One of the central questions we face as a nation is how, in future, we can live within our means. The next government will face the highest budget deficit in modern British history and the urgent task of delivering better value for taxpayers' money. Information technology should be at the heart of this agenda.

In other walks of life, we have seen how IT has transformed customer service, expanded consumer choice and opened up new freedoms. It has driven productivity improvements and efficiency gains across industries. Unfortunately, this exciting potential has not been realised in government.

We all remember the individual failures in government IT: the NHS supercomputer shambles, the SATs marking disaster, the catastrophe of the rural payments agency.

But even in the light of these failures, yesterday's report in The Times that the £100 billion that the Government spends on IT is running nearly £19 billion over budget was genuinely shocking.

It shocked me because it showed that these failures were not just a series of individual mistakes, but also that IT incompetence in government appears endemic.

That is why we have been working for some time on how we can harness the latest ideas to make government IT more efficient and effective. Here's what we need to do.

First, government needs to stop thinking that when it comes to procuring IT systems, big is always beautiful. The Government runs some of the biggest IT systems in the country, covering every single citizen. Yet the very size of the projects too often makes them unmanageable and means only a handful of companies can compete to deliver them. Not only does this lead to higher costs but it means that even when suppliers let the public sector down, the Government has few options but to keep handing them new contracts. So how can we change that?

We need to move in the direction of what are known as “open standards” - in effect, creating a common language for government IT. This technical change is crucial because it allows different types of software and systems to work side by side in government.

At a stroke it means big projects can be split into smaller elements, which can be delivered by different suppliers and then bolted together. Because smaller projects are inherently less risky, this approach reduces the chance of cost overruns and opens up the procurement process to innovative start-ups.

Second, we need to follow the example of businesses all over the world and take advantage of “open source” technology. Open source is a way of developing software so that the source code is made openly available to licensed users. It started out as a communal philosophy but it's now mainstream. It has been harnessed by companies such as Amazon and Bebo to enable them to keep down costs and more easily improve their products. Amazon, for example, estimates that using open source has slashed its IT spending by a quarter. And 20 per cent of online Europeans - including me - now use the open source Mozilla browser to surf the internet. Unfortunately the Government is lagging far behind, with open-source suppliers all too often locked out of its contracts.

Last week the Conservative Party published an independent report by Mark Thompson of Cambridge University which sets out detailed proposals to create a level playing field for open source. His report showed that the Government could save more than £600 million a year if it made more use of open source as part of a competitive procurement system. That's the right way forward. We're not saying that government should not use traditional licensed software - simply that open source should be used where it makes sense and can deliver better value for money.

Third, we need to see changes in Whitehall that fit the wider Conservative agenda of entrenching a new culture of financial discipline across government. Astonishingly, there is no formal approval process for government IT schemes. Too often, schemes are approved without thinking about how they will fit into wider objectives or how they will deliver value for money. Ministers are often to blame for this, by changing project specifications at the last minute, which leads to spiralling costs. That needs to change.

In the 1980s a unit based in the Treasury provided expertise to departments on handling complex privatisation projects. Similar strategic leadership and advice is needed for large IT projects.

Getting value for money in IT goes hand in glove with delivering value for money more broadly. At a political level that means setting clear goals and sticking to them. And it means getting the whole government machine focused on value for money.

IT has the potential to transform the relationship between citizen and State, and deliver more efficient and effective public services. Our plan will help us to make the most of this potential. Under the Conservatives, government IT will be about getting value for money for the future, not adding to the bills of the past.

George Osborne is Shadow Chancellor

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