Will the devil be in the detail?

[john birchall]

The devil will be in the detail!

With the recent announcements made by Oliver Letwin the campaign for the next UK election has begun in earnest. Whatever one's political persuasion there is a growing feeling amongst the electorate that certain areas of our public sector do not deliver improvements in service whatever sums of increased spending are given to them. This has been noted by the Honourable Opposition. The Tory Shadow Chancellor (a former Oxford Philosophy Don) has carefully selected his figures and has based his promises and estimates of reduced expenditure on 2001-02 for the percentage of the national income going into public spending. So, whatever he proposes his figures will only result in the percentage of government revenues as a proportion of national income returning to what they were just two fiscal years ago.

Let's join what he calls 'an adult debate' and suggest ways in which he might square what seems to be a rather difficult circle.

He wants to reduce public expenditure as a percentage of national income by £35 billion by the tax year 2010-11 - that is 40% of all monies raised by UK living and working within and outside of the UK. Put simply he will want to reduce total government spending by somewhere in the region of .75%, so we are not really talking huge sums - or are we?

As with many opposition politicians he and his colleagues have been busy making promises of what they will do if elected to office. It seems that the two most sensitive areas of public spending, namely education and health will receive increases in real terms post a Tory victory in 2005 or 06. This may sound pleasing but opposition spokespersons have also been making vote catching promises including 5000 extra police personnel for London and our other metropolitan centres. These, we are told will be paid for changes in immigration policy. One has to ask what changes and how will EU enlargement, due in June of this year, affect such calculations?

The largest area of public expenditure is not health but social security. So, will this area be subjected to cost cuts? If so, where and by how much? Unemployment is but a small percentage of the budget of the Work and Pensions Ministry and the real spending takes place in personal benefits, pensions (which one of Mr Letwin's colleagues has promised to return to being inline with earnings and not inflation) and child related payments. Will any Chancellor dare to cut these?

What of our transport system, which in the opinion of a growing number of those who regularly use it, is marginally better than some developing economies? How will we pay for our roads and rail developments? A failure to address these is a legacy of Mr Letwin's predecessors on both sides of the House. If our competitive advantage is to be maintained in the digital age, which will be compounded by the added problem of low cost economies joining the EU, we will need to be able to move products and people around the UK and beyond with much greater efficiency that we currently do.

Defence remains a major area of government expenditure and with our colonial past and 'special relationship' with the US it seems unlikely that significant cuts will be found in military spending. Such a task has been made even more difficult by the persistent reports of inadequate equipment in the recent encounters in the former Yugoslavia, Afghanistan and Iraq.

Once one has left the realms of defence behind the minnows of public expenditure are reached. Housing was the largest single loser in the 1980 and 90's, so little room is left for cuts there. We might, especially now Mrs Beckett has changed the way farming subsidies are awarded, save some money under the Agriculture allocation but again this is just a few billion over several years. I have never heard of anyone who can find real cuts in expenditure in what is spent on Northern Ireland, the Environment or our diplomatic corps!

No, what readers of economics, politics and philosophy have to adjust to is that these comments of Mr Letwin might just be the opening remarks in a debate on how much government will provide and what the individual citizen will need to finance in the second decade of this century. Are we about to deliberate on more prominent role for private pensions, or a greater influence for private medicine in even the most basic areas of the NHS e.g. Accident and Emergency? How will the apparent £9 billion gap in higher education funding be filled? Put bluntly the apparent consensus post 1945 that the Social Market provides the best quality of life for as many individuals as possible might be under serious scrutiny - what public/private balance will emerge if Mr Letwin does move into 11 Downing Street? Even Margaret Thatcher presided over real increases in public expenditure. Geoffrey Howe's remark of the 'nanny state' was said more to appease the right wing of his party that to actually lead a crusade against waste and inefficiency.

The battle lines of the next election might yet not appear in the conversations of the mythical 'man on the Clapham omnibus' but they soon will.

So, over to our growing membership to begin discussing (in a grown up way) just what the United Kingdom will look like in ten years time. Oh and before our members from outside this green and pleasant land feel that all of this does not refer to them might I suggest that France is looking at ways of reducing its health expenditure by £9 billion, the German economy is about to experience significant cuts in social security benefits and it does seem that where the United Kingdom goes others soon follow. Sorry, but our economic policies of the 1980's and 90's are coming across The Channel to a Ministry of Finance near to you - and soon.

John Birchall

john_birchall@bsc.biblio.net

Edited February 16, 2004 by john birchall