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Lord Ezra: My Lords, from these Benches we welcome the fact that the Government are to embark on a comprehensive spending review. We believe that it is right that at the start of their period of office they should do so. We hope that it will be possible for us to be kept informed of progress and to have a major debate at the end of the review.

We are told that the objective is to re-focus the spending of public funds. I hope however that it will not just be a cost-cutting exercise and that there will be identification of those areas not only where expenditure can be properly reduced but where additional expenditure is urgently required. In particular, when one talks of additional expenditure one is bound to have in mind the health and education sectors. I take it that in making their assessment the Government will take full account of public/private participation--indeed, it was mentioned in the Statement--and make a realistic reassessment of what private funding and services can provide. Very shortly a report is due out on this. I believe that a reassessment is called for.

Do the Government also recognise that there is another major sector where additional expenditure is urgently required; that is, the housing sector? The noble Lord, Lord Dean of Beswick, asked two days ago about the release of capital receipts. Poor housing is costing us much more than would be expended were we to try to put that housing right. These are costs in terms of health, education and crime prevention. I hope that those aspects will be taken into account in the review. I conclude by saying that we support this concept. We

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hope that it will cover areas where costs can be reduced, identify where additional costs are required and indicate how those costs might be met.

Lord Haskel: My Lords, I thank the noble Lord, Lord Mackay, for his comments. Although to him what I had to say amounted to soundbites, the difference between our soundbites and his soundbites is that we mean it and we will do it. I believe he knows that when taking over a new organisation every responsible management has a comprehensive spending review. It is a prudent thing to do. That is why we are getting on with doing it. He asked about public sector debt and whether we shall be raising money through taxes to adjust the PSBR. This review is about spending. It is not about money raising. We will consider the position once we have all the details from the review.

The noble Lord asked about the PSBR and hospitals. He mentioned the article in today's Financial Times. He will be aware that we have taken the decision that all PFI projects do not have to be assessed from the point of view of public/private finance, and that we have taken 11 of the 45 NHS projects, because they are the ones that seem to be the most viable, to have the best chance of success and to be the most affordable.

The noble Lord asked about the Scottish Office and the Barnett formula.

Lord Barnett: A very good formula, my Lords!

Lord Haskel: My Lords, my noble friend Lord Barnett will be aware that that formula has been in place for some 20 years. There is no intention to make any alternation to the Barnett formula until the review has been completed.

Lord Barnett: My Lords, I am delighted to hear that.

Lord Haskel: My Lords, it shows that my noble friend was very sound when he introduced his formula.

The privatisation of air traffic control is already in the financial plan. It is the Government's intention to continue with the plan.

The noble Lord, Lord Mackay, referred to table 2.1 in the red book. He asked whether we are going to reduce the percentage of GDP taken in taxation to below 40 per cent. In our manifesto we target 40 per cent. as being the objective that we are determined to achieve. We shall try to achieve it. One important step towards achieving that objective is to have this comprehensive review.

The noble Lord, Lord Ezra, welcomed the review, and I thank him for that welcome. This is not a cost-cutting exercise; it is a simple, straightforward exercise in determining what is the expenditure. As such, it will be up to each departmental Minister to decide how to reallocate his or her resources. There is no intention that this should be a cost-cutting exercise. So far as concerns additional expenditure on health and education, there is a slight increase in the health budget in the two-year spending plans to which we are committed to adhere, and that will be carried out. On education, as I said in

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the Statement, by eliminating nursery vouchers we will increase expenditure in education to reduce class sizes for five, six and seven year-olds. Any further education expenditure will be a matter for the department to reallocate its expenditure.

So far as concerns the release of capital receipts from housing, we will honour our manifesto commitment to reinvest the receipts from the sale of council housing received but not spent by the councils. Spending will be phased to match the capacity of the building industry and in the interests of prudent economic management. A Bill has been published paving the way towards the implementation of that initiative. The review will address the policy framework for reinvesting the receipts. I shall make just one final point about housing receipts, because it is something to which the noble Lord, Lord Mackay, has referred in the past. It is not part of the PSBR because it is outside the control total.

I return to privatisation of air traffic control. We will look at the options on their merits. Our approach will be pragmatic rather than the doctrinaire approach of the previous government. We shall be reviewing air traffic control, and I am sorry if I misled the House.

6.8 p.m.

Lord Clark of Kempston: My Lords, I wonder whether the Minister will be kind enough to answer a few questions. I agree with my noble friend Lord Mackay that this seems to be a Statement full of policies but short of facts on how the action will be taken. Will the inventory that is to be produced include the cost of whichever asset is on the inventory? Will there be an estimate of the amount that might be obtained from the sale? Presumably the reason for obtaining an up-to-date inventory is to sell off some of the assets; that is, privatise them. Will the Minister explain why it was that when the Conservative Government were privatising, the Labour Party opposed it tooth and nail?

Lord Haskel: My Lords, the purpose of the inventory is to inform the Government as to what assets are available. There is no question of it being a matter of privatisation. If those assets are not being used efficiently, they will be reallocated.

Lord Swinfen: My Lords, in the early part of the Statement, the Minister repeated his party's promise to reduce class sizes. Obviously that will mean that a large number of new teachers will be required. Where do the Government intend to get those new teachers? Will they give the House an undertaking that they will not do as I understand from a man who was at that time a lecturer at Nonington Teacher Training College was done and instruct the colleges not to fail students who were applying to become teachers, no matter how bad those students were?

Lord Haskel: My Lords, I am afraid that I cannot answer the last part of the noble Lord's question within the context of this spending review. As regards where the money will come from to pay extra teachers, my right honourable friend the Minister for Education will

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have to reallocate resources within his department and find the money to pay the teachers. He will do so in the way he believes to be best.

Lord Swinfen: My Lords, before the noble Lord sits down, it was not a question of where the Minister will find the money but where he will find the teachers. Far more teachers will be needed in order to reduce class sizes.

Lord Haskel: My Lords, many teachers were recently made redundant and therefore there may be a pool of teachers. Furthermore, presumably the teacher training colleges and the universities are training teachers.

Earl Russell: My Lords, the Statement indicated that the Government will be harsh on ill-targeted spending programmes. I hope that when they rearrange the cheques on the deck of the Treasury they will be equally harsh on ill-targeted savings cuts. The Minister will be well aware--I have reminded noble Lords of it many times--that a Treasury guideline states that those who are planning reductions in spending in one department must consider the cost implications for other departments. I hope that the Government will observe that guideline much better than their predecessors did. In particular, I hope that they will interleave this review with today's welcome announcement of a review of the territory covered by the Black Report. I hope that if they contemplate any savings in the Department of Social Security they will consider any possible costs that those savings may create for the Department of Health.

Finally, I hope that they will consider a paraphrase of the advice which my honourable friend Mr. Foster once gave to Mr. John Patten; they should not think that jam the day after tomorrow will get them out of a pickle today.

Lord Haskel: My Lords, I am sure that we will not be thinking about jam getting us out of a pickle! As regards the targeting of savings, I am not sure that that is a matter for this review. It is a matter for taxation. As regards the last part of the noble Earl's question relating to the Black Report, one of the purposes of the review is that it will take an approach across government departments.

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