Wednesday, 8 January 2014

Public spending: time for a sector voice!

An excellent article by Paul Johnson of the Institute of Fiscal Studies  in the Guardian yesterday is well worth reading. Here it is in full:

"George Osborne reminded us yesterday of the scale of spending cuts still to come. We may be nearly four years into a period of fiscal austerity unprecedented in recent times but, according to government plans, that puts us less than halfway through the cuts.

How can that be, when the plans set out by this government in 2010 suggested that the job of rebalancing the nation’s finances would largely be done in time for the next election in 2015? The answer is that the economy has grown much less than was expected back in 2010. It may at last be growing, but only after a long period of weakness. Output is still below its pre-recession level. We have not seen such a prolonged period of economic weakness since before even the 1930s.

So, despite the spending cuts and tax increases we have seen so far, borrowing is still expected to be at historically high levels of more than £100bn this year. What the chancellor did was to remind us that he plans to get that number down towards zero over the next five years by cutting public spending further and without any further tax rises. And the spending cuts are enormous. Even without further cuts in welfare, total spending on public services is set to be a fifth less in 2019 than it was in 2010.

The Office for Budget Responsibility has already warned that this scale of cuts would take spending on public services to levels, as a share of national income, lower than at any point since at least 1948.

But – and here’s the confusing bit – total public spending, in real terms, isn’t due to fall at all. After taking account of economy-wide inflation, it hasn’t changed much since 2010 and, even under Osborne’s plans, won’t change in the period up to 2019. How can that possibly be? What is going on?

The problem is that, as we borrow more, we have to spend more on debt interest. Spending on pensions is also rising as the population ages. So just to keep total spending constant, other bits of spending are being cut. And in some areas those cuts are very dramatic indeed. Pension spending keeps rising. Health spending is being protected, as is spending on schools. Those are three of the biggest areas of public spending. It’s all the rest that is bearing the brunt. Our calculations suggest that total cuts in other public services – police, defence, transport, other parts of education, and local government – would have to average more than a third by 2019 compared with 2010 if Osborne were to maintain his ringfences.

But there are choices. One outlined yesterday would be to reduce the working-age social security budget further. Just to keep spending on public services falling at the same rate as it has been falling over this parliament would require £12bn of social security cuts on top of the £25bn or so already planned or implemented. Further cuts on this scale would inevitably be tough. Cutting housing benefit for the under-25s and means-testing social housing for those earning more than £60,000 a year, as suggested by the chancellor yesterday, certainly doesn’t get you that far.

A second choice would be to reduce some of the spending on pensioners’ benefits, although substantial cuts here don’t look to be on the political horizon. A third choice is to raise taxes. Whatever the political parties say now, the likely state of the public finances in 2015 must make this a real possibility.

Finally, of course, the government could decide to return the public finances to balance more slowly. There is nothing magical about the chancellor’s fiscal rules. And even to meet them he doesn’t need the additional squeeze announced in the autumn statement for 2018-19. But the state of the public finances is such that there is no getting away from some further fiscal squeeze over the period of the next parliament.

Serious discussion about how much of a squeeze, the balance between taxes and spending, and the choices within spending should be the stuff of political debate over the next 18 months. Nobody should be pretending that any of the choices will be easy." 

Our sector must be part of that debate. We cannot take the view that this is all ‘too political’, so we don't have a view. It is in fact our job to bring home the real-life experience of our beneficiaries. We should have a view on the right balance between cuts and priorities in spending.

We also have views on how we might spend better and more effectively. No one can argue that the way we deliver public services is immune from change. Indeed we know, on health for example, that we have to secure a major shift in resources from hospital care into community support and prevention. Whilst many of us will have views on the ring fencing of the NHS budget, we know that the way it is spent is unsustainable in the long term, and probably the short term too. So we must debate both how we reform public services, as well as the overall spending priorities of the political parties as they vie for our attention. If we get our contribution to the debate right, all of society will benefit.

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