Peter Hoskin, Economic Research Officer at Reform, criticises the Government's simplistic equation of investment with outcome.
The key fiscal lesson of the past decade is that increased public spending does not necessarily yield an improvement in public services. After all, whilst real terms spending in the UK increased by 43 per cent between 1997 and 2007, public sector yardsticks such as GCSE results and cancer mortality rates have remained stuck on pre-97 trends. However, there have been some improvements, almost exclusively in those areas in which reform has been introduced.
Given this, and given that we are entering a future of sparse public
money, the true litmus test of the Comprehensive Spending
Review / Pre-Budget Report (CSR 2007) is of whether it progresses the
reform agenda. Unfortunately, it is a test that the document fails –
spending once again trumps reform.
This conclusion may not be apparent at first glance, with CSR 2007 appearing to show some degree of public spending restraint. For example, it announces that public spending growth for the next three years will be around 2.1 per cent per annum – the lowest level of growth for some eight years. Furthermore, this level of growth will catalyse a steady reduction in the public spending-to-GDP ratio, from around 42.4 per cent next year to 42.0 per cent in 2010. When we recall that public spending has risen by five percentage points of GDP since 1999, all this might be considered a tentative step in the right direction.