High level policy making

John Page · 18-08-2006, 10:17 PM

FT My emphasis

Quote:

A comprehensive review of political options

By Chris Giles

Published: August 18 2006 03:00 | Last updated: August 18 2006 03:00

Britain's long-term public finances problem is simple: there will be no let up in the underlying pressures for rapid public expenditure increases, but government cannot borrow more and the electorate is unwilling to vote for a party likely to put up taxes.

The correct response to the challenge is to prioritise areas where tax-financed expenditure is efficient and in most demand - defence, public security, treatment of acute and chronic illnesses, compulsory education and redistribution to the elderly and those genuinely unable to work. At the same time, government should seek to cut unnecessary programmes, increase user charges elsewhere and reduce transfers to non-pensioners able to work.

In my column on August 4, I outlined the tough spending decisions that should be debated before the 2007 comprehensive spending review. The Treasury is gathering submissions and the big decisions will be taken in the autumn. The question today is how far is the CSR living up to its Treasury billing as "a fundamental review of the balance and pattern of public expenditure"?

Although the spending totals for 2008-09 to 2010-11, the probable years for the next election, have not been formally announced, Gordon Brown shows every inclination of sticking to a 1.9 per cent real increase in public expenditure, pencilled into his March Budget. This is lower than the expected growth rate of the economy, so the share of public expenditure in gross domestic product is forecast to fall from 43.1 per cent in 2007-08 to 42.5 per cent in 2010-11, allowing government borrowing to fall to more manageable levels. This spending restraint will come as a shock to government departments used to drawing up plans based on annual real increases of 5 per cent or more.

Raw politics explains why the chancellor picked the 1.9 per cent figure. Any larger increase in public expenditure growth would have guaranteed further tax increases before the next election. He still risks being forced again to go looking for extra revenue as his revenue forecasts remain bullish, but Mr Brown has clearly chosen not to challenge the political constraint on taxation.

This hardly indicates that the CSR is the fundamental look at public expenditure Mr Brown claims. Further, it is not just total expenditure levels where debate over the options for the spending review is already closed. Last month, the Treasury announced that all departments would be required to make administration efficiency savings of at least 2.5 per cent a year. No one is in favour of waste but a blanket edict to cut costs contradicts the Treasury's message that it is seeking to change the balance and pattern of expenditure. The scope for savings is surely greater in some departments than others. Across Whitehall, fine minds will now be employed seeking to redefine legitimate administrative expensesas cash for frontline services.

The spending totals for some small-spending departments were also fixed in March. The decision to give the Home Office inflation-only increases now looks premature given the heightened security threats and the turmoil besetting the department. On public sector pay, the chancellor has talked tough about a limit of 2 per cent on settlements until 2011. This commitment is as inflexible as his calls for efficiency savings and pays scant regard to the priorities for the public sector.

So, on the evidence to date, the CSR fails as a fundamental reappraisal of the public sector. Mr Brown has taken one constraint - no tax rises - and translated it into blanket demands for efficiency savings and pay restraint. There is no public debate and no sign the government is considering areas in which it should try to do less.

Mr Brown will nevertheless find allocating spending totals to departments difficult. If real expenditure on social security rises by the 2.2 per cent average under Labour and annual real health and education spending growth rates drop to 4 per cent, all other departments will have to accept a freeze in real-terms expenditure after April 2008. Even if Mr Brown punishes the health sector for poor performance over the past years of plenty and allocates only the 3.1 per cent real growth rates seen between 1979 and 1997, education and other areas of public spending can expect to live with a squeeze.

When the belt is tight, it should be time for some big decisions, but the exercise appears to be one of muddling through again. So far the 2007 comprehensive spending review appears a misnomer.

The Conservatives will probably settle for the spending totals Mr Brown announces, since they will be able to claim that a falling share of public expenditure meets their commitment to "share the proceeds of economic growth between investment in public services and tax reduction". George Osborne, shadow chancellor, said in a speech last month that the Tories will campaign on how the money is spent and not how much.

But working out the right level of public expenditure is crucial for politics and economics. Both main parties appear to understand the political imperative of keeping taxes low, but neither is willing to consider the obvious question that follows from this: what should government not do in the future?

mkpdavies · 19-08-2006, 07:52 AM

KEEPING taxes low?

Are they having a laugh? We have one of the highest taxtions in Europe, ney, the world!

Chip · 20-08-2006, 09:06 AM

Before you can even look at tax cuts you need to change the Civil Service mind set that dictates an annual increase in their spending / Budget. It is a known fact that any department that does not spend it's allocation is penalised. The effect of this is to overspend every year and then demand more. If they dont then they are sidestepped and someone who can spend is put in charge.
I think that they should be offered a bonus of 1% on all the savings they make in a year. Yes thats a lot of money to pay them however the savings achieved would be huge and a start would be made on changing our engrained stupidity. Perhaps their new motto could be "Waste not Want not".

gimlet · 26-08-2006, 06:43 AM

Chip

I am totally opposed to civil servants getting any form of performance related pay. Maybe better to cut their pay if they under acheive?

John Page · 04-09-2006, 12:20 AM

Richard Sykes joined the debate about levels of government spending today and the need for public sector reform. It chimes in quite nicely with the education piece on my blog today, so I've put it there.

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http://thepurplescorpion.blogspot.com/

19-08-2006, 07:52 AM	#2 (permalink)
mkpdavies Uber Member Join Date: Sep 2004 Location: Woking Posts: 30,761	KEEPING taxes low? Are they having a laugh? We have one of the highest taxtions in Europe, ney, the world! __________________ http://brits4ronpaul.blogspot.com/ http://wokinglibertarians.blogspot.com/ http://lpuk.org My ignore list Labour, Blue Labour, Lib Dems

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20-08-2006, 09:06 AM	#3 (permalink)
Chip Senior Member Join Date: Feb 2006 Location: North West UK Posts: 586	Before you can even look at tax cuts you need to change the Civil Service mind set that dictates an annual increase in their spending / Budget. It is a known fact that any department that does not spend it's allocation is penalised. The effect of this is to overspend every year and then demand more. If they dont then they are sidestepped and someone who can spend is put in charge. I think that they should be offered a bonus of 1% on all the savings they make in a year. Yes thats a lot of money to pay them however the savings achieved would be huge and a start would be made on changing our engrained stupidity. Perhaps their new motto could be "Waste not Want not".

26-08-2006, 06:43 AM	#4 (permalink)
gimlet Senior Member Join Date: Oct 2004 Location: Shropshire Posts: 831	Chip I am totally opposed to civil servants getting any form of performance related pay. Maybe better to cut their pay if they under acheive?

04-09-2006, 12:20 AM	#5 (permalink)
John Page Senior Member Join Date: Nov 2005 Location: Welwyn Hatfield (Herts.) Posts: 1,878	Richard Sykes joined the debate about levels of government spending today and the need for public sector reform. It chimes in quite nicely with the education piece on my blog today, so I've put it there. ---------- http://thepurplescorpion.blogspot.com/