Howard Flight: The challenge for the next Government will be to radically reform government spending and the public sector
When most citizens are disinterested in, and significantly alienated from, politics; and when the incumbent government has manifestly failed, there is a compelling case for an Opposition leader to need to come across as a nice guy with a ‘nice message.’
Sadly, it looks as if Obama – though clearly a nice guy and a highly intelligent and articulate politician - is turning out to be in the Blair mould - ineffective in government. It is crucial, in the national interest, that this is not the case with the forthcoming Conservative Government.
From a practical perspective, there is the self evident need to reduce public spending by around a massive £70 billion per annum, once economic recovery is established. In the short term, Keynesian monetary and deficit policies have provided a necessary insurance policy and sustained the economy, faced with the risk of financial crisis leading to depression: but ongoing deficits of the size planned by the Labour Government are both not financeable and would also lead, in due course, to a serious inflation problem.
The Shadow Chancellor understands this and the need to present plans over the life of the next Parliament to restore the public finances and to get spending and tax revenues broadly back in line. The first Conservative Budget will be hugely important, politically and economically; a failure to meet the expectations of those to whom Britain needs to sell the Gilts to finance our massive deficit in the near term, would lead to a downward spiral of unwelcome currency weakness and rising interest rates.
While it is only practical to leave open the option of raising taxes, and a failure to present the right plans and framework in an initial Budget could make higher taxes unavoidable; this would be the least attractive economic option. Growth comes from the more productive private sector, rather than the public sector, where productivity (output per employee) has declined for the last 8 years and where the private sector, starved of resources, has shrunk back to its 1997 size.
But beyond practical finance and economics, there is a fundamental issue of principle. Over the last 8 years the public sector has failed to deliver. Nearly one million additional employees and a near doubling of spending have not produced any commensurate increase in services and output. The decline in public sector productivity has accelerated. The public sector, in the aggregate, has become a drag on the productive economy.
The crucial issue to explore and questions to answer (as the fundamental guide to policy) are as to what areas of expenditure and investment are best handled by government and what are best delivered by the private sector. It is axiomatic that government needs to be responsible for defence and policing - although privately run prisons have had a dramatically better record, particularly in reducing prisoner reoffending, than state prisons. It is demonstrable that, in general, independently run schools do a much better job than public sector schools - not just in middle class areas but also in inner cities. The message is clear - to make schools independent but for the state to provide the pupil funding - a point which Michael Gove has taken on board.
The NHS was intended to be a good value structure to provide basic health care for all, but has degenerated into the most expensive European health care system, providing generally mediocre health care. I suggest, at the least, that tax incentives should be restored for individuals and employees to take out private sector health insurance both to relieve pressure on the NHS and to provide ‘’luxury’’ health care.
Welfare is a difficult area where, in the main, only the State can be the main provider - albeit that if citizens were able to keep more of their earnings (the tax burden were reduced) they would be more able, if incentivised, to provide for their retirement years. Welfare needs different approaches to address streamlining the costs of provision; how to reverse the dependency culture and how to stop exploitation of the system.
What is apparent, however, is that government is involved in many areas where there is no need nor any good argument for this to be the case; and where there is substantial waste and a ‘gravy train’ culture.
The challenge for the incoming Conservative Government, as great as that faced by the Attlee Government after the War, to then improve social welfare and increase upwards social mobility, or the Thatcher government in 1979 to reduce the excessive and damaging power of the trade unions, is to reform, radically, government spending and the public sector. Labour’s approach of targets and aimlessly spraying around money has worsened the inherent problems and served to damage the more productive economy.