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Tuesday, 16 July, 2002, 07:35 GMT 08:35 UK
Government spending review: Ask an expert

  Click here to watch the forum.  

  • Click here to read the transcript

    The chancellor, Gordon Brown, has unveiled government spending plans for the next three years.

    Mr Brown presented his Spending Review to Parliament as different ministries vyed for a share of the spoils.

    It outlined the amount each government department will receive between now and 2005.

    Prime Minister Tony Blair remains committed to spending on health and education. He has also revealed his intention to address the issue of "affordable" housing for key workers.

    What do you hope to see in the government's spending review? What should Gordon Brown place at the top of his list of priorities?

    Andrew Smith of KPMG answered your questions in a LIVE interactive forum.


    Transcript


    Newshost:

    Andrew we've had a lot of e-mails on this already. The first one from P Harris, Southampton: How does this year's announcement compare to government spending reviews in recent years? In your opinion, is it overly ambitious, realistic, promising, or none of the above?


    Andrew Smith:

    When Labour first came in it actually accepted the previous Conservative government's plans for the first few years it was in office which actually involved quite a squeeze on public spending. So it was really only in the second round in 2000 where they actually started raising public spending from a rather lower increase than we're seeing now. And now, as we know, overall public spending is going to be increasing by something like 4.5% in real terms - so rather faster than in the past. Whether it's a good thing or a bad thing¿


    Newshost:

    You have a choice of overly ambition, realistic, promising or none of the above.


    Andrew Smith:

    I think given that he has told us how he is going to finance it - which is basically by raising taxes or National Insurance contributions on both the personal sector and business - in a sense it's realistic in that he is saying - I've got the funding for it. There are a few concerns if the economy doesn't continue to perform reasonably well - he won't be getting that revenue coming in, in full and maybe there will be some worries about that. But I guess it's kind of realistic just slightly towards a bit ambitious.


    Newshost:

    So maybe slightly optimistic you would say as an economist in terms of the economy?


    Andrew Smith:

    Yes. I think it's now looking as if his forecast for growth this year might be a bit optimistic. Clearly if there was a major downturn in the economy, that would cause any chancellor a problem. But he can probably live with one bad year as long as the economy picks up strongly the following year. So it's still looking probably alright but a little bit more risk than in the past.


    Newshost:

    Clive, England: How is this money suddenly available? What on earth is a "Treasure Chest", when that money surely could have been used well before now to alleviate some the existing problems?

    I suspect this is a mystery to people, how the Government suddenly finds these billions. Can you put it in a nutshell fairly simply?


    Andrew Smith:

    The main way he's doing it is actually by taking it from us. So from next year all employees will be paying an extra 1% on their National Insurance contributions and for higher tax payers that will rather more and business is also going to pay extra National Insurance contributions. So the majority of money will actually be new money coming through.


    Newshost:

    So he is anticipating his future income.


    Andrew Smith:

    Exactly. He has told in the Budget, from next year I will be making major increases in public spending, which he has just announced what they are today and also from next year, we will all be paying a bit more tax or national insurance.


    Newshost:

    David C Davies, Swansea, UK: I see this as an historic move by the Chancellor, perhaps the most comprehensively progressive since the 1970s. Certainly the priorities seem to be right but I would like to know why defence and transport didn't get even higher priority status. Surely if our allies are pumping so much into defence we need to - is £3.5 billion enough?


    Andrew Smith:

    From the Government's point of view, clearly there's a problem that you're trying to juggle all sorts of priorities for the economy. While £3.5 billion for defence might not sound a lot, that is actually on top of the current budget of £24 billion. So that's actually basically a 10% plus increase which is actually quite a lot. Who knows whether that's going to be enough? It depends on how the world moves in the future. But it is actually quite a significant increase in real terms for the defence budget.


    Newshost:

    And it was quite clear that the Chancellor was going to put most of his cash into education and the NHS this year?


    Andrew Smith:

    Yes. I think what the Chancellor is trying to do is say - how can extra public spending actually help improve productivity for the rest of the economy. And one of the main things he sees is health - you need a healthy workforce and the second thing is you need a well educated labour force and the opportunity to update skills for people as you go along. So that spending is really investing for the future growth in the economy.


    Newshost:

    David Wilford, Leeds: Can you outline what the good news for farmers is in this year's review?


    Andrew Smith:

    I didn't hear exactly what the Chancellor said but I suspect that in some sense there is not an awful lot of good news. There seems to be, both within the European Union and in the UK, trying to move farmers away from production subsidies to actually incentives to help develop the environment more generally. So I'm not quite sure what our Chancellor is saying, but certainly in Europe, the talk now is of lowering production subsidies and putting limits on how much individual farmers will get. That's by no means gone through - there's all sorts of problems with it. But that's the way it seems to be going.


    Newshost:

    Text message: Jason Lee, Surrey: We are living in one of the richest nations in the world. Yet we have one of the highest rates of crime in the West. Why then hasn't the Government poured a large chunk of money into stamping out crime for once and for all today?


    Andrew Smith:

    I was actually quite surprised to see how much Home Office spending is going up. The trouble with crime statistics is if you look back over the last 10 years, crime has actually been falling and what you find now is over the last year or two it has actually started to pick up again. So in a sense we're better off than we were ten years ago, but clearly there are still issues. But I would have thought that the increase allotted this time is a bit more than most people were expecting.


    Newshost:

    Mr Blunkett would no doubt argue that he needs that for putting more bobbies on the beat and this asylum seekers problem which has apparently caused a real hole in the Home Office budget.


    Andrew Smith:

    Yes indeed. And, just on the policing side, the Chancellor also announced that there will be fairly strict reviews of how the extra money is used with reviews and penalties if it is not meeting targets. So I think they're putting the pressure on the police and the Home Office at the moment.


    Newshost:

    Janet Glue, England: I am a teaching assistant currently earning £8,034 before tax. I work more hours than I am paid for in order to help raise standards within the school. Has this spending review taken into account the ridiculously low pay of many people working within education?

    Probably a few other teachers also will be questioning whether they've received enough money.


    Andrew Smith:

    I think that's probably right. There has obviously been attacks on the large increase in public spending by people saying, well it will all go in wages. I think in some of these professions, in health and education particularly, what you actually want is better quality and more quantity and the only way that's going to be achieved is by actually raising wages. So I think people saying, it will be a waste if it all goes in wages probably misses the point- we are trying to upgrade these services.


    Newshost:

    Mark Hanson, Hemel Hempstead: Extra money for housing is very welcome, but much of the problem stems from all the red tape attached to securing planning permission in key housing areas. Unless that is tackled, this could surely be seen as a recipe for further house price inflation.


    Andrew Smith:

    Yes and in fact the Chancellor specifically said that he will actually be easing planning restrictions to build a large number of extra houses in the south for key workers at affordable prices, by relaxing planning in that particular area. So to some extent, that is going to happen.


    Newshost:

    A lot of people are worried about rising house prices and as an economist you can see the problems with knock-on effects on the economy.


    Andrew Smith:

    It's very bad news for people wanting to buy houses. It is clearly unsustainable for house prices to keep on moving up at this rate. The only positive we've had over the past 12 months is really the fact that that's given consumers confidence to go and spend money is actually what kept the UK economy from moving into recession. So long-term bad news if it doesn't stop soon but over the short-term that's actually been quite a benefit but clearly it can't go on like this for ever.


    Newshost:

    Garry Maher, UK: Are these new houses for key workers going to include carers? We have been forced into caring for our two autistic children, even having to sell our home to pay for treatment for them. We are now raising them in unsuitable temporary accommodation. My daughter who is now 7 years old has never been to school, because of a lack of provisions for these children. Surely this is an important health and education matter, am I fooling myself in thinking that the Chancellor will provide for my family?


    Andrew Smith:

    I really don't know because we haven't seen the details. All I can say is that I hope there is provision for these sorts of problems.


    Newshost:

    Alan Pemberton, Stockport: Housing workers is fine, but why was there no mention of training and providing skills for workers? I thought this was supposed to be a major focus for this government.


    Andrew Smith:

    I think when the Chancellor was talking about further education, that is what he was driving towards and also extra money for the regional development agencies - I think a lot of that is intended to be devoted to those sorts of issues and making sure there are methods of updating skills available. So I think he is actually catering for that. Again, closer reading can tell us more but I think that is what he was trying to say to us.


    Newshost:

    John, UK: As I understand it, none of this extra money becomes available until spring 2003. Is this the case? If so isn't it safe to say that in the coming next months between now and then, the same money will be recycled in announcements over and over again?


    Andrew Smith:

    Well the Chancellor is indeed very fond of telling us several times what he is doing. But in fact, in overall public spending, there is actually quite a big rise coming through this year. So in the Budget when he was talking, there is going to be, during this current year, in fact a slightly larger rise in real terms than over the next three years. So there's a pretty big boost coming through this year and then that will continue at not quite the same rate over the next three years.


    Newshost:

    Robert L, Newcastle: What is in this review to renew the faith of someone like myself who just sees the Old Labour ethic of Tax and Spend returning to the treasury?


    Andrew Smith:

    I am not a politician but what I would say that really what the problem in the past was, if you go back 20 or 30 years, it wasn't so much tax and spend it was rather more not tax and spend. So the government was building up big deficits all the time and that's what really caused the economic problems. Tax and spend became a bit of a misnomer for that period where actually the governments were just borrowing loads and loads of money then at some point had to pay it back and that was causing all sorts of problems.

    Although public spending is going up, as a share of GDP, it will still be below where it was through most of the Conservative government and in international comparisons, it is still pretty much below most of the European countries. It is a bit above the US and Ireland, but in the league of things we're still not really a high spending economy.

  • The government's plans for future spending are published on 15 July

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