Pre-Budget Report

That is an important point that I will address directly in a moment. First, let me return to the question of the level of detail, because the House is right to ask how the sums will add up in 2013-14. In framing my remarks, I should like to draw on the excellent report from the Treasury Select Committee and the evidence presented to the Committee by the Chancellor and by Her Majesty's chief economic adviser. Our judgment is that the deficit must fall from £178 billion this year to £96 billion in 2013-14, a fall of £82 billion. We anticipate that £25 billion of that sum will come from growth, and the return to business as usual, including the reversion of the VAT rate, but, as the Chancellor said to the Treasury Committee, £57 billion must come from discretionary action—in other words, decisions. As the chief economic adviser said to the Committee, we have decided to deliver two thirds of that sum through spending, and one third through new taxes. On decisions on tax, we have set out plans to raise £19 billion from new taxes, which we have sought to introduce in a fair way by ensuring that 60 per cent. of them are paid by the top 5 per cent. of earners in this country. That leaves £38 billion to be secured from spending cuts. Capital investment must fall, as it safely can, from today's historically unprecedented level. In the 2008 pre-Budget report and the 2009 Budget, we announced substantial reductions to the overall capital spending budget, and that is set out on page 189 of the pre-Budget report book. Yes, Departments will have to cut back, which is why we have reduced our plans for current expenditure from 2011 onwards. That is why this pre-Budget report, together with the command paper "Putting the Frontline First", announced £20 billion of cuts and efficiencies. If the House will bear with me, I think that it will be helpful if I run through them. They include: £8 billion to be delivered by 2012-13, identified across the public sector through cutbacks in Whitehall through the operational efficiency programme; £600 million from the greater use of online systems to deliver public services; £650 million from cuts in consultancy, marketing and communication spending across government; £550 million from cutting back on quangos and arm's-length bodies; £550 million from local government, including reducing the costs of inspection; £140 million from cutting senior civil service costs by 20 per cent.; £1.4 billion from ending temporary employment measures as unemployment falls; £850 million from delaying things that can wait, or from cutting back systems such as the NHS IT programme; £900 million from asking businesses and students to pay a little more for training; £360 million from reforming the criminal justice system and legal aid; and £730 million from focusing regeneration and transport spending on areas where it is needed most. Of course, to this sum may be added the windfall of lower unemployment. For the purpose of the PBR, we made the extremely cautious assumption that unemployment would not fall. In fact, if unemployment does indeed come down, as we expect it to, the benefits bill will be billions of pounds lower. It is also possible that, as the economy grows faster—as the Bank of England has projected—there will be further fruits of growth in the years to come. The House will rightly ask how such windfalls will be put to use. I will state the position bluntly, by repeating what the Chancellor said to the Treasury Committee. He said that, in the event that growth turns out to be more robust than in his forecast, borrowing would naturally fall faster, and that it would then be possible to reduce the structural deficit further in the medium term.