George Osborne: The state must rethink how it spends money

George Osborne yesterday began the process that will see billions wiped from Whitehall budgets with a warning that the dire economic situation required a radical reassessment of how the state spends taxpayers’ money.

George Osborne in the Commons Photo: PA

The Chancellor invited a range of interest groups to suggest ways to help Britain start living within its means. But he said he would cut the burgeoning budget deficit in a way that “strengthens and unites the country”.

“This is the great national challenge of our generation: after years of waste, debt and irresponsibility, to get Britain to live within its means,” said Mr Osborne. “It is a time to rethink how government spends our money.”

The spending review, to be announced in the autumn, will be drawn up using new methods of consultation and with a revamped decision-making structure.

The Treasury document includes commitments to:

Examine the role of government in society

With money tighter than at any time for a generation, Mr Osborne wants the public, charities, unions, think tanks and other interested groups to “all engage in the debate and the discussion about how collectively we deal with the problem”.

“Given the scale of the spending reductions required it needs to be a quite different review from any this country has seen in recent years,” he said. “For the last 13 years spending reviews have not exactly been collegiate affairs, more of a one-way process.”

Learn from Canada

Mr Osborne said that the UK needed to look to Canada in the 1990s for inspiration on how to tackle a massive budget deficit. The country brought together the best people from inside and outside government to fundamentally reassess the role of the state. “They asked probing questions about every part of government spending. They engaged the public in the choices that had to be made and they took the whole country with them.”

Implement tough criteria for spending commitments

The Chancellor is to insist that departments prioritise their main programme against new criteria. These include: is the activity essential to meet government priorities? Can the activity be targeted to those most in need? Can the activity be provided by someone other than the state – the public, local authorities or the voluntary sector?

Establish a star chamber

Five Cabinet members will sit on a new “public expenditure committee”. It will be chaired by Mr Osborne, who will be joined by fellow Conservatives William Hague, Francis Maude and Oliver Letwin. Danny Alexander, the Chief Secretary to the Treasury, is the only Liberal Democrat member.

The committee will sit in judgment on departments that have not settled their spending budgets and ask a series of questions.

It will take into account the major reviews that will have spending implications. They include the review of public sector pensions; the strategic defence review and the commission on long-term care.

Bring in expert outsiders

A group of specialists from outside government will join those within to act as “independent challengers and champions” for Whitehall departments during the five-month process. Mr Osborne said they would be asked to think innovatively about how spending could be reduced. Lord Browne, the former boss of BP, is expected to be appointed.

Impose a bank levy

Mr Osborne confirmed that the Government was determined to press ahead with a bank levy “because the banks should pay some contribution to clearing up the mess they helped to create”.

The new Office for Budgetary Responsibility will produce its first independent assessment of “the growth forecast and other forecasts” on Monday. David Cameron has suggested that Labour’s growth forecasts before the general election were too optimistic.

The emergency Budget on June 22 will set the “overall envelope for spending” but not allocate spending between departments. This will be tackled by the spending review in the autumn. Departments will be required to have submitted initial plans before the end of July which will detail their priorities.

The review will set expenditure limits for every government department. Among the areas being looked at for major savings are social security, tax credits and public sector pensions.