By Paul Goodman
Follow Paul on Twitter
The think tanks are starting to set out their stalls in the run-up to Wednesday's autumn. Today, we have a paper from James Zuccollo of Reform on Long-Term Fiscal Sustainability. He says that -
There is also a recent briefing from Ryan Bourne and Tim Knox of the Centre for Policy Studies. Three of their main recommendations are:
Patrick Nolan is the Chief Economist at the pro-market think tank Reform. Its report, “Reformers not spenders,” is available here.
In a foreword to Reform’s alternative Budget in June 2010 Paul Martin, the former Canadian Prime Minister and Minister of Finance, argued that Canada’s successful fiscal consolidation in the 1990s was based on clear fiscal targets and a position that these targets would be achieved “come hell or high water.” In a report released today Reform highlights that when it comes to fiscal consolidation the current UK government is, in comparison, wobbly.
When faced with difficult circumstances the Chancellor’s response has been to shift the goal posts. Rather than eliminating the structural deficit by 2014-15 (the target set in the 2010 Budget), last year’s Autumn Statement said this would happen by 2016-17. Rather than public sector net debt of 69.4 per cent of GDP by 2014-15, debt is expected to be 78.0 per cent. Rather than spending 40.9 per cent of GDP by 2014-15, spending will be 42.2 per cent.
This means that claims that the Coalition is meeting or beating its fiscal targets must be taken with a pinch of salt. Net government debt is still expected to increase by £471 billion over the next 5 years. Far from being out of the danger zone the public finances remain fragile. People who argue that the Coalition should ease up on its spending plans or introduce tax cuts do not grasp the fiscal position. There really is no money left and no scope for giveaways in next week’s budget.
Paul Goodman recently called for a 'Lower Spending Commission' to help the Chancellor deliver his deficit goals and finance job-creating tax relief. Throughout this week think tanks will be rising to the challenge with suggestions for saving money. The Reform think tank kicks off the series.
Andrew Haldenby is director of the independent think tank Reform.
The tax and spend debate is in a bad place as the Budget approaches. If the various newspaper reports are to be taken seriously, the Government’s key dilemma is exactly how best to levy more taxes from the very rich.
Even if the 50p rate were to go, it would (in effect) simply be replaced by a mansion tax, or a change in council tax, or a reduction in tax relief for pensions, or a further increase in tax on “non-doms”.
Such a Budget would certainly generate some headlines but nothing really would have changed and certainly no economic benefit achieved. Given what this Budget actually needs to do, such a shallow set of reforms would be a somewhat tragic missed opportunity.
Nick Seddon is Deputy Director of the independent think tank Reform.
Tim Montgomerie’s idea that scrapping the enfeebled Health Bill and sacking Andrew Lansley will make the problem go away is simply wrong. The three Cabinet Ministers he cites are equally wrong. Today’s task is to pass the Bill. This will clear the way so that the Government can get on with tomorrow’s job – the pressing task of delivering a lot more for a lot less.
The problems with the NHS were identified by the last Labour government. It burns money like no other public service, has poor levels of productivity, and quality is extremely patchy. Scandal follows scandal – whether it’s elderly care, children’s care, hospital care or home care. According to credit rating agency Standard & Poor’s, at least 20 hospitals are in such a bad way they will need “extraordinary support” (i.e. lots of money) from Government. This sum could balloon into billions (indeed, a £5 billion overspend, according to a former Special Advisor to Tony Blair, Professor Paul Corrigan, in a report for us last year) in coming years. This is both a short term and a long term problem. For the sake of the health of the people – and the Government’s deficit reduction plan – reform of the NHS is necessity, not a choice, Bill or no Bill.
David Cameron has repeatedly declared that he wants the NHS to look much like it is today. Actually, we should want it to look unrecognisably better. This cannot be a branding exercise. Nor is it legislation that counts. It is delivery that matters now. The only hope for any Government is to radically improve the service.
David Cameron famously claimed his three priorities for Government could be summed in three letters: N-H-S. However, the Coalition could never have neutralised the NHS as a political issue. As today’s Health Select Committee report rightly points out, improving value for money without reducing the quality of care is one of key public policy challenges of this Parliament. Meeting this challenge demands reform. The report equivocally states that making the NHS more efficient means “making fundamental changes to the way care is delivered. As Stephen Dorrell stated this morning “changing not the way the system is managed, but the system itself”.
The key message of the report is that efficiency savings are not happening fast enough and being made in the wrong way. The report expressed concerns that savings are being made “through ‘salami-slicing’ existing processes instead of rethinking and redesigning services”. The report also suggested that short term thinking rather than long term planning would make it harder for the NHS to become sustainable. Many have already argued that the Government is falling behind. According to the Department of Health’s own figures the NHS fell short of its forecast savings for the first half of the year. The evidence on the ground is of NHS organisations falling behind, yet the Secretary of State remains in denial. Speaking on the Today programme Andrew Lansley claimed to be “on track” and denied claims that we efficiency savings were turning into cuts.
However, with the Health and Social Care Bill on the final leg of its difficult journey through Parliament, today’s report has been seen as another call that the Government should drop its reforms. Last week the Royal College of Nursing joined the list of those arguing that the Government must focus on efficiency and announced outright opposition to the Health Bill. Certainly, reorganising the management of the NHS has distracted NHS leaders. However, the cuts to services have been caused by the failure to reform the system. The Government’s reforms did not focus on value for money, or on creating the competition and diversity that are needed to drive improvement. Instead, under the guise of empowering local clinicians, the Government has rearranged the management in a system that is now more centralised than before.
While Tim Montgomerie is right to note that the Government has brought its NHS problems on itself, reforming the NHS was always going to be the challenge that the Coalition would need to grasp. The rises in health spending under the last Government was becoming unsustainable and delivering value for money was essential. Reform was necessity not a choice. The Government’s problems did not start through failing to communicate unnecessary reforms, but with choosing the wrong reforms.
“A £40bn business loan scheme, mortgage guarantees, £5bn of infrastructure spending, 'youth contract' apprenticeships, start-up tax reliefs, new R&D tax credits, extending free child care – these are all Gordon Brown-style tinkering measures that look good in the papers but end up being bureaucratic and wasteful. Far better to leave the money in people's pockets and cut taxes, which will boost confidence.”
“George Osborne is operating in difficult economic circumstances, but this is still a disappointing response. He has effectively ditched Plan A and embraced Plan A minus. He is not sticking to his deficit reduction policy. He is sticking to his spending policy. There’s a world of difference. The initial plan was to add £260bn to the national debt between now and the next election. That has now spiralled to £350bn. If growth and tax receipts are less impressive than initially thought, there needs to be a corresponding reduction in state spending. But the only major spending cut spelt out today – a reduction in the retirement age – doesn’t kick in until 2026. Additionally, upgrading many welfare benefits by a full 5.2% while wages remain flat will not help to incentivise people to enter the workforce. The Chancellor conceded that a possible recession in the eurozone could further worsen economic conditions here, but did not signal a readiness to introduce deeper cuts in spending should this occur. It will be difficult for him to retain his hard-earned credibility in the markets should he fail to indicate that further reductions in spending may be necessary.”
"There is some good news for taxpayers in the Autumn Statement, but over time the Government still needs to do more to deliver lower and simpler taxes. If tax remains the heavy and uncomfortable burden it is today, growth will stay disappointing. Motorists will be grateful for a better deal as they have been overtaxed for years, although they will need to remain vigilant with a big hike still scheduled for next August. And it is right that the Government keeps pay for public sector workers under control, as they currently get a much more generous deal than those in the private sector. The Autumn Statement was a reasonable start in reacting to the huge challenges facing the British economy, but a more ambitious plan for growth will be needed by the Budget."
"George Osborne’s fiscal strategy is turning into alphabet soup: Plan A for austerity, Plan A+ for magic bullets, Plan B for more debt, Plan P for panic and Plan S for spending. Yet rather than being clever, having a fiscal policy that sets out to be all things to all people undermines growth and the sustainability of the public finances. It shows that mistakes of the Gordon Brown era have not been learnt. Real growth will not come from more government tinkering but from a productive private sector."
Andrew Haldenby is director of the independent think tank Reform
Reform today publishes new research on the UK’s bleak public finance position over the long term. The lead author, Patrick Nolan, describes the research in today’s Telegraph and the report is available here. Suffice to say that the big increase in older population – the “demographic timebomb” – explodes not in the distant future but in this very Parliament. As a result, the Government’s policies to increase the state pension in line with earnings, and fund the NHS solely from tax, will undo all of the good work on deficit reduction on which it is currently engaged. The deficit should indeed reduce in this Parliament but it will start to increase again in the next, and keep increasing. It’s a picture like the US currently faces – a debt spiral which can only be escaped through radical action.
The following details of the report might be of particular interest to ConservativeHome readers. First, the ageing population means that the tax burden (i.e. tax revenue as a proportion of GDP) will rise steadily over the next thirty years. Governments would need radical cuts in spending just to hold taxes level. Second, the rising tax burden will depress economic activity. A dynamic analysis would show the deficit worsening earlier and faster.
By Matthew Barrett
Follow Matthew on Twitter
As the BBC reports today, the Deputy Prime Minister, Nick Clegg, has written to George Osborne to ask him to consider the plan for re-privatising the public holding of shares in Lloyds and RBS by distributing shares to all British taxpayers - a policy created by the Centre for Policy Studies in their report "Give Us Our Fair Shares".
The advantage of the plan is that long-term public ownership of the banks is undesirable, and by distributing shares to taxpayers, the Treasury would receive full value from their shares that would not otherwise be realised if shares were sold in a conventional privatisation. The plan would give all taxpayers a windfall estimated at between £500 and £1000 each.
When individuals sell their shares or some of their shares, a fixed amount (the "floor price”) will be payable to HM Treasury. The floor would be deducted upon sale. The report explains the floor price:
"For illustrative purposes only, let us assume that the price of the share is 1000p on the day of distribution with the floor set at 850p. When an investor sells, Treasury receives the first 850p and also CGT on the difference between the floor and the sale price. The investor receives the balance. In our example, if the investor were to sell immediately at 1000p she would receive 123p with Treasury receiving 877p. However if the investor waited and sold at 1500p his return would rise to 533p per share, with Treasury receiving 967p."
The Reform think-tank today launched a new report highlighting cases of successful private sector involvement in public services. These include:
Today Reform held a seminar under the Chatham House Rule with Sally Collier, Executive Director of Policy and Capability at the Efficiency and Reform Group. That is, the group within the Cabinet Office working under Francis Maude to drive better value in public spending.
The discussion raised specific thoughts about government procurement but really the most important points covered the future of competition in public services. The commitment of the Government to opening up public services is not in doubt. But that is not enough. Businesses, and investors into new businesses, need clarity about the shape of public services in future. The Government has yet to provide that.
A lot of hopes are resting on the Public Services Reform White Paper, due for January but now, it seems, not be published before May. David Cameron and other Ministers have pledged a total modernisation of public services achieved partly through much greater diversity of provision. But those new providers will only come in if they have certainty about the kinds of businesses that they can run. That certainly includes some certainty about the role of profit, which remains off the table in schooling and under attack in the NHS.
In its call for evidence, the Public Services White Paper focused on the technicalities such as the use of payment-by-results and personal budgets. Actually what businesses and investors need to hear is the bigger picture: what will be core activity managed by government, what will be outsourced, what should be contestable. A Paper of this kind would indeed kick start the revolution for which the Government hopes.