Tough Choices - Delivering Public Service Priorities

Speech by Rt. Hon. Charles Kennedy MP, Leader of the Liberal Democrats delivered to Bloomberg in the City and Financial Journalists on Thu 4th Mar 2004

Today, I am going to discuss one of the dominant issues in British politics at the moment:

The delivery of first class public services within the framework of a sustainable public expenditure policy.

I will be setting out, firstly, what I believe is the right strategy for public expenditure over the years ahead.

Secondly, I will set out the Liberal Democrat priorities for public services.

And finally, I will set out the tough choices which have to be made by any credible government or opposition, and some of the reforms which we will introduce.

This forms the core of the Liberal Democrat approach to deliver on our aspirations for Britain.

My colleague Vince Cable, the Liberal Democrat Shadow Chancellor, will describe in greater detail our fiscal plans and the tough choices which we believe are necessary.

PUBLIC EXPENDITURE

Over the last decade, the Liberal Democrats have consistently campaigned for higher levels of public expenditure, targeted at priority services such as education and health, and funded by earmarked increases in taxation.

We have been consistent, we have been open and we have been straightforward.

We have said where we would raise taxes and what we would spend the money on.

Under the Conservative Governments between 1979 and 1997, and under the early years of this Labour Government, public expenditure grew too slowly to deliver significant improvements in public services.

Spending did not keep pace with public aspirations, or with the need to create a fairer Britain.

For example, under the Conservatives, public expenditure lagged behind economic growth, growing at just 1.6% above inflation on average each year.

With public sector wage costs growing over time in excess of inflation, that gave precious little scope for improvements in our schools, hospitals, and our public transport system; for fairer pensions; or for tackling poverty.

What did Britain gain from this? We ended up with failing services, a crumbling infrastructure and severe staff shortages in our essential public services.

In the early years of New Labour, we Liberal Democrats had to continue to campaign for higher public expenditure in key areas.

Gordon Brown had embraced Tory spending plans for 2 years, and it took some time for new Labour to realise the cost of this decision.

The Liberal Democrats won the battle for higher public spending on key services.

The increase in public expenditure, which we consistently campaigned for, is now being delivered - £200bn a year extra by 2005, compared with 1997.

Under Gordon Brown's current Comprehensive Spending Review, public spending will grow by 4.7% a year above inflation - around twice the growth rate of the economy.

Taxes have had to rise to fund this extra public spending, and public sector borrowing has also risen.

But people are yet to see a significant improvement in the quality of our public services.

There is the impression that the existing extra money is not delivering the promised improvements, and is simply being wasted.

There are two key problems:

Too much money is being spent on low priority areas with not enough making it through to the front line.

And the Government insists on controlling everything from the centre, obsessed with targets that are insensitive to local conditions. Micro-management from Whitehall is inefficient and ineffective

This formula is simply unsustainable in the long-term.

An End to 'Tax and Spend'

It is time for tough choices to deliver Liberal Democrat priorities.

No political party can rule out tax rises, under any circumstances.

But the Liberal Democrats cannot simply argue that extra spending on our priorities must be met automatically by an increase in the total level of taxation.

This is not necessary in the current fiscal climate, nor acceptable in the current political climate.

That is why 2 years ago we dropped the penny on income tax for education - we won the battle for this extra investment.

What we need to do is tax more fairly, not just tax more.

Where we judge the existing tax system is unfair, we will act to change it.

For example, the existing tax system is regressive, we will make it fairer.

Scrapping council tax and replacing it with a local income tax based on ability to pay would be a major step in this direction.

What is also required now is to deliver real improvements in our public services by ensuring tax-payers' money gets to the front-line where it can be spent in line with local priorities.

I fully support the Government's own public sector Efficiency Review - the so-called Gershon review.

The yearly savings highlighted by the Gershon Review, up to £15 billion, may well be deliverable.

But we should not be seduced into believing that they can all be delivered over night.

They will require a major cultural change in the way Government operates.

Meanwhile, in the next Government Spending Review due to be announced this summer, the Chancellor needs to slow the increase in public spending from its current rate.

We propose that the Chancellor use the savings from the Gershon Review to broadly stabilise the ratio between public spending and the size of the economy.

This should reduce the risk of higher taxes being necessary to meet borrowing rules.

If spending growth is to slow in this way, tough choices will be needed if, as the Liberal Democrats wish, we are to continue the investment in priority areas such as health, education and pension provision.

Last year, I set up a Liberal Democrat Spending Review to go through every line of Government expenditure and look at the scope for finding savings from within existing Government budgets, in order to re-direct them towards our key priorities.

Conservative Plans

I will come to these a little later, but first a word about the recent Conservative proposals.

The Conservative plan for a new squeeze on public spending, with growth at just 1.5% a year in real terms, is more severe than under the 1979-1997 Tory Governments.

At the end of five years, the Conservatives would be spending some £25bn less than we propose.

And when Oliver Letwin was asked how he would deliver this squeeze, he persistently answered "I don't know"!

The Tories new strategy may be candid, but it is not very convincing.

Either their figures don't add up, or they would mean cuts to core budgets such as policing and local services.

By ducking the tough choices about where and what it would cut, the Conservative party has a huge credibility gap when it comes to delivery.

When an opposition party pretends that their central pledges can be funded by painless reductions in "waste and bureaucracy", the public and the media are entitled to be sceptical.

And to the extent that this is presently possible, all of the easier pickings are likely to be made by Gordon Brown in his own Spending Review.

I do not believe that at the time of the next General Election there are going to be many easy, painless, options open to any of the political parties.

In essence, the Conservative Party is offering Britain "something for nothing economics".

I don't for a moment believe that this will fool the British people, or survive the scrutiny of a British General Election campaign.

ASPIRATIONS FOR BRITAIN

If, as I argue, the recent surge in public spending growth should come to an end, this must not mean that we have to enter a new era of modest expectations and anaemic aspirations in politics.

With £500bn of public expenditure, there are huge possibilities for changing priorities.

And there are other long-term possibilities for creating new savings or revenue streams, which can meet public service needs.

Let me make clear what the Liberal Democrats want to achieve and what our aspirations are for Britain.

Last year, we set out clearly our proposals for greater fairness and simplicity in taxation.

Because we do not want to tax more, it does not mean we consider the existing tax structure to be fair or sensible.

We are pledged to tax every pound earned over £100,000 a year at 50% in order to finance the abolition of tuition fees, which are a tax on students, and to institute free personal care for the elderly.

This measure will mean only 1% of tax-payers paying more, with millions freed from paying taxes on tuition.

We will also abolish the most unfair and unpopular tax in Britain - the Council Tax - to replace it with a fair local tax based on the ability to pay - many pensioners would pay no local tax at all.

But on public spending, where we must make our tough choices, we will do this to allow us to shift resources into 5 key areas.

ONE: Tackling inequalities in the early years of life.

Despite the growth in wealth of our country over the last 50 years, Britain remains a place where the inequality of opportunity is simply unacceptable.

We need more investment in education, but it is about more than that.

At the next General Election we intend to set out a clear programme to challenge inequality at its source - in the earliest years of life.

In the same way we, in my party are addressing the new priorities of older people, the so-called third age, we will be addressing the challenges that face our youngest people too.

TWO: Tackling crime and its causes.

The prison system in this country is failing and our system for tackling repeat offending is totally inadequate.

These problems help to perpetuate crime and the fear of crime.

We need reform of our prisons, reform of rehabilitation services, and to reform and expand of our police forces.

THREE: Improving our health services.

The NHS is currently operating as an emergency sickness service. There is too little investment in diagnostic and preventative health.

We should transform our health service into a system that not only treats bad health, but promotes good health as well.

FOUR: Reform of the incoherent and incomprehensible mess which today passes as the British pensions system.

State pension provision is becoming increasingly complex and increasingly dependent on mass means-testing.

Occupational pensions are being steadily undermined, and there are many people on modest incomes with no private pension provision at all.

Pensions are the time-bomb issue of British politics.

AND FIVE: Living up to Britain's international obligations on overseas aid.

My party remains committed to extending freedoms and opportunities not only in the UK, but throughout the world.

In an age of international terrorism, this is one of the key battle grounds.

The UK aid budget is currently less than half the size of the target we have committed to at the United Nations.

Delivering on these spending priorities will require two fundamental changes.

1 DECENTRALISED DELIVERY

Firstly we need to reform the way we deliver our public services - ending the, micromanaging, short-termist, initiative-obsessed, target-driven, bureaucracy-ridden, culture of "command and control" from Whitehall.

So much of what Whitehall has been trying to achieve since 1997 has been well-intentioned:

But as one exasperated grassroots agency told the Financial Times recently regarding the Government's overlapping "New Deal" initiatives;

"Middlesbrough now has more visions than Mother Teresa, and more pilots than British Airways!"

Who in the public sector today does not share these sentiments?

That is why Liberal Democrats would abolish the current systems of "command and control", and give more power back to local communities and to the people who use Britain's public services.

As part of this programme of decentralising Government in Britain, we would abolish up to eight Government departments, scrapping some functions entirely, devolving others and reducing the number of Ministers from 112 to around 70.

We would give more budget control and greater freedoms to local government, and we would reduce the central bureaucracies of departments such as Health, Education and the Home Office, where they seek to second-guess local providers of services.

2 TOUGH CHOICES

Secondly, we will shift government spending from low priority areas into higher priority areas.

Where we can find efficiency savings, and reduce the size of central government, we will do so.

But it is far easier for opposition parties to claim efficiency savings than to deliver on them.

So our public spending plans focus on identifying and reducing specific government expenditure programmes.

The early stages of our Liberal Democrat Spending Review are now complete, and I am pleased to say that we have so far comfortably met the target of £5bn of annual savings for re-allocation, which I set when the Spending Review was started.

In addition, we have identified some longer-term expenditure issues where the potential savings are even larger.

After the Chancellor has set out his public spending plans for 2005 to 2008, which he is expected to do in July this year, we will publish our detailed spending plans.

But I do want to refer, today, to some of the savings which we have identified, and Vince Cable will say more about the detail of these proposals in a few minutes.

Our reorganisation of Government departments and priorities will save money.

For instance, the Trade and Industry budget has expanded hugely since 1997, with little evidence that the extra money is securing clear economic benefits for the taxpayer.

We would scrap this department and many of its programmes.

We will also scrap the ill-judged and expensive Child Trust Fund proposal.

This would allow us to redirect the money into early years education instead.

Similarly, we will not proceed with Government plans to introduce ID cards. We believe that the total costs could be better spent on strengthening the police.

Many of the Government's Area Based Initiatives are ill-directed and wasteful. We will significantly scale back these programmes.

We will bring forward proposals for a programme of privatisations and asset disposals, across government. Vince Cable will outline these proposals shortly.

On defence, we will protect our front-line defence forces, but we will seek significant savings from the defence procurement budget by increasing competition, ending protectionist procurement rules, and by more "off the shelf" purchasing.

These savings, and others which Vince Cable will outline, will allow us to deliver at least £5bn per year of credible savings - at least £25bn over a full parliament - for re-investment in our priority areas.

These are, of course, in addition to the Efficiency Review savings, which we believe will be necessary to moderate public spending growth while protecting health and education budgets.

The £25bn of savings over a parliament will allow us to make major improvements in our priority areas.

CONCLUSION

Taxation and public expenditure are always key issues in any British General Election.

I have sought to set out today our vision for the future public service priorities, and how this country can afford these priorities.

Our strategy requires a commitment to decentralisation of power and control - as well as some tough choices on spending priorities.

The Conservatives want to cut public spending to reduce taxes for a few, but they cannot say how. All we know is, once again, our public services will pay the price.

Labour, if it can, will raise taxes again by stealth after the next election to fund big spending and inefficient, centralised delivery.

The Liberal Democrats now reflect the aspirations of the people of Britain.

We want fairer taxation.

We want to see first class public services.

Through better spending, not just bigger spending.

And through local people having the power to decide upon their own priorities, not through diktat from Whitehall.

The Liberal Democrat commitment to devolution of power is long established and widely understood.

I am determined that the Liberal Democrats will also confront the tough choices on spending priorities necessary to deliver on our aspirations for Britain.

Thank you.