Magazine article Public Finance

A Decade in Denial

Magazine article Public Finance

A Decade in Denial

Article excerpt

AMID ALL THE economic and political ballyhoo, the end of the 'noughties' is upon us. Indeed, Britain's endless preoccupation with the economy and the coming general election had, until recently, avoided an avalanche of 'that was the decade that was' analyses. But as the turn of the year finally arrives, it is inevitable that commentators will revisit the ten years since the end of 1999.

A decade ago, public and private institutions were struggling with the threat of the 'Millennium Bug', an imagined technical glitch that, it was believed, might have planes plunging from the sky and the entire internet seizing up. In the event, absolutely nothing happened. The challenge provided by the move from 23:59 on December 31, 1999 to 00:00 on January 1, 2000 has proved, as the decade has progressed, to have been a leading indicator of the evolution of the 'politics of fear'. Subsequent events, notably the terrorist attacks in the US on September 11, 2001 and developing public concern about issues such as antisocial behaviour, pandemics and climate change, have only exacerbated this trend.

The near-collapse of the global financial system from late 2007 onwards has provided yet another reason to be frightened. It is hard to think of a ten-year period since the 1950s when the threat level has been higher. Then, the problem was fear of nuclear annihilation. Now, society appears to be assaulted by threats of terrorism, regional wars, disease, cybercrime and, in Britain, economic misery. It would be all too easy to forget the sunkissed recent past.

Not long ago, the country was marvelling at 15 years of continuous economic growth. 'Boom and bust' had been banished. Cities were being regenerated from their cores outwards, the fabric of hospitals, schools and social housing was being replaced by public and private finance. Indeed, for Britain's public services, the decade since 2000 has seen a sustained period of real growth. Treasury figures show that in the years from 1999/2000 to 2010/11, real-terms public expenditure will have risen by 60%. No recent decade has seen anything similar.

Thus, Tony Blair and Gordon Brown will be seen historically as the prime ministers who pushed up public spending faster than any leaders in modern times. Given how disliked Blair, in particular, is on the Left, it is curious that he allowed such a massive splurge of money across the NHS, schools and in an effort to reduce poverty. The 'Old Labour' leaders of the 1960s and 1970s achieved much less.

But the future will be very different. Labour had taken office in 1997 committed to sticking with former chancellor Ken Clarke's restrictive public spending plans. Blair believed that the electorate feared Labour profligacy and tax rises. By tying himself to the Tories' plans, it was imagined, people could vote Labour safe in the knowledge there would be no fiscal excess. Clarke subsequently made clear he would almost certainly have spent more than these planned figures. So tight were the numbers that by 1999/2000, public spending was down to 36% of gross domestic product - the lowest level since the Harold Macmillan government of 1957-1963.

This year, it is likely public spending will have risen to 49% or 50% of GDP. The fall in output and rising state spending has combined to push up the figure well above the long-run average.

In Frank Capra's much-loved seasonal film It's a Wonderful Life, James Stewart's character has a near-perfect existence that is severely challenged by financial problems on Christmas Eve. Faced with this personal banking crisis, he contemplates suicide. At the last minute, a guardian angel shows him what life would have been like without him and convinces him not to finish it all. He then goes home and finds that the local community have got together to raise money to help the business. The film ends with the return of Stewart's war-hero brother. All ends well.

There are possible lessons here. The government might not have a guardian angel, but the future can hardly be as bleak as the worst forecasts have suggested (some from me, it must be said). …

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