---

Public Spending

With permission, I wish to make a statement on the Treasury's review of the public spending commitments made by the last Government between 1 January 2010 and the general election. In the review, we examined the £34 billion of spending that was approved in their final few months of office. The aim was to test in each and every case whether those commitments are affordable, whether they deliver value for money and whether they remain genuine priorities for this Government. The review is now complete, and my decisions on those commitments fall into three categories—projects where spending will be approved, because they are a high priority or because the money has largely been spent; projects that will be cancelled; and projects whose long-term affordability will be considered as part of the wider spending review process over the coming weeks and months. A detailed list of the projects that have been cancelled or suspended until the spending review has been laid in the Libraries of both Houses. For those projects that offer value for money and meet the Government's priorities of fairness and responsibility, or for those that it is simply too late to withdraw, we have acted quickly to confirm approval in order to avoid disruption. For example, we have approved the funding for essential medicines in the case of a flu pandemic, some hospital projects and support to post offices, as well as for spending on crucial equipment for military operations in Afghanistan. The House will be aware, however, that as a country today we have the biggest peacetime budget deficit in our history. We have a choice: we can act fairly, responsibly and decisively now, or we can follow the approach of the previous Government—deny and delay—which would end only in greater cuts being forced upon us. Given our priority to get the deficit under control, the Government collectively have looked at each project, and I am grateful for the support of Cabinet colleagues in this process. Some commitments are simply unaffordable, do not meet Government priorities and will be cancelled. We have taken the decision to immediately cancel 12 projects that would have cost nearly £2 billion over their lifetime. They include the Department for Communities and Local Government's regional leader boards; the Department for Business, Innovation and Skills' loan to Sheffield Forgemasters; the Department for Work and Pensions' low-value employment programmes, including the extension of the young person's guarantee to 2011-12 and the jobseekers' two-year guarantee; the Department of Health's active challenge routes, county sports partnerships and the North Tees and Hartlepool hospital project; the local authority business growth incentive; and the withdrawal of Government funding for the Stonehenge visitors' centre. Many of those are difficult decisions and, I fully understand, painful ones for some of the communities affected—communities whose hopes were irresponsibly raised by the previous Government. However, they are decisions that a responsible Government must face up to in these difficult economic times. Other decisions should be weighed up against all the other significant pressures on public spending within the context of the spending review—a spending review that the Labour Government delayed because they did not want to admit that painful decisions had to be made. For this reason, I can announce that there are a further 12 projects, with a total value of £8.5 billion, approved since 1 January that we will suspend and refer for consideration to the spending review process over the coming weeks and months. They include the health research support service; the Kent Thameside strategic transport programme; and the libraries modernisation programme. Any other new major hospital schemes will be assessed in the context of the spending review to ensure that they are affordable and represent the highest possible value for money. Only the highest priority schemes will be able to go forward. We will do this in the context of the approach set out in our spending review framework, which will include a fundamental review of all capital investment plans, to identify those areas that will achieve the greatest economic returns. The Secretary of State for Education has already announced that he is looking at the whole Building Schools for the Future programme and will shortly set out the outcome of this work. That programme has been very heavily overcommitted, and we are in agreement that tough decisions need to be taken. Departments have also independently reviewed projects with budgets within delegated limits approved since 1 January, and they will report the results of those reviews in due course. Together, these decisions will significantly relieve burdens on departmental budgets that will be under major pressure in the spending review. While conducting this review, I have discovered yet another black hole in the books that we inherited. I can tell the House that billions of pounds of spending commitments were made for this financial year that relied upon underspends or access to the reserve. There was no reason to suppose that underspends would have occurred on anything like that scale and there is insufficient contingency in the reserve to cover the remainder. I will therefore be cancelling at least £1 billion of commitments where there simply is not the money to pay for them. We will announce the action that we will take to tackle this further hole in the accounts in next week's Budget. As far as the reserve is concerned, I am sure the House will agree that our priority is that we keep this for genuine emergencies and new pressures that may result from military operations in Afghanistan. The last Government committed to spend money that they simply did not have. They made commitments that they knew the next Government could not fulfil and in doing so cynically played politics with the hopes of our communities. The actions that I have set out today show that this Government will take responsible spending decisions, which, although sometimes difficult, will be guided by fairness and the overriding need to tackle the deficit. We did not make this mess, but we will clean it up. I commend this statement to the House.