Chris Leslie – 2014 Speech on Public Finance

Below is the text of the speech made by Chris Leslie, the Shadow Chief Secretary to the Treasury, in a speech to the Institute for Chartered Accountants of England and Wales on 30th May 2014.

I want to thank the Institute for Chartered Accountants in England and Wales for hosting this morning’s focus on the long-term challenges facing the public finances and tackling Britain’s fiscal deficit. The ICAEW has been a relentless campaigner for improved decision-making arrangements at the Treasury to deliver long-term sustainable public finances and I commend your work in setting this agenda.

Before Christmas Ed Miliband and Ed Balls announced that we would conduct a root and branch review of every pound the government spends to prepare for the challenges the next administration will face.

We set out the principles that our Zero-Based Review would follow: stronger efficiencies, taking a fairer approach to deficit reduction, supporting growth, intervening early to prevent higher costs, and testing how justifiable programmes and projects are in an era following the global financial crisis.

In my February speech at the Social Market Foundation I set out our approach to decluttering public service delivery and streamlining government.

Since then I have completed the first round process analysing every departmental budget and exploring public service reform and redesign in detail with every shadow team – and all my Shadow Cabinet colleagues know that the settlements we will need to make following the general election will be the toughest faced by an incoming Labour government for a generation.

We will publish an interim report summarising early findings in the near future, and complete the Zero-Based Review in our first year in office.

Today, though, I want to talk specifically about how the next Labour Government will place long-termism at the heart of public spending plans.

But I want to go beyond the lip-service that politicians often pay to long-termism and instead propose a fundamental restructuring of the decision-making process.

Short-termism is now a chronic disease eating away at the heart of our public services. Ministers repeat their ‘long-term-economic-plan’ mantra with such frequency that they are deluding themselves into a belief that simply uttering these words will magically make them come true.

So I want to set out why we can no longer continue with the myopic year-by-year lack of foresight that is too often a hallmark of the current Treasury and the coalition government.

For one thing, the existing short-range view of Ministers risks costing the country far more in the decades ahead.

And with the Prime Minister’s promise to balance the books by next year now at least £75 billion wide of the mark, we need to get a grip of this situation and move onto the right path towards eliminating the deficit in the next Parliament in a fair and sustainable way.

So what does a long-term approach to rebalancing public finances look like?

First things first – let’s stop wasting so much taxpayers’ money.

Nothing infuriates the public more than seeing hard-earned taxpayer resources thrown away because of short-term decision-making or poor planning.

Let me give you an example from my own constituency in Nottingham from just last week.

The police station in Sneinton was refurbished in 2005 at a cost of £720,000.

It is an important base in the fight against crime and reassuring the public.

Yet the salami-slicing of grants to Nottinghamshire Police, shaving off a chunk each year, has left this public body like so many others looking for bite-sized operational savings.

It only costs £21,000 a year to run the Sneinton Police station.

But now it looks set to close.

How wise is it to throw this £700,000 asset overboard, all for the sake of that short-term saving?

Shouldn’t we factor in the new costs that might arise from higher crime levels that could occur without this one stop shop?

Or is that just ‘somebody else’s problem’ shunted across to some other department to pick up the bill?

I don’t really blame Nottinghamshire Police on this occasion.

They’re just doing what a thousand other public service organisations are forced to do.

They don’t really know what lies around the corner; they are given little insight into national budget settlements and have limited scope to plan beyond the annual parcel of money delegated to them.

Yes, cuts do need to be made. Of course this is the case. But why do we hobble our public services by refusing to let them cast ahead in a mature and long-term manner? There is an alternative.

The Home Office are not helping the 43 police forces across England & Wales to make sufficient savings by working together, procuring together, collaborating on support functions and specialist work. We need structures that are leaner and more appropriate – because the Government isn’t taking that long-term strategic approach which defends the frontline first. As the widely respected Independent Police Commission chaired by Lord Stevens and commissioned by Yvette Cooper set out, on matters such as procurement we should be looking at a national procurement model to save money and enhancing collaboration in all appropriate areas, something that could save at least £60million before 2016/17 if enacted swiftly.

And there are other flaws with the way this Treasury has approached deficit reduction.

To some managers, setting artificial deadlines is a way of driving results. But others have learned that it’s the outcome we need to focus on – because sometimes the means do matter as much as the end. And sometimes that narrow-minded focus on the end-of-financial-year can provoke plainly stupid decisions. Just look at the millions spent sacking or ‘retiring’ senior officials at the Ministries of Defence, Transport and Foreign Office, only to see them re-hired again at greater expense.

A long-term, partnership approach which includes delegated bodies in the forward planning process is more likely to deliver the goods and avoid false economies.

WHAT SHOULD THAT LONG-TERM APPROACH LOOK LIKE?

It needs to start with a fiscal commitment that is stretching but achievable, which takes account of the reality that public finances have an impact on society and the economy – and vice versa.

George Osborne dismissed the idea that fiscal consolidation could have an adverse impact on economic growth. But his 2010 Budget and Spending Review undoubtedly knocked confidence from what was an emerging recovery at that time – and the three years that followed created the slowest recovery in a century.

Growth has finally returned not because of those fiscal choices, but despite them. Yet the Chancellor continues to deny that public expenditure decisions can support growth and the positive revenues that flow from growth.

This is why Labour’s fiscal commitment will get the current budget into surplus and national debt falling as soon as possible in the next Parliament. Judgements about the degree of capital investment that the country may require in the early years of the next Parliament must be evidence based – especially as Britain could well face productivity constraints and imbalances that only long-term public policy can overcome.

Unfortunately this Chancellor’s timetable has never been evidence-based or grounded in economic realities. What evidence is there that people should believe George Osborne’s arbitrary target of 2017/18, when he has failed so notably on his original 2015 target?

These are the sort of short-term political timetables that distort sound decision-making and can create perverse consequences. And there are too many instances of short-term budget decisions that cost more in the long run:

– The closure of fourteen prisons at the Ministry of Justice, creating a shortage of capacity and provoking Ministers to later change tack and commission new ‘Titan’ prison projects which appear unfunded and may even worsen re-offending.

– A decision to withdraw the A14 upgrade in 2010 as “unaffordable” at £1.3 billion – yet the resurrection of the same scheme in 2013 now costing £1.5 billion.

– The roads maintenance budget for local authorities cut by a fifth in 2013, followed by an about-turn in 2014 with a complex ‘Potholes Challenge Fund’ assessed by Whitehall civil servants on the basis of bureaucratic bids submitted from town halls – hardly progress towards localism.

– And not forgetting the bedroom tax, which not only causes great hardship but merely shunts costs from local authority housing benefit and into the more expensive private rented sector element of housing benefit.

Just a few examples of short-term poor decisions driven more by an artificial timetable than the careful forethought and planning that we desperately need.

When the Chancellor did have a three year spending review from 2011/12, it rapidly fell to pieces with salami-slicing and shifting parcels of money to meet political year-end goals. Eventually, Coalition pressures led to last summer’s one-year spending review – which was a one-off budget settlement in all but name.

Annual processes just make this situation worse. The next Labour Government will take a more strategic long-term approach to the savings that need to be made. So Ed Balls and I have concluded that a Labour Treasury will put an end to the one year spending reviews recently introduced by George Osborne. We will instead set out Spending Review plans on a multi-year basis. And we would go further and expect departments in turn to provide public bodies and organisations under their stewardship with the same longer-term certainties, so they can make better decisions and plan for the savings they will need to make. As we have seen across local government and various agencies, keeping public services in the dark makes it harder to plan the fundamental reforms that ought to be addressed.

Settlements need to give departments a clear incentive to retain some of the savings and efficiencies they can achieve. We have to reduce the litany of false economies and illusory ‘savings’ that end up wasting public money and stacking up greater costs further down the line.

It is why we have also concluded that the Treasury must improve its partnerships with other departments, and look at the real world outcomes that people care about most – which don’t neatly fit into a single department of state portfolio. The previous government created Public Service Agreements as a way to join-up Whitehall and prevent problems falling between the gaps. But there were too many of them to allow for the degree of focus and prioritisation needed today. It’s clear that the Coalition are lacking an adequate accountability mechanism as departments flail around and the goal of deficit eradication goes further into the distance.

So the next Labour Government will ensure greater accountability and will concentrate efforts on a core set of outcome-based inter-departmental priorities. In the coming months we will agree the scope of this prioritisation process and precisely how each inter-departmental arrangement will be implemented. This is a key part of sticking to a strategic, long-term focus and delivering firm commitments on lasting and sustainable savings.

We will support early intervention programmes where there is a robust invest-to-save business case. Early intervention must mean preventing costs from hitting budgets further down the line.

Eliminating the deficit as soon as possible will not be the end of the job – because the task of reducing the national debt in the long term will require savings to be maintained in the decades ahead. There are three other areas I want to highlight today in this respect.

1. LONG-TERMISM AND THE CAUSES OF WELFARE INFLATION

Capping the aggregate social security budget is something we support as a way to bear down on rising costs, but it can only be a part of the solution. If we are going to tackle the benefits bill in the long-term, we need to dig deeper. We need to be tough on welfare inflation, and tough on the causes of welfare inflation. And those underlying causes are a series of long-term pressures which the Government has shied away from:

– We need to move the long term unemployed off benefits and into work, which requires greater effort than the Work Programme can muster – and we need guaranteed starter jobs fully funded from a repeat of the bank bonus tax to give young people out of work for a year or more that first meaningful foot on the ladder.

– We need greater health service emphasis on preventing illness not only to improve the quality of life, but to ensure people can be active and available for work.

– We need to strengthen the minimum wage and incentivise the living wage, to relieve the tax credit subsidies which top-up low pay

– And we need to tackle the underlying costs of housing benefit by getting more affordable homes built.

If you don’t get to these root causes of higher costs that are being picked up by the taxpayer, it’s no wonder that the welfare bill goes up by more than you expect; overall spending on welfare is set to be £13 billion higher than the Tories originally planned for in 2010.

2. LONG-TERM MANAGEMENT OF FUTURE LIABILITIES

During the course of the zero based review discussions I have been having so far with my shadow Cabinet colleagues, it has also struck me how little attention Government departments are paying to the management of long-term future liabilities that are likely to land on the taxpayer. Departments set aside ‘provisions’ to cover costs for some staggering expenditure possibilities. For instance, the Department for Health currently estimate that clinical negligence liabilities that may arise in future years as a result of NHS litigation could be of the order of £22 billion, with more than £7 billion of this expected to be spent in the next 5 years. And the Department for Energy and Climate Change reckon that the costs of nuclear decommissioning may be as high as £62 billion, a figure that has increased by £10 billion since 2011. For these reasons I will be spending more time in the months ahead looking in more depth at the scale of provisions and ways in which we might bear down and prevent some of these liabilities from spiralling out of control.

3. A MORE DEMANDING APPROACH TO MAJOR PROJECTS

Every Government embarks on major projects and there are some notable disasters in the making. Seeing Iain Duncan-Smith struggle with the Universal Credit has been like watching a car crash in slow motion; after five years in office only a tiny fraction of its intended recipients might, just might, be receiving it by the time of the next election. In fact, the situation is so bad that the Major Projects Authority refused to give Universal Credit a colour coded status report. Instead they created an entirely new “reset” category, signalling that after 4 years the project is not even over the starting line.

And how much forethought went into the reorganisation of the health service? In opposition David Cameron promised there would be no such reorganisation and then wasted £3 billion, and caused chaos, with a damaging shake-up that led to nearly 4,000 NHS managers being laid off and then rehired, many on six-figure salaries.

How did we end up commissioning two aircraft carriers which have doubled in cost with indecision on the type of aircraft that would use them?

And is anyone at the Department for Education taking collective responsibility for the ballooning costs of the free schools experiment? Not to mention the lack of planning and farcical management of the Universal Free School Meals policy?

Where major projects will have a beneficial impact saving resources in the long term, then we need departments and the Treasury working together to make better progress. Where projects are in trouble, we need the Major Projects Authority to have a greater role in flagging up risk and driving in fresh management rigour. We cannot afford vanity projects where more money is thrown at a failing scheme for the sake of sparing Ministerial blushes.

A WIDER APPROACH TO THE LONG-TERM…

As I say, a commitment to long-termism means concrete steps to change the way government works – not just words or slogans. So for Labour, long-termism is about more than an approach to public services and budgets. As my colleague Chuka Umunna the shadow Business Secretary has set out through his ‘Agenda 2030’ process, we need an economic and industrial strategy to compete on quality, and not cost alone.

This means a serious strategy for investing in skills and getting the next generation ready for the world of work.

U-turns and indecision on investment allowances, the carbon floor price and regional growth funds have become barriers to business development.

Instead we want stability and certainty with a British Investment Bank and infrastructure decisions elevated from the daily politics with the creation of a long-term Independent Infrastructure Commission as recommended by Sir John Armitt.

And we need to take heed of the recommendations from Sir George Cox about how to overcome short-termism in business R&D, recruitment and investment.

Labour’s Policy Review process will culminate at our National Policy Forum in July. Ed Balls, Jon Cruddas and I have been clear that our conclusions and agenda will be radical but suited to our times. So it will not be about spending commitments, but solutions that are funded, achievable and which can be delivered in office.

Parties that make promises to the electorate must prove that those promises can be kept. If the Government really believed in long-termism, they would also allow the Office for Budget Responsibility to independently audit the manifesto spending and tax commitments of the main political parties.

That way we could elevate the debate at the next election into a comparison of genuine priorities, rather than a slanging match about whose statistics are accurate. But perhaps that’s precisely why the Chancellor doesn’t want independent validation of the figures.

I’d like to conclude on the challenge to come.

I’m not heading into this expecting popularity. Quite the opposite.

All government departments in the next Labour Government will have to face fundamental questions as never before.

We won’t be able to undo the cuts that the have been felt in recent years. And I know that this will be disappointing for many people.

A more limited pot of money will have to be spent on a smaller number of priorities. Lower priorities will get less.

We are not arguing with the Government about the scale of the challenge.

But we do differ significantly on the best way to confront it.

George Osborne has had his five years to eradicate the deficit. I am determined that we finish that task on which he has failed.

Why does it matters so much to get the books into balance?

Because if you believe that as a society we achieve more by coming together and pooling our resources to deliver services from which we all benefit, then we have a responsibility to prove to the taxpayer that this can be done efficiently and effectively.

Public service budgets have got to be sustainable.

We need to continually demonstrate to taxpayers that they can trust the public realm to manage services well.

The alternative risks eroding public confidence and an opt-out culture of private provision for those who can afford it – and sub-standard services for the rest.

There’s no reason why we cannot create decent quality services and a fair society while living within our means.

This is why I believe those on the progressive centre-left of politics should embrace the goal of balancing the books. There is nothing left-wing about running a deficit.

As last week’s elections showed, the public want the realistic prospect of change, not just more of the same. And they want Labour to focus relentlessly on how it would deliver those changes.

These are serious times and they demand a hard-headed approach from political parties seeking the chance to govern.

By taking the long-term perspective and reviewing every item of government expenditure from the ground up I am confident we can get the job done.