By Paul Goodman
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I asked yesterday: which taxes should rise if other are to fall? But there is an alternative to hiking taxes still further – namely, for the Government to cut the deficit and meet the competitive challenge of Asia by renewing its drive to reduce the growth of spending. So where could the axe bite more deeply?
According to the Red Book, the biggest budget, at £194 billion last year, was "social protection". (I assume this means welfare and pensions.) Health came in second at £122 billion. Then education at £89 billion. Then "other" at £73 billion (the biggest slice of this total seems to be public service pensions). Then defence at £40 billion. These are the five most substantial budgets – if, that is, one exempts debt interest, which the Treasury has helpfully inserted into the table, thus reminding readers of its stupefyingly gargantuan £44 billion cost to the taxpayer. Public order, social services and transport follow.
Finding further savings won't be easy. Iain Duncan Smith's drive to turn welfare into work is perhaps the Government's most noble policy, but there's no proof yet that it will defy Matthew Sinclair's iron triangle of wefare reform – a law as immutable to date as that of gravity. The NHS may well not meet even the short-term "Nicholson Challenge" – that is, saving £20 billion by 2015. Michael Gove is mainly in the business of raising standards by encouraging more academies and free schools, not that of saving money. The public sector pensions bill is a reminder of the demographic challenge to spending control. Older people vote, and take a hostile view of political parties that seek to cut their pensions, curb their retirement or cull their benefits (such as the winter fuel allowance and free bus passes).
Like younger people, they want to see enough prison places to maintain public safety – especially after the riots – and adequate budgets for policing. Business and commuters want better roads and faster rail. The European Union is unpopular, but a referendum on leaving remains stubbornly low on the list of voters' priorities. (The e-petition to do has garnered under 25,000 signatures.) Closing quangos, putting regulation on a starvation diet and cutting red tape is essential, but it is hard to see how such measures could save billions of pounds – even were the Human Rights Act to be scrapped and the Equality Act shredded.
This leaves a final candidate. Debt and riots notwithstanding, we're alive at a fortunate time: for the first time in centuries, we face no military threat from another European country. Our neighbours, like us, are democracies, which tend not to war against each other. Like us again, they are ageing, and older people usually don't fight. No wonder other members are reluctant to meet the NATO target of spending 2 per cent of GDP on defence. There is no prospect of Russia launching an attack on Eastern Europe, as the Soviet Union was poised to do during the Cold War, any time soon. This absence of war is a blessing so great as to justify a service of national thanksgiving.
It isn't unrecognised in the Ministry of Defence. Three options were drawn up for the Strategic Defence Review. The first, "Vigilant Britain", "[set] itself a smallish set of military tasks to defend the homeland: protect its airspace and national waters, fight terrorists at home, though still retaining the semblance of a world-wide diplomatic network, the ability to stage short, small-scale interventions (usually in “permissive” environments) and a nuclear deterrent. The second, “Committed Britain”, envisaged the country retaining "roughly the capabilities it has now" to be able to "wage a major war in distant places".
The middle option, "Adaptive Britain", was the one which won out – unsuprisingly, add some of its critics, who saw the SDR as a loaded choice and its conclusions as an attempt to muddle through – Committed Britain aims on a Vigilant Britain budget. Some of its consequences are reported today. But whatever one's take on the review, it leaves a question hanging in the air. Why do we need a defence policy other than "Vigilant Britain"? Iraq has taught us the perils of fighting wars abroad. Our forces are due to leave Afghanistan by 2015. Iran's drive for nuclear weapons should meet a firmer response than it has to date, but putting British boots on Persian soil should be no part of it. And China and India are a very long way from being able to put theirs on ours – assuming, that is, that either wants to in the first place.
The only coherent answer is: we need Committed Britain armed forces to fight liberal wars abroad. I support humanitarian intervention in principle, and was an early backer of arming and assisting the Libyan opposition. But once principles are agreed one must go on to think about practice, not to mention priorities. If growth doesn't come, then linking the state pension to earnings, or providing capital gains tax relief for the sale of homes, or capping tuition fees at £9000 – I pick three different vested interests almost at random – will be things of the past sooner than we think, whatever voters want.
The hard truth is that waging big wars in distant countries is a luxury we can no longer afford. I accept that our international development budget – a relative minnow – needs British military back-up. I want us to stay a member of the nuclear club. I acknowledge that we shouldn't aim only to defend these islands: we have an special interest, for example, in the Falklands. But if the choice comes down to tax rises or defence cuts, we should opt for the latter, and be looking to scale back the defence budget further. The usual way of doing so is to work inwards, as it were, by starting from the retention of projects supported by particular interests, be they commercial or military or constituency ones. The better way has perhaps never been tried: to work outwards from a clear idea of what our future defence policy should be.
There are bad and good reasons for objecting to further defence savings. Defence is tangled up with what Eisenhower called the military industrial complex. Service chiefs brief and leak to protect their budgets. Manufacturers plead that airbuses and Eurofighters are indispensible. MPs lobby to keep jobs in their constituencies. Liam Fox should be congratulated for trying to impose order on a department that one senior Conservative described to me as "not fit for purpose". The best reason of all is shaped by a generous vision: that Britain wouldn't be a great country if it didn't project its values abroad.
But the Iraq and Afghanistan ventures are a reminder that this projection has come at a cost, and that not all savings should be spent on keeping tax rates competitive. As the SDR acknowledged, our troops have recently been sent to fight without the right equipment, training, or support. The price some have paid is death and disability, and the lot of their families is loss and anguish. A Vigilant Britain defence policy would not only stand a better chance of matching men to weapons, but would also free some money for the care of veterans. As Andrew Murrison has reminded us on this site, medical advances have enabled some to survive who'd have died from their wounds in former times, and we're more aware then we were then of the injuries to mental as well as physical health.
The Chancellor has a settled public spending framework. He couldn't tear this up now without compromising the Government's reputation for competence, perhaps fatally. But come the next comprehensive spending review, he should look again at the defence budget. If Andrew Lilico is right, a further spending scaleback may be required sooner than some expect.