Magazine article Public Finance

We're Avoiding the Tough Choices

Magazine article Public Finance

We're Avoiding the Tough Choices

Article excerpt

I recently heard about a senior journalist who, stepping into a new role analysing Westminster politics, said they had no time for the usual political gossip. While many colleagues might still be obsessed with the comings and goings of politics, there was just too much real news to bother with the usual game of who is in or out of favour.

Any survey of the papers or news websites shows that there is indeed a lot going on in the world. From Ebola and Isis to the Scottish independence question or the conflict in Ukraine, this summer has been a busy time for 'proper' news and, with the last party conference season before the general election underway, it seems unlikely the pace will slow down.

Yet what strikes me, and indeed many in the finance profession, is that amid all this there is a lot going on that is not being reported. The lack of coverage of certain issues tells us less about the media and more about the choices that political leaders make and what they talk about to voters and reporters.

Take, for example, the long-term demographic, economic and fiscal prospects of the UK and the resulting challenges for the public services. I believe that this is the most significant issue the UK faces and it is telling that it is not being addressed in any meaningful way by politicians in the UK as a whole or its constituent governments and parties. An incongruous debate between now and May 2015 will be characterised by both specific populist 'giveaways' and the vague resolve of further fiscal restraint. It's more jam today and a promise of fair rations tomorrow.

As things stand, tax yield is falling as a share of GDP without a transparent discussion by the main parties about how this is fuelling the need for further public spending cuts. Relatively flat spending on health means that its share of GDP will fall by 2% by 2020, even though this is clearly not deliverable and the next government will be forced to put in more money. Social care and health integration is stalled with both the health and local government sectors under pressure.

Intergenerational inequality means that the 'older wealthy' are being subsidised by the economically active, who, in the absence of a sustainable funding model for long-term care, are paying for the state.

Whatever the academic or governance benefits of academies and free schools, in England we are often creating school places where they are not most needed and so afford poor value for money.

This lack of realism in political discourse is deeply regrettable. In our frenetic short-term system of policy announcements, claims and counterclaims, none of the parties has made any meaningful attempt to set out how they will deal with the Gordian knot of unaffordable pensions, rising health and social care costs, and eliminating the deficit.

This creates a real risk that, while voters expect business as usual the other side of May 2015, the absence of sustainable planned solutions will mean that public financial management becomes prone to shocks and crisis management. We have more than half of the coalition's budget cuts still to come, while the unintended consequences of the over 40% that have already been made are yet to fully emerge.

An example of short-termism is the triple lock on pensions, introduced in 2010. …

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