John O’Connell is Chief Executive of the Taxpayers’ Alliance.
We know that the Conservative manifesto pledge of 2015 soon stopped Philip Hammond from increasing National Insurance Contributions for the self-employed. Since this election has been called, there has been much debate about dropping that pledge to not increase the three main revenue raisers – income tax, national insurance and VAT. The Chancellor said he wants the flexibility to manage the public finances appropriately, and the media rightly followed up with searching questions about whether the Conservatives plan to increase taxes if (or when) they return to power.
But there hasn’t been much discussion of public spending. There now seems to be a strange acceptance that if room for fiscal manoeuvre is needed then it must come from increasing taxes.
This is wrong. We still spend – and waste – too much taxpayers’ money. It might be understandable that, perhaps, people are exhausted by the idea of ‘austerity’. But we have to remember what actually happened over the last few years wasn’t actually all that austere.
Between 2010-11 and 2015-16, day-to-day spending was cut by £1.2 billion. Admittedly, there was a much sharper fall in investment spending, but the day-to-day bill came down by the cost of one Boaty McBoatface a year. Consequently the national debt has increased by over £700 billion, and is on course to hit 234 per cent of GDP by 2066.
There have been savings, but some areas of have taken a disproportionately large hit. Local authorities, for instance, saw their budgets fall by more than a fifth. However, health, education and overseas aid all saw their budgets protected, with the latter receiving 24 per cent more in 2016 than it did in 2010.
So, overall, spending wasn’t really touched. Instead, the profile was changed according to priorities. As a result, the OBR forecasts tell us that the deficit won’t be gone by the time the 2022 election comes around. Spending then will be £870 billion, £17 billion more than receipts. So in 2022 we’ll have a deficit of 0.7 per cent of GDP. (Does that number sound familiar?)
We should be discussing how to reduce the growth of spending, so that Theresa May can announce a commitment to eliminate borrowing by the 2022. Running a surplus after 20 consecutive deficits, 13 years after the UK left recession is a very modest ambition indeed.
The first principle should be that all departments and public bodies be subject to the same process of rigour: there should be no more ring-fencing. It is counter-productive, equating success with inputs.
Following on from that, there must be a renewed drive to cut out wasteful spending. We often hear that there’s “no more fat to trim”, but then we hear of the Treasury finding £3 million for grassroots football in China and North Wales police paying a £45,000 phone bill for a burglar. This figures might not be enough to erase the deficit, but they say a lot about the attitudes of some given the responsibility to spend taxpayers’ money.
There is still too much money simply wasted, so a minister, perhaps one with a successful business background, should be given a full-time role tackle this across every department and implement more stringent budgetary processes. (It is noted that the Cabinet Office, first under Francis Maude and now Ben Gummer, is doing good work in making government more efficient, but this can and should be supported.)
As for some specific items, it is hard to look beyond HS2 for a big, popular saving. ComRes polling commissioned by the TPA showed that 84 per cent of the public do not believe it will benefit them personally. Indeed, just six per cent thought HS2 was a priority when presented with a list of seven options, with repairs on minor roads and access to high speed broadband across the country scoring first and second.
So as well as having a good instinct for what be of most benefit to them, taxpayers also have a good sense of when a big project will eat up more of their money – the same survey showed that 80 per cent of the public believe the project will be delivered over budget with 50 per cent believing it will be delivered “significantly over budget”. It is highly likely to cost tens of billions more than its official £56 billion price tag. Its place on the manifesto is reportedly up for discussion and as well as saving taxpayers a fortune, it can’t be stressed just how much breathing room scrapping HS2 would give the new government.
It would also be sensible to drop the state pension triple lock from this manifesto. The annual cost of the policy is not £6 billion and the political arguments for keeping it – high pensioner turnout, etc – are trumped by the likelihood of achieving a big majority anyway. Removing this albatross from around their necks will make for much more sensible changes to the state pension than we currently see.
There are longer-term challenges that can be met, especially with the buffer of a big majority. With the backdrop of Brexit, automation and the changing nature of work, we should now be thinking seriously about what the state does and doesn’t do; what it provides and should no longer provide. Automation in the public sector could achieve savings on a significant scale, for instance. As part of that longer-term thinking, the new government should re-start the process of assessing the role of every single public body and abolish those that are no longer required. That means full abolition, rather than shifting functions around between departments and tinkering at the edges.
Then there’s the NHS. It is asking a lot to focus on NHS reform in the manifesto, but politicians from all parties should now acknowledge that it can’t be funded in the same way anymore. We’ve written before about new ways to fund healthcare, and for longer-term savings – and the longer-term health of the public finances – that is a debate that needs to start sooner rather than later.