Sometimes in politics there are no easy choices.
But the worst choice of all would be to fail to put in place a credible plan to reduce Britain’s bloated budget deficit.
We cannot afford to continue to increase public debt at the rate of £3 billion each week.
Our huge public debts threaten financial stability and if left unchecked would de-rail the economic recovery.
Public borrowing is only taxation deferred, and it would be deeply irresponsible to continue to accumulate vast debts which would have to be paid off by our children and our grandchildren for decades to come.
It is less than two weeks since the Coalition was formed, and it is testament to our determination to tackle the deficit that we are today able to announce that we are taking the first step to deliver over £6 billion of savings across Government this financial year.
I am grateful to every member of the Cabinet for their co-operation.
This is only the first step in a long road to restoring good management of our public finances.
Even tougher decisions await us in the Budget and the Autumn Spending Review if we are to restore responsibility after the years of Labour extravagance and mismanagement.
Details of public spending reductions
I can now announce the details of the spending cuts which we are going to make in 2010/11.
We have found cuts totalling £6.243 billion – £243 million more than originally targeted.
As previously announced, the following departments will make efficiency savings of their own, but these will be recycled within their own budgets in 2010/11: Health, International Development, Defence. The savings in these departments are not included in the £6.243 billion.
In addition, as the Chancellor has already announced, because we have been effective in tackling waste and low value spending, we have been able to take the important decision to protect the budgets for Schools, Sure Start and spending on 16-19 year olds in 2010/11.
All other departments will make the following savings in 2010/11:
- Department for Transport: £683 million
- Communities and Local Government: £780 million
- Local Government DEL: £405 million
- Business: £836 million
- Home Office: £367 million
- Department for Education: £670 million
- Ministry of Justice: £325 million
- Law Officers’ Departments: £18 million
- Foreign Office: £55 million
- Department of Energy and Climate Change: £85 million
- Environment, Food and Rural Affairs: £162 million
- Culture, Media and Sport: £88 million
- Work and Pensions: £535 million
- Chancellor’s Departments: £451 million
- Cabinet Office: £79 million
- Devolved Administrations: £704 million
- Departmental control totals will be adjusted at the Budget
As announced a week ago, the Chancellor and I have agreed that the Devolved Administrations will have the option of making their savings this year or deferring their share of the savings until the next financial year. They will also receive their share of any additional spending which is agreed – but this will be set off against their savings.
Nobody will be getting something for nothing.
In recognition of the fact that £1.16 billion of these savings are from grants that go to local authorities, the Chancellor and I have agreed with the relevant Secretaries of State that we will help local government to deliver these savings by removing the ring-fences around over £1.7 billion of grants to local authorities in 2010/11.
This will give local authorities much greater flexibility to deliver on their priorities, and it is consistent with our ambition to devolve more powers to local government. The ring-fences around schools and Sure Start funding will not be removed this year.
Cutting out waste
Our first priority is to cut out waste. We cannot expect difficult decisions to be taken on spending until we have eliminated waste.
We expect departments to make savings which include around:
- £1.15 billion in cutting discretionary areas such as consultancy, advertising and travel costs
- £1.7 billion from delaying and stopping contracts and projects, including immediate negotiations to achieve cost reductions from the 70 major suppliers to government
- £600 million from cutting the costs of quangos
- £170 million from reductions in property costs
- £95 million from IT
- and at least £120 million from freezing Civil Service recruitment
Today we are announcing action to ensure that the cuts in spending which we are making will drive out waste rather than being passed on to service quality.
There will be a new Efficiency Group, chaired by me and by Cabinet Office Minister Francis Maude, drawing on expertise within Government and funded from within existing budgets.
This Group will assist departments in renegotiating contracts, and it will oversee an immediate freeze on unnecessary spending on consultancy, advertising and new ICT spend over £1 million.
This action is designed to send a shock-wave through Government departments, to focus Ministers and civil servants on whether spending in these areas is really a priority in the difficult times we are now facing.
We are taking other actions to cut the cost of Government.
There will be a civil service recruitment freeze across Government departments and agencies, with only limited exceptions for frontline and business critical staff, requiring the personal sign off of the relevant Secretary of State or Chief Executive.
Future announcements on public sector pay will be made in the Budget, but in order to ensure that we take immediate action to control pay costs, outstanding Civil Service pay remits for this year will need my approval before they are agreed.
Luxuries and leadership
It is important that those at the top of Government and the Civil Service set an example.
The Cabinet has already agreed to a 5% cut in our pay, with a freeze for every remaining year of this Parliament.
Any central government pay package which is above that of the Prime Minister will require my authorisation. Following the Prime Minister’s decision to take a cut in pay I can confirm that the maximum pay that can be granted without my approval will fall from £150,000 to £142,500.
The Chancellor and I want to see further savings made.
Today I am announcing that we will seek to make savings of at least a third in the cost of the Government Car Service.
In the future, no Minister should have a dedicated car or driver other than in exceptional circumstances.
Ministers will be expected to walk or take public transport where possible, or use a pooled car. The pooling of cars will allow big savings to be made.
Figures for central government departments suggest that £45 million was spent on first class travel in 2008/09.
We believe that huge savings must be made in this area. Full first class fares are very expensive and should be avoided by all public servants wherever possible.
The Chancellor and I will monitor spending in this area and are minded to deduct the costs of any first class travel from the future spending limits of any public sector body which spends its scarce resources in this way.
Lower priority areas of spending
As well as reducing waste and the costs of Government, we have started work to scale back lower priority spending.
These are not easy choices but they are necessary choices.
As the Chancellor has just announced, we will pass legislation to end Child Trust Fund payments that will save £320 million in 2010/11, rising to £520 million in 2011/12:
- from this August we will reduce contributions at birth and stop all contributions at age 7; and
- from January 2011, we will stop all contributions at birth.
I know that this will be a disappointment to some parents, but we must be honest about what we are doing.
At present the Child Trust Fund is based on the claim that young people will build up an asset which they can use later in life. But since Government payments into this scheme are being funded by public borrowing, the Government is also storing up debts which will have to be re-paid by these same young people.
It is therefore a deception to claim that young people are being made richer by the Child Trust Fund. For every pound paid into this scheme there is an extra pound of public debt. By ending Government payments into this scheme we also save the £5 million annual cost of administering it.
Other tough decisions are being made.
Quangos across Government will have to make major savings in their budgets.
Regional Development Agencies will have to cut back on spending which has the lowest economic impact.
There will be cuts in schemes which we consider to have low value for money – including in “Train to Gain”.
We will continue the Young Person’s Guarantee scheme, but we will save £290 million by removing the temporary jobs option which the Department believe is very poor value for money.
We will proceed with Higher Education modernisation funding for an additional 10,000 university places, in addition to those allocated in the December 2009 grant letter. Good value for money bids have not been received for the full 20,000 additional places initially envisaged, so we have made a saving here.
Protecting key front-line services and those on lower incomes
Last week I said that the Chancellor and I aspire to be more than competent accountants.
We are also determined to “cut with care” – as far as possible we want to protect the key front-line services which people depend upon and protect those on the lowest incomes from the actions which we have to take.
This is a key commitment of the Coalition Agreement.
And we have jointly rejected proposals which we believe would threaten that commitment.
We have also taken together the important decision to protect the budgets for schools, Sure Start and 16-19 year old education – this meant we had to look even harder for savings elsewhere, but that is our decision this year.
An example of our approach of cutting with care is that we will take some savings from ending Child Trust Fund payments to provide a better way of helping disabled children.
I can therefore announce that our figures for savings include provision for over £20 million each year, starting next year, to be spent providing additional respite breaks for severely disabled children.
This would allow for upwards of 8000 week long breaks which will, I am sure, be welcomed by many parents who have the huge responsibility of caring for a disabled child.
Investing in recovery
Finally, while the great majority of the £6.243 billion that we are saving will go towards deficit reduction, we can announce that we have decided to allocate £500 million in 2010/11 to measures to invest in improving our growth potential and building a fairer society.
The largest portion of this spending has been secured by the Business Department - £200 million in 2010/11. This means that their net DEL reduction will be scaled back from £836 million to £636 million.
£150 million will be used to help deliver up to 50,000 adult apprenticeship starts.
We are also conscious of the need to invest in our colleges estate, following the shambolic management of the Colleges Capital Programme under the last Government.
We are therefore allocating an extra £50 million to help fund capital investment in those FE Colleges most in need. Together with additional private investment this will secure a total fund of £150 million to invest in up to 50 individual schemes.
We are also allocating an additional £170 million to fund investment in social rented housing in 2010/11, to help deliver 4,000 social housing starts.
And we will freeze backdated business rates payments under the 8 year schedule of payments, including businesses in ports, until April 2011. We will consider any further action in this area and bring forward any plans before the freeze ends.
These are only the first steps which we will need to take in order to put our public finances back in shape.
There will be many more tough decisions, but we believe that the British people understand that these choices can no longer be ducked.
The years of public sector plenty are over. But the more decisively we act, the more quickly and strongly we can come through these tough times.
We also promise to cut with care. We are going to be a progressive Government even in these difficult times.
When the Prime Minister asked the Chancellor and me to come to the Treasury at this time of great national challenge we were determined that we would work together to deliver three objectives:
- to restore responsibility to the public finances
- to nurture the economic recovery
- and to protect the vital public services which we all depend upon, and those in our society who are least able to bear the burdens of national austerity.
That will not be an easy task, but we are willing to be judged by those tests.