Spending Review is a chance to escape managed decline – will Reeves take it?
Instead of repeating the same lines we’ve heard at every Spending Review since the financial crash, Rachel Reeves should challenge fundamental assumptions about the role of the state, says Joe Hill
Today the Chancellor will announce her first full Spending Review – allocating government budgets over the next three years. It’s a defining moment for the Government to show the public what their priorities are. But it’s going to take more than today’s speech to change the course of history. Because although these fiscal events matter a lot in the short term, I worked on enough of them at the Treasury to suspect that today won’t change the long-run trajectory of the country: managed decline.
The UK is a low-growth, high-spending, high-tax economy. Since the 2008 financial crisis, most of those trends have either not changed or they have worsened. Historically low interest rates helped offset that pain for well over a decade, but now that era is over, we are paying the price for an economy which isn’t sustainable.
The tax burden is at a post-war high. Debt is over 100 per cent of GDP, with very real costs for current budgets. Last year the country spent £105bn on debt interest payments – more than we spend on education. The government might celebrate small changes in the growth forecast, but our growth rates are still anaemic, and almost entirely propped up by growth in services sectors and the South East – meaning the rest of the economy is effectively in a recession.
The Chancellor’s predecessors have often stood at the despatch box and promised that their plan will change this. But in the long run, none have made a dent.
Reeves is repeating the same pattern
The lines the Treasury are briefing now are almost word-for-word the same as they were for every Spending Review I ever worked on – more money for the NHS, more money for schools, more money for defence. R&D plans and regional transport investments which are much like the last government’s plans. The list goes on. Repeating the same pattern isn’t a recipe for success.
So how do we turn off the path to managed decline? Only through real reforms, of the kind that challenge fundamental assumptions about the British state. The same broken approaches which got us here aren’t going to get us out.
In Britain, we’ve come to see high levels of public spending as a virtue, when it’s anything but. For the government, their claim to be ending austerity means continuing to grow public spending at a far faster rate than the rest of the economy, putting more pressure on taxpayers to foot the bill. At the same time, those same taxpayers are getting less and less back for their money – worse public services, failing public utilities and lower living standards. We must radically reset expectations on the trajectory of public spending – we should be aiming to shrink the burden on taxpayers, not increase it – and reform services to get more for our money.
We must radically reset expectations on the trajectory of public spending – we should be aiming to shrink the burden on taxpayers, not increase it – and reform services to get more for our money
We can’t bear the scale of our ageing population without a new settlement to pay for it. The status quo, of greater and greater wealth transfers from a poor working population to relatively well-off pensioners is unsustainable. Reforming the NHS to reduce demand for more and more care, and social care to make it financially sustainable, are vital steps.
While investment is a key part of the route to growth, it’s not the only part. It’s good that the government has announced more capital spending on infrastructure, but it’s also a sign of failure – we’ve made it so unattractive to private investors to invest more in Britain that state funding looks like the only solution. The Prime Minister’s plan to take on the “blockers” is welcome, but it’ll take a concerted effort over years to unwind the nightmare of our planning system.
Low growth, high spending and high taxes are unsustainable, and the danger is very real. The OBR believes that unless there is radical change, in the 2070s public debt will be 270 per cent of GDP – truly uncharted territory. If the markets believe our borrowing plans are unsustainable, the cost of borrowing will only climb, making the problem worse and worse.
Our managed decline is the result of years of inaction. Similarly, it’ll take years of hard work to undo the damage, and put the economy on the right course. The Spending Review could be the start of that journey if the government takes a different approach, but it won’t be the end. History remembers the reformers for the hard changes they actually made, not the times they talked about it.
Joe Hill is policy director at Re:State