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CHANCELLOR'S SPEECH PART 2

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This goes hand in hand with our commitment to a modern welfare state. In the rapidly changing world of technologica...
This goes hand in hand with our commitment to a modern welfare state. In the rapidly changing world of technological advance and a more flexible labour market, the British people need to be prepared and equipped to embrace change in a flexible way. They will be more willing to do this if they know that high quality schools, health care and a safety net for the unemployed, the disabled and the old are there if and when they need them.

That is why we are modernising the welfare state so that it underpins the British economy, and does not undermine it. We are changing the welfare state to ensure that it serves the needs of today not of 40 years ago. That it serves those who genuinely need it. And that it is affordable to the taxpayer.

These objectives are being achieved in the face of huge pressures for higher public spending year after year. But this Budget proves that we can have good quality public services and spending control.

Unlike our critics we understand that good services depend not only on how much you spend, but on the way that you spend it.

This realistic but socially responsible approach has guided me this year. I have limited the growth of spending overall. But I have also provided more money for the public services the British people care about most - schools, hospitals and the police. To pay for this my RHF the Chief Secretary and I have found savings elsewhere from our continuing drive to modernise government.

Let me deal first with the priority areas where I have been able to increase spending plans.

National Health Service

First, the National Health Service. This Government is committed to the National Health Service. I am proud that since 1979 spending on the NHS has increased by over 70 per cent in real terms. We are continuing to deliver our commitment to increase spending on the NHS in real terms. That is what we said we would do and we are doing it.

Public spending on the NHS will increase by over £1bn next year. In addition, patients will benefit from improvements in efficiency, including reductions in NHS management costs. All these savings - around £650m next year - will be ploughed back into patient care. And privately financed projects will bring nearly £700m of extra investment over the next three years without in any way undermining the fundamental principle that health-care should be free at the point of service. This money is on top of the additional £1bn public expenditure and it all represents additional resources for our free National Health Service.

Schools

Next, schools. This Budget allows for spending on schools to rise next year. We have already increased spending per pupil by some 50 per cent in real terms since 1979. We devote a higher proportion of our public spending to education than Japan, Germany and France.

Our achievements have been impressive. Post-16 staying-on rates have risen dramatically, from 42 per cent in 1979 to 72 per cent now.

Almost one in three young people go on to higher education,up from one in eight in 1979. We have the highest graduation rate of any major European country. We have achieved many improvements in our schools - introduction of the national curriculum, more rigorous schools inspection, measures to tackle failing schools, greater choice for parents, better vocational education, and extension of free nursery education. This is not just good for our children, it is good for our future and good for our economy.

Our reforms have delivered better standards of education for each pound we spend. But we are also spending more pounds. The plans I am publishing today allow for an increase in spending on schools of £878m. Within this over £770m will be channelled through the local authority settlement. Parents will rightly expect local authorities to carry this funding through to school budgets and they should ask their local authorities how this extra money will be spent on their children.

Police

Next, the police service. Since 1979 spending on our police has almost doubled even after allowing for inflation. Next year, the resources available to fight crime will be increased again. Money is being provided for an extra 5,000 police officers over the next three years. This is on top of the 32,000 increase in the police service since 1979. The plans also allow for an extra 10,000 closed circuit TV cameras in town centres and elsewhere.

I have found these extra resources for important programmes because we are changing government to make sure it meets the needs of people today, not of 20, 30 or 40 years ago. We are cutting government bureaucracy, cracking down on fraud, getting government out of activities it need not be involved in and using private sector skills and finance to provide better public services. That is the hallmark of a government that is looking to the future needs of a modern industrial state.

Running costs

We are now making spectacular efficiency gains as a result of our Civil Service reforms of recent years. In my last Budget, I cut provision for central government running costs by 10 per cent in real terms over three years. This year I will go much further on top of that.

The cash cost of Whitehall will be £860m lower in three years time than it is today. In real terms, this represents savings of 12 per cent, which is equivalent to a saving of nearly £2bn a year.

But we must never delude ourselves that more resources for schools, hospitals and police as well as tax cuts can be paid for just by eliminating waste in the public sector. Life is not that simple. We have also had to look elsewhere.

Social Security

Three years ago, before my RHF the Secretary of State for Social Security skilfully put in place a programme for long-term reform, we were expecting social security spending to grow by over 3 per cent per year in real terms. We now expect real growth in planned spending of around 1 per cent per year over the next three years. This reduction in growth will build up year on year to a cash saving of huge proportions. The changes we have made are an assurance for future generations. We are going to leave our children a welfare system which works and which they can afford.

My RHF the Secretary of State for Social Security will announce the details of this year's settlement to the House tomorrow. The main points are as follows.

Increases in social security spending next year will be well within the growth of the economy.

We will ensure that all that spending represents legitimate spending on people in genuine need.

That is why my RHF will give details of a further intensive campaign against fraud.

He will also announce measures which will mean people who apply for asylum on arrival in the country will cease to receive benefits after an unfavourable adjudication.

My RHF will announce steps to close the gap between single parent's benefit and those paid to other families. The right approach to single parents is neither to penalise them nor to favour them. The costs and responsibilities of having children are the same for couples as they are for single people.

We intend to build on our previous measures to help more mothers move from benefit dependency into work. My RHF will announce a package of measures to encourage work including a further increase in the childcare allowance in family credit from £40 to £60 a week.

Next, housing benefit. The housing benefit system should not be an inducement for young people to leave their families before they need to. My RHF will announce measures to restrict the amount of housing benefit paid to single people under 25 to a maximum that more sensibly reflects their circumstances. The benefit system should offer a real incentive to young people to rent within their means, improving their incentives to work.

It is by restricting spending in these areas that we can protect people in greatest need and stand by our pledges on pensions and child benefit. Others may claim to be thinking the unthinkable. I am glad that they have at last started thinking. This government has acted decisively to put in place policies to bring social security spending under control. Let no one underestimate what we have done. Measures announced in my three Budgets will reduce planned social security expenditure by £5bn a year by the end of the century.

Other programmes

Social security is a good example of how more money can be found to be spent on areas we care most about, by trimming back elsewhere.

We have applied this principle to most other programmes. When HMs examine the details of our spending plans, they will find that in practically every Department we have found significant savings while protecting the frontline of public service delivery. Let me give two examples. We have found further efficiency savings in defence, while maintaining our commitment to a strong frontline. And in a tight public spending round, the planned allocation for bilateral aid is likely to be little changed from that set out in last year's departmental report. British bilateral aid is internationally recognised for its high quality, and for the substantial share going to the poorest countries in Africa and Asia. This will continue.

We are also doing more to get the Government out of activities it simply need not be involved in. My RHF the Secretary of State for Defence is today announcing his intention to transfer ownership of the MoD married quarters estate to the private sector. This will improve the management of the estate which will be good for the Services, and good for Service families. We plan to privatise the Housing Corporation Loan Book, and to encourage the banks to provide Student Loans.

Private Finance

There are many services that the government has a duty to ensure are provided as public services, but where private sector management skills and expertise can improve delivery.

This is where the Private Finance Initiative comes in.

Under the Private Finance Initiative the public sector does not simply sign a contract to buy a prison, a train or a computer system.

It pays to have specific services supplied at guaranteed levels of performance - available prison places, trains running reliably on the Northern Line, national insurance records kept up to date. The government chooses the quality services the public require, and then goes out and acquires those services from private companies with the finance and expertise to deliver.

The key point is that the initiative delivers infrastructure projects of higher quality at a lower overall cost to the British taxpayer. That is because the private sector puts its own money at risk and brings its own management skills to bear.

The initiative means that better public services will be provided by better private means. The service remains a public service and the taxpayers gets a better deal. No wonder some of our critics have decided to copy our innovative policy.

We are now far beyond the stage of simply identifying projects.

The money is starting to flow. We expect actual capital spending under the Private Finance Initiative to be around £2bn per year and rising over the next three years. We expect to have agreed contracts worth at least £14bn by the end of 1998-9.

This money is replacing old-style public-sector capital spending and can deliver big gains in value for money for the taxpayer. In the past, cost overruns and delays were typical of public sector capital projects. The Private Finance Initiative is delivering better quality projects. For example, the PFI contract for Northern Line trains specifies reliability levels nearly four times above the best fleet currently operating on London Underground.

The service we will get from the new National Insurance records system could have cost up to twice what we will pay under the privately financed deal we have struck. As a result of these flows of private finance, we have been able to find savings in publicly-financed capital while maintaining overall high levels of investment activity and high-quality investment.

Let me just illustrate progress with another four projects that demonstrate the extent to which the Private Finance Initiative is spreading to all parts of government. First, I can announce a huge new package of privately financed roads, 5 new projects with a capital value totalling £500m.

Second, my RHF the Secretary of State for Health has announced today that a £35m deal is going ahead to modernise two hospitals for the South Buckinghamshire NHS Trust. Third, we are tendering for the refurbishment of Lowdham Grange prison, a £50m project to add to the two new prison building contracts at Bridgend and Fazakerley which will be signed shortly. Finally, full bids will be due on 5 December for the £45m water project in Inverness and Fort William. My HF the Financial Secretary will be publishing more details tomorrow on the progress of the PFI.

In the 1980s, our privatisation programme brought enormous benefits to the British economy. Our Private Finance Initiative can do the same in the 1990s and beyond.

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