By Professor Nick Bosanquet
Is the Pre-Budget Report a recovery plan or the beginning of a slide towards national bankruptcy? There are some alarming features about the projections on tax receipts. Claimant unemployment is projected to rise to 1.41 million by the end of 2009 – which would imply total unemployment of three million, or 10 per cent of the workforce. Yet the Treasury is expecting that receipts from income tax and National Insurance will be the same in 2009-10 as in 2007-8.
The report expects a rise in labour income of 2.5 per cent in 2009-10. This is not just a question of assumptions, but of numbers which are completely unbelievable even on the Treasury’s own assumptions. How can there possibly be no fall in receipts when unemployment is due to double? Any realistic assumptions would mean that total debt is likely to rise towards £160 billion.
We need a real recovery plan which uses resources to promote recovery rather than a vain attempt to call back yesterday. A recession means that people do not choose to buy some of the goods and services which were selling before. We can try to bribe or intimidate them into buying the output on the grounds that the national interest is at stake – or we can help people to invest in new products and services.
For the UK a key recovery step would be to bring about change in public spending. We need to combine reductions in funding with increases in the capability of local managers and local communities to get value from the funding. Real reform would make a virtue out of necessity. Already there have been positive signs where clients have been given control of their own budgets that is possible to get higher satisfaction and to save money, There is little sign across the public sector that spending more money is actually essential to better value—indeed choice and competition have been the way to get better results with surprising speed.
It is clear that we cannot afford the amount of public spending that we have. At present the government is drifting towards debt and higher spending. The Government should be initiating a recovery plan which will allow a gradual, sustainable reduction in spending. Without this the rise in taxation which the government plans from 2010 on will choke off the recovery.
However, this change in spending levels needs to be linked to a much more active reform programme. Foundation hospitals and academies have been a success but they have done little to increase choice for “customers”.
The second key theme in the longer term recovery plan is about helping people to use new opportunities in the global economy. New and small enterprise depends on private buying by younger consumers; we need to involve this generation much more directly in their own future. Even now there are many companies with a bright future, because they have distinctive services or products to sell in world markets.
The recovery message turns out to be the same for the public and for the private sector. We need to find new ways of meeting demand and we need to use competition. The “too big to fail” argument is the new disguise of the national champions. If the British banking sector depended on national champions it would already have gone under. It is the coming of HSBC and Santander as well as the last flicker of the Huguenot spirit in Barclays which has saved the situation so far. We hear a lot about the US owned car companies – but the US industry also has some big successes – companies run by non-US owners such as Toyota and BMW. They are producing the cars that US consumers want to buy. If the new President props up GM the main effect will be to stunt the growth of a new more viable car industry.
The political reaction is to try to freeze change. The reduction in VAT as symbolic as is futile. We need to move towards a sustainably lower tax, high opportunity economy in which individuals and small firms have the chance and capability to innovate.
Nick Bosanquet is Professor of Health Policy at Imperial College London and Consultant Director of Reform
