Prime Minister David Cameron has written an article for the Sunday Times on the upcoming Spending Review in October.
Read the article
Some governments sleep in the summer. Not this one. Throughout August and September, we will be working on our most pressing task: completing the Spending Review so that in October we can make serious savings, restore health to our country’s finances and confidence in our economy.
Most people are now well aware of why we must do this. Britain is borrowing over 10 per cent of its GDP this year. One pound in every four the government spends is borrowed money. The simple fact is that we are living dangerously beyond our means and, following the successful and radical Budget in June, a Spending Review of unprecedented ambition is the right remedy.
But this process cannot just be about doing the right thing for our economy by any means necessary. I don’t just want people to look back on this government and say ‘they were fiscally responsible’; I want them to say ‘they were socially responsible too.’ In other words we’ve got to do the right thing in the right way. That’s why this week I was clear about the two vital elements of our approach. First, people power, so that through re-thinking public spending and public services we can give people more power and control over their lives. And second, long-term thinking so we move from short-term strategising to taking the decisions necessary to equip Britain for long-term success. That means prioritising things like better schools to give all children a fair chance in life, and infrastructure improvements so that we can build a sustainable economy for the future.
So if those are our guiding lights, how will this Spending Review work in practice? I can best describe our approach as like the methodical turn-around of a failing business. When a company is failing - when spending is rising, sales are falling and debt is mounting - you need someone to come in with energy, ideas and vision and take a series of logical steps.
You start by getting the books out and scrutinising every penny spent, asking whether it is necessary, seeking out any waste you can cut. American Airlines famously removed one olive from all salads in their on-board meals and saved $40,000. The point is that for the most scrupulous, effective business, no detail and no sum of waste is too small to escape the microscope of efficiency. The same must be true of this government. That’s why we are having a root and branch audit of recent public spending so that we can learn the lessons of the past, prevent those mistakes from being made again and cut out waste where it still exists.
If dealing with obvious waste is the first step to turning a failing business around, the next is identifying the ingrained waste - over-spending that is taken for granted as being in-built in the structure of your organisation. For a business, ingrained waste might be an excessive number of sick days taken every year, seen by many companies as inevitable and impossible to deal with. In the case of government there is one area of ingrained waste that out-ranks all others - welfare and tax credit fraud and error. This costs the government £5.2 billion a year. Many see it as a fact of British life that we have no hope of defeating. I passionately disagree. Simply shrugging our shoulders at benefit fraud is a luxury we can no longer afford - which is why Iain Duncan Smith is working on the radical steps we can take to deal with it.
Next, like any business we should ask whether there are activities we are undertaking that should not really be part of the programme. ID cards and some of the complex government databases fall into this category - and we have scrapped them, saving millions of pounds.
In many ways cutting out the waste and stopping things that aren’t necessary is the easy bit. All of these savings arise from clear examples of ‘bad spending’ that should have been prevented in any circumstances, deficit or no deficit. But the next step for the Spending Review is to identify the spending I’d describe as ‘acceptable in the good times, unaffordable in the bad times.’ To continue the business analogy, employee benefits like company cars might fall into that category. They’re appreciated by all, but if you’re suffering losses for the third quarter in a row you’ve got to drop them. In government we’ve made a similar decision on some benefits, like tax credits, for families in the middle income bracket. These transfers are not an intrinsically bad idea, but in the context of cuts to other services, they are clearly not as high a priority as they once were.
Because our deficit is one of the highest in the world, we have to go even further. We have to change the way we deliver public services to deliver more for less. That means putting power in the hands of the people who use and provide services, instead of trying to control everything from the centre. But even with reform, the truth is there will be some things that we genuinely value that will have to go because of the legacy we have been left. I don’t like that any more than anyone else, but this is the reality of the situation we’re in and it’s the duty of this government to face up to it.
So far these steps are all about reducing outgoings. But as anyone who has turned a business around knows, there’s another half to the battle: raising revenue. That’s why in the pages of the emergency Budget you will find a boldly ambitious growth plan, including significant cuts to corporation tax and red tape. It’s why I’ve been travelling the world drumming up support for British business. And it’s why over the coming months we will be setting out some other creative ways we can raise revenue, by selling off or better utilising some of the assets owned by the British taxpayer. These are your possessions and we owe it to you to get the best value we possibly can out of them.
If we do all this - if we cut the obvious waste, attack the ingrained waste, stop doing things that don’t add value, if we are realistic about the things we can no longer afford and creative about raising revenue, we’ll be able to prioritise the things we really care about. Of course I can’t promise to put a ring of steel around every service and every job. But by taking a methodical approach to stripping away every pound of spending that doesn’t add much value, this Spending Review can help us minimise the impact of the cuts.
The coming months will undoubtedly be difficult. Throughout this time I don’t want anyone to forget where this is leading us. For a failing business the prize for taking the tough decisions is prosperity. The prize for our country is more profound. This Spending Review is about setting our country free from the debt that is holding us back - free to grow, to generate wealth, to create jobs, to compete and to prosper. That’s the light at the end of the tunnel - and I am determined we will get there.