By Paul Goodman
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This is the fifth offering in our six-part week-long series looking at 'The Wrong
Right'. In three of its parts, Tim Montgomerie looked at the malign influence of a right-wing entertainment complex, the need to update centre right thinking on blue collar Britain and why Conservatives need (more than occasionally) to say positive things about the State. In a fourth, Pete Hoskin focused on the failure of Thatcher and Reagan to constrain the state.
December 5, the date of the autumn statement, is less important that January 1,
the start of the New Year. This is because 2013 will see the
Coalition's Spending Review, and if this Government – or any future one
– can't control its spending (whatever the Chancellor decides to do
with it next month), then deficits and debt will persist. If this
happens, the point will come when the burden of the cost of covering the
deficit and servicing the debt will mean that any government, in the
longer-term, will have no choice but to cut spending – and I really mean cut, not simply reduce the rate at which public spending rises, as this Government is doing.
In saying so, I am not stabbing an accusatory finger at Ed Miliband
and Ed Balls, at least for today. Both recognise that government cannot
keep borrowing indefinitely. The official Labour position is that
George Osborne should be borrowing more now in order that a future
government has to borrow less later. Readers may believe that this
prospectus is quackery (rightly), or that Labour Governments leave
Britain bankrupt (again, rightly). None the less, Messrs Balls and
Miliband are likely to pay more than lip service to economic reality at
the next election – since they will surely pledge that Labour will stick
to the Coalition's spending plans.
am I jabbing that finger at Mr Osborne. A common complaint about the
Government on the right is that it hasn't cut spending at all, and in a
headline sense this is true. In 2010-11, public spending came in at
£688 billion. In 2011-12, the total rose to £696 billion. But these
are the Total Managed Expenditure figures, which include the "automatic
stabilisers" – in other words, the costs of tax credits and benefits
that rise during downturn and recession. Departmental Expenditure
Limits (in other words, what Whitehall Departments are actually
spending) tell a different story. They're down from £384 billion in
2010-11 to £364 billion last year (as above).
Indeed, isn't that testy finger better pointed at some on the right?
By which, I mean those who believe that the public spending challenge
can be solved by scrapping international aid, pulling out of the EU (a
topical issue today), curbing welfare and stopping wind farms – or by
waving away the problem altogether, on the ground that growth, fired by
tax cuts and radical deregulaton, would solve the problem. Don't get me
wrong. I believe that the ring-fencing of aid should go after the
pledge to keep it expires in 2015. In the event of an In-Out
referendum, I would vote Out. Obviously, those who shouldn't be on
benefits should be taken off them. And so on. But –
- The EU and aid budgets are relatively small.
Total managed expenditure is the best part of £700 billion, as above.
Our net EU contribution was about £7 billion in 2011. That's one per
cent of the total. The international aid budget was about £8 billion in
the same year. That's little more. Subsidies for wind farms
cost about £1billion – some 0.1 per cent. Sure, you can have a lot of
fun working out how many doctors or tanks or nurses or tax cuts you can
fund from those totals. But scrapping all of them would scarcely begin
to meet the scale of the long-term public spending challenge…and in
the short-term would still have left borrowing at above £100 billion in 2011-12.
- The main element in welfare (or social security) spending is pensions.
Which have you seen more about on TV or read more about in the papers
recently – the benefit cap or state pensions? I support the cap. I
also suspect that an analysis of Fleet Street papers would find more
articles, and especially more big headlines, about it than about
pensions. But look at the figures. The benefit cap will save some £270 million a year – a tidy sum, but a tiny fraction of public spending. In constituency terms the largest number of people it will affect is 1200 in Brent Central.
Now think about the state pension bill. It is about £63 billion –
about a third of the social security bill. It pays out to eleven millon people.
- The biggest long-term public spending challenges are pensions…and healthcare. Paul Johnson of the Institute for Fiscal Studies has clocked the ageing of the population,
peered in into the Office for Budget Responsibility's tables, and noted
they predict that "state pension spending will rise from 5.5 per cent
to 7.9 per cent of national income between 2015 and 2060". Now go back
to that Departmental Expenditure Limits table above. The biggest
single item in it by far – social security payments being excluded from
the DWP figures – is healthcare, £104 billion in 2010-11. Mr Johnson
calculates that by 2060 Britain may be spending 15 per cent of national
income on health.
- Solutions to meeting these challenges…
Mr Johnson hinted in the Prospect piece which I cite above at some
possible policy solutions: increasing "the state pension age at the
fastest feasible rate, aiming perhaps at 70 rather than 68 by 2046", and
raising the private proportion of spending on healthcare, since
"Britain is close to the top of international league tables in the
proportion of total health spending that comes from the public purse".
He suggested the Dilnot model might be one to follow, with people
funding their own pensions after reaching, say, 90; and asking people to
"insure against, or save for, the first £30,000 of [hospital] costs".
- …Would hit the Conservative Party's support base and readers of right-wing newspapers.
Now muse for a few moments on voter and newspaper reaction to any
suggested cut to universal entitlements for older voters: free TV
licences, the winter fuel allowance free bus passes. The electoral
consequences of cutting any of these so alarmed David Cameron – not
unreasonably – that he rushed to rule such moved out before the last
election. But even were he to break his pledge and means-test fuel
allowances and TV licences, the Treasury would raise less than £2bn a
year. Voters are totally unprepared for such drastic proposals as
insuring against £30,000 worth of hospital costs.
- We can't rely on growth riding to the rescue.
There is an objection to all this – that growth can come to the rescue
if taxes are slashed. Let me leave to one side those who believe that
spending control doesn't really matter (supply side economics is one
thing; spending control denial quite
another) and turn to more reasonable critics. Yes, growth may come to
the rescue. If you want a cheerful view, Jonathan Portes argues that the growth rates of the last two decades are a good sign. But then read Daniel Hannan on our underlying debts, and start thinking about our off balance sheet liabilities, too…
- The Right is in a better place here than America… The FoxNewsifaction of the right in America of which Tim Montgomerie complains is less advanced here. Andrew Haldenby, Ruth Porter, Chris Nicholson, Matthew Sinclair, and Neil O'Brien
have set out plans to reduce spending by up to £50 billion on this very
site. But my sense is that the right-wing think tanks are bolder and
braver than the right-wing media – especially the tabloids, especially
their columnists. ConservativeHome's Deep End was correct to suggest that the right needs media outlets that tell readers what they need to hear, not what they want to hear.
- …But it should grow up about public spending.
Obviously, newspapers and blogs have to keep their readers happy: they
can't spend all their time telling them that they will have to stump up
more for pensions and healthcare. But couldn't we all spend a bit more
time doing so? Where are the equivalents elsewhere of the week-long
spending series I refer to above and commissioned earlier this year?
Don't we have a responsibility to help lead debate – especially about
healthcare, given the political constraints that bind the Tory
leadership? Telling the truth to readers is as important as telling the
truth to power.