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
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.


UN Security Council set to hit Iran with new sanctions

Clinton says new sanctions would be "the most significant sanctions Iran has ever faced."

The UN Security Council was set to impose a new round of sanctions on a defiant Iran on Wednesday over a nuclear program that Western powers suspect is aimed at developing atomic weapons.

Iranian President Mahmoud Ahmadinejad

Iranian President Mahmoud Ahmadinejad in Istanbul, on June 8, 2010

Photo by: Reuters

The 15-nation council meets Wednesday at 10:00 a.m. EDT (1400 GMT) to vote on a draft resolution that was the product of five months of talks between the United States, Britain, France, Germany, China and Russia.

The four Western powers had wanted much tougher measures -- some targeting Iran's energy sector -- but Beijing and Moscow worked hard to dilute the steps proposed in a 10-page draft.

U.S. Secretary of State Hillary Clinton said in Ecuador on Tuesday that it would be the "the most significant sanctions Iran has ever faced."

Iran rejects Western allegations that it is seeking nuclear weapons, insisting that its nuclear ambitions arepeaceful.

The draft resolution calls for measures against new Iranian banks abroad if a connection to the nuclear or missile programs is suspected, as well as vigilance over transactions with any Iranian bank, including the central bank.

It also would expand a UN arms embargo against Tehran and blacklist three entities controlled by Islamic Republic of Iran Shipping Lines and 15 belonging to the Islamic Revolutionary Guard Corps. The resolution would also set up a cargo inspection regime similar to one in place for North Korea.

U.S. Defense Secretary Robert Gates said on Tuesday that individual states will likely move quickly to pass their own measures that go beyond the U.N. sanctions.

In addition to the draft resolution is a list of 40 companies to be added to an existing UN blacklist of firms whose assets around the world are to be frozen on suspicion of aiding Iran's nuclear or missile programs.

The new blacklist also includes an individual, Javad Rahiqi, head of an Iranian nuclear center where uranium is processed. His assets will also be frozen and he will face an international travel ban.

The focus of heated last-minute negotiations, the new blacklist on Tuesday morning contained 41 firms, including two banks. By the end of the day China had demanded the deletion of one bank, the Export Development Bank of Iran.

Council diplomats predicted the resolution would pass, though it would likely get only 12 yes votes. Lebanon, they said, would probably abstain, while Turkey and Brazil were seen either abstaining or voting against the resolution.
All five powers with a veto -- the United States, Britain, France, China and Russia -- are expected to vote in favor.

The first two Iran sanctions resolutions adopted in 2006 and 2007 passed unanimously. The council approved a third set of sanctions in 2008 with 14 yes votes and one abstention.
Three rounds of punitive measures aimed at Iran's nuclear and missile industries have hit its economy hard but failed to persuade Tehran's leadership to halt its nuclear program or come to the negotiating table, analysts say.

Instead, Iran continues to enrich uranium at increasingly higher levels, despite occasional hints of possible military action against its nuclear sites by Israel or Washington.
Iran's U.N. Ambassador Mohammad Khazaee, in remarks that were distributed by the Iranian mission, said the push for sanctions showed that some countries "prefer confrontation."
"In such a condition, the Islamic Republic of Iran has no choice but to react accordingly in the way it considers appropriate," Khazaee said without giving details.
An Iranian lawmaker said Tehran would reconsider its cooperation with the UN nuclear watchdog if the sanctions went ahead -- a threat Tehran has made before.

Diplomats said U.S. officials were working hard in New York to persuade Turkey and Brazil to abstain from Wednesday's vote, but it was unclear if they would succeed. Lebanon, they say, is unable to support the resolution because the Iranian-backed Lebanese militant group Hezbollah is in the government.

Turkey and Brazil last month revived parts of a UN-backed offer for Tehran to part with 1,200 kg of low enriched uranium in return for special fuel rods for a medical research reactor. They said the deal removes the need for sanctions and have refused to engage in discussions on the draft resolution.

The U.S., Britain, France and Germany say the fuel swap deal did nothing to change Tehran's refusal to suspend uranium enrichment in defiance of five Security Council resolutions.That defiance, Western diplomats say, has added to a growing irritation with Iran in Moscow and Beijing, which remain close trading partners with Tehran.

Iranian President Mahmoud Ahmadinejad admonished Russia at a news conference in Istanbul, where he was attending a summit along with Russian Prime Minister Vladimir Putin, to take care "not to be on the side of the enemies of the Iranian people.


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