Tonight:
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The debate about the future of public spending is gaining momentum. Gordon Brown has finally, belatedly entered into it by daring to mention the C-word last week.
It was clear to the rest of us that cuts in public spending were coming when the Government pblished the Budget in April and the numbers showed a planned fiscal contraction of 6.5 per cent of GDP, overwhelmingly coming from public spending.
We didn't need George Osborne's maginary “secret” documents or conspiracy theories to alert us to planned cuts. It is bizarre that it has taken the Prime Minister so long to catch up with his Chancellor.
There is, however, a big difference over timing. The Conservatives have been calling for immediate cuts in public spending for a year now. That was wrong last year and wrong today. That must have been clear from the experience of 1981 when Tory cuts in a recession led unemployment to rise by another 750,000 to peak at 3.3 million.
Cutting public spending before we are safely out of recession risks pushing us back into recession. Equally, the apocalyptic cries of “national bankruptcy” are unhelpful scaremongering. In fact, general debt levels in relation to GDP are modest by historical and relative standards and borrowing costs are low — below two per cent in real terms.
The nature of the problem is this: even when our economy emerges from recession the budget will not balance. There will be a £90 billion hole or thereabouts, a “structural deficit” in the Government's finances. It will be filled only by increasing taxes or cutting spending. The emphasis of the tightening must fall on controlling public spending, not higher taxes. It will involve real cuts in many areas and will mean that big budgets — health, welfare, education and defence — have to be scrutinised without fear or favour. It does not make sense to rule out an area like health — which could be run more efficiently without damaging frontline services.
The Conservatives, though saying little, appear to prefer a different approach. Ring-fencing the health budget means that cuts in education, law and order, defence and other fields will be deeper. There is enough experience of the slash-and-burn approach to know that it frequently produces the worst possible outcome: the public sector is demoralised; lower priority spending areas continue when they should have been cut; little accountability; and little thought given to the users of public services. The government's less aggressive approach includes a search for “unnecessary” spending and “waste”. But if spending is “unnecessary” and is “waste” why does it exist now?
My own approach, set out at my party conference this week, is different and is based on sound principles. Firstly, we need a systematic zero budgeting process of selecting high-and low- priority areas for public spending. We need to start on the basis that everything is on the table; everything must be looked at and judged on its merits.
Secondly, we need radically to decentralise decision-making to local government so that services can be designed with local choice where there is a hard budget constraint. Decentralised decision-making combined with greater revenue-raising powers would strengthen local government and give a bigger voice to communities in deciding where public money should be spent.
But democratic accountability needs to be strengthened in Parliament as well. It is strange that at present MPs — uniquely in the developed world — have no say whatsoever over public spending and therefore no sense of responsibility over outcomes. Parliament must in future be able to scrutinise public spending plans before they are implemented, not just afterwards via the National Audit Office.
The debate must not be distracted by a focus on “efficiency savings”. There is no doubt that public administrators can be made more conscious of costs and efficient management but it is not credible to believe that greater “efficiency” is a panacea, not least because it has been invariably promised and not delivered in the past. The focus of reforming the public sector should be on value for money and outcomes not on input targets.
Following this approach, I have proposed some measures that would make a start in tackling the £90 billion hole in the Government's finances. At a time when many in the private sector are seeing their wages being cut and unemployment is climbing ever higher, it is right that we should impose a freeze on the total pay bill of government.
This doesn't meaning freezing all salaries. My preferred option would be to see those at the top, those earning more than £100,000 a year, leading by example and taking the strain. I am certainly not proposing a return to 1970s-style pay policy. But it is difficult to justify real increases in pay, overall, when services are being cut, jobs are being cut and workers in the private sector are taking pay cuts. Public-sector pensions also need reform as unfunded schemes are unaffordable in the long term as they stand.
In recent years the Labour government has become ever more obsessed with huge IT projects. The ID card scheme, the NHS IT scheme, Contactpoint and the proposed “super database” are just a few that should be cut.
There is scope for big savings in defence procurement including scrapping Eurofighter and the Trident successor. There is scope for greatly reducing centralisation and over-administration in the NHS by scrapping Strategic Health Authorities and strengthening commissioning in the NHS through tariff reform.
Curbing centralisation in education by scrapping national strategies and quangos also frees up resources. But difficult times lie ahead and we should be under no illusion that it will be a pain-free or easy process.
Mr Osborne claims to have won the debate on public spending. But he has been badly wrong on the issue of timing and has never progressed beyond broad rhetoric to the mechanics and specifics of spending cuts (beyond the price of salads in Parliament). Over the coming weeks and months before the general election all parties will have to be honest and transparent with the public about both the scale of the fiscal problem ahead and the measures needed to tackle it. Last week, I tried to advance the debate by being more specific, I hope other politicians will now join the debate.
Reader views (1)
Dear Mr Cable,
I really thought you were sensible until you announced plans to tax vast swathes of hard-working Londoners on their properties.
Then I heard that you intended to force pensioners who have an expensive property but no cash to enter into an equity release scheme so you and your cronies can live in the style you are accustomed to. Pensioners who have worked all their lives to build a nest-egg for the future.
I am shocked to find that the Lib Dems are busy thinking up "envy taxes" to penalise those who dare become successful or who have saved and worked hard. Luckily, your party will never be in power!
- Simon, London, 23/09/2009 00:24
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