By Marie Woolf and Jonathan Oliver
UK Sunday Times
May 16, 2010
THE government last night accused Labour of pursuing a “scorched earth policy” before the general election, leaving behind billions of pounds of previously hidden spending commitments.
The newly discovered Whitehall “black holes” could force even more severe public spending cuts, or higher tax rises, ministers fear.
Vince Cable, the business secretary, said: “I fear that a lot of bad news about the public finances has been hidden and stored up for the new government. The skeletons are starting to fall out of the cupboard.”
The new cabinet has been discovering previously unknown contracts and uncosted spending commitments left by their spendthrift predecessors.
“There are some worrying early signs that numbers left by the outgoing government may not add up,” said Francis Maude, the Cabinet Office minister.
David Willetts, the universities minister, claimed that Labour had left behind “not so much an in-tray as a minefield”.
Billions of pounds in public money was committed in the run-up to the election campaign in a deliberate strategy to boost Labour’s chances at the ballot box and sabotage the next government.
One former Labour minister told The Sunday Times: “There was collusion between ministers and civil servants to get as many contracts signed off as possible before the election was called.”
One former adviser to the schools department said there was a deliberate policy of “scorched earth”. “The atmosphere was ‘pull up all the railways, burn the grain stores, leave nothing for the Tories’,” he added.
The disclosures come as George Osborne, the chancellor, prepares this week to reveal details of an initial £6 billion of cuts to help plug the hole in the £163 billion deficit. A full emergency budget next month will see some departmental budgets being slashed by up to 25% as well as tax rises, including a possible hike in Vat.
Many ministers are spending this weekend going through their red boxes trying to understand the scale of the budgetary black holes facing their departments.
This week the government is expected to call a temporary halt to recently signed IT contracts, while new public sector construction projects will be reviewed.
The “black holes” that ministers have already unearthed include:
- A series of defence contracts signed shortly before the election, including a £13 billion tanker aircraft programme whose cost has “astonished and baffled” ministers.
- £420m of school building contracts, many targeting Labour marginals, signed off by Ed Balls, the former schools secretary, weeks before the general election was called.
- The troubled £1.2 billion “e-borders” IT project for the immigration service, which, sources say, is running even later and more over-budget than Labour ministers had admitted.
- A crisis in the student loans company where extra cash may be needed to prevent a repeat of last year’s failure to process tens of thousands of claims on time.
- The multi-billion-pound cost of decommissioning old nuclear power plants, which ministers claim has not been properly accounted for in Whitehall budgets.
- A £600m computer contract for the new personal pensions account scheme rushed through by Labour this year, which will still cost at least £25m even if it is cancelled.
Maude, who has been given the task of reducing Whitehall waste, insisted that ministers were not scaremongering to paint their predecessors in a negative light. He said there was widespread concern that Labour had become particularly spendthrift in the run-up to the election campaign.
“We put the last government on notice that contracts should not be signed without specific ministerial direction,” he said. “We are now seeking to find out what has been committed in the last few months.”
He hinted that the hidden “poison pills” could force the government to look at even more dramatic spending cuts than the ones already being envisaged. “It certainly doesn’t make the task of reducing the structural deficit any easier,” Maude said.
Willetts revealed that while Lord Mandelson, whose portfolio covered business, innovation and skills, had recently announced large cuts in the universities budget, little work had been done to plan exactly where the axe might fall.
“The outgoing Labour government left not so much an in-tray as a minefield,” Willetts said. “Issues that were left behind as too difficult to tackle by the previous regime are going to have to be dealt with.”
Gerald Howarth, the new Tory minister for defence procurement, disclosed that the financial pressures on the Ministry of Defence (MoD) were even graver than he had been expecting. “The appetite for new programmes exceeded the capacity of the MoD’s stomach, particularly in the run-up to the election,” he said. “In the past few months there was a rush of new orders. What we are going to have to do is ensure the equipment programme matches the military need.”
Defence sources say the military has been using the urgent operational requirement (UOR) to borrow money from the Treasury to fund equipment for Afghanistan that the MoD could not afford to buy. “They’ve been using the UOR system like a credit card,” one source said, “and they’ve been maxing out on the card to the point where they’re around £700m over the limit. It’s all got to be paid back.”
Osborne’s cuts package to be announced early this week includes a freezing of spending on new IT projects, stopping most public sector recruitment and renegotiating deals with government suppliers.
With speculation growing that Osborne is planning to announce an increase in Vat from 17.5% to 20% next month, there are growing fears he could face a tax revolt from left-leaning Lib Dem backbenchers.
Lib Dem MP Simon Hughes said on Radio 4’s Today programme yesterday: “Our party remains an independent party. We will take views. We don’t suddenly change our policy.”