Spending

Public spending is out of control and no one is ready to tackle it

Remember the big spending challenge of 2010? Probably not. It was launched by the new coalition government when new Chancellor George Osborne called on voters “to send me their best ideas on how to get more for less from our public services”.

Within weeks, more than 100,000 savings suggestions were received, two-thirds of which came from the public sector. About half of these ideas were reviewed and put to a public vote, and 2,000 top-scoring ideas were then further considered by departments. Of these, 25 were taken over to form part of the budget.

It’s true; of this major public consultation exercise, only 25 savings and efficiency ideas were considered worthy of interest. They included reducing the costs of internal government publications, reforming the school maintenance allowance, and eliminating the use of plastic National Insurance cards. The government claimed the exercise saved around £500m. During the five years of the Coalition – condemned, it should be remembered, for “austerity” – public spending has increased by around 100 billion pounds sterling in terms of cash.

It’s hard to cut expenses when waste is rampant. This week alone figures showed Whitehall wrote off more than £4billion last year, with a quarter lost to fraudsters through Covid business grants. It’s hard to cut when one of the biggest costs is paying off interest on growing debt.

Budget paring and departmental slicing have never stopped the inexorable growth of public spending. Few has. It was only in the most dire of circumstances that the tide was truly turned, most notoriously with the May Committee in 1931. It was established in the depths of the depression when the deficit was just 120 million pounds sterling and there were fears that the budget was unbalanced.

The committee, chaired by Lord May and made up of six candidates from the three main parties, concluded that since taxes were already consuming “an unduly large proportion of the national income”, public spending should be cut.

They proposed cutting salaries, including those of teachers and police officers, and cutting unemployment benefits by 10%. After a run for the pound (sound familiar?), the package was accepted, the Labor Party collapsed into factionalism and party leader Ramsay Macdonald ended up leading a ‘national government’, his name has always been despised by the left.

Do we need a new May committee? I’m not talking about one that comes to the same drastic conclusions, although that’s possible, but an all-party assessment of where we’re spending the money as a nation, whether we’re going to continue to do so in areas specific, and whether there might be better ways to organize the public sector.

It would be a much bigger task than in 1931, given the colossal growth of the state in the meantime, but something more fundamental than a few millions cut from this or that budget is needed.

Chancellor Kwasi Kwarteng is now within three weeks to close an estimated £60billion budget hole to satisfy the Office for Budget Responsibility (OBR) and markets he has public finances under control. The £60billion figure may be wrong – it comes from the Institute for Fiscal Studies, which has a somewhat mixed record on this. Plus, this is all crystal ball based modeling that could, but probably doesn’t, reflect what’s going on in the real world.

Mr. Kwarteng’s difficulty is that he will be judged by what the OBR says might happen and he doesn’t have long to convince them. He advanced his grand plan to October 31 (a Halloween treat for cartoonists), but markets remain volatile, as seen today when the Bank was forced to step in again, buying bonds to defend pension funds.

The Chancellor is seeking to avoid another sharp interest rate hike in November, but that seems a vain hope, especially after ministers criticized the Bank for being too timid last time out. So he needs a set of spending cuts or tax increases to fill the hole, and since the latter would overlap with everything he and Liz Truss planned to do, it has to be the first.

But how and where? He could announce what is called a zero-based spending review to convince the markets that the government is responsible for public finances since that is where its credibility has been questioned. It’s not a right-wing idea. Such an overhaul was suggested in 2015 by then-shadow chancellor Ed Balls before he lost his seat and hit the dance floor. He proposed that it examine the purpose and value of all public spending.

In a newspaper interview, Balls said, “With zero-based budgeting, you can test spending not on how easy it is to cut, but whether it meets your priorities. public expenditure and compare it to our objectives.This is something that governments have not done enough in the past.

The key words, of course, are “goals and priorities” – who decides what they are? Given Labour’s profligacy, we can take with a grain of salt the likelihood that this exercise would have led to spending restraint had the party won the 2015 election. After all, Gordon Brown briefly flirted with zero-based scrutiny and oversaw a massive increase in public spending.

Yet isn’t the point of questioning public spending levels in trying to reduce them, and not slash a few pounds here and there while the overall amount swells? As French statesman Pierre Mendès-France pointed out, to govern is to choose and our politicians have chosen to protect so many areas of spending that it will be almost impossible to find anything to cut. . Perhaps the Chancellor could start by cutting a few supernumerary departments from Whitehall (Culture, BEIS to name just two) as a sign of intent.

When Coalition leaders launched their Spending Challenge 12 years ago, they asked the public “to help us find those savings, so we can reduce public spending in a fair and responsible way.” In 2011/12, public expenditure represented 44.5% of GDP; during the last financial year, it was 44.6%. So it worked. Good luck to Mr. Kwarteng in convincing anyone, let alone the markets, that he will do better.