Comprehensive Spending Review

John Redwood Excerpts

Thursday 28th October 2010 Commons Chamber

[Danny Alexander]

No alternatives have been put forward by the hon. Gentleman’s Front Benchers; perhaps he wants to talk to them about that.

[Mr John Redwood (Wokingham) (Con)]

The figures assume 8% inflation over the period, but if, in the first couple of years, we have a complete pay freeze in the public sector and we buy things more cheaply, as is the plan, does not that mean that cash rises can translate into real rises in the programmes that are going up in cash terms?

[Danny Alexander]

The right hon. Gentleman is certainly right to say that at the end of the spending review public spending will be higher in cash terms than it is at the moment. In real terms, it will go back to the level of about 2008-09, and in terms of a share of gross domestic product to about the level of 2006-07. People need to be realistic about the scale of what is being proposed. The big gainer from the huge deficit that Labour left us with was the department of debt interest, and unfortunately it is the cost of debt interest that we have to meet.

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[Ms Angela Eagle (Wallasey) (Lab)]

Last week’s comprehensive spending review statement has taken a huge and risky gamble with the jobs and future prosperity of millions of people in this country. This wholly unnecessary risk has been taken because this Conservative-led Government is in ideological thrall to the discredited economic mantra that shrinking the state is always the right answer. They do not state it as provocatively as Mrs Thatcher once did in the 1980s, but they believe it just as firmly. The Orange Book Liberal Democrats, led by the Deputy Prime Minister with the Chief Secretary in tow, believe it too.

Of course, the deficit has to be brought down—[Hon. Members: “Ah!”] We said that before the election and we set out a plan to do so. We also said it at the election and we have said it since. The difference between us is how the deficit is brought down. My right hon. Friend the shadow Chancellor has made it clear that we favour a different balance between spending cuts and tax rises that brings the deficit down but also protects the recovery and boosts growth. None of us should forget the backdrop to this spending review, which is families up and down the country worried about their jobs and homes. That is why the cheers and mass waving of Order Papers on the Government Benches as the Chancellor announced the largest job cuts for generations demonstrate just how out of touch they are. At that very moment at the end of his speech, the masks slipped and we saw what really motivates them. As these cuts begin to bite, the British public will not forget.

[Mr Redwood]

Given that between 250,000 and 500,000 people leave the public service every year voluntarily, for retirement or other reasons, will the hon. Lady now withdraw her statement that half a million people will lose their jobs under this Government? It can be done by natural wastage.

[Ms Eagle]

That is not my statement: it is a statement by the Office for Budget Responsibility. It is also the figure that was revealed accidentally the day before the Chancellor’s statement by the Chief Secretary when he was filmed in the back of his car with open documents. It is not my figure. The right hon. Member for Wokingham (Mr Redwood) should remember that the Ministry of Justice is already planning 14,000 redundancies, as we know from a leak, and has set aside—

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[Mr John Redwood (Wokingham) (Con)]

At the end of the period, in 2014-15, the Government plan to spend £92 billion a year more, on current spending, on services than Labour did in its last year—that is a large 15% increase in the amount of cash. We need to ask ourselves why it is that every year public spending increases, yet the Government are proposing some extremely difficult or, in some cases, undesirable choices to be made in subsequent years to try to live within that rather big figure. I suggest to the Government that there are three areas that they could work on, and that their doing so would be in all our interests in this House, because if they could manage them better, they might not need to make so many of those difficult choices in the later years and would still be able to live within their totals and get the deficit down.

The first reason why there is a squeeze on some programmes that many Members do not want to see squeezed is the big rise in money allocated to pay for inflation; the plans assume quite a lot of public sector inflation over the five years. If the Government can do better at buying in goods and services—they are a very big purchaser and they say they are going to do so—they might reduce the average price of bought-in things. Instead of having positive inflation, they would have negative inflation on that part of the programme. If they can do a good deal with their employees, reassure them and get them to accept the kind of measures on pay that are being suggested—I believe that they are talking about a two-year pay freeze, for example—that will take a lot of extra inflation out of the system, because the biggest single item in these budgets is of course pay. Again, the more that we in the public sector can share the pain by moderate means, such as accepting pay restraint, the less we will have to take the difficult choices in later years that are built into the programme.

The next thing is staff numbers. A lot has been made so far in what passes for a debate in this House about having 490,000 fewer jobs in the public sector by the end of the period. These are not 490,000 redundancies. Given the large rate of resignations and retirements in the public sector to which the Chancellor has referred, I hope that most can be taken care of by eliminating posts after people have resigned or left.

[Helen Goodman]

I am most grateful to the right hon. Gentleman for giving way. Of course, in a very small-minded way, what he says is right. If those jobs are cut, where does he think that young people will get the new jobs that they need?

[Mr Redwood]

In the private sector, which is already generating tens of thousands of jobs every month. That is what we need to do. I am not saying that there should be a complete staff freeze. For example, if 480,000 a year are leaving, which was the Chancellor’s figure in the Budget, 250,000 people could be hired while still achieving half the reduction in the first year. I think that the Chancellor might have been a bit optimistic, but he referred to an 8% rate. If the percentage was half as great, the reduction could still be made in the first two years. There could be reductions of 250,000 without a single redundancy.

I urge my right hon. and hon. Friends not to pursue the redundancy route wherever possible. It is expensive, unpleasant and disruptive. I do not want to see lots of people retiring early from the administrative services on big pensions, and I do not want to see redundancy payments made with people coming back into the public sector at a later date, leaving us to wonder why all the cost and disruption has been incurred.

The next big area that puts pressure on the increased money is debt interest. I entirely agree with the Government, and with Opposition Members who knew this when they were in government, that we have to bring the deficit down before it kills the whole budget. If we allow the deficit to keep on rising, as the Opposition originally proposed, debt interest will take more and more of the increased spending and we will have to make unpleasant cuts to the things that matter. How can we reduce that debt interest burden more quickly? If we can get more cash into the public sector, starting today—we do not need to wait to start the programme next year, as is implied in the figures—we will reduce the increase in the debt day by day. If we sell more assets, we will not have to raise so much money in the debt markets, which will keep the debt down.

It is very good news that the Government’s programme has restored a lot of confidence in the markets, so that the rate at which they now have to borrow is now lower. That will obviously make a contribution to getting the debt interest rate programme down.

I have to say to the Government that I do not think that we can afford to give £80 billion to foreign countries over the CSR period. If we add the overseas aid programme to the European Union programme, the total is £80 billion over the period. I do not want to take any money away from the poorest countries or from humanitarian aid. Those are good things and I fully support the Government’s intention to carry on with them, but I do not think that there is any need to subsidise China, India or Russia—nuclear weapons powers with, in the case of China, $2.5 trillion in the bank. It is a bit odd to give China a grant when we then have to borrow the money from China to pay the grant to China. That cannot make any sense.

I believe that the Government are now going to remove the aid to the richer and more successful countries. Cannot we pocket that for a couple of years and then become more generous when we have the deficit under control? May we please get the European amounts down? They are the most unforgivable ones; poor people in Britain are paying tax to offer grants to rich countries in Europe, and that is not acceptable in the current conditions.

The more that these pressures—the grants abroad, debt interest, costs, inflation and staff numbers—can be abated, the more we will have money available to do better things with the growing programmes. It is good news that nine of the Departments have level or rising cash throughout the period, but it is bad news that one or two other Departments will find that the shoe pinches a lot. That is why I think that we need to make more rapid progress in controlling costs and staff numbers, particularly in administration, and in dealing with the debt interest programmes, so that we have a bit more free to ease those areas that will be very tight in future years.

I do not for one moment believe the figures from 2013 to 2015 anyway, because I think that they will be subject to subsequent revision because of the pressure of events. As inflation changes, we will need to revise them. As the state of the economy changes, we will need to revise them one way or the other. Let us hope it will outperform and we will have a bit more scope.

As an election draws near, politicians tend to want to spend more, so we should discount the 2013-15 figures and concentrate on what is happening now. Will the Government please bring forward as many of the reductions as possible to this year, and not wait until next year? The more we save now, the less we borrow and the more the pressure is reduced on subsequent years’ programmes.