16 December 2005
Des Browne, chief secretary to the Treasury, outlines what the programme of investment revealed in the Pre-Budget Report will add up to on the ground
We live in a twenty-first century where economic challenge and global opportunity are more pronounced than ever. In rising to this challenge, the chancellor set out in the Pre-Budget Report the key themes for the UK economy, combining thriving enterprise with real investment in skills, developing the best of our scientific research with decent infrastructure and developing affordable housing for all. Investment matched with long-lasting reform.
We do this in a tough context. In the past year we have witnessed a virtual doubling of global oil and commodity prices and a slowdown in our key export markets. While all countries have faced global inflationary pressures, the UK economy has also had to deal with domestic inflationary pressures – to achieve what we and the Bank of England identified early last year as the necessary slowing of house prices and consumer spending.
In previous decades, when our economy faced simultaneous domestic and global inflationary pressures, such inflation was brought under control by mortgage interest rates above 10%, recession and unemployment. Today is different. In the past eight years or more, inflation has been at or around 2%, unemployment has reached record lows, the economy has grown – every year – and we've seen 34 quarters of continued growth.
With this success comes responsibility. We know for example that continuing a record of high employment with low inflation demands continued wage responsibility. So our task is to build on this platform of stability while ensuring that investment is matched with reform in science and skills, infrastructure and housing.
To help achieve these outcomes, we announced a number of measures in the Pre-Budget Report, including a new public-private partnership, supported by £50m of new public investment, to enable Britain to lead the world in stem cell research; the establishment of a new National Institute for Health Research in the NHS, a network of creativity and innovation centres – one in each region offering start-up help to new design talent and supported by an expanded national centre in London to showcase British design. And alongside the PBR we published the interim report of Lord Leitch, the first long-term assessment of our future skills needs.
Furthermore, to build more affordable homes of high quality in strong communities, Britain must – as the Barker report recommended – put in place long- term reforms in planning, land use, the competitiveness of the construction industry and infrastructure in both the private and social sectors.
The deputy prime minister responded on PBR day by publishing new planning guidelines that seek to bridge the gap between the 150,000 new houses we build each year and the 190,000 new households we need, in particular, to build houses that young couples can afford. To provide land for new homes, while protecting and improving the environment, he is asking local authorities to bring forward more brownfield areas for development. Where proposed new housing is of high quality and meets the design code, councils will be obliged to accelerate planning consent.
It is critical, too, that we widen the number of investors in the residential and commercial property markets, which is why we will this month publish legislation to set up real estate investment trusts that will increase the funding of new property developments. And because our aim is to build not just homes but communities, to fund new roads, schools, hospitals and infrastructure that convert estates into genuine communities, the government published proposals for a local planning gain supplement to give local authorities a fair share of planning gains to invest locally.
Such policies will lock in reform. Investment in social housing has almost doubled since 1997 and it will have to rise further. This is why the PBR announced pilot projects to encourage local authorities to bring derelict sites back into use and build more new housing for rent.
We know that shared equity has an increasing role to play in helping young couples in all our constituencies get on to the first rung of the housing ladder. We therefore announced that three of the biggest building societies and banks have joined the government as partners in shared equity, that building companies, including four of the biggest builders, are also now able to offer shared equity purchases, and we are now in discussions with investment companies on their possible involvement.
In addition to such reforms, we must always strive for efficiency and value for money. In announcing progress, the PBR confirmed that the first £4.7bn of savings identified by the Gershon Review have been achieved. On target, we have also seen the reduction of a further 18,500 civil service posts, including more than 10,000 from the Department for Work and Pensions and 3,500 from Revenue and Customs.
We are also on target with the relocation of a further 2,000 civil service posts out of London and ahead of schedule, £5.7bn of assets have been sold – on target to meet our objective of £30bn by 2010.
To reduce pressures on the council tax, £305m in 2006 and £508m in 2007 will be reallocated to local authorities. This extra money is included in the first two- year settlement for local authorities in England, giving them more than £62bn in government grant in 2006/07 and £65bn in 2007/08 – an increase of 4.5% and 5% in those years.
The government's aim is to deliver world-class public services through sustained investment and ongoing reform. Let us not forget that in 1997 the nation's capital investment in schools and colleges was just half a billion pounds a year. Today, we are investing £7bn a year and are on track to renovate 12,000 more primary and secondary schools. In 1997, Britain invested just over £1bn a year in building and renovating hospitals, today the figure is £5bn a year, rising to £8bn a year in 2008. In total, net public investment which was just £5bn a year in 1997 will this year be five times as high – £26bn and next year £29bn.
It is our commitment to investment for the long term that allows us not only to address global economic challenges but also to combine prosperity with fairness for all – and within the fiscal figures we can do more to help families, the elderly and the young to meet our obligations on security and on defence. This will be central to the second Comprehensive Spending Review, setting the tone and direction of our public spending, identifying what further investments and reforms are needed to equip Britain for the global challenges of the next decade.