Andrew Haldenby and Lucy Parsons: Higher spending does not equal better services

Andrew Haldenby is Reform’s Director and Lucy Parsons is Reform’s Economics Research Officer.

What should we make of Gordon Brown’s call this morning for a new “stage” in the Government’s policy on public services reform?  Writing in the Financial Times, the Prime Minister identifies two new goals: “no tolerance of under-performance” and “empowering the users of services themselves”.  He ends by repeating the call for “investment and reform” that has underpinned the Government’s policy since the first Comprehensive Spending Review in 1998.

We should first be pleased that the Government is committed to reform.  The message from today’s Reform report – A lost decade: Counting the opportunity cost of public spending 1999-2008 – is that such a commitment is essential.  So many social trends point towards public services with more individual and less government input: greater consumerism, prosperity, educational attainment, connectivity, for example.  At the same time greater globalisation will make it much harder for governments to solve problems with higher taxes.  As Sir Gus O’Donnell, the Cabinet Secretary, said recently:

“We are going to have real problems.  Because of the competitive nature of globalisation, it is going to be hard to put tax rates up.  The increasing demand for spending more ... means that we are going to have to do more with less.” 

Second, we could ask the Prime Minister to look again at the progress so far.  In his article he says that the Government is about to launch “the third stage” of the reform programme.  Stage one was extra spending, to repair under-investment.  Stage two was on a “greater diversity of providers and more choice”.

Today’s Reform report suggests that there is still much to do if those stages are to be completed (let alone left behind).  Spending has certainly been increased but as a flash flood rather than a planned irrigation.  Its greatest impact has been to increase the costs of existing programmes rather than transform them.  Where it has happened, reform has been marginal and uncertain. 

Equally higher spending has not delivered on the Government’s ambition to raise the long-term growth rate (the celebrated post neo classical endogenous growth theory).  Since 1999, productivity, entrepreneurial activity and private spending on R&D have all declined.  Actually a third of GDP growth since 1999 has been accounted for by the expansion of the public sector – a fact that bears repetition in this week’s Budget debate.  The demands placed by government on the economy – what the report calls the UK’s “fiscal footprint” – have dramatically increased.

Third, we could set a series of litmus tests for the progress towards reform in the Budget.  Many will have suggestions but here are three:

• an economic constitution for the NHS giving the duty to create value for money at all levels (which Lord Darzi can flesh out in his NHS review in June);
• a review of public sector pensions (because without that, that cannot be any level playing field in public service provision); and
• a reversal of the decision to impose the national curriculum on city academies.

Our report concludes with a call for a change in attitude, in politicians of all parties, as much as a change in policy.  We need to move on beyond the Pavlovian “conditional reflex” of committing more public money when there is a problem.  The new attitude would understand, for example, that higher spending on public services need not come from the taxpayer alone, and that higher spending does not equal better services.

The Reform report 'A lost decade: Counting the opportunity cost of public spending 1999-2008' is available at www.reform.co.uk.