Elizabeth Truss: How to cut public spending by £30 billion and pave the way for a smaller state

Elizabeth Truss is deputy director of Reform, the independent, non-party think-tank, and is co-author of its pre-Budget paper, Back to Black. Published today, it contains a number of proposals that would enable public spending to be cut at a stroke by £30 billion, which Elizabeth previews here.

George Osborne has indicated he will focus on restraining spending as opposed to increasing taxes. Even Alistair Darling has acknowledged that Britain cannot go on spending on the never-never. This is huge progress from a government which advocated fiscal stimulus only six months ago. The next hurdle for politicians has to be making the right reductions.

There is a danger of top down spending cuts, for example reducing budgets by 10%, rather than changing what government does and determining which parts of government need to be removed altogether. The history of austerity cuts that took place in the 1960s and the 1970s was that once the corset was loosened, public spending shot back up again. Years of stagnation followed. Only the Conservatives in the 1980s succeeded in entrenching cuts for any period of time, but there was still upward pressure some years later.

The economy cannot support a triffid-like state that exceeds its proper remit and encroaches on private individuals and businesses. The education department has failed to improve standards whilst trying to “ensure economic growth”, take over child protection and interfere in family life.  Extra spending on welfare has increased benefit payments to the well-off and entrenched a culture of low aspiration.

Judicious reductions in the right places are needed to entrench reform in the system and ensure the present keeps on giving. In Reform’s new report, Back to Black, we propose £30 billion of spending reductions that will not only deliver in the short term but will help achieve long term reform.

The largest government budget is still work and pensions; strenuous efforts must be made to reverse the encroachment of benefits up the income scale. There will be yelps from people who lose out, but having more and more Britons on the “social” is unsustainable and damages the work ethic. Reform has shown that there are £10 billion immediate savings to be had in this area.

The health service has the second largest budget (a sixth of public expenditure) and cannot be immune from austerity. A first target for the scrap heap should be banal and patronising public health campaigns such as Change4Life, which advises families not to “veg out” and “think about walking or cycling”. Strategic Health Authorities could similarly be junked. Excessive pay awards should be reined in.

Disposing of this excess baggage will make the health service focus on serving patients and save £5 billion for taxpayers in 2010/11. This should be accompanied by longer term measures such as charges for appointments and plurality of supply to shift the service away from state monolith to individual care.

Communities and Local Government has proved the most triffid-like department, sprouting programmes and initiatives that take responsibility away from local people and cost £14 billion. Similarly, many of the quangos infesting the education system should be scrapped and the power given to schools and ultimately parents and pupils (saving £5 billion).

Conservatives must not be afraid of changing the way defence is done. Liam Fox has already said he will carry out a review similar to the Gates review conducted in the US. This must both look at the short term requirements and the long term efficiency and procurement process of the MOD – which has been repeatedly criticised. Reform’s analysis suggests that £2.7 billion of savings can be made in the capital programme.

A new government must have the courage to put in place reductions that promote reform, not across the board cuts to be implemented by civil servants who want to protect their jobs and status. This will simply create public dissatisfaction and pent up demand.  Targeted cuts will stop government doing what it shouldn’t and will pave the way for a smaller, more effective state and stronger individuals.

> A number of Reform proposals for saving money will be debated this week on ConHome's new Star Chamber page. The first idea is The abolition of universal Child Benefit and the provision of more targeted child welfare payments.