"Setting Priorities, Decentralising Power, Delivering Our Agenda: The Liberal Democrat Spending Review"

Written by David Laws MP and published in Liberal Democrat News on Fri 27th Jun 2003

David Laws MP, Liberal Democrat Shadow Chief Secretary to the Treasury, sets out the thinking behind the current review of Liberal Democrat spending plans

Six months ago, Matthew Taylor MP, Liberal Democrat Shadow Chancellor, asked me to carry out a fundamental Spending Review.

The Review is now complete, and there will be a detailed process of consultation, over the next six months.

Some people in the Party are suspicious of Policy Reviews, and have interpreted the current review as a calculated pitch to Tory floating voters, disillusioned with the hapless and hopeless Mr. Duncan-Smith.

However, this Spending Review is not an exercise in political positioning, it is simply an attempt to put Liberal Democrat principles into action.

The two main purposes of the Spending Review are, firstly, to set out in detail how a decentralisation and rationalisation of Government in the UK could be completed, following on from last year's "Huhne" proposals.

Secondly, the Review considers how we should respond to having won the debate over higher public spending, and how we can get more resources into priority areas including education, health, overseas development, and tackling poverty.

The first objective should be relatively uncontroversial. Our proposals transfer powers away from Central Government to the nations, regions and local government.

This could mean abolishing some existing Government departments, and decentralising their functions. In other areas, such as health and education, we might not need the present extent of central bureaucracy.

A more devolved Government in the UK would also mean moving control away from London, an expensive and centralising location. This could help save money, to spend on front-line public services.

What we are doing is spelling out how our traditional commitment to devolution could work in practice. If in the course of this we succeed in making the concept of "devolution" more comprehensible and electorally attractive, surely that is to be welcomed?

The second objective of the Review is to identify resources to commit to Liberal Democrat priorities.

We need to acknowledge that the last Government Spending Review marked a victory for our long campaign for higher Government spending. In the early days of this Labour Government, it was right that we should reject the spin of Labour's "extra billions"; and as the Party's economics researcher I was able to help Malcolm Bruce MP to highlight Labour's "Black Holes" and the famous "War Chest".

But the last Government Spending Review marked a step-change which we cannot simply ignore. Between 1997 and 2006, Government spending will rise by almost £200bn - from £317bn to £511bn (a rise of 30% in real terms).

The 2002 Spending Review allows for departmental budgets to rise ON AVERAGE by 5.2% per year above inflation for 3 years. Real education spending rises at 6% per year, real health spending at over 7%, and real transport spending at 8.5% per year.

To pay for this higher spending, the ratio of taxes to GDP rises by around 4.5% from 1999/2000 to 2005/06. And taxes may have to rise further if government borrowing continues to rise.

In this overall context, it was vital that we looked again at what we wanted to achieve, and how to pay for it. In some areas, the Government is delivering on Liberal Democrat ambitions. In other areas, we may have to earmark monies to reverse new Government policies (for example, on top-up tuition fees).

It makes sense to look very closely at the £500bn of planned Government spending to see what scope there is for re-directing resources towards our priorities. When you think about it, it would be quite amazing if our priorities were precisely the same as this Government's!

This is not the usual "paperclips and waste" review, so beloved of parties in opposition. There are very few cuts in spending of any size which can be made without ANY pain.

The issue is instead one of priorities. And the more successful our Review is, the more money there will be for Liberal Democrat priorities such as education, health, and tackling poverty.

The Review also looks at what Government presently does, and whether any functions can be more effectively pursued in the private sector. We are a liberal party, not a socialist party, and if we can raise money for our top priorities while improve efficiency, why should we not consider such proposals?

While the Review is underway, we have said that we will operate within existing Government spending plans. However, our alternative Budget maintained the earlier policy of a 50% tax rate on taxable incomes of over £100,000 per year, in order to cut other taxes such as council tax and the taxes on university tuition.

We shall also be reviewing tax policy later this year, to look at how we can make the tax system both fairer and simpler. This will include more work on replacing the unfair council tax with a local income tax.

The growing disillusionment with Labour, combined with the uninspiring leadership of Iain Duncan Smith, creates a huge opportunity for the Liberal Democrats - an opportunity which will not last forever.

If we are to capitalise on this disillusionment, it will not be by watering down our values in order to provide some inoffensive short-term parking place for the disaffected.

Nor is there any future for the Party in lazily taking up the discarded garments of "Old Labour" in order to provide a temporary refuge for disillusioned socialists.

Instead, the challenge for the Liberal Democrats is to carve out a clearer identity, and to provide a long term home for those millions of people whose beliefs are essentially in the personal, economic and social liberalism which we represent, and which must remain our guiding lights.