Speech

George Osborne sets out his priorities for the Spending Review

Economic security, national security and opportunity are at the heart of this year's Spending Review, explains the Chancellor.

Chancellor giving speech at Imperial College London

Good morning. It’s great to be here at Imperial College’s White City campus.

I deliberately chose to come here today, to this science campus, to talk about economics.

Because this place doesn’t just represent the future of science in the world, it represents the future of our economy here in the UK.

World-beating science and innovation.

Turned into commercial application, with space for 50 spin-out companies based right here where we are meeting now.

Conducted in collaboration with the best in the world, including your entrepreneurial collaboration with Zhejiang University in China. And of course the president of China visited Imperial just a couple of weeks ago.

And all supported by taxpayer resources deployed in a strategic way to support our long-term economic prosperity.

For the decision to fund this project was taken three years ago – in the tough early years of a deficit reduction plan.

Funding that proved, even in straitened financial times, if you are prepared to take difficult decisions elsewhere, you can prioritise investments in our economic future.

And that links to an argument I will make today: how our economic security, alongside our national security and our ambition to extend opportunity, are intrinsically connected to having sound public finances.

There is no economic security, there is no national security, there is no opportunity, when you lose control of the public finances.

It is only when you control spending, and live within your means, that you can build a country with security and opportunity at its heart.

And that’s what the Spending Review I will present in a little over two weeks’ time, will be all about.

We’re not making savings for savings’ sake; we will make savings for a purpose.

To deliver a better, more secure life for our citizens.

Our guiding principles are clear.

Every option we consider, every decision we take, we will ask a simple set of questions:

Does this increase the economic security of working people, or not?

Does this enhance our national security, or not?

Does this extend opportunity, or not?

If it does, we will do it; if not, we won’t.

And today, I am going to set out how we will put those principles into practice.

First economic security.

This principle is the beating heart of the Spending Review.

Now, thanks to the hard work and sacrifice of the British people, our country is immeasurably more secure than it was just five years ago.

In 2010, we were borrowing one pound in every four that the government spent, and the world was asking questions about Britain’s determination to pay its way. They are not asking that anymore.

We cut our country’s record deficit by more than half.

We were told at the time it would cost millions of jobs and stop growth.

Instead 2 million more jobs were created and we’ve grown faster than any other major advanced economy since then.

But there is still so much more to do – we are still spending too much.

We’re set to borrow almost £70 billion this year. £70 billion that simply gets added to our current mountain of debt – currently over £1.5 trillion. That national debt reached 80% of our national income this year.

While debt is high, our economic security is in danger.

No one knows what the next economic crisis to hit our world will be, or when it will come.

But we know we haven’t abolished boom and bust.

We know we must prepare for whatever the world throws at us.

We know that if we don’t control spending, we run the risk of higher mortgage rates and higher taxes – and a loss of confidence in our economy.

And we know for certain that will mean job losses; it will mean businesses closing down; it will mean homes being repossessed. It will mean the livelihoods of working people destroyed.

I’ve seen that story. We’ve all seen it happen to our country. I don’t want to watch that movie again. It doesn’t end well.

That’s why, at the Spending Review, we will meet the democratic mandate we were given by the British people this year: to bring the deficit down, finish the job, and get Britain into surplus.

With our plan, by 2019-2020, for the first time in a generation, Britain will be saving instead of borrowing; paying down our national debt share, rather than adding to it.

I know some ask: why do we need this surplus?

I’ll tell you why: to protect working people.

A surplus will make our country more resilient, safe and secure.

It means that next time we have the money to help us through the tough times when the storms come.

Let me put it another way: if our country doesn’t bring the deficit down, the deficit could bring our country down again.

And that’s why, for the economic security of every family in Britain, we must hold our nerve.

And quite frankly, if we’re not into a surplus after 10 full years of economic growth, when will we ever be?

Those who oppose our plans say we should borrow more. But it’s what they always say. In good times borrow because you can afford to. In bad times, borrow because you can’t afford not to. They never propose a good time to save money.

So that’s why, to those who oppose our plan, I have some simple questions:

Do you admit you want to borrow – forever?

Do you admit you want to let the debt pile up – rather than reduce it?

Do you admit you want to increase the debt interest we pay to foreign creditors?

If you can’t admit these things, then you are deliberately misleading the country.

If you can admit the truth, then I simply say all you are offering is the same old easy answers. Shaking the same old magic money tree.

We’ve been there before. It didn’t work then. And it won’t work now.

Instead, we will help working people, get Britain back into the black and keep our economy safe and secure.

I’ll spell out the full details of the savings we will make on November 25th.

But I can report to you that – with the support of my brilliant colleague Greg Hands, the Chief Secretary to the Treasury – we have reached provisional agreement on the spending plans of four government departments.

The Department for Transport, the Department for Environment, Food and Rural Affairs, the Department for Communities and Local Government, and of course the Treasury.

The resource spending – that is the day to day spending of those four departments – will be cut on average 8% a year for the next four years, that’s by 30% in total.

These savings will be achieved by a combination of further efficiencies in departments, closing low value programmes, and focusing on our priorities as a country.

These provisional settlements apply to the day to day resource spending of the central departments - they are not the capital budgets of these departments.

For as I set out last week at the Launch of the National Infrastructure Commission - we will continue to invest in the things that make our economy more productive.

We will spend £100 billion on our infrastructure over the Parliament - updating our roads and railways; investing in flood defences to protect our homes and businesses; and delivering superfast broadband across the country.

The full details of that capital settlement and the result of the local government settlement will be announced at the Spending Review.

But the provisional settlements I’ve outlined today mean that four of the twenty Whitehall departments have been settled.

And I’m grateful to my colleagues Patrick McLoughlin, Liz Truss and Greg Clark for their efforts in delivering all this.

I look forward to them joining me around the table of our Public Expenditure Cabinet committee next week.

Economic security is the bedrock upon which the Spending Review rests.

And it is precisely that economic security that allows us to invest in our national security.

Indeed, our economic security and our national security are two sides of the same coin.

If you don’t have control over the country’s budget you can’t make the necessary long-term investment in your country’s defences.

But equally if you can’t defend your country - can’t defend your values and – these days – your cyber space – well then there is no economic security either.

Today, Britain is already ranked as the number one nation in the world for soft power – achieving influence by projecting our culture, delivering aid, establishing international rules, and drawing on all the resources that make us a country that, more than most, shapes the world.

And alongside that soft power, we have with our American and French allies, the hard power of the most capable, deployable and effective armed forces in the world.

But in a world where extremism is poisoning minds not just abroad, but at home; where ISIL has run rampage in the Middle East; where Russian aggression is threatening Eastern Europe; and our enemies are using technology to plot, harm and threaten us…

…now is not a time to scale down our commitments to our national security.

It’s a time to enhance them.

That’s why we have committed to spending 0.7% of our national income on international aid.

I know that not everyone agrees with this decision.

But this money not only meets our moral obligation to the world’s poorest – it directly supports our UK national interest in stabilising broken states and for example, helping refugees closer to their homes.

When Ebola hit West Africa – who was out there first? Whose navy is helping hurricane victims? Whose aid money is supporting refugees in the camps in Lebanon?

It’s ours. We are not just making a difference. People are looking to Britain, listening to Britain, taking their lead from Britain.

What’s special about our country is that we’re the only country that not only has a generous aid budget but is also investing in national defence.

At the summer Budget, I committed to spending 2% of our national output on defence every year of this Parliament, protected spending across government on counter-terrorism and on our security and intelligence agencies, and I have created a Joint Security Fund which will grow to £1.5 billion by the end of this Parliament.

We will announce the full details of how this funding will be allocated at the Spending Review and the Strategic Defence and Security Review, but today I want to announce one of the specific decisions we have made, and the reason for making it.

As the nature of war, espionage and terrorism changes – we must change with it.

The internet – central to modern life – provides new ways for our enemies to plan and act against us.

The threat from terrorists – from extreme ideologies – needs to be challenged head-on.

The probable fate of that Russian airliner in Sinai is a painful reminder of that.

So I can confirm that over the next five years we will substantially increase the number of people across all three secret intelligence agencies who investigate, analyse and help disrupt terrorist plots.

More detail will be provided by the Prime Minister when he announces the conclusion of our Strategic Defence and Security Review on Monday 23 November.

This is a government that puts security first.

Economic security. National security.

The third principle that will guide us is this: opportunity.

A little over a month ago, the Prime Minister set out a clear agenda for progressive, social reform at the Conservative Party conference.

It’s an exciting agenda, a bold agenda for changing life chances and supporting working people – and it’s an agenda we will live up to.

Some people say: that’s impossible. The Spending Review means you have to cast all of that aside.

I say: quite the opposite.

This Spending Review will not be about abandoning this vision of opportunity; it will be about reinforcing it.

For there will be no opportunity if borrowing goes up and up, debt goes up and up, businesses go bust and parents lose work and families lose homes.

There will be no opportunity if we lose control of the public finances and have to cut the National Health Service.

Where’s the opportunity in spending the same on debt interest as we do on our schools?

Where’s the opportunity in asking our children to pay off the debts that we couldn’t deal with ourselves?

There’s no opportunity in a bankrupt country.

Of course, hard decisions do have to be taken. Some of what we need to do will be controversial – it always is when you fight to do the right thing in government

But remember this: at this Spending Review, we will set out a plan to spend around £4 trillion over the Parliament.

That’s four thousand billion pounds.

Between 2010 – 2015 we spent £3.6 trillion.

So £4 trillion is a lot of money.

So we’re spending more – but we’re also controlling the budget. And of course the amount you spend is only half of the equation.

Let’s not forget: if spending more and more money was the only answer, we could all pack up and go home.

Before 2010, spending ballooned – yet inequality remained high, in-work poverty increased, the number of workless households grew, and the poorest children got the worst results.

Contrast that with what we’ve seen the past five years…

the huge increases in disadvantaged teenagers going to university…

the million more kids going to a good or outstanding school…

the fall in inequality, the fall in the number of workless households, the fall in the gender pay gap, the fall in child poverty, and the rise in living standards and you can see that it’s not about what you spend, it’s about what you do.

In the last Parliament, we showed if you have the right priorities and are bold with reform, you can do more for less and you can extend opportunity.

This Spending Review will be about going further.

We will prioritise the NHS, increasing its budget, because that’s what families, especially the poorest, rely on most.

We will protect the state pension, which the eldest in our society, those with the least opportunity to change their incomes, depend on.

But we will also undertake bold and lasting reform.

This is not just about doing what’s morally right – and ending the state failure that holds people back.

It’s also about doing what is economically right.

Reduce the number of people in welfare or low paid work. Break the cycle of crime. Beat addiction. Cut those things and you cut the bills of social failure, and you cut government spending.

That’s why we need to continue with welfare reform.

The perverse incentives created by the welfare system has kept wages low and prevented people from taking on more work.

As I have said, this Spending Review will deliver a new type of economy – moving from a low wage, high welfare, high tax one…

…to a higher wage, lower welfare, lower tax one.

I will return at the Spending Review to our plans on tax credits

And because it is a combined Spending Review and Autumn Statement I will also seek further savings from avoidance, evasion and imbalances in our tax system. I will set out those plans then too.

But today I want to end by taking an example of one public service badly in need of reform because it stands as a model for what we are trying to achieve in this Spending Review. Better value for money. More opportunity. A stronger more secure country. And that public service prison service - and I’m delighted to be joined by the Justice Secretary and Lord Chancellor Michael Gove.

We all know the good news: crime is down.

But we know the bad news too: the cost of sending someone to prison is £25,000 per year.

It takes seven full time workers on the average wage a whole year to pay that bill through their taxes. Seven full time workers, all the taxes they pay, to pay for one prison place.

And half of criminals offend within just one year of being released. And for under-eighteens, that figure is higher.

Nearly half of all prisoners go into prison with no qualifications – not even one GCSE; and many come out with none either.

This, for me, is one of the most shocking examples of state failure.

Think about it. When people are in prison, they are in the care of the state.

We have their attention 24 hours a day; we dictate what they do and how they do it.

It’s a chance to change their lives for the better.

Yet, we hardly do anything. We lock them up, then let them out, and all too often they return to a life of crime.

And that’s despite the hard work and efforts of our members of the prison service.

Fixing this requires a number of reforms to rehabilitation and training…

…and with Michael Gove we will bring those forward.

But there’s something else we need to do: modernise the prison estate.

So many are relics from Victorian times, soulless, bleak places that can actually encourage a life of crime.

Squalid areas where bullying is rife; overcrowded areas where people sit in idleness, with nothing expected of them.

And to top it all off, many of them are on prime real estate in our inner cities. So I can today announce that prison reform will be a key part of the Spending Review.

We will start to close some of our old outdated prisons in city centres, and sell the sites for housing.

In their place, we will build nine new prisons – all of which are modern, suitable and support rehabilitation.

Five will be completed by 2019-20, the rest soon after.

These more efficient prisons will save us £80 million in running costs alone.

Money saved for the taxpayer. Homes built for young people.

Prisoners given an opportunity to redeem themselves and improve their lives.

I can confirm the first prison we will sell is Reading prison.

It is fitting it should be Reading.

For that was where Oscar Wilde was cruelly imprisoned for his homosexuality wrote, in the Ballard of Reading Gaol, the most famous and haunting description of the squalor of out-dated prisons in English literature.

“What is Good in man….wastes and withers here” he wrote in his prison cell.

The prison is now empty, but is held as a contingency facility.

It will be sold for housing for the young families of Reading.

At the Autumn Statement we will announce further details of our prison programme.

Money raised for the taxpayer by selling unwanted inner city sites.

Thousands of homes built for families.

Investment in new modern facilities to help our rehabilitate our prisoners.

Millions saved every year in the running costs of our prison estate.

The deficit cut.

And opportunity extended.

Prison reform is just an example of the wider, progressive reforms we are making.

In just over two weeks’ time I’ll set out how we will spend the £4 trillion pounds that taxpayers have entrusted us with on those public services.

We’ll show how by making savings, we can reduce our deficit, run a surplus and bear down on our debt.

We’ll deliver economy security.

We’ll enhance our national security.

And we’ll extend opportunity to all.

Thank you very much.

Published 9 November 2015