Comprehensive Spending Review

Lord Tyrie Excerpts

Thursday 28th October 2010 Commons Chamber

[Mr Andrew Tyrie (Chichester) (Con)]

Six minutes is not a long time in which to respond to such high-octane exchanges. I do not intend to add to the highly partisan exchanges that we have just heard, but given that the Treasury Committee is currently undertaking an inquiry into the CSR—the largest that has ever been undertaken—I want to make a few observations about what is in the document. I shall see how far I can get.

I am not sure that everyone will like my first observation. Indeed, I am not sure that anyone will like it. But the truth is that beneath all the political noise there is quite a wide range of cross-party agreement about the need for sharp action to tackle the deficit. At least two thirds of the correction to the deficit, or perhaps more, would have taken place whoever had won the election. That is clear from table 1.1 of the Red Book.

My second observation is that there is also a substantial consensus about overall economic strategy in the United Kingdom. That is in complete contrast to the position in the 1980s, when there were rival economic strategies. There is a consensus not just on deficit reduction, but on the need in principle to reform welfare, the need to sort out the banking system and to bring more competitiveness to it, and the need for some industrial support for biosciences and for some energy production, for example.

The third observation is that these cuts are not unprecedentedly large, as Lord Turnbull, who gave evidence to us this morning, said. The plans to cut public expenditure in the period ahead will keep it broadly steady in real terms for five years. Spending was kept broadly steady in real terms between 1984 and 1990.

[Mr David Ruffley]

I wonder whether that is right, because I have looked at the numbers and it would be appear that, over the period of the CSR, we will see the share of national income accounted for by public spending fall by about 6%, to 41%. That is exactly the same fall as was achieved during the first, and the start of the second, Thatcher Administrations.

--- Later in debate ---

[Mr Tyrie]

Yes, and public expenditure will be back broadly speaking to the level under the last Labour Government prior to the financial crisis.

My fourth observation is that the major parties were right to conclude that large cuts in public spending were going to be necessary to stabilise the public finances. One way of looking at this, which Lord Turnbull alluded to this morning, is to work out how much tax has been forgone as a result of the output lost during the recession. If one does that calculation, one sees that, broadly speaking, around £80 billion of tax has been forgone. The total GDP loss is around £200 billion, of which about 40% would have flowed into tax. That suggests that cuts in spending of about £80 billion are probably required.

My fifth observation is that the scope for cuts is probably better now than it was in the 1980s. That retrenchment took place not, as this one is going to, after the longest period of continuous growth for a very long time in British history, but after the doleful years of the 1970s, when there was no growth at all, which made spending cuts difficult. In addition, absolute levels of income are much higher now than they were then, meaning that absolute levels of pain will also be reduced if these cuts are targeted effectively.

My sixth observation is that some, but certainly not all, of these cuts are the result of careful longer-term planning. For example, quite a lot of thought seems to have gone into welfare reform and education. This has been planned for some years and it probably draws on quite a lot of work that was already done in Whitehall for whoever won the election.

However, if I look at defence, I find it difficult to believe that much long-term planning has been done. It is extraordinary. We are going to build two aircraft carriers which for a decade will not carry any aircraft. I am reminded of an episode of “Yes Minister” in which Jim Hacker discovers that a hospital does not have any patients. In fact it is worse than “Yes Minister”, because Sir Humphrey pointed out in that episode, which I looked up, that some patients were about to be brought in. However, one of the carriers is even going to be mothballed. We would not start from here. I hope that the Public Accounts Committee will look vigorously at how the UK—and I see the Chairman nodding her head—came to sign those contracts for the carriers without any exit clauses. I also hope that we get to the bottom of whether there was scope for renegotiation of the contracts, which after all were taken out between a monopoly supplier and a monopoly demander. That should have created some scope for renegotiation.

My seventh observation is that some of the ring-fencing of public expenditure—we have quite a bit of ring-fencing—will be difficult to justify in the years ahead. I refer particularly to aid. To increase the aid budget by 37% in real terms while the justice budget is cut by a quarter in real terms takes quite a bit of justifying.

My final observation is very much a personal one: that the level of public expenditure matters irrespective of the deficit, and that it is too high. Even if there were no deficit, my own view is that having public expenditure as a proportion of GDP standing at 50% is not good for this country. It reduces choice and freedom for millions of individuals and it burdens enterprise with unacceptable levels of taxation. That is perhaps why for a large proportion of Labour’s period in office they held it at about 40%, and why the Government now intend to bring it back towards that level—the level at which Labour had it in 2008.