Spending Review Statement by Chancellor of the Exchequer
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Presented 20 October 2010
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Today's the day when Britain steps back from the brink.
When we confront the bills from a decade of debt.
A day of rebuilding when we set out a four-year plan to put
our public services and welfare state on a sustainable footing - for
the long term.
So that they can do their job - providing for families,
protecting the vulnerable and underpinning a competitive economy.
It is a hard road, but it leads to a better future.
We are going to bring the years of ever-rising borrowing to an
We are going to ensure, like every solvent household in the
* that what we buy, we can afford;
* that the bills we incur, we have the income to meet;
* and that we do not saddle our children with the interest on
the interest on the interest of the debts we were not ourselves
prepared to pay.
Tackling this budget deficit is unavoidable.
The decisions about how we do it are not.
There are choices. And today we make them.
Investment in the future rather than the bills of past
failure. That is our choice.
We have chosen to spend on the country's most important
priorities - the health care of our people, the education of our young,
our nation's security and the infrastructure that supports our economic
We have chosen to cut the waste and reform the welfare system
that our country can no longer afford.
For this is the context of this Spending Review.
We have, at £109 billion pounds, the largest structural budget
deficit in Europe.
This at a time when the whole world is concerned about high
deficits, and our economic stability depends on allaying those concerns.
We are paying, at a rate of £120 million a day, £43 billion a
year in debt interest.
This at a time when we all know that that money would far
better serve the needs of own citizens than those of the foreign
creditors we borrow from.
And we have inherited from the previous Government plans - if
you can call them that - that envisaged our national debt ratio still
rising in the year 2014.
Not a single penny of savings had been identified.
Indeed, they were plans that envisaged the Chancellor of the
Exchequer standing here in 2014 presenting a spending review that still
had years of cutting public spending ahead of it.
And that is why last year the IMF warned this country to
accelerate the reduction in the deficit.
That is why the OECD, the Governor of the Bank of England, the
CBI all agreed with them.
The action we have taken since May has taken Britain out of
the financial danger zone:
* The immediate reductions to in-year spending to buy us a
breathing space in the sovereign debt storm;
* The creation of an independent Office for Budget
Responsibility to bring honesty back to official forecasts.
And I can confirm to the House that the OBR, and its new chair
Robert Chote, have audited all of the annually managed expenditure
savings in today's statements.
The emergency Budget in June was the moment when fiscal
credibility was restored.
Our market interest rates fell to near record lows.
Our country's credit rating was affirmed.
The IMF went from issuing warnings to calling our Budget
Now we must implement some of the key decisions required by
To back down now and abandon our plans would be the road to
We will stick to the course.
We will secure our country's stability.
We will not take Britain back to the brink of bankruptcy.
Mr Speaker, in the Budget I set out the tax increases we were
prepared to make, including on capital gains at the higher rate,
pension relief on the largest contributions and, for the first time, a
permanent levy on banks.
We also had to increase VAT, where fortunately we were able to
benefit from the preparatory work of the previous Government.
But I made it clear that spending reductions rather than tax
rises needed to make up the bulk of the consolidation.
That is what the leading international evidence suggested
So I set out spending totals for the coming years, and
announced some £11 billion of welfare savings that would help achieve
I also set out a new fiscal mandate for the public finances.
To eliminate the structural deficit by balancing the
cyclically-adjusted current budget over five years, by 2015-16.
And we set a target of national debt falling as a proportion
of national income by that same year.
We explained how, for reasons of caution, we will achieve both
these objectives a year earlier in 2014-15.
I can confirm that the spending plans I set out today achieve
a balanced structural current budget and falling national debt on that
I can further confirm that the current spending totals I set
out in the Budget for each of the next four years are the same as the
current spending totals I set out today.
They have not changed.
Next year, current expenditure will be £651 billion, then £665
billion the year after, £679 billion the year after that, before
reaching £693 billion in 2014-15.
The House will note that current spending is rising not
falling over this period.
This is partly because, even with the measures we take today,
debt interest payments continue to grow in these years.
Debt interest payments will reach £63 billion in 2014-15.
For it takes time to turn around the debt supertanker.
But I can now report to the House that against the plans we
inherited, one of the departments which suffers the greatest cut today
and at the steepest rate is the Department for Debt Interest.
Debt interest payments will be lower by £1 billion in 2012,
then £1.8 billion in 2013 and £3 billion in 2014 - a total of £5
billion over the course of this Spending Review.
That is the equivalent to 16 new hospitals or the annual
salaries of 100,000 teachers.
At the Budget I also set out my plans for capital spending
over the next four years.
I can now tell the House that capital spending will be £51
billion next year, then £49 billion, then £46 billion, and £47 billion
This is about £2 billion a year higher than I set out in the
Given the contractual obligations we inherited from the last
Government, doing anything else would have meant cutting projects which
would clearly enhance the economic infrastructure of this country.
And this has no direct impact on whether we meet the fiscal
mandate or the year in which the debt ratio starts falling.
So total public expenditure - capital and current - over the
coming years will be £702 billion next year, then £713 billion, £724
billion and £740 billion in 2014-15.
In real terms, public spending will be at the same level as in
Our public services and our welfare system will be put on a
sustainable, long term footing.
And we will make sure that the financial catastrophe that
happened under the previous Government never ever happens again.
Mr Speaker, let me turn now to the spending decisions and the
three principles I propose to apply to the choices we have to make.
First, reform - that in every area where we make savings, we
must leave no stone unturned in our search for waste and we must
deliver changes necessary to make our public services fit for the
Second, fairness - that we are all in this together and all
must make a contribution.
Fairness means creating a welfare system that helps the
vulnerable, supports people into work, and is also affordable for the
working families who pay for it from their taxes.
Fairness also means that across the entire deficit reduction
plan, those with the broadest shoulders should bear the greatest
burden. Those with the most should pay the most, including our banks.
Third, growth - that when money is short we should ruthlessly
prioritise those areas of public spending which are most likely to
support economic growth, including investments in our transport and
green energy infrastructure, our science base and the skills and
education of citizens.
Let me explain now how principles have guided our specific
First, Mr Speaker, reform.
I believe the public sector needs to change to support the
aspirations and expectations of today's population, rather than the
aspirations and expectations of the 1950s.
So the Spending Review is underpinned by a far-reaching
programme of public service reform.
We saw over the last decade that more money without reform was
a recipe for failure.
Less money without reform would be worse.
And we are not prepared to accept that.
So we have begun by squeezing every last penny we can find out
of waste and administration costs.
Our ambition in this review was to find £3 billion of savings
from the administrative budgets of central government departments.
With the help of the Green Review, and the work done by my RHF
the Minister for the Cabinet Office, I can tell the House that we have
gone further than we thought possible in cutting back-office costs.
Quangos will be abolished.
Services will be integrated.
Assets will be sold.
And the administrative budgets of every main government
department cut by a third.
The result is this.
We promised £3 billion of Whitehall savings, we will deliver
Of course, there is understandable concern about the reduction
in the total public sector headcount that will result from the measures
in the Spending Review.
We believe the best estimate remains the one set out by the
independent Office for Budget Responsibility.
They have forecast a reduction in headcount of 490,000 over
the Spending Review Period.
Let's be clear. That's over four years, not overnight.
Much of it will be achieved through natural turnover, by
leaving posts unfilled as they become vacant.
Estimates suggest a turnover rate of over 8% in the public
But yes, there will be some redundancies - up to the decisions
of individual employers in the public sector - that is unavoidable when
the country has run out of money.
We feel responsible for every individual who works for the
Government, and we will always do everything we can to help them find
In fact, in the last three months alone the economy created
So we should remember that unless we deal with this record
budget deficit decisively many more jobs will be in danger - in both
the private and the public sector.
The Cabinet Office and the Treasury will oversee the programme
of Whitehall savings.
Both departments will lead by example.
The core Cabinet Office budget will be reduced by £55 million
Additional allocations will be provided to fund electoral
reform, support the Big Society, establish community organisers and
launch the pilots for the National Citizen Service - which will give
young people for the first time a right of passage to citizenship.
In recognition of the challenges faced by the voluntary and
community sector, I am establishing a one year £100 million transition
fund to help those facing real hardship.
The Treasury will see its overall budget reduced by 33% - and
we will share the department's enormously expensive PFI building, that
my predecessor-but-one signed up to, by moving part of the Cabinet
Office into the same premises.
The Chancellor is also a Royal Trustee and I want to say
something briefly about the Civil List.
As I outlined at the Budget, the ten year settlement expired
this year and no provision for a new settlement had been made when we
Her Majesty graciously agreed to a one year cash freeze in the
Civil List for next year.
Going forward, she has also agreed that total Royal Household
spending will fall by 14% in 2012-13 while grants to the Household will
be frozen in cash terms.
In order to support the costs of the historic Diamond Jubilee,
which the whole country is looking forward to celebrating, there will
be a temporary additional facility of £1 million.
After that the Royal Household will receive a new sovereign
support grant linked to a portion of the revenue of the Crown Estate,
so that my successors do not have to return to the issue so often.
Mr Speaker, central to this review is reshaping our public
First, there needs to be a dramatic shift in the balance of
power from the central to the local.
A policy of rising burdens, regulations, targets, assessments
and guidance has undermined local democracy and stifled innovation.
We will completely reverse this.
We will give GPs power to buy local services, schools the
freedom to reward good teachers, and communities the right to elect
their police and crime commissioners.
Second, we should understand that all the services paid for by
government do not have to be delivered by government.
We will expand the use of personal budgets for special
education needs, children with disabilities and long term health
We will use new payment mechanisms for prisons, probation, and
community health services.
And we will encourage new providers in adult social care,
early years and road management.
For local government, the deficit we have inherited means an
unavoidably challenging settlement.
There will be overall savings in funding to councils of 7.1% a
year for four years.
But to help councils, we propose a massive devolution of
Today I can confirm that ring-fencing of all local government
revenue grants will end from April next year.
The only exception will be simplified schools grants and a
public health grant.
Outside of schools, police and the fire service, the number of
separate core grants that go to local authorities will be reduced from
over 90 to fewer than 10.
Councils and their leaders will remain accountable - but they
will no longer have to report on 4,700 local area agreement targets.
The Local Government settlement includes funding for next
year's council tax freeze, to help families when their budgets too are
We are also introducing Tax Increment Finance powers, allowing
councils to fund key projects by borrowing against future increases in
locally collected business rates.
Some in local government have concerns about the financing of
I can announce that grant funding for social care will be
increased by an additional £1 billion by the fourth year of the
And a further £1 billion for social care will be provided
through the NHS to support joint working with councils - so that
elderly people do not continue to fall through the crack between two
That's a total of £2 billion additional funding for social
care to protect the most vulnerable.
Mr Speaker, we will also reform our social housing system.
For it is currently failing to address the needs of the
Over ten years, more than half a million social rented
properties were lost.
Waiting lists have shot up.
Families have been unable to move.
And while a generation ago only one in ten families in social
housing had no-one working, this had risen to one in three by 2008-09.
We will ensure that, in future, social housing is more
The terms for existing social tenants and their rent levels
will remain unchanged, new tenants will be offered intermediate rents
at around 80% of the market rent.
Alongside £4.4 billion of capital resources, this will enable
us to build up to 150,000 new affordable homes over the next four years.
We will continue to improve the existing housing stock through
the Decent Homes programme.
And we will reform the planning system so we put local people
in charge, reduce burdens on builders and encourage more homes to be
built, with a New Homes Bonus scheme.
Within an overall resource budget for the Department for
Communities and Local Government that is being reduced to £1.1 billion
over the period, priority will be given to protecting the Disabled
This will go alongside a £6 billion commitment over four years
to the Supporting People programme, which provides help with housing
costs for thousands of the most vulnerable people in our communities.
And, in recognition of the important service provided by the
Fire and Rescue Service, we have decided to limit their budget
reductions in return for substantial operational reform.
Mr Speaker, let me turn now to reforms in our security and
Yesterday my RHF the Prime Minister set out the conclusions of
the Strategic and Defence Review.
He explained in detail how we will protect the British people,
deliver on our international obligations and secure British influence
around the world.
This Spending Review provides the resources to do just that.
The budget for the Ministry of Defence will reach £33.5
billion in 2014-15, a saving of 8% over the period.
On top of this settlement, we will continue to provide out of
the Reserve the resources that our forces in Afghanistan require.
As a Chancellor I believe strongly that if we ask our brave
service men and women to risk their lives on our behalf in active
combat, then we will give them all the tools they need to finish the
But Mr Speaker, our international influence and our commitment
to the world are not only determined by our military capabilities.
Our diplomacy and development policy matter too.
Savings of 24% in the Foreign and Commonwealth Office budget
will be achieved over the review period by a sharp reduction in the
number of Whitehall-based diplomats and back office functions.
There will be a focus on helping British companies win exports
and secure jobs at home, and with the help of the UKTI we will attract
significant overseas investment to our shores.
I can also confirm that this Coalition Government will be the first
British government in history, and the first major country in the
world, to honour the United Nations commitment on international aid.
The Department for International Development's budget will
rise to £11.5 billion over the next four years.
Overseas development will reach 0.7% of national income in
This will halve the number of deaths caused by malaria.
It will save the lives of 50,000 women in pregnancy and
250,000 newborn babies.
Whether working behind the counter of a charity shop, or
volunteering abroad, or contributing taxes to our aid budget, Britons
can hold their heads up high and say - even in these difficult times,
we will honour the promise we make to the very poorest in our world.
Our aid budget allows Britain to lead in the world.
It may be protected from cuts but not from scrutiny.
I have agreed with my RHF the Development Secretary a plan of
reform that reduces administration costs to half the global donor
average, ends the aid programmes we inherited in China and Russia,
focuses on conflict resolution, and creates an independent commission
to assess the impact of the money we commit.
Mr Speaker, let me now turn to security at home.
Protecting the citizen is a primary duty of government.
Our police put themselves in harm's way to make the rest of us
safe - and we owe them our gratitude.
But no public service can be immune from reform.
Her Majesty's Inspector of Constabulary found in his recent
report that significant savings could be made to police budgets without
affecting the quality of front line policing.
And Tom Winsor is leading a review of terms and conditions
which will report on how the police service can manage its resources to
serve the public even more cost-effectively.
Using independent forecasts for the precept, the settlement I
am proposing today will see police spending falling by 4% each year.
By cutting costs and scrapping bureaucracy we are saving
hundreds of thousands of man hours - our aim is to avoid any reduction
in the visibility and availability of police in our streets.
Our new National Security Strategy judges terrorism to be one
of the highest risks facing this country.
Therefore I am prioritising counter terrorism over the review
period, both in the Home Office Budget and the Single Intelligence
We have been assured this will maintain our operational
capabilities against both Al Qaida and its affiliates and against
Northern Irish terrorist threats.
This will enable us to meet the terrorist threat and protect
the Olympic Games in 2012.
Overall, the Home Office budget will find savings of an
average of 6% a year.
The Ministry of Justice's budget will reach £7 billion by the
end of the four year period - with average savings of 6% a year.
A Green Paper will set out proposals to reform sentencing,
intervene earlier to give treatment to mentally ill offenders, and use
voluntary and private providers to reduce reoffending.
£1.3 billion of capital will also be provided over the period
to maintain the existing prison estate and fund essential new-build
projects - but plans for a new fifteen hundred place prison will be
The Law Officers Department will reduce its budget by a total
of 24% over the period, with the Crown Prosecution Service greatly
reducing its inflated cost base.
Reforms will also be required to streamline the criminal
justice system, close under-used courts and reduce the legal aid bill.
We need fair access to justice, but provided at a fair cost
for the taxpayer.
Mr Speaker, all the reforms I have spoken of - to Whitehall
and the way services are provided, to local government, to our defence
and security and justice system - will improve both the value for money
for taxpayers and the service provided to the public.
Next month, each government department will publish a business
plan setting out its reform plans for the next four years - so their
priorities are clear and the public can hold them to account.
Reform is one of the guiding principles of this Spending
So too is fairness.
Let's be clear.
There is nothing fair about running huge budget deficits, and
burdening future generations with the debts we ourselves are not
prepared to pay.
How ironic that it was the last Labour Prime Minister himself
who once observed that the "public finances must be sustainable over
the long term. If they are not then it is the poor ... that will suffer
That's why we are restoring order to our public finances
before that is allowed to happen.
A fair government deals with the deficit decisively.
That is what we are doing today.
And a fair government makes sure that those with the broadest
shoulders bear the greatest burden.
The distributional analysis published today shows that those
on the highest incomes will contribute more towards this entire fiscal
consolidation, not just in cash terms, but also as a proportion of
their income and consumption of public services combined.
Mr Speaker, I completely understand the public's anger that
the banks that were so appalling regulated over the last decade, and
whose near collapse wrought such damage on the economy, should now be
contemplating paying high bonuses.
We are overhauling the system of regulation we inherited so
that the Bank of England, with its clout and reputation, is put in
We have set up the Independent Commission on Banking to look
at the structure of the industry - and next year we will receive its
And today we set out very clearly, for all to take note of,
our objective in taxing the banking industry going forward.
We neither want to let banks off making their fair
contribution, nor do we want to drive them abroad.
Many hundreds of thousands of jobs across the whole United
Kingdom depend on Britain being a competitive place for financial
Our aim will be to extract the maximum sustainable tax
revenues from financial services.
We will assess what those maximum revenues could be - not just
in one year, but over a period of years.
We have already decided - in the face of opposition from the
previous government - to introduce a permanent levy on banks.
The legislation will be published tomorrow.
Once fully effective, the permanent levy will raise more net
each year and every year for the Exchequer than the one-year bonus tax
did last year - and I note that the previous Chancellor now admits that
it failed to curb behaviour and was not sustainable.
However, that is not enough.
We want the banks to pay not just by the letter of the tax
law, but by its spirit.
A year ago, the previous government announced in a fanfare
that it would require banks to sign up by the Code of Practice on
Mr Speaker, I have asked the Revenue how many of our leading
15 banks actually signed up.
The answer is four. Four out of fifteen.
That's what happened when they were in office. All talk and no
So I have instructed the Revenue to work with the banking
sector to ensure the remaining banks have implemented the Code of
Practice by the end of next month.
We will also need to address the situation under the last
government where the gap between the taxes owed and the taxes paid grew
So in this Spending Review, while the HM Revenue &
Customs budget will be expected to find resource savings of 15% through
the better use of new technology, greater efficiency and better IT
contracts - we will be spending £900 million more on targeting tax
evasion and fraud.
This additional £900 million is expected to help us collect a
missing £7 billion in tax revenues.
Nor will fraud in the welfare system be tolerated anymore.
We estimate that £5 billion is being lost this way each year.
£5 billion that others have to work long hours to pay in their
This week we published our plans to step up the fight to catch
benefit cheats, and to deploy uncompromising penalties when they are.
That brings me to the wider welfare budget.
A civilised country provides for families, protects the most
vulnerable, helps those who look for work, and supports those in
That is why one of the first acts of this Coalition Government
was to re-link the basic state pension to earnings, and guarantee a
rise each year by earnings, inflation or 2.5% - whichever was higher.
Never again will those who worked hard all their lives be
insulted with a state pension increase of just 75 pence.
But this guarantee of a decent income in retirement has to be
paid for at a time when people are living much longer than anyone
We should celebrate that fact, but also confront it.
Lord Turner's Report on pensions, commissioned by the last
government, acknowledged that a more generous state pension had to be
funded by an increase in the pension age.
Even since its publication, life expectancy has risen further
than it predicted.
Before the summer, we launched a review on increasing the
state pension age, and that has now concluded.
As a result, I can today announce that the state pension age
for men and women will reach 66 by the year 2020.
This will involve a gradual increase in the State Pension Age
from 65 to 66, starting in 2018.
And it will mean an acceleration of the increase in the female
pension age already underway since this April.
From 2016 the rate of increase will be three months in every
four rather than the current plan of one month in every two.
Raising the State Pension Age is what many countries are now
doing, and will by the end of the next Parliament save over £5 billion
a year - money which will be used to provide a more generous basic
state pension as we manage demographic pressures.
Earlier this month, we also received the interim report from
John Hutton's Public Service Pension Commission.
I am sure the whole House will want to thank John for this
excellent and independent piece of work.
I welcome his findings - and I hope it will form the basis of
a new deal, that balances the legitimate expectations of hard working
public servants for a decent income in retirement with the equally
legitimate demands of hard-working taxpayers that they do not pay
unfairly for it.
The elements of this new pension deal are clear.
We should accept that public service pensions continue to
provide a form of defined benefit, and that there is no race to the
bottom of pension provision.
We want public service pensions to be a gold standard.
At the same time, we should accept that they must be
When these public service pension schemes were established in
the 1950s, taxpayers made half the contributions.
Today they make up two-thirds of contributions, and the
unfunded bill is set to rise to £33 billion by 2015-16.
So I think we should accept, as John Hutton does, that there
has to be an increase in employee contributions, although I also agree
with John that this should be staggered and progressive.
That means the lower paid - and those in the armed forces -
are protected and the highest paid public servants, who get the largest
benefits, pay the highest contributions.
We will await the full Commission Report next spring before
coming to any conclusions on the exact nature of the defined benefit
and progressive contribution rise.
We will also launch a consultation on the Fair Deal policy.
But we will carry out, as the interim report suggests, a full
public consultation now on the appropriate discount rate used to set
contributions to these pensions.
From the perspective of filling the hole in the public
finances, we will seek changes that deliver an additional £1.8 billion
of savings per year in the cost of public service pensions by 2014-15 -
over and above the plans left to us by the last government.
It is also clear that the current final-salary pension terms
for MPs are not sustainable and we anticipate that the current scheme
will have to end.
We will make a further statement following the publication of
Lord Huttons' findings.
The welfare system is also there to help people of a working
age when they lose their job, have a disability, start a family and
need help with low pay.
But the truth - as everyone knows - is that the welfare system
is failing many millions of our fellow citizens.
People find themselves trapped in an incomprehensible
out-of-work benefit system for their entire lifetimes, because it
simply does not pay to work.
This robs them of their aspirations and opportunities.
And it costs the rest of the country a fortune.
Welfare spending now accounts for one third of all public
Benefit bills have soared by 45% under the previous government.
In some cases, the benefit bill of a single out-of-work family
have amounted to the tax bills of 16 working families put together.
This is totally unsustainable and unfair.
The last government promised reform and flunked it.
We will deliver.
My RHF the Work and Pensions Secretary is setting out
proposals, with my support, to replace all working age benefits and tax
credits with a single, simple Universal Credit.
The guiding rule will be this: it will always pay to work.
Those who get work will be better off than those who don't.
It represents the greatest reform to our welfare state for a
It will be introduced over the next two Parliaments, at a pace
that ensures that we get this right.
I have set aside more than £2 billion over this Spending
Review of resources to make this happen.
And it will go alongside our new Work Programme, which we are
also funding today.
Drawing on the skills of the voluntary sector and private
providers, the Work Programme will provide intensive help to those
looking for work - and support for those who could look for work, but
currently lack the confidence or skills to try.
The Department for Work and Pensions will make savings to help
deliver these schemes, by increasing the use of digital applications
and reducing overheads.
We will also be seeking substantial savings from the rest of
the £200 billion benefit bill, on top of those already identified in
As I said in June, the more we could save on welfare costs -
the more we can continue other, more productive areas of government
And in the massive public consultation we conducted over the
summer, the overwhelming message we received was that the British
people think it is fair to cut welfare bills in order to protect
important public services.
So today I announce these further welfare savings.
We will time limit contributory Employment and Support
Allowance for those in the Work Related Activity Group to one year.
This is double the length of time than for contributory
We will increase the age threshold for the shared room rate in
housing benefit from 25 to 35, so that housing benefit rules reflect
the housing expectations of people of a similar age not on benefits.
We will give local authorities greater flexibility to manage
Council Tax together with direct control over Council Tax benefit,
within an overall budget that will be reduced by 10% from April 2013.
We will align the rules for the mobility and care elements of
Disability Living Allowance paid to people in residential care,
generating savings, but enabling us to continue with this important
We will freeze the maximum Savings Credit award in Pension
Credit for four years, thereby limiting the spread of means-testing up
the income distribution.
On tax credits:
We will further control the cost of tax credits by freezing
the basic and 30 hour elements for three years;
We will change the Working Tax Credit eligibility rules so
that couples with children must work 24 hours per week between them;
And we will return the childcare element of the Working Tax
Credit to its previous 70% level.
We will also introduce a new cap on benefits.
No family that doesn't work will receive more in benefits than
the average family that does go out to work.
That is a tough, but fair deal.
Of course, those in receipt of Disability Living Allowance,
Working Tax Credit or the War Widows Pension will be excluded.
Taken together, all these welfare measures I have outlined
will save the country £7 billion a year.
But Mr Speaker, we want to ensure that low income families
with children are protected from the adverse effect from these
Because this Government is committed to ending child poverty.
I can announce today that I am increasing the child element of
the Child Tax Credit by a further £30 in 2011-12 and £50 in 2012-13
This will mean annual increases of £180 and then £110 above
the level promised by the last government.
This will provide support to 4 million lower income families -
and I can confirm that using the same model we inherited, the Spending
Review has no measurable impact on child poverty over the next two
While we await the conclusions from the report by the RHM for
Let me turn now to the universal benefits.
Mr Speaker, I have taken the difficult decision to remove
child benefit from families with a higher rate taxpayer.
I wish it were otherwise - but I simply cannot ask those
watching this earning just £15,000 or £30,000 to go on paying the child
benefit of those earning £50,000 or £100,000.
The debts of the last Labour Government, and the need to make
sure the better off in society also make a fair contribution, make this
And it also means that no further changes to child benefit are
Child benefit will continue to be paid in the normal way to
the great majority of the population, from birth until a child leaves
full time education at the age of 18 or even 19.
We can afford to do this because, according to the latest
independent estimates from the Office for Budget Responsibility,
removing child benefit from higher rate taxpayers saves Britain £2.5
billion a year.
We also keep the universal benefits for pensioners, in
recognition of the fact many have worked hard and saved all their lives.
Free eye tests;
free prescription charges;
free bus passes;
free TV licenses for the over 75s;
and Winter Fuel Payments will remain exactly as budgeted for
by the previous Government - as promised.
I am also turning the temporary increase in the Cold Weather
Payments introduced by the last government into a permanent increase.
In my view, higher Cold Weather Payments should be for life,
not just for elections.
And so too are the promises we make on the National Health
The NHS is an intrinsic part of the fabric of our country.
It is the embodiment of a fair society.
This Coalition Government made a commitment to protect the
NHS, and increase health spending every year.
Today we honour that commitment in full.
Total health spending will rise each year over and above
This year we are spending £104 billion on health care, capital
and current combined.
By the end of four years, we will be spending £114 billion.
We can afford this in part because of the decisions on welfare
I have just announced.
And also because we have made tough decisions in other parts
of the government budget.
But to govern is to choose. And we have chosen the NHS.
That does not mean we are letting the Health department off
the need to drive forward real reform and savings from waste and
Productivity in the Health Service fell steadily over the last
ten years, and that must not continue.
By 2014, we are aiming to save up to £20 billion a year by
demanding better value for money.
But the money we save will be reinvested in our nation's
As the independent forecasts we published in the Budget show,
we need to make these savings to deal with our ageing population and
the rising costs of new medical treatments.
But there are also new services we can offer.
A new cancer drug fund will be provided.
Spending on health research will be protected and we will
prioritise work on treatment for dementia.
We will expand access to psychological therapies for the
young, elderly and those with mental illness.
We will fund new hospital schemes, including the St Helier,
the Royal Oldham and the West Cumberland.
For health spending, as for other spending announcements,
there will be consequential allocations for Scotland, Wales and
The Barnett formula will be applied in the usual way.
That means that the increase in health spending and the
relative protection of education spending will feed through to the
devolved resource budgets.
It means that all three nations will actually see cash rises
in their budget, albeit rises below the rate of inflation.
For Scotland, the resource budget will rise to £25.4 billion
For Wales, it will rise to £13.5 billion.
And for Northern Ireland, it will rise to £9.5 billion.
In Scotland, we are proceeding with the implementation of the
In Wales, we will consider with the Assembly Government the
proposals in the final Holtham report, consistent with the Calman work
being taken forward in Scotland.
In Northern Ireland, the collapse of the Presbyterian Mutual
Society has caused great hardship. And people have been left without
their money for too long.
I confirm today that we will provide the Northern Ireland
Executive with £25 million in cash, and a £175 million loan, to help
those who have lost their life savings.
We will also help those across the United Kingdom who have
lost money as a result of the collapse of Equitable Life.
For ten years the Equitable Life policyholders have fought for
For ten years the last government dithered and delayed and
denied them that justice.
It is time to right the wrong to many many thousands of
people, who did the right thing, who saved for their future, tried not
to depend on the state - and then were innocent victims of a terrible
failure of regulation.
So let me make it clear.
I accept the findings of the Parliamentary Ombudsman in full.
I have read the advice of Sir John Chadwick, and I thank him
for it, but I do not agree with the level of compensation his analysis
I agree with the Ombudsman that the relative loss suffered is
the difference between what policyholders actually received from their
policies, and what they would have received elsewhere.
The Parliamentary Ombudsman herself recognised that a balance
had to be struck between being fair to policyholders and fair to
taxpayers, particularly when many budgets and benefits are being cut.
But money we pay out has to come from general public
I have decided that the fair amount to pay out in total is in
the region of £1.5 billion, two thirds of which will be found in this
Spending Review period.
Those who had With Profits Annuities are particularly hard
hit, as they were retired and were unable to move their savings
elsewhere. As a result, the Government will cover the cost of the total
relative loss suffered by these deserving people.
The scheme will start making payments next year.
Mr Speaker, these measures and our welfare reforms mean:
* It will always pay to work;
* Benefit savings will help us protect key public services
like the NHS;
* There is help for those who have saved and lost everything.
These are fair decisions, consistent with the second principle
of this Spending Review.
The third and final principle centres on growth [and promoting
a private sector recovery.
By restoring macroeconomic stability we have brought certainty
By cutting business taxes we are giving business the freedom
And today's review builds on these steps - because even when
money is short we should prioritise those areas of public spending
which are most likely to support economic growth.
That is what we are doing in the Department for Business,
Innovation and Skills.
Administration will be cut by £400 million. 24 quangos will be
Lower-priority programmes like Train to Gain will be abolished.
Adult learners and employers will have to contribute more to
This means that today I can announce the largest ever
financial investment in adult apprenticeships.
An increase of over 50% on the previous government, helping
75,000 new apprentices a year by the end of the Spending Review period.
We will maintain and invest in the Post Office Network, and
protect community post offices.
We will come forward with our detailed response to Lord
Browne's report on higher education funding and student finance,
including our plans to provide financial support to encourage those
from the poorest households to stay in education.
Our universities are jewels in our economic crown, and it is
clear that, if we want to keep our place near the top of the world
league tables, then we need to reform our system of funding and reject
- as, to be fair, many opposite do - the unworkable idea of a pure
Clearly better-off graduates will have to pay more - and this
will enable us to reduce considerably the contribution that general
taxpayers have to make to the education of those who will probably end
up earning much more than them.
Overall, average annual savings of 7.1% will be found from the
Department for Business budget - the minimum it was asked to find.
Within those savings, however, the Secretary of State and I
have decided to protect the science budget.
Britain is a world leader in scientific research. And that is
vital to our future economic success.
That is why I am proposing that we do not cut the cash going
to the science budget. It will be protected at £4.6 billion a year.
Building on the Wakeham Review of science spending, we have
found that within the science budget significant savings of £324
million can be found through efficiency.
If these are implemented, then with this relatively protected
settlement I am confident that our country's scientific output can
increase over the next four years.
We will also:
* invest £220 million in the UK centre for Medical Research and
Innovation at St Pancras;
* fund the molecular biology lab in Cambridge;
* the Animal Health Institute in Pirbright;
* and the Diamond synchrotron in Oxford.
Research and technological innovation will also help us with
one of the greatest scientific challenges of our times - climate change
- and it will support new jobs in low-carbon industries.
So today, even in these straightened times, we commit public
capital funding of up to £1 billion to one of the world's first
commercial scale carbon capture and storage demonstration projects.
We will also invest over £200 million in the development of
off-shore wind technology and manufacturing at port sites.
Yesterday, protestors scaled the Treasury urging us to proceed
with our idea for a Green Investment Bank.
Mr Speaker, it's the first time anyone has protested in favour
of a bank.
We will go ahead.
I have set aside in this Spending Review £1 billion of funding
for the Bank, but I hope much more will be raised from the private
sector and the proceeds of future government asset sales.
The aim of all these investment is for Britain to be a leader
of the new green economy. Creating jobs, saving energy costs, reducing
We will also introduce incentives to help families reduce
We will introduce a funded Renewable Heat Incentive.
Our Green Deal will encourage home energy efficiency at no
upfront cost to homeowners and allow us to phase out the Warm Front
Overall, the total resource settlement for the Department for
Energy and Climate Change will fall by an average 5% a year - but there
will be a large increase in capital spending, partly to meet
unavoidable commitments on nuclear decommissioning.
DEFRA will deliver resource savings of an average 8% a year -
but we will fund a major improvement in our flood defences and coastal
erosion management that will provide better protection for 145,000
Britain's arts, heritage and sport all have enormous value in
their own right.
But our rich and varied cultural life is also one of our
country's greatest economic assets.
The resource budget for the Department of Culture, Media and
Sport will come down to £1.1 billion by 2014-15.
Administrative costs are being reduced by 41%. 19 quangos will
be abolished or reformed.
All of this is being done so we can limit four year reductions
to 15% in core programmes like our national museums, the frontline
funding provided to our arts and Sport England's Whole Sport plans.
We will complete the new world-class building extensions for
the Tate Gallery and British Museum in London.
The Secretary of State will provide details of further
I can also announce today that in order that our nation's
culture and heritage remains available to all, we will continue to fund
free entry to museums and galleries.
There is ongoing provision of the £9.3 billion of public
funding for a safe and successful Olympic and Paralympic Games in
London in 2012.
And we have also approached the BBC to ensure that they too
make their contributions, as a publicly funded organisation, to savings
during this Spending Review.
I am pleased to confirm that this week we have struck a deal.
The BBC will take from the government the responsibility for
funding the BBC World Service and BBC Monitor, as well as part-funding
This amounts to some £340 million of savings a year for the
Exchequer by 2014-15.
To ensure that the cost of these new obligations is not passed
on to the license fee payer, the BBC has agreed a funding deal for the
full duration of its Charter Review.
The licence fee will be frozen for the next six years.
This deal helps almost every family and is equivalent to a 16%
saving in the BBC budget over the period, similar to the savings in
other major cultural institutions.
The BBC also agreed to reduce its on-line spend and make no
further encroachments into local media markets, to protect local
newspapers and independent local radio and TV.
And they will contribute to the £530 million we will spend
over the next four years to bring super-fast broadband to rural parts
of our country that the private sector will take longer to reach.
Pilots will go ahead in the Highlands and Islands, North
Yorkshire, Cumbria and Herefordshire.
All of this will help encourage the growth of our creative
industries as a key part of the new economy we are seeking to build.
Mr Speaker, after our defence requirements are met, the
Department for Transport will receive the largest capital settlement.
Over the next four years we will invest over £30 billion in
transport projects, more than was invested during the past four years.
£14 billion of that will fund maintenance and investment on
Direct bus subsidies will be reduced, but statutory
concessionary fares will remain.
The cap on regulated rail fares will rise to RPI +3% for the
three years from 2012, but that will help this country afford new
rolling stock as well and improve passenger conditions.
The Secretary of State will set out how more of the transport
money will be allocated next week.
But I want to tell the House today about some of the projects
that will go ahead.
For let's remember that even after these tough spending
settlements the country is still going to be spending over £700 billion
So in Yorkshire and Humber, capacity on the M62 will be
expanded, £90 million will be spent to improve rail platforms across
various towns and cities and we will also improve line speeds across
In the North East, £500 million will be spent refurbishing the
Tyne & Wear Metro and Tees Valley bus network.
In the North West, we will invest in rail electrification
between Manchester, Liverpool, Preston and Blackpool and we will
provide funding for a new suspension bridge over the Mersey at Runcorn.
Rail and roads are devolved to the Scottish executive, as are
roads in Wales - but I can tell the House that major rail investments
around Cardiff, Barry and Newport will go ahead.
In the East Midlands the M1 and A46 will be improved.
In the West Midlands, we will extend the Midland Metro and
completely redevelop Birmingham New Street station.
In the South West, we will fund improvements on the M5 and M4,
and the new transport scheme for Weymouth.
In the East of England, colleagues will be delighted to know
that the A11 to Norwich will be upgraded.
Around London, we will widen the M25 between ten different
junctions and complete the improvement to the A3 at Hindhead.
And in London, on top of the Olympics, a major investment in
our capital city's transport infrastructure will take place.
Crossrail will go ahead and key Tube lines will be upgraded
for the twenty first century.
This is nothing like the complete list.
So yes, we are saving money and putting the state on a more
sustainable footing, but even then we will still be spending tens of
billions of pounds on Britain's future infrastructure.
Next week the Secretary of State will also set out our
national infrastructure plan - so that private money is also put to
work in building for this country the economic infrastructure our
Our regional growth fund will also help us do that.
As promised, a billion pounds has been found for the fund over
the next two years.
Money designed to lever in private investment in areas of our
country where it has been too absent over the last decade.
And I can announce today that I am providing close to half a
billion pounds extra in the third year for the regional growth fund.
Long term investment in the capacity of our transport, our
science, our green energy will all help move Britain from its decade
long dependence on one sector of the economy in one part of the country
- and the ruin that led to.
But the most important ingredient a twenty-first century
economy needs is well educated children, who believe in themselves and
aspire to a better life whatever their background or disadvantages.
In June, after the Budget, when the Chief Secretary and I
turned our attention to how to allocate spending between government
departments, we set ourselves a goal.
We wanted to see if it was possible - even when spending was
being cut - to find more resources for our schools and for the early
years education of our children.
I can tell the House that we have succeeded.
It has meant other departments taking bigger cuts.
But I believe strongly that this is the right choice for our
There will be a real increase in the money for schools, not
just next year or the year after - as the last government once promised
- but for each of the next four years.
The schools budget will rise from £35 billion to £39 billion.
Even as pupil numbers greatly increase, we will ensure that
the cash funding per pupil does not fall.
We will also sweep away all the different ways in which money
is ring-fenced so that schools can decide how to spend their money as
they see best.
We will also introduce a new £2.5 billion pupil premium that
supports the education of disadvantaged children, and which will
provide a real incentive to good schools to take pupils from poorer
This pupil premium is at the heart of the Coalition Agreement
and it is at the heart of our commitment to reform, fairness and
Parents, teachers and community groups will be supported if
they wish to establish free schools.
We will fund an increase in places for 16 to 19 year olds, and
raise the participation age to 18 by the end of the Parliament - and
that enables us to replace education maintenance allowances with more
And we will also provide support for the early years of our
The increased entitlement to 15 hours a week free education
for all three and four year olds - introduced under this government -
Sure Start services will be protected in cash terms, and the
programme will be refocused on its original purpose.
And we will help them further by introducing, for the first
time, 15 free hours of early education and care for all disadvantaged
two year olds.
So these children have a chance in life and are ready, like
the rest of their class mates, for school.
Overall, the Department for Education will be required to find
resource savings of only 1% a year.
Central administration will be cut by a third and five quangos
The capital budget will have to bear its share of the
As the House will know we've had to phase out the hopelessly
inefficient and overcommitted Building Schools for the Future programme.
But £15.8 billion will be spent to maintain the school estate
and rebuild and refurbish 600 schools.
I repeat - the resource money for schools, the money that goes
to the classroom - on the broadest definition, including all the main
grants, will go up in real terms every year.
It is a real investment in the future of our children and in
the future growth in our economy too.
Let me conclude.
The decisions we have taken today bring sanity to our public
finances and stability to our economy.
They deal decisively with the largest budget deficit this
House of Commons has ever had to face outside of wartime.
We have had to make choices.
Choices about the things we support.
And today, I have announced real increases in the NHS budget
and the resources of schools, as well as new investments in the
economic infrastructure of our economy.
I have also announced real reductions in waste and reforms to
And through this we will reshape public services to meet the
challenges of our times.
Mr Speaker, during the process of this Spending Review I have
received many submissions...
... including one from the party opposite that the average cut
for unprotected departments should be set at 20% over the coming four
...rather than the 25% that I anticipated in my June Budget.
I have examined this proposal carefully and I have consulted
the published documents of my predecessor the RHG for Edinburgh South
And because of our tough but fair decisions to reform welfare,
and the savings we've made on debt interest...
... I am pleased to tell the House it has been possible - and
the average saving in departmental budgets will be lower than the
previous Government implied in its March Budget.
Instead of cuts of 20% there will be cuts of 19% over four
So I thank them for their input and look forward to their
Mr Speaker, this Coalition Government faced the worst economic
inheritance in modern history.
The debts we were left threatened every job and public service
in the country.
But we have put the national interest first.
Made the tough choices.
Protected health and schools and investment in growth.
Reformed welfare and cut waste.
Made sure that we are all in this together.
And taken our country back from the brink of bankruptcy.
A stronger Britain starts here.
And I commend this statement to the House.
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Article Published/Sorted/Amended on Scopulus 2010-10-21 01:18:34 in Economic Articles