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Orders of the Day — Finance Bill

Part of the debate – in the House of Commons at 3:49 pm on 20th April 2004.

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Photo of David Laws David Laws Shadow Chief Secretary to the Treasury 3:49 pm, 20th April 2004

I am grateful to the hon. Lady for making that point. I recall that debates in the Select Committee have been going on for some time and that several Members—including Mr. Tyrie and, I suspect, my hon. Friend Norman Lamb, who is in his place behind me—have argued forcefully for greater transparency.

I am not necessarily saying that giving the NAO more power to audit the assumptions is the only option. We could set up an independent body to make an assessment of the fiscal outlook, alongside the independence on monetary policy. As the Government have done so much to clarify the transparency of macro-economic policy in general, including fiscal policy, it is a pity that they seem to be nervous about going the whole hog towards proper credibility and transparency in fiscal policy. Of course, we all understand why that is: Governments, especially when a general election is coming up, do not want too much scrutiny of their figures by outside bodies. However, the price of not providing that scrutiny is a greater prospect of the Government making errors in their economic policy.

That point naturally leads us to public expenditure. One decision that the Government have taken recently on public expenditure and the control of public borrowing has been to limit public expenditure growth in the next spending round, which will be later this year. We agree with the Government that it is appropriate to slow down the rate of growth of public expenditure, even though for many years we argued that they were too slow to increase it, which is but one of the reasons why public service improvement has taken so long to deliver.

We do not, however, support the Conservative proposal to reduce public expenditure significantly below the rate of growth of the economy, as we do not believe that that would be consistent with continuing to improve the delivery of public services. The reticence of the shadow Chancellor and the shadow Chief Secretary to spell out precisely where the proposed cuts would fall indicates some of the difficult decisions that they would face. We should not be able to rely only on public sector efficiency savings.

In another extremely fair part of its report, the Select Committee pointed out the difficulty in assessing whether such efficiency savings could materialise. It noted that the Treasury was one of the Departments that recently dumped its target for 2.5 per cent. efficiency savings on the basis that such savings could not be effectively monitored—a point that has also been made by the IFS.

The Government need to do two things to deliver their agenda for the improvement of public services. First, within that much tougher public expenditure framework, they must make hard choices about where the priorities lie. Rather than relying solely on efficiency savings—although they should always be sought, they are not always as easy to pin down as they are to claim—we believe that they need to make some hard choices within public expenditure totals. My hon. Friend the Member for Twickenham has explained how we would fund much of the health, education and other programmes that we want to be introduced by cutting specific aspects of Government expenditure, including parts of the Department of Trade and Industry budget and the child trust funds; by opening up defence procurement to greater competition; and by reducing some of the excessively wasteful programmes of the Office of the Deputy Prime Minister.

Secondly, the Government should consider whether increases in public expenditure are really delivering their intended purpose of improving health, education and policing. Earlier, the shadow Chief Secretary mentioned the poor public sector productivity figures released recently and referred to the fact that most of the money allocated to public expenditure appears, from the figures, to have gone into public sector pay and on an explosion of other public sector costs. We are aware that the Government are holding an inquiry into that matter and that additional public expenditure on such things as reducing class sizes or capital investment will not necessarily show up in the productivity figures, even though such spending is much needed.

My local experience also indicates the challenge that the Government face in delivering public service improvements from increased public expenditure. Perhaps I could draw the Paymaster General's attention to the budget figures for my local hospital—Yeovil district hospital—which have just been released. The hospital also covers part of the shadow Chancellor's West Dorset constituency.

It is interesting that the East Somerset NHS trust's budget for that hospital will increase from £57 million in the last financial year to £65 million in this financial year. That £8 million is a significant increase—well over 10 per cent. in cash terms. However, let us consider the cost pressures that the trust faces and where that £8 million will go. I can report to the Paymaster General that £3 million will be spent directly on pay inflation, including the funding of the consultants' contract; that about £1.2 million will fund the European working time directive; that £2.8 million will be spent on superannuation; that £1.2 million will go into a capital project to improve the hospital; and that £300,000 will go into non-pay inflation. In another words, almost all that money is accounted for by pensions, pay and a much needed capital project.

Later in the assessment of the trust's position, it is reported that the funding available for 2004–05 will be insufficient to maintain the waiting time targets set by the Government. That situation, which must be mirrored throughout the country, shows to both the Government and the Conservative party the difficulty of delivering such improvements in public services, not least after a long period in which far too little has been invested in the capital stock of our public services and in which an attempt to hold down public sector pay has created a great number of improvement projects. Those facts ought to draw the Government's attention to the need to reform public services and, in particular, to decentralise those services—to stop trying to run them all from Whitehall and Westminster.

The last issue that I want to raise is tax. The most important tax measure that we would like to have seen is not in the Bill, and we await an announcement later this year. The Paymaster General may be interested to know that my colleague the Liberal Democrat shadow Chancellor, my hon. Friend the Member for Twickenham—he is not here at the moment, but he was earlier—recently attended the Liberal Democrat conference in Southport.