My Lords, last week’s spending round was a further step in the Government’s programme of returning the public finances to a sustainable position. Spending reductions are being achieved by transforming public service delivery, driving through efficiency savings and controlling welfare spending.
Through three years of reform and savings, the Government’s actions have brought the deficit down by a third; we are set to borrow £108 billion this year, £49 billion less than at the peak. We have kept interest rates at record lows, which is good news for mortgage borrowers as well as, of course, making a major contribution to keeping the Government’s own costs down. We have helped a record number of people into work. From the initial savings plan of £80 billion, we are right on target, having already delivered £53 billion of it. It has been well managed from the beginning.
We have to keep going. This spending round looked at taking £11.5 billion of savings out of departments. At the same time, we continue to meet our pledge to protect certain areas, the so-called ring-fence: the health service, the schools system and our overseas development budget. Because of the tough decisions that we have taken to be able to make economies elsewhere, we have been able to invest in education and accelerate school reform, so the Department for Education’s overall budget will increase to £53 billion and school spending will be protected in real terms. We have increased the health budget from £99 billion when we came into office to £110 billion in 2015-16. Capital spending in health will rise to £4.7 billion. We are proud to be able to fulfil our commitment to spend 0.7% of our national income on development. I do not think of those ring-fences as some sort of constraint on our ability to save but as reflecting our priorities and protecting what we have been able to accomplish in those critical areas.
We are reforming public services to get more for every £1 we spend of taxpayers’ money. Yesterday, I was at a Civil Service programme for staff members called, I think, “Be Exceptional”. The whole point was to clarify for everybody that this is a continuing and constant programme of reform and is now the way we
do business: determining how we can deliver things differently and more efficiently. It is not something that you do as a one-off to meet a specific target but a continuing requirement for our Civil Service to be able to deliver and perform in a more effective way, utilising fewer resources.
As part of that, we are driving out costs, renegotiating contracts and reducing the size of government. We have cut spending on things like marketing and consultants. We are focused hard on what technology can do for us, and are consolidating procurement and negotiating hard on behalf of the taxpayer. We must also reform pay in the public sector by keeping pay awards under control and limiting public sector pay rises to an average of up to 1% for 2015-16. In the spending round, we announced that we are ending the automatic progression pay in the Civil Service by 2015-16.
We have already saved £5 billion, and this spending round found another £5 billion of efficiency savings; that is of course nearly half the total of £11.5 billion at which we were aiming. To give noble Lords a sense of where that is coming from, just under £2 billion comes from the departmental administration budgets in the year in question. That means that since 2010 there has been an overall reduction of around 40% in the cost of running Whitehall departments. That tells you on the one hand that it has been a very thorough exercise. On the other hand, it might tell you something about how efficiently we were positioned at the start.
We have reduced by £1.5 billion the Government’s projects portfolio, scaling back some projects and stopping other non-priority ones. That is just a question of being much more rigorous about prioritising, which you always have to do when budgets are tight. I talked about the Government being a much more effective procurer by centralising procurement using our immense bargaining power. We expect to squeeze a further £1 billion out of that. One example highlighted in the spending round is that we are bringing together health and social care to manage more efficiently the delivery of services to the home and over time provide a better service as well; it should help the NHS save something like £1 billion.
In 2010, the Government set out welfare savings worth about £18 billion a year. Last week, my right honourable friend the Chancellor of the Exchequer announced further welfare reforms. We have put in place new measures to support people to get them into work. It is all about keeping welfare spending under control and affordable. The changes involve making sure there is up-front work search and that all claimants prepare for work and search for jobs right from the start of their claim, and introducing weekly rather than fortnightly visits to jobcentres for half of all jobseekers. It is all about getting people back into work in the most efficient and effective way.
That is at the specific level. At the general level the Chancellor also introduced a new welfare cap. The theory behind this is to try to control the very significant overall costs of the benefits Bill. We have capped the benefits of individuals. This now is an approach to try to cap the system as a whole to keep our entire budget within what we can control. That cap will apply to
what is effectively more than £100 billion of welfare spending and is another move to make sure that we are managing our budget in a consistent, rigorous and professional way and that welfare remains affordable.
The other half of the spending round statement was in Investing in Britain’s Future, which in effect lays out our plan for infrastructure. It demonstrates that right up to 2020-21 we will invest in infrastructure. It does a number of things. It gives a long-term spending commitment, which is the right horizon to provide for those kinds of long-term projects. We have been plagued by “stop, go, stop, go” historically. This gives certainty to an industry that needs that long-term investment in the right way. It also demonstrates that we are prioritising infrastructure and shows which infrastructure projects we are funnelling the money towards. That is what is done here.
Infrastructure is at the heart of our economic strategy. It is a key supporting foundation for what my right honourable friends the Prime Minister and the Chancellor always refer to as the global race. We need infrastructure in this country that can support industries that expected to be competitive on the global stage. This investment is critical because we have underinvested for generations now and we need to modernise our infrastructure and bring it up to date. We are talking here about transport, energy, communications systems and flood protection. The document also refers to our social infrastructure, both housing and schools. We are getting the right long-term approach to that. I do not think that there is any political contention about whether this is a good thing or not; it is all about how well and how effectively we do it. We will, I am sure, have a discussion about how well and effectively we are doing it and who had the good ideas first, but fundamentally it is really important that this country gets behind its infrastructure programme and delivers it as efficiently as possible. It is now all about delivery and making this programme happen.
To make a programme happen you need three things: a really good plan, the money and the capability to implement it. We are building on the original national infrastructure plan that was produced with the Autumn Statement in 2010. It is to be updated towards the end of this year and we will refresh the so-called construction and infrastructure pipeline, which is where we show the list of projects to industry so that it knows what we are doing and can make preparations to support it. Investing in Britain’s Future is in effect a supporting strategy document that lays out in each of the sectors what we are doing, why we are doing it, and what we think it takes to make this country competitive. To me, that is why what we have done in this spending review is potentially transformational. We are taking the right long-term strategic approach that thinks about the issues in the correct way.
The money is the next step in any plan. I have already referred to how parts of the infrastructure which the Government fund from taxpayer resources will be handled, and of course the majority of the focus in this document is on our roads and our rail system. I will not go through the numbers or the detail of the particular projects because they are all laid out in the document, but the road investment is more
significant than anything we have seen since we put the major national structure of roads in place in the 1970s. The rail investment, which has already begun with Network Rail, marks a period of greater investment than anything since the Victorian times, and of course we have also put a comprehensive budget in place for HS2. Similarly, we have put long-term budgets in place for science, infrastructure and affordable housing, and to ensure that we finish off our digital communications programme so that we have very fast broadband coverage in the maximum number of locations as soon as possible. We are working closely with the private sector to accomplish that.
My final point concerns our own capability, which is an exercise that I have been very much involved in myself: making sure that Government know how to be a good client when they are building infrastructure. We have reviewed the four major departments with infrastructure responsibility, which of course are the Department for Transport, the Department for Energy and Climate Change, Broadband Delivery UK, which sits within DCMS, and the Environment Agency, which sits within the Department for Environment, Food and Rural Affairs. We have looked at the commercial resources that they need to deliver the project portfolio in front of them, and we will work with them to supplement their own resources to make sure that they have people in place. Structurally, from an organisational point of view, the presumption is that we will manage these projects within organisations that are dedicated to project delivery. We will get them done urgently, with focus and for great value. An example would be that we are going to corporatise the Highways Agency so that it has the flexibility it needs to hire the staff it needs to do the job and has flexibility with its funding so that it can get on and be the most effective deliverer of roads that it can be.
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