Paying less for the same project seems a great idea, but in reality often means suppliers providing services at a loss (really!!!) or reducing what they provide. And the bits that disappear are often the bits that generate value for the public sector. For example lets say the bit that is removed is something that avoids re-entering information. Customers get irritated because they have to keep answering the same question and public sector costs are higher than necessary to fund reconciling the differences in data and to fund repeatedly ask the questions. This isn't inevitable, contracts should be designed to avoid such perverse incentives (see my www.thinkgov.co.uk website for some ideas).
IT should be a small proportion of the cost of achieving an administration task and has the potential to remove a large part of the total cost. Spending more on the right IT therefore has the potential to dramatically reduce the cost of effective government services. Let's hope that Osborne and his colleages see it that way.