Chancellor launches audit of Government spending

Chancellor George Osborne will today launch an independent audit of Government spending after ministers claimed they had found "black holes" in the budgets left behind by the outgoing Labour administration.

The review, to be conducted by the new Office of Budget Responsibility under Sir Alan Budd, comes ahead of an emergency budget planned by Mr Osborne for the end of June and a wide-ranging spending review to be conducted over the summer.

Prime Minister David Cameron said that incoming ministers had found signs of "crazy" spending decisions taken by Labour ministers in the final months before they lost power.

And universities minister David Willetts said Labour had left behind "not so much an in-tray as a minefield".

In a BBC interview yesterday, Mr Cameron declined to rule out a hike in VAT to 20% in the upcoming budget, but said: "That is not something we plan to do."

He signalled plans to reform Capital Gains Tax so different rates are applied to non-productive investments like second homes and investments in businesses.

Mr Cameron said talks were still under way with Liberal Democrats on Tory plans to remove tax credits from families earning more than £50,000

And he announced an immediate clampdown on bonuses for senior civil servants, which he said would save £15 million annually.

Reports yesterday suggested that ministers were concerned about commitments entered into by their Labour predecessors including:

:: A £13 billion defence contract for tanker aircraft;

:: Some £240 million of school building contracts signed off weeks before the General Election;

:: A "crisis" in the student loans company;

:: A failure to account for the multibillion-pound cost of decommissioning nuclear power plants; and

:: A £600 million computer contract for the new personal pensions scheme.

Business Secretary Vince Cable told the Sunday Times: "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."

And Cabinet Office minister Francis Maude, who has been tasked with finding ways of cutting Whitehall waste, said: There are some worrying early signs that numbers left by the outgoing government may not add up."

But shadow chancellor Alistair Darling said: "We have always been entirely clear about public spending decisions. We're required in law to set out forecasts that take account of all decisions taken and we've published these in Budgets and Pre-Budgets.

"The suggestion that Treasury civil servants have colluded in publishing anything other than accurate figures is just plain wrong.

"Every new Government tries blaming the last one. This just shows the old politics is alive and well with the Lib-Con coalition."

Mr Cameron told BBC1's Andrew Marr Show: "What we have seen so far are just individual examples of very bad procedures and bad behaviour, spending decisions taken in the last year or so of the Labour government that no rational government would have done - giving something like 75% of senior civil servants bonuses after everything that's happened in the current year.

"That's not a fiscal stimulus. It is a crazy thing to do. We are beginning to find individual decisions like that."

Mr Cameron said that the audit would form part of a wider programme to set out Government spending plans for the coming three years, involving "difficult decisions" in most Whitehall departments to reduce the record state deficit.

He said: "On Monday, we have the announcement of a proper audit of public spending. We have a budget within 50 days, which sets out the total spending envelope over the next three years.

"Then we have a proper spending review taking place over the summer and into the autumn where we work out how to distribute these difficult decisions between the various departments."

Mr Cameron cited the Government's £1.5 billion budget for consultants as one of the "very bad spending decisions" taken by Labour ministers.

But the chief executive of the Management Consultancies Association, Alan Leaman, responded: "Management consultancy adds significant value to the public sector - for every pound spent on consulting, on average, £6 of benefits are realised by consulting clients.

"Organisations of the scale and complexity of government need access to the specialist skills and expertise of consultants, particularly as it grapples with the challenge of the deficit.

"Management consultancy delivers significant savings for the taxpayer, along with improvements in public services."

Mr Osborne will also announce that the new coalition government is to make a start on tackling the UK's £163 billion budget deficit, with Chief Secretary to the Treasury David Laws due to meet Cabinet colleagues this week to agree £6 billion in cuts to this year's spending.

The Chancellor will also announce that the Treasury will re-examine all spending approvals since January 1 to ensure they are consistent with the Government's priorities and good value for money.

The Office for Budget Responsibility will have responsibility for providing an independent assessment of the public finances and the economy for the emergency Budget in June.

For the first time, economic forecasts will be taken out of the Chancellor's hands, and he will be required to accept the OBR's forecasts when compiling his Budget and Pre-Budget Report.

A Treasury spokesman said that the independence of the OBR's judgments would ensure that policy was made on an unbiased view of future prospects, in the hope of improving confidence in the fiscal forecasts.

Mr Osborne was asked if he was still convinced that it was the best time to start cuts now despite critics' claims that this could risk a "double dip" recession.

"I am pretty clear that the advice from the Governor of the Bank of England was that this was a sensible thing to do, and if there is waste there in Government that people at home are paying for with their taxes, let's start tackling that now," he told GMTV.

"What is the point of going on wasting the money once you have found it?

"It is also a way of avoiding the 'jobs tax' which the Labour Party want to introduce and I don't think that is very sensible, that would make it more difficult for companies to employ people and we want companies to start employing people."