countries are now doing, and will by the end of the next Parliament save over £5 billion a year-money that will be used to provide a more generous basic state pension as we manage demographic pressures.

Earlier this month, we also received the interim report from John Hutton's public service pensions commission. I am sure that the whole House will want to thank John Hutton for his excellent and independent piece of work. I welcome his findings. I hope that it will form the basis of a new deal that balances the legitimate expectations of hard-working public servants for a decent income in retirement with the equally legitimate demands of hard-working taxpayers that they do not pay unfairly for it.

I think that the elements of this new pension deal are clear. We should accept that public service pensions continue to provide a form of defined benefit and that there is no race to the bottom of pension provision. We want public service pensions to be a gold standard. At the same time, we should accept that they must be affordable. When these public service pension schemes were established in the 1950s, taxpayers made half the contributions; today, they make up two thirds of the contributions, and the unfunded bill is set to rise to £33 billion by 2015-16.

We should accept, as John Hutton does, that there has to be an increase in employee contributions, although I also agree with him that this should be staggered and progressive. That means that the lower-paid-and those in the armed forces-are protected, and the highest-paid public servants, who get the largest benefits, pay the highest contributions. We will await the full commission report next spring before coming to any conclusions on the exact nature of the defined benefit and the progressive contribution rise. We will also launch a consultation on the fair deal policy, as he recommends, but we will now carry out, as the interim report suggests, a full public consultation on the appropriate discount rate used to set contributions to these pensions. From the perspective of filling the hole in the public finances, we will seek changes that deliver an additional £1.8 billion of savings per year in the cost of public service pensions by 2014-15, over and above the plans left to us by the last Government.

It is also clear that the current final salary pension terms for MPs are not sustainable, and we anticipate that the current scheme will have to end. We will make a further statement following the publication of Lord Hutton's findings.

The welfare system is also there to help people of working age when they lose their job, have a disability, start a family and need help with low pay. But the truth, as everyone knows, is that the welfare system is failing many millions of our fellow citizens. People find themselves trapped in an incomprehensible out-of-work benefit system for their entire lifetime because it simply does not pay to work. This robs them of their aspirations and opportunities, and it costs the rest of the country a fortune. Welfare spending now accounts for one third of all public spending. Benefit bills soared by 45% under the previous Government. In some cases, the benefit bill of a single out-of-work family has amounted to the tax bills of 16 working families put together. This is totally
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unsustainable and unfair. The last Government promised reform and flunked it: we will deliver.

My right hon. Friend the Work and Pensions Secretary is setting out proposals, with my support, to replace all working-age benefits and tax credits with a single, simple universal credit. The guiding rule will be this: it will always pay to work. Those who get work will be better off than those who do not. This represents the greatest reform to our welfare state for a generation. It will be introduced over the next two Parliaments at a pace that ensures that we get this right. I have set aside over this spending review more than £2 billion of resources to make this happen, and it will go alongside our new Work programme, which we are also funding today. Drawing on the skills of the voluntary sector and private providers, the Work programme will provide intensive help for those looking for work and support for those who could look for work but currently lack the confidence or the skills to try.

The Department for Work and Pensions will make savings to help to deliver these schemes by increasing the use of digital applications and reducing overheads. But we will also be seeking substantial savings from the rest of the £200 billion benefit bill, on top of those already identified in the Budget. As I said in June, the more we could save on welfare costs, the more we could continue other, more productive areas of Government spending. And in the massive public consultation we conducted over the summer, the overwhelming message we received was that the British people think it is fair to reform and reduce welfare bills in order to protect important public services.

So today I announce these further welfare savings. We will time limit contributory employment and support allowance for those in the work-related activity group to one year. This is double the length of time that applies to contributory jobseeker's allowance. We will increase the age threshold for the shared-room rate in housing benefit from 25 to 35, so that housing benefit rules reflect the housing expectations of people of a similar age not on benefits. We will give local authorities greater flexibility to manage council tax, together with direct control over council tax benefit, within an overall budget that will be reduced by 10% from April 2013.

We will align the rules for the mobility and care elements of disability living allowance paid to people in residential care, generating savings but enabling us to continue with this important benefit. We will freeze the maximum savings credit award in pension credit for four years, thereby limiting the spread of means-testing up the income distribution.

We will further control the cost of tax credits by freezing the basic and 30-hour elements for three years; we will change the working tax credit eligibility rules so that couples with children must work 24 hours per week between them; and we will return the child care element of the working tax credit to its previous 70% level. We will also introduce a new cap on benefits. No family that does not work will receive more in benefits than the average family that does go out to work. That is tough, but fair. Of course, those in receipt of disability living allowance, working tax credit or the war widow's pension will be excluded.

Taken together, all these welfare measures I have outlined will save the country £7 billion a year. But we want to ensure that low-income families with children
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are protected from the adverse effects of these essential savings-because this Government are committed to ending child poverty. I can announce today that I am increasing the child element of the child tax credit by a further £30 in 2011-12 and £50 in 2012-13 above indexation. This will mean annual increases of £180 and then £110 above the level promised by the last Government, and it will provide support to 4 million lower-income families. And I can confirm that using the same model we inherited, the spending review will have no measurable impact on child poverty over the next two years, while we await the conclusions of the report by the right hon. Member for Birkenhead (Mr Field).

Let me now turn to the universal benefits. I have taken the difficult decision to remove child benefit from families with a higher rate taxpayer. I wish it were otherwise, but I simply cannot ask those watching this earning just £15,000 or £30,000 a year to go on paying the child benefit of those earning £50,000 or £100,000 a year. The debts of the last Labour Government, and the need to ensure that the better-off in society also make a fair contribution, make this choice unavoidable. It also means that no further changes to child benefit are required. Child benefit will continue to be paid in the normal way to the great majority of the population from birth until a child leaves full-time education at the age of 18 or even 19. We can afford to do that because, according to the latest independent estimates we have received from the Office for Budget Responsibility, removing child benefit from higher rate taxpayers will actually save Britain £2.5 billion a year.

We will also keep the universal benefits for pensioners, in recognition of the fact that many have worked hard and saved hard all their lives. Free eye tests, free prescription charges, free bus passes, free TV licences for the over-75s and winter fuel payments will remain exactly as budgeted for by the previous Government, as promised. I am also turning the temporary increase in the cold weather payments introduced by the last Government into a permanent increase. In my view, higher cold weather payments should be for life, not just for general elections.

So, too, are the promises that we make on the national health service. The NHS is an intrinsic part of the fabric of our country. It is the embodiment of a fair society. This coalition Government made a commitment to protect the NHS and increase health spending every year. Today we honour that commitment in full. Total health spending will rise each year over and above inflation. This year we are spending £104 billion on health care, capital and current combined. By the end of four years we will be spending £114 billion. We can afford that, in part because of the decisions on welfare that I have just announced, and also because we have made tough decisions in other parts of the Government budget. But to govern is to choose, and we have chosen the national health service.

That does not mean that we are letting the Department of Health off the need to drive real reform and savings from waste and inefficiency. Productivity in the health service fell steadily over the past 10 years, and that must not continue. By 2014 we are aiming to save up to £20 billion a year by demanding better value for money-but the money we save will be reinvested in our nation's health care.

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As the independent forecasts we published in the Budget show, we need to make those savings to deal with our ageing population and the rising costs of new medical treatments, but there are also new services we can offer. A new cancer drug fund will be provided, spending on health research will be protected, and we will prioritise work on the treatment of dementia. We will expand access to psychological therapies for the young, the elderly and those with mental illness. We will fund new hospital schemes, including the St Helier, the Royal Oldham and the West Cumberland.

For health spending, as for other spending announcements, there will be consequential allocations for Scotland, Wales and Northern Ireland. The Barnett formula will be applied in the usual way, which means that the increase in health spending and the relative protection of education spending will feed through to the devolved resource budget. It means that all three nations will actually see cash rises in their budget, although rises below the rate of inflation. For Scotland the resource budget will rise to £25.4 billion in 2014-15. For Wales it will rise to £13.5 billion, and for Northern Ireland to £9.5 billion. In Scotland we are proceeding with the implementation of the Calman reforms. In Wales we will consider with the Assembly Government the proposals in the final Holtham report, consistent with the Calman work being undertaken in Scotland.

In Northern Ireland, the collapse of the Presbyterian Mutual Society has caused great hardship, and people have been left without their money for far too long. I confirm today that we will provide the Northern Ireland Executive with £25 million in cash and a £175 million loan to help those who have lost their life savings.

We will also help those across the United Kingdom who have lost money as a result of the collapse of Equitable Life. For 10 years the Equitable Life policyholders have fought for justice. For 10 years the last Government dithered, delayed and denied them that justice. It is time to right the wrong done to many thousands of people who did the right thing, saved for their future and tried not to depend on the state, and then were the innocent victims of a terrible failure of regulation.

So let me make it clear: I accept the findings of the parliamentary ombudsman in full. I have read the advice of Sir John Chadwick and I thank him for it, but I do not agree with the level of compensation that his analysis suggested. I agree with the ombudsman that the relative loss suffered is the difference between what policyholders actually received from their policies and what they would have received elsewhere. The parliamentary ombudsman herself recognised that a balance had to be struck between being fair to policyholders and being fair to taxpayers, particularly when many budgets and benefits are being cut. But money that we pay out has to come from general public expenditure. I have decided that the fair amount to pay out in total is in the region of £1.5 billion, two thirds of which will be found in this spending review period. Those who had with-profits annuities were particularly hard hit, as they were retired and were unable to move their savings elsewhere. As a result, the Government will cover the cost of the total relative loss suffered by those deserving people. The scheme will start making payments next year.

Those measures, and our welfare reforms, mean that it will always pay to work; the benefits savings will help us protect key public services such as the national
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health service; and there is help for those who have saved and lost everything. These are fair decisions, consistent with the second principle of this spending review.

The third and final principle centres on growth and promoting a private sector recovery. By restoring macro-economic stability we have brought certainty to business, and by cutting business taxes we are giving businesses the freedom to compete. Today's review builds on those steps, because even when money is short we should prioritise the areas of public spending that are most likely to support economic growth. That is what we are doing with the Department for Business, Innovation and Skills. Administration will be cut by £400 million, 24 quangos will go, lower-priority programmes such as Train to Gain will be abolished, and adult learners and employers will to have contribute more to further education. But that means that today I can announce the largest ever financial investment in adult apprenticeships-an increase of more than 50% on the previous Government's provision, helping 75,000 new apprentices a year by the end of this spending review period.

We will maintain and invest in the post office network and protect community post offices. We will come forward with our detailed response to Lord Browne's report on higher education funding and student finance, including our plans to provide financial support to encourage those from the poorest households to stay in education. Our universities are the jewels in our economic crown, and it is clear that if we want to keep our place near the top of the world league tables, we need to reform our system of funding and reject-as, to be fair, many Opposition Members do-the unworkable idea of a pure graduate tax. Clearly, better-off graduates will have to pay more, which will enable us to reduce considerably the contribution that general taxpayers have to make to the education of those who will probably end up earning much more than them.

Overall, annual savings of 7.1% will be found from the budget of the Department for Business, Innovation and Skills-the minimum it was asked to find. Within those savings, however, the Secretary of State and I have decided to protect the science budget. Britain is a world leader in scientific research, and that is vital to our future economic success. That is why I am proposing that we do not cut the cash going to the science budget. It will be protected at £4.6 billion a year. Building on the Wakeham review of science spending, we have found that within the science budget, significant savings of £324 million can be found through efficiency. If they are implemented, with this relatively protected settlement I am confident that our country's scientific output can increase over the next four years.

We will also invest £220 million in the UK Centre for Medical Research and Innovation at St Pancras, and fund the molecular biology lab in Cambridge, the Institute for Animal Health in Pirbright and the diamond synchrotron in Oxford.

Research and technological innovation will help us with one of the greatest scientific challenges of our times-climate change-and support new jobs in low- carbon industries. So today, even in these straitened times, we commit public capital funding of up to £1 billion to one of the world's first commercial-scale carbon capture and storage demonstration projects. We will also invest more than £200 million in developing offshore wind technology at port sites.

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Yesterday protesters scaled the Treasury, urging us to proceed with their idea for a green investment bank. That is the first time anyone has protested in favour of a bank-but we will go ahead. I have set aside in the spending review £1 billion of funding for that bank, but I hope that much more will be raised from the private sector and the proceeds of future Government asset sales.

The aim of all those investments is for Britain to be a leader of the new green economy, creating jobs, saving energy costs and reducing carbon emissions. We will also introduce incentives to help families reduce their bills. We will introduce a funded renewable heat incentive, and our green deal will encourage home energy efficiency at no up-front cost to homeowners, allowing us to phase out the Warm Front programme.

Overall, the total resource settlement for the Department of Energy and Climate Change will fall by an average 5% a year, but there will be a large increase in capital spending, partly to meet the unavoidable commitments that we have been left on nuclear decommissioning.

The Department for Environment, Food and Rural Affairs will deliver resource savings of an average 8% a year, but we will fund a major improvement in our flood defences and coastal erosion management that will provide better protection for 145,000 homes.

Britain's arts, heritage and sport all have enormous value in their own right, but our rich and varied cultural life is also one of our country's greatest economic assets. The resource budget for the Department for Culture, Media and Sport will come down to £1.1 billion by 2014-15. Administrative costs are being reduced by 41% and 19 quangos will be abolished or reformed. All that is being done so that we can limit four-year reductions to 15% in core programmes such as our national museums, the front-line funding provided to our arts and Sport England's whole sport plans. We will complete the new world-class building extensions for the Tate Gallery and the British Museum. The Secretary of State will provide details of further projects shortly. I can also announce today that, in order for our nation's culture and heritage to remain available to all, we will continue to fund free entry to museums and galleries. There is also ongoing provision of the £9.3 billion of public funding for a safe and successful Olympic and Paralympic games in London in 2012.

We have approached the BBC to ensure that it, too, makes its contribution, as a publicly funded organisation, to savings during the spending review. I am pleased to confirm that this week we have struck a deal. The BBC will take from the Government the responsibility for funding the BBC World Service and BBC Monitor, as well as part-funding S4C. That amounts to some £340 million of savings a year for the Exchequer by 2014-15.

To ensure that the cost of those new obligations is not passed on to the licence fee payer, the BBC has agreed a funding deal for the full duration of its charter review. The licence fee will be frozen for the next six years. That deal helps almost every family, and is equivalent to a 16% saving in the BBC budget over the period, similar to the savings in other major cultural institutions.

The BBC has also agreed to reduce its online spend and make no further encroachments into local media markets in order to protect local newspapers and
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independent local radio and TV. It will contribute to the £530 million that we will spend over the next four years in bringing superfast broadband to rural parts of our country that the private sector will take longer to reach. Pilots will go ahead in the Highlands and Islands, North Yorkshire, Cumbria and Herefordshire. All that will help encourage the growth of our creative industries as a key part of the new economy that we are seeking to build.

After our defence requirements are met, the Department for Transport will receive the largest capital settlement. Over the next four years we will invest more than £30 billion in transport projects-more than was invested during the past four years. Of that, £14 billion will fund maintenance and investment in our railways. Direct bus subsidies will be reduced, but statutory concessionary fares will remain.

The cap on regulated rail fares will rise to RPI plus 3% for the three years from 2012, but that will help this country afford new rolling stock as well as improve passenger conditions. The Secretary of State will set out how more of the transport money will be allocated next week.

However, I want to tell the House today about some of the projects that will go ahead. For let us remember that, even after the tough spending settlements, the country will still be spending more than £700 billion a year. In Yorkshire and Humber, capacity on the M62 will be expanded, £90 million will be spent on improving rail platforms across various towns and cities, and we will also improve line speeds across the Pennines. In the north-east £500 million will be spent on refurbishing the Tyne and Wear metro and the Tees valley bus network. In the north-west we will invest in rail electrification between Manchester, Liverpool, Preston and Blackpool, and we will provide funding for a new suspension bridge over the Mersey at Runcorn.

Rail and roads in Scotland are devolved to the Scottish Executive, and roads in Wales are also devolved, but I can tell the House that major rail investments around Cardiff, Barry and Newport will go ahead.

In the east midlands the M1 and the A46 will be improved. In the west midlands we will extend the Midland metro and completely redevelop Birmingham New Street station. In the south-west we will fund improvements on the M5 and the M4, and the new transport scheme for Weymouth. In the east of England, colleagues will be delighted to know, the A11 to Norwich will be upgraded. Around London, we will widen the M25 between 10 different junctions and complete improvements to the A3 at Hindhead.

In London, on top of the Olympics, a major investment in our capital city's transport infrastructure will take place. Crossrail will go ahead and key tube lines will be upgraded for the 21st century.

That is nothing like the complete list, because next week, we will set out more details. So, yes, we are saving money and putting the state on a more sustainable footing, but even then, we will spend tens of billions of pounds on Britain's future infrastructure. Next week the Secretary of State will also set out our national infrastructure plan, so that private money is put to work in building for this country the economic infrastructure
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that our businesses need. Our regional growth fund will also help us do that. As promised, £1 billion has been found for the fund over the next two years-money designed to lever in private investment in areas of our country where it has been too absent over the past decade. I can announce today that I am providing close to half a billion pounds extra in the third year for the regional growth fund.

Long-term investment in the capacity of our transport, our science and our green energy will all help move Britain from its decade-long dependence on one sector of the economy in one part of the country, and the ruin to which that has led.

The most important ingredient of a 21st-century economy is well-educated children, who believe in themselves and aspire to a better life, whatever their background or disadvantages. In June, after the Budget, when the Chief Secretary to the Treasury and I turned our attention to how to allocate spending between Departments, we set ourselves a goal. We wanted to see if it was possible, even when spending was being cut, to find more resources for our schools and for the early years education of our children. I can tell the House that we have succeeded. It has meant other Departments taking bigger cuts, but I believe strongly that that is the right choice for our country's future.

There will be a real increase in the money for schools, not just next year or the year after, as the previous Government once promised, but for each of the next four years. The schools budget will rise from £35 billion to £39 billion. Even as pupil numbers greatly increase, we will ensure that the cash funding per pupil does not fall. We will also sweep away all the different ways in which money is ring-fenced so that schools can decide how to spend their money as they think best.

We will also introduce a new £2.5 billion pupil premium, which supports the education of disadvantaged children and will provide a real incentive for good schools to take pupils from poorer backgrounds. That pupil premium is at the heart of the coalition agreement, and at the heart of our commitment to reform, fairness and economic growth.

Parents, teachers and community groups will be supported if they wish to establish free schools. We will fund an increase in places for 16 to 19-year-olds, and raise the participation age to 18 by the end of the Parliament. That enables us to replace education maintenance allowances with more targeted support.

We will also provide support for the early years of our children. The increased entitlement to 15 hours a week free education for all three and four-year-olds that was introduced under this Government will continue. Sure Start services will be protected in cash terms and the programme will be focused on its original purpose. We will help them further by introducing for the very first time 15 free hours of early education and care for all disadvantaged two-year-olds, so that those children have a chance in life and are ready like the rest of their classmates for school.

Overall, the Department for Education will be required to find resource savings of only 1% a year. Central administration will be cut by a third and five quangos will go. The capital budget will, as we know, have to bear its share of the reductions, but as the House knows, we have had to phase out the hopelessly inefficient
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and over-committed Building Schools for the Future programme. However, £15.8 billion will be spent to maintain the school estate and to rebuild and refurbish 600 schools. I repeat: the resource money for schools-the money that goes into the classroom-on the broadest definition, including all the main grants, will go up in real terms every year. That is a real investment in the future of our children and in the future growth of our economy too.

Let me conclude. The decisions we have taken today bring sanity to our public finances and stability to our economy. We have dealt decisively with the largest budget deficit this House of Commons has ever had to face outside of wartime. We have had to make choices-choices about the things we support-and today I have announced real increases in the NHS budget and the resources of schools, as well as new investment in the infrastructure of our economy. I have announced real reductions in waste and reforms to welfare and although that will reshape public services to meet the challenges of this time, I think it is the right choice.

I have one final observation. During the process of this spending review, I have received many submissions, including one from the Labour party. It said that the average cut for unprotected Departments should be set at 20% over the coming four years, rather than the 25% that I anticipated in my June Budget. I have examined that proposal carefully and consulted the published documents of my predecessor, the right hon. Member for Edinburgh South West (Mr Darling), and because of our tough but fair decisions to reform welfare and the savings that we have made on debt interest, I am pleased to tell the House that that has been possible. The average savings in departmental budgets will be lower than the previous Government implied in their March Budget. Instead of cuts of 20%, there will be cuts of 19% over the four years, so I thank the Opposition for their support and input and look forward to their votes.

This coalition Government faced the worst economic inheritance in modern history. The debts we were left with threatened every job and public service in the country, but we have put the national interest first. We have made the tough choices. We have protected health and schools and investment in growth, and we have reformed welfare and cut waste. We have made sure that we are all in this together, and we have taken our country back from the brink of bankruptcy. A stronger Britain starts here, and I commend this statement to the House. [ Interruption. ]

Mr Speaker: Order. I call Alan Johnson.

Alan Johnson (Kingston upon Hull West and Hessle) (Lab): Mr Speaker- [ Interruption. ]

Mr Speaker: Order. The House needs to calm down. It is getting a little over-excited and there is a long way to go.

Alan Johnson: Mr Speaker, we remember well the cheers at the end of the emergency Budget in June, when the Chancellor finished on a peroration about his Budget being progressive and fair. It took the Institute for Fiscal Studies only 48 hours to show that it was totally unfair, and that the burden of the emergency Budget fell two and half times more on the poorest than
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on the richest. We have seen today hon. Members cheering the deepest cuts to public spending in living memory. For some Government Members, that is their ideological objective- [ Interruption. ] Not all of them, but for many, that is what they came into politics for- [ Interruption. ]

Mr Speaker: Order. Ms Bray, you are getting quite over-excited. You must calm yourself-and remain calm. It is in your interest and the House's interest.

Alan Johnson: Today is the day that abstract figures and spreadsheets turn into people's futures, people's jobs, people's pensions, people's services and their prospects for the future, and the day when the statistics that were nestling comfortably in the lap of the Chief Secretary yesterday actually become the uncomfortable truth for many people and families throughout this country.

We hear the chant on every occasion, but Government Members are deficit deceivers. They have peddled a whole series of myths to the British public. The most incredible myth of all is that the biggest global economic crisis since the great depression is the fault of the previous Government- [ Interruption. ] You see? The strings are pulled and away they go.

The Chancellor said that the Government have brought Britain back from the brink of bankruptcy. Perhaps he will confirm three facts. Fact No. 1: when the global crisis hit, the UK had the second-lowest debt of any G7 country. Fact No. 2: the previous Government inherited a debt interest level of 10p in every £1 of tax received, and even after a world recession, we bequeathed a figure that was 15% lower. Fact No. 3: the interest rates that the UK pays on its debt have been falling since the beginning of the year. Perhaps the Chancellor, in the interests of accuracy, can confirm those statistics.

When the last comprehensive spending review took place in 2007, the Chancellor was the shadow Chancellor. Was he calling for reduced public spending? Read the Hansard. Was he calling for regulation of the banking industry? I have two things to say about 2007. I have read his contribution to the debate. First, instead of arguing for reduced public spending, he argued that we were spending too little. He complained that we were slowing the growth in health and education expenditure. Indeed, the Conservative party supported every penny of our spending plans until well after the collapse of Lehman Brothers in America, which set off the disastrous chain reaction that caused the global recession.

In 2007, far from calling for regulation of the banks, the Conservatives were calling for deregulation of the banks. The right hon. Member for Wokingham (Mr Redwood) produced a report on behalf of the then Leader of the Opposition who had called for greater regulation of the banking industry. We need to get the facts right.

The Chancellor described his emergency Budget in June as being unavoidable and fair. We know that it was unfair, because the IFS produced the statistics with devastating and forensic accuracy a few hours later, and we also know that it was avoidable. The deficit has to be paid down-[Hon. Members: "Ah!"] Here they go again. The Chief Whip's spreadsheet tells them when to stand up and what to say. Where is he? He does not need to move to have influence on his Back Benchers. So we do need to bring the deficit down.

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Today's reckless gamble with people's livelihoods runs the risk of stifling the fragile recovery. The ridiculous analogy with credit card debts insults the intelligence of the British public. If countries around the world had not run up debts-that is what the fiscal deficit is, by the way-to sustain their economies, people would have lost not their credit cards, but lost their jobs, lost their houses and lost their savings. The Liberal Democrats know that, and they argued that when seeking the support of the electorate. The Deputy Prime Minister argued that, and then he discovered Greece. In the period between the ballot box closing and his ministerial car door opening, the Deputy Prime Minister discovered a different approach.

Like us, the Liberal Democrats-every single one of them-were elected to this House on a platform that said, in the context of reducing the deficit, that speed kills. The Chancellor repeats a long list of those who support his swift cuts; he mentions it all the time. Curiously, he failed to mention the other countries in the United Kingdom-Scotland, Wales and Northern Ireland-which do not support these measures. Perhaps that is why he calls himself a one-nation Tory. Here is another supportive quotation that he missed out, and he can take this down and use it in future briefings:

That was the Irish Minister of Finance last December, when he told the Irish Parliament that his austerity plan meant that they had turned the corner. Four months later, they slid back into recession.

The concerns of those watching this announcement today went beyond the misrepresentation of figures and the clever Punch and Judy stuff in which we all engage-including myself at times. They will be interested in whether they will stay in work, whether they will stay in their homes and whether they will stay safe on the streets. We are told that the expected job losses from this spending review-and the Chancellor confirmed it-will be some 490,000. PricewaterhouseCoopers reported last week that 1 million jobs were at stake because the impact on the private sector is just as severe. Is it not the case that at the same time as the Government are throwing people out of work, they are reducing the support to help people return to the workplace?

I applaud the ideas and the efforts of the Secretary of State for Work and Pensions to do what we were seeking to do and make work pay- [ Interruption. ] He often gives credit to what we did when we were in government. The fact is, however, that today's proposals will make it harder for people to return to work because of the changes to working tax credit; because of the changes to support for working parents; and because of the huge increase in fares for those who have to travel to get the jobs. The Secretary of State has had his job made harder by today's announcement.

On housing, the Chancellor has announced the retreat of central Government from any role in building new affordable homes. Can he tell the House how many jobs will be lost in the construction sector as a result of his decision to all but end capital funding for house building? Crime has fallen dramatically in the last 13 years. I
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heard what the Chancellor said about the report from Her Majesty's inspectorate of constabulary, but the Home Office is not a protected Department. As it deals with counter-terrorism and policing, the public will be worried that they will lose more police on the streets.

Spending has to be reduced- [ Interruption. ] Yes, spending has to be reduced, but the front-line services on which people rely must be protected. We support moves to ring-fence the health budget-[Hon. Members: "Ah!"] The point about the health service is not that its budgets will be protected, it is the taking of £2 billion to £3 billion out of those budgets to pay for a top-down structural reorganisation that the Conservatives told the public in their manifesto would not happen. This is the top-down reorganisation to end all top-down reorganisations, and we are already seeing the loss of jobs in the NHS as a result.

On education, the Chancellor mentioned that the pupil premium would be funded. There are stories already about teachers and teaching assistants losing their jobs as a result of today's announcement. We will have to look at the statistics carefully, including the small print, before we can see what is happening on education. The Chancellor said that they will keep a version of education maintenance allowance. That is good, because it has been the biggest single contributor to lifting the number of children from poorer homes who stay in education-and it was introduced by the Labour Government. He told us that it will be introduced in some form, but he did not say how. Nor did he say what effect the removal of ring fences will have on Sure Start, which is crucially important to ensuring that we have a more progressive society.

On the NHS, we believe that the real-terms increase will be more than swallowed by the cost of the reorganisation. It would be good if the Chancellor could confirm that the baseline for the NHS will exactly reflect its actual budget this year. It seems to us from the statistics that there may be some smoke and mirrors.

Without growth, the job of getting the deficit down becomes impossible. A rising dole queue means a bigger welfare bill and less tax coming in-a cost of at least half a billion pounds for every 100,000 people thrown out of work by the Government's approach. To get the deficit down, the starting point must be jobs, jobs, jobs. That remains the core of the difference between us and the Government. We were told that the Ministry of Justice will see 14,000 jobs cut. Does the Chancellor agree with the Department's assessment that the vast majority of those-11,000-will be from the front line? Can he confirm that £230 million of taxpayers' funds have been earmarked for redundancy costs in that Department alone? What is the total scale of redundancies expected across the public sector? What will the total redundancy bill be? Thanks to the Chief Secretary's gaffe yesterday, we know that the Treasury has provided the Chancellor with estimates: he should share them with the House. Can the Chancellor confirm that the poorest will still bear a greater burden than the richest, with the middle squeezed even further, and that women will shoulder three quarters of the cuts? Does he still claim that these measures are progressive and fair?

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