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George Osborne: Creating a new culture of financial discipline

It's a pleasure to be back here at the Institute of Chartered Accountants.  I'd like to thank Michael Izza and his team for organising this event.

And on behalf of me and my colleagues, David Cameron, Francis Maude and Philip Hammond I want to thank you for coming here today.

Last year, I spoke here at the Institute about our plans to change fundamentally the way tax law is made, so that the tax code is simpler, fairer and commands greater public trust. 

Today, I want to talk about another fundamental culture change we want to bring about - a change in the way government treats taxpayers' money.

For the Conservative Party is not just trying to win an election, we are also taking the time to plan for government. 

David's presence here is indication of how seriously he takes this.

We don't want to repeat Labour's mistake of pursuing political power without knowing what to do with it when you've got it.

So we are planning now for how we will deal with the worse set of public finances any incoming government in Britain has ever had to deal with.  

The national debt is set to double to a trillion pounds and our budget deficit is expected to be the highest in our history.  This is Labour's debt crisis.

The cause of this is not just the recession or the multi-billion pound cost of the failed VAT cut. 

The debt crisis is the product of years of debt-fuelled spending which the country could not afford.  For a decade under Gordon Brown, the incentives in Whitehall have been to shovel money out the door as fast as possible, regardless of how well that money is spent or how it can be paid for.  That is not the fault of civil servants; it is a failure of political leadership.

That has to change - and change for good.  Britain has got to live within its means, now and in the future.

For as well as the huge debts being racked up by our Government today, we also need to consider the structural, demographic and technological changes that lie just around the corner, and which threaten to put yet more pressure on the public finances. 

Take healthcare, for example.

As our Shadow Health Secretary Andrew Lansley has pointed out, advances in exciting new fields such as nano-technology and gene therapy open up the prospect of revolutionary new medical treatments, but the demand for these cutting edge treatments are likely to put new strains on the NHS budget. 

Or take the challenge of a rapidly ageing population. 

By 2050, we will have gone from having four people of working age for every elderly citizen to a ratio of just two to one, with knock-on consequences for our tax base and pensions system. 

According to the government's latest public finance projections, on current policies these pressures will increase total spending by 3% of GDP over the next 30 years.

That's about £40bn in today's terms, or 8p on the basic rate of income tax.

Without a shadow of a doubt, the question of how we deal with these new pressures on public spending and how we cut out wasteful expenditure is going to be one of the greatest challenges facing British politics in the years ahead. 

Unfortunately, the current Government simply isn't engaging with this debate. 

Instead of taking action to root out wasteful spending, Labour ministers attack any proposal to improve value for money and make government more efficient as evidence of 'cuts' - even at the very moment they are being forced to rein in their own spending plans by £37 billion. 

As some in the Labour Party now realise, we have got to move past this puerile argument about 'cuts' and have a serious debate about how Britain can live within its means.

It's an agenda that we have been developing since David Cameron became leader of the Conservative Party.

We have already published detailed plans for public sector reform, breaking open the supply side monopoly in education and ending the cycle of entrenched worklessness in welfare.

These plans will not only lead to higher standards and better outcomes, they will bring about better value for money too. 

We have opened out a whole new debate about how we reduce the long-term demands on public spending, like family breakdown and broken communities.

And we have published plans for responsible spending restraint by announcing that we will not match Labour's new spending plans for next year and beyond.

But tighter, more responsible spending plans is only part of the answer.   

We need to make public spending more efficient and more effective. 

As David Cameron said in his speech at Demos last week, the last decade has shown us how not to achieve this. 

The regime of top-down targets, public service agreements and micro-management has been chaotic, costly and counterproductive.

Vast sums of money have been spent and vast sums wasted.  Productivity in the health service has actually declined.

And from the conversations I've had it's obvious that no one is more frustrated at the failure to spend money wisely than the professionals in our public services and our civil servants in Whitehall.

They see with their own eyes the lost opportunity and wasted resources of recent years.

What is needed is a new approach - a new culture of financial discipline across government.

We understand that this can't - and won't - happen overnight.

You need a medium-term plan - and that is what this report we are publishing today is all about.

It is designed to usher in a new direction for managing public spending, by proposing new incentives for financial discipline, greater transparency of information and new ways to investigate wasteful spending.

To put it simply: the report is about three Is - incentives, information and investigation.

Let me take each of these in turn. 

First, new incentives for better financial discipline. 

Over the past two centuries, the civil service has developed sophisticated systems of audit and control to ensure that taxpayers' money is not stolen or embezzled. 

However, there has not been a similar emphasis on ensuring that taxpayers' money is not wasted or spent inefficiently.

Whitehall departments can account for how every single pound is spent.  What they cannot often tell you is whether that pound was well spent. 

I want that to change under a Conservative government. 

We are proposing that a new fiduciary responsibility to taxpayers will be added to the employment agreements of all senior civil servants. 

A fiduciary responsibility means that someone is trusted with the assets, wealth or well-being of a third party, with the responsibility to manage them in good faith and in the best interests of the third party. 

In other words, this means that for the first time, senior civil servants will have a direct and personal responsibility for how taxpayers money is managed.

We will also apply new financial performance measures to all civil servants, and ensure that pay and promotion takes into account performance against these measures. 

And in addition, we will redefine the crucial role of Finance Director in government departments.

Today, this position is all too often under-valued and under-involved.

As a recent NAO report found, six central government departments, with a combined public spending budget of £45 billion, did not have a Finance Director at board level.

Can you imagine that being the case in a single company on the FTSE 100, even though Whitehall departments often have annual budgets many times larger?

That needs to change.

We will make the Finance Director the second most powerful position in a Whitehall department, with a new career path and pay scales. 

And to ensure strong leadership throughout Whitehall, we will focus the Treasury on its primary role of driving financial discipline across government.

No longer will the Treasury be one of the largest spending departments, administering tax credits and child benefit, and with a budget larger than the Home Office.

It is not often you hear a would-be Chancellor already planning to strip his department of responsibilities.

But ask yourself this:  if the chaotic and hugely wasteful administration of tax credits had been the responsibility of another department like Work and Pensions, do you think the Treasury would have let them get away with it? 

No, they would have come down on them like a ton of bricks and wanted to know why things were so badly run. 

A Conservative Treasury will have its eyes squarely on the interests of the taxpayer, and help deliver better value for money. 

And we will restore the role of the Chief Secretary  to the Treasury to their proper role as the watchful guardian of the taxpayer.

A Conservative Chief Secretary will be one of the key members of the Cabinet, and have the power and remit to demand efficiency savings and drive better spending right throughout government.

New incentives is the first proposal of this report. The second is the commitment to transparent information about government spending. 

When it comes to wasteful spending and government incompetence, the famous words of Supreme Court Justice Louis Brandeis still hold true today: "Sunlight is the best disinfectant."

Why?

Because making government spending more transparent increases accountability and ratchets up the pressure on ministers and civil servants to make government spending more efficient. 

This isn't a pipedream. 

In America, the Federal Spending Transparency Act, introduced by the then Senator Obama, is right now enabling US taxpayers to scrutinise online every item of federal government spending over $50,000.

And in London, Boris Johnson has published every item of GLA expenditure over £1,000.

I want us to be similarly ambitious when it comes to Whitehall.

And so as a step towards spending transparency in our central government departments, we will publish shortly after coming to office the Treasury's COINS database that reports several thousand programme spending items in a consistent format across departments.

For the first time, we will throw open the government's books and shed light on wasteful spending. 

For the first time, anyone will be able to find out how and where their taxes are being spent - and use this information to hold the next government - and every successive government - to account.

After incentives and information comes investigation - and the third proposal outlined in our report is to introduce new ways to investigate wasteful spending.

I spent the first two years of my life in Parliament on the Public Accounts Committee.

The PAC, and the National Audit Office that reports to it, have real teeth.

They can haul permanent secretaries over the coals for the mistakes that have been made with taxpayers money in the past.

What they cannot do is look for potential cost savings across government in the future.

What is needed is an organisation that is independent of departments and agencies, with the power to dig into examples of wasteful spending and highlight examples of successful cost saving initiatives. 

So we are proposing to create a new rapid response team that will forensically investigate allegations of waste, on behalf of taxpayers.

This new team will be able to launch investigations on behalf of the Office of Financial Management and the Chief Secretary to the Treasury, and will publish the results of its investigations in full.

This proposal will help ensure that there is no hiding place for wasteful spending in a Conservative government.

Taken together, these detailed and far reaching proposals...

  • new incentives for financial discipline; 
  • greater transparency of information;  
  •  and new ways to investigate wasteful spending

...represent a step-change in the way governments will look after your money. 

In developing these proposals, we have been fortunate to be able to work with people from business, from the professions and from some of the country's most experienced and senior former civil servants, including:

  • Dame Mary Keegan, former Finance Director of the Treasury;
  • Sir James Sassoon, former director at the Treasury; and
  • Clive Sparrow, who led the government's Gershon implementation team.

They've been there and done it, and when it comes to creating a culture of financial discipline, they know what works and what doesn't.

We have also spoken to my colleague Edward Leigh, the Chairman of the PAC, and many many others.

This thorough consultation process is a sign of just how serious we are about delivering real change in government.

Because it's not just winning the next election that preoccupies us - it's having the right policies and getting them implemented too.

That is why David Cameron asked Francis Maude to lead an Implementation Team, to do the hard thinking about how we can hit the ground running in government, and from day one, start to deliver on the changes that we want to bring.

As part of this vital agenda, Francis Maude will be working with Phillip Hammond and the Treasury team to take forward the proposals I've spoken about today.

Francis will be speaking about this work in a moment.

Make no mistake, this is a serious and long-term commitment to changing the way government goes about its business. 

Creating a new culture of financial discipline in Whitehall is not going to be easy. 

It will be like turning around a supertanker. 

But be in no doubt, we have the political will and the detailed plans to turn the supertanker and put Britain on the right course.       

Thank you.

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