Magazine article Public Finance

The State of Things to Come

Magazine article Public Finance

The State of Things to Come

Article excerpt

THE RECENT PASSING of Margaret Thatcher provided Britain with a fascinating reminder of the way in which government - or, in her case, a powerful government leader - can affect the ways we think about the state and public expenditure. No prime minister in modern times was more associated with concepts such as 'good housekeeping* and 'rolling back the frontiers of the state'. Her government drove down public spending as a share of gross domestic product and cut tax as far and as fast as it could.

Mrs Thatcher remains a powerful influence on the way British politicians think about spending and tax. The chancellor is currently preparing a Spending Review for 2015/16, which will be published on June 26. As a result of the timing of the 2013 spending plans, and whatever the outcome of the next general election, there will need to be a further review for the years 2016/17 to 2018/19. Given the short time between an election in, say, May 2015 and April 2016, we can confidently predict this next review will be published in October 2015, by which time the funding cake will have shrunk even more.

Cabinet ministers have been furiously lobbying to avoid further cuts to 'unprotected' services. Theresa May (Home Office), Chris Grayling (Justice), Philip Hammond (Defence) and Eric Pickles (Communities & Local Government) are widely reported to have said 'enough is enough' in relation to the protection given to the NHS, schools, international development and welfare spending. This so-called 'National Union of Ministers' has argued that further rounds of spending cuts must be spread across a wider range of provision.

May and Pickles were partly successful in protecting police and local government from an additional spending reduction in 2013/14, although they seem likely to have to make a further cut to their budgets in 2014/15. Councils already face deeper cuts in 2014/15 than this year as the result of previously set plans.

The prognosis for the future is not good for local government, the police, fire & emergency services, the justice system, defence, the environment and business support The 2015 Spending Review will either have to remove the ring-fences from protected services or continue the post-2011 pattern of concentrated cuts to a limited number of services.

It is worth remembering that Labour was expected to publish a Spending Review in 2009 but postponed it until after the general election. At the time, there was deep concern within Gordon Brown's government about the cuts that would have to be revealed by such an awkwardly timed publication. When the 2015 election is held, all the parties will be fighting on the basis of unknown detail about future spending plans.

Chancellor George Osborne has revealed headline totals for spending up to 2017/18, but there is no departmental breakdown. It will be possible for the Conservatives (and perhaps the Liberal Democrats) to challenge Labour as to whether they would keep to the overall total of expenditure. But Labour leader Ed Miliband and his shadow chancellor Ed Balls will doubtless argue that they must wait until they see the books before they determine their tax and expenditure plans.

The odd couple of Vince Cable and Liam Fox have also called in their different ways for a removal of ring-fences from the protected services. Speaking on the BBC Radio 4 Today programme, Business and Skills Secretary Cable stated: 'The problem about ring-fencing as an overall approach to policy is that when you have 80% of all government spending ringfenced, it means all future pressures then come on things like the army, the police, local government, skills and universities [and] the rest that I'm responsible for. So you get a very unbalanced approach to public spending.'

Former defence secretary Liam Fox, an economically 'arf Conservative, has argued for the removal of ring fences to make room for tax cuts. It currently seems likely that local government, along with other non-ringfenced services, will face real-terms reductions of at least 50% in expenditure over the period 2011/12 to 2017/18. …

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