Dominic Raab is the Conservative MP for Esher and Walton.
As our inscrutable Chancellor, Philip Hammond, approaches his first Budget, he will be blessed with fulsome advice on how to spend taxpayers’ money – from cutting the deficit or business rates, to increasing spending on the NHS or social care. As MPs, we can sometimes be somewhat less generous in contributing suggestions on how to pay for them whilst avoiding tax rises. So, on the basis of Gresham’s law – that ‘bad money drives out good’ – what long-term savings could be made to support the new government in asserting its priorities?
Here are just a few illustrative ideas, along with their accompanying challenges. Any menu of options – no more than food for thought – might usefully be divided into appetisers, mains and desserts.
The appetisers could either save real cash now, or nurture the appetite for bolder reform in the future – or both. They include longstanding bugbears, such as capping child benefit at two or three children, which could save up to £1 billion per year. Why should taxpayers fork out to insulate some households from the financial considerations most working parents face in the real world, when planning the size of their families? Having limited child tax credits to two children, there would be consistency in making this change, although it would probably need to be prospective. Even then, it would elicit predictable howls of protest from the left, replete with ludicrous – and morally-skewed – comparisons with China’s odious one child policy.
Another option would be to limit annual leave in the public sector, which averages 27 days, to the private sector average of 25 days. In 2015, a TaxPayers’ Alliance report estimated this would save around £1.5 billion each year.
At some point, we will need to talk about so-called ‘grey welfare’. As a first step, almost £1 billion could be spared by requiring the BBC to finance or abolish the exemption from TV licence for over-75s. Although only a modest stride towards wider reform, even this measure would need to go into the next manifesto, given our 2015 commitments.
For those with larger appetites, many of the more ambitious reforms, capable of yielding substantial savings, rub up against 2015 manifesto commitments, which need to be respected.
Nevertheless, it is worth paving the way now for bolder steps that can continue beyond 2020. On entering Downing Street, Theresa May swiftly abolished the Department for Energy and Climate Change. Despite the two new departments created for Brexit, there remains ample scope to build on the Prime Minister’s early gambit, and consolidate the sprawling arms of Whitehall. In 2013, I identified around £8 billion of savings by halving the number of separate government departments. A popular start would be to scrap the Department for International Development, moving its functions into the Foreign and Commonwealth Office to make sure we have a better coordinated approach to UK foreign policy. Without touching the aid budget, that could save £2 billion each year.
Beyond structural changes, there is a compelling social case for addressing grey welfare. In his brilliant book, The Pinch, David Willetts urged Conservatives to address the inter-generational injustice of piling up national debt, based on current spending patterns. Right across the philosophical spectrum, from think tank Reform’s seminal 2009 report, to the Social Market Foundation’s 2012 report, there is enormous scope to overhaul grey (and wider middle class) welfare. Overall, Reform estimated there were £31 billion of savings to be made. From wider pensions reform to abolishing free bus passes and eye tests for the wealthy, the ground needs to be prepared for a more balanced approach that both reduces the burden on the taxpayer, and makes government spending fairer. We should make a start sooner rather than later.
Likewise, the Government should begin weening us off the political temptation to ring-fence departmental budgets, or index spending to arbitrary levels of GDP. Between 2015 and 2020, the Institute for Fiscal Studies reckon these protections alone will account for £7.6 billion of extra spending. We should have kicked this expensive habit by the 2020 election.
While leaving the EU will spare taxpayers the UK’s £9 billion annual net contribution, Brexit should be a spur to further reform. Taking back national democratic control over our laws presents a prime opportunity to devolve further powers to Scotland. A transition towards ‘devo-max’ (including greater fiscal autonomy) would strengthen the appeal of Brexit north of the border, and commensurably reduce the UK subsidy (of £1,460 extra spending per person in Scotland) via the Barnett formula.
Finally, some of the most tantalising reforms – the desserts – can only be delivered with a measure of political indigestion.
Nevertheless, are we nearing the moment to broach, at least for the long term, some element of a contributions-based approach to NHS and welfare funding? That would enable us to reconcile the financial pressures in the system, with protections to guarantee extra support for the most vulnerable in our society.
Or, how about taking up a regional approach to public sector pay, to make sure key workers in areas with higher costs of living get a fairer deal? As well as saving around £6 billion each year in public money, it would reduce the crowding out of much needed private sector enterprise in poorer regions.
All of these areas of spending involve delicate choices, and we shall learn more about the Prime Minister and Chancellor’s financial tastes on 8th March. I hope they are bold, mainly because we need to create some fiscal room for manoeuvre. The more courage we show now, the more ambitious our domestic reform agenda can be in the future.