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Letwin: The Scottish economy and public services

Speech to Scottish Conservative Party Conference, Dundee

"I ought to begin by admitting that I got here on the cheap.

I was collected from the airport by Chris Bates, the Agent for Dumfries. It didn't cost the taxpayer a penny.

If I'd been one of the Ministers in the Scottish Executive travelling to work, it would have been different.

They have managed to increase taxpayer spending on their cars by £302,000 since 1998.

I can't quite decide whether they are trying to keep up with the Cabinet Office in London - which has increased its taxi bills by 1000% over the same period - or whether they are merely trying to disprove Ogden Nash's dictum that "no McTavish was ever lavish".

But I assure you that - however cheap my transport - I am delighted to be here, for three reasons:

- first, because it is always a pleasure to be amongst so many Conservatives;

- second, because it gives me the opportunity to congratulate David McLetchie and all the rest of you on the way in which you have re-established the Party in Scotland: a process that we, south of the border, have watched with admiration - and, until recently, with envy;

- and third, because it is a pleasure to be a Conservative at a time when the Party, throughout the UK, is at long last experiencing a renaissance.

Alas, amidst this new found optimism, I have, also some bad news for you.

Since I am the Shadow Chancellor, I am compelled to talk to you today about money. I am conscious that this is considered by some to be a dull subject. There is not much romance in the management of the nation's finances.

But things which aren't romantic can be important - and the use of taxpayers' money is one of them.

The sad fact is that, despite the UK Government's 66 tax rises under Labour, neither the Government nor the Scottish executive have managed to produce anything like the improvements in the public services that the extra money should have brought.

Our income is given to government by the people's consent. In return, they expect quality public services. Decent schools and hospitals. Police on our streets.

It is not much to ask. It is not much to expect, when our taxes under this Government have risen by over 50% to over £400 billion a year. That is £5,000 a year in extra taxes for every household in the United Kingdom compared to 1997.

But people have been let down by Labour.

People remember Tony Blair's pledge that he had no plans to increase taxes at all. What he really meant, of course, was that he had no plans to restrain his Chancellor.

I don't blame him. The rest of us don't find it easy to restrain his Chancellor either. And we don't have the problem of the Chancellor wanting our jobs.

Let me assure you: Michael Howard won't have the same problem with me - in either sense.

I don't need restraining. I am the restraint mechanism.

The independent experts, the IFS, the OECD and the ITEM Club are all now predicting further tax rises under a third term Labour government.

The only way to avoid those tax rises is for government spending to grow more slowly than the economy as a whole. That is exactly what my spending plans provide.

But my spending plans don't just mean avoiding Labour's third term tax rises. They also create a real and sustainable basis for tax cuts, once we get to grips with Gordon Brown's borrowing and restore the public finances to good health.

Our plan is guided by our priorities. The health service and schools in Scotland, are, of course, the responsibility of the Scottish Parliament. Far be it from me to tell you how to run hospitals and schools north of the border. But Conservatives north and south of the border, at Westminster and in Edinburgh have come to two conclusions: that our schools and hospitals need to be better; and that sustainable pressure for excellence will come only from competition and choice.

We plan radical reforms of health and schooling.

We will return the control over these services to the professionals who work in them. We will free them from targets, form filling and regulations. Instead of smothering them with a blanket of regulation and targets, we will make them compete for patients and parents by giving those patients and parents the power of choice which at present only those with money can buy.

We will stand up for the patients and parents - and for the doctors, and nurses, and teachers, who have been badly let down by Labour. But to deliver choice, competition and excellence, we recognise that we will have to give hospitals and schools priority funding.

We will accordingly increase spending on schools and hospitals by over £13 billion a year in the first two years after the next election - money that will also come through to Scotland via the Block Grant and the Barnett formula.

Delivering more money for schools and hospitals without Labour's third term tax rises, requires us to reduce government running costs, and to make tough choices elsewhere. That is why we are pledged to a civil service recruitment freeze which will eventually save over £3 billion a year. We will also freeze the total spent on items other than the NHS, pensions and benefits in the first two years.

From time to time Gordon Brown amuses himself by describing this freeze outside health, schools, benefits and pensions as a cut in other front line services. This is odd, because the Government has now admitted to £20 billion a year of waste, and has accepted that we can make efficiency savings of 2.5% per year. With 2.5% efficiency savings making up for 2.5% inflation, a cash freeze is not a cut in front line services.

We are determined to eliminate the waste in government to ensure that money is taken from the back offices and pushed through to the front line.

Naturally, we accept that, in some Departments, savings in efficiency may not be enough. We may need to increase spending. And our plans allow for that.

The freeze governs the total of spending on items other than the NHS, schools, pensions and benefits. It does not mean that each specific budget within the total will be frozen

But it does mean that if we want to make increases in one area, we will have to find savings elsewhere. For example, we intend to recruit an extra 5,000 police per year in England and Wales by making savings in the asylum and immigration system.

Responsible government requires tough choices.

The Labour Government, alas, prefers to pretend that the demand for such choices is just a Tory plot.

Make no mistake, they will use every trick in the book to misrepresent our spending plans. They will try, utterly without foundation, to frighten pensioners, patients and parents with scare stories.

To all of you in this hall today, I say, we must not and we will not let them get away with this.

Our answer to their misrepresentations is a simple one. We have paid all the taxes but where has all the money gone?

The public know that there is systemic waste and needless spending on bureaucracy gone mad. The public know that they have been let down by Labour in the United Kingdom and by the Labour-Liberal Democrat coalition in Scotland.

Labour promised to make education its number one priority. But a million children play truant in England and Wales, and half of Scottish 14 year olds don't meet the required standard for reading and writing.

Labour promised to save the NHS. But a 37% increase in NHS funding in England and Wales has provided only 5% more treatments - and the number of treatments carried out in Scottish hospitals has fallen by over 40,000.

Labour promised to be tough on crime. But there are a million violent crimes a year in England and Wales and violent crime is up by 25% in Scotland since 1997.

Labour are letting people down on public services. They are wasting our money on themselves - on spin doctors and special advisers and grand offices.

Why is it that they have increased spending on Special Advisers in Scotland since 1997 by nearly £450,000?

Why has the cost of Scottish Executive staff gone up by over £23 million?

Why is the supposed £40 million Scottish Parliament Building now projected to cost £431 million - an increase of 978 per cent!

Waste. Waste. Waste. What a disgrace.

That is why, this time, when Labour misrepresents our position, the public will take a different view. After seven years of broken promises, people know about the waste of the public's money. They experience the reality of our failing public services every day.

Let down by Labour again and again and again.

That failure - that sense of disillusion - is present throughout the UK. It is the common theme of Labour Government in Whitehall and Lib-Lab Government in Holyrood.

But I cannot end today without saying something about the relationship between Whitehall and Holyrood.

Of course, devolution has raised questions about Scotland's constitutional and financial relationship with Westminster.

We accept that devolution is here to stay. But we recognise also that it has caused serious imbalances in the rest of the United Kingdom. Our solution is that Scottish MPs should by rule follow the splendid example set by Peter Duncan. Only English and Welsh MPs should vote on legislation that affects only England and Wales. Anything else, and we play into the hands of the nationalists and separatists who seek to drive the UK apart.

How should the financial relationship between England and Scotland be determined?

The Block and Barnett formula for funding the expenditure programmes of the Scottish Executive is an intrinsic feature of the devolution settlement. It has provided an important measure of financial stability and continuity in the five years since the establishment of the Scottish Parliament. We applied this mechanism throughout 18 years of the Conservative Government, and have no plans to change it.

The debate on greater financial responsibility for Scotland will continue to take place. There are good Conservative arguments for a better balance between the Scottish Parliament's spending and the revenue it raises, something which we as a party have recognised in relation to local government in England. It could be argued that the current arrangements encourage an irresponsible spend, spend, spend mentality which is holding Scotland back.

The overriding question for a Conservative Government in taking any decision on this would be to ask what would be in the best interests of the Scottish people of Scotland - your economy and your public services.

But as David McLetchie has said, while the constitutional issue of increasing the revenue powers of the Scottish Parliament may excite some politicians, journalists and academics, it is not the main concern of the public in Scotland. They want to see less crime, better public services and a stronger economy.

That, first, last and foremost, will be our concern, our ambition, our preoccupation.

As we approach the elections of the 10th of June, and as we approach the general election, the task before us is clear.

We can no longer sustain higher and higher taxes to fund wasteful and inefficient spending that fails to deliver substantive improvements in the public services.

We can no longer watch as businesses are drowned in £20 billion of red tape and regulation.

We can no longer stand by as the UK economy drops from 4th to 15th in the league table of global competitiveness. Or see our productivity growth rate halved.

We can no longer ignore household debt reaching one trillion pounds while the proportion of our income we save is cut in half.

A Conservative Government will not stand by as these things happen. We will stand up for the people of the United Kingdom.

We have a vision of a Britain fit for the 21st century:

- a Britain in which there is security for the weak and the old;

- a Britain in which there is the power of choice not just for the rich, but for all;

- a Britain in which the effect of competition and choice is affordable excellence in our public services;

- a Britain in which the government, a Conservative Government, promises less and delivers more.

Let us go out and make that vision a reality."

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