Spending review: Labour’s economy is austerity for the taxpayer
Dear Chancellor, ‘austerity’ isn’t just about reducing public expenditure – it also applies to tax hikes, writes John O’Connell in response to the Spending Review
New Labour made it fashionable to call almost any item of public spending ‘investment’. But the Chancellor took this to new heights yesterday, keen to repeat the word as much as possible, on all available platforms. What’s more, she roundly denounced ‘austerity’, with a Spending Review that will see bigger bills by the end of the parliament.
Words matter. ‘Austerity’ isn’t just about reducing public expenditure – it also applies to tax hikes. And rest assured, that’s what we’ll have more of come the Budget in October. What we saw yesterday was a platform for prolonged and harsh taxpayer austerity, which has already caused enormous damage to employment numbers and driven productive people overseas.
A Spending Review that ensures tax rises are on the way
What was announced was more spending equivalent to an additional £190bn over the parliamentary term. And as suspected, health will take the lion’s share of new cash. So much so that it doesn’t leave much for anything else, with the Home Office, Defra, the Foreign Office and Education likely to quietly seethe. The increase in day-to-day spending for the Department of Health and Social Care alone makes up half the cash increase in the government’s overall expenditure plan, reinforcing the idea that Britain is a giant healthcare system with a shrinking economy attached to it.
There is a planned three per cent annual increase in day-to-day NHS spending – an extra £55.1bn per year for the health service by 2028-29 compared to 2023-24.
In contrast, day-to-day core schools spending and Home Office spending (excluding asylum forecasts) are both set to rise by far less. And how much of the spending increases in any department really moves the dial, when public sector pay rises could swallow up much of the spare cash? It’s business as usual – more money, no reform.
A key reason why the NHS is in such a poor state with productivity so low is because of a shortfall of capital investment, with the capital budget repeatedly raided to plug holes in day-to-day spending. Yet history continues to repeat itself with capital expenditure flat even as day-to-day spending continues to rise. Instead, even more targets have been set, including for productivity growth in the health system to reach two per cent, a tall order based on the last decade or so.
When will we see the return on all this investment?
And as ever, we have dollops of fudge. While the Chancellor has remained within her fiscal rule of day-to-day spending being covered by revenue, this doesn’t apply to capital expenditure which, of course, still has to be paid for. Much of the government’s ambitious promise to raise defence spending to 2.6 per cent of GDP will come under this category, for example. In total the Chancellor plans to spend £113bn more on capital investment than planned by her predecessor.
So it is clear that taxes will have to rise in order to pay for the spending plans outlined yesterday. The promised 3.1 per cent rise in local authority core spending power, for example, relies on the assumption that council tax will continue to rise by five per cent a year.
All in all, it was more depressing political theatre. The government is not willing to grasp the challenge of reforming public services so that they achieve better outcomes and prevent good money being thrown after bad. It is unwilling to take on vested interests in the public sector, instead assuming they can come back to families and businesses and soak them for ever more cash. It continues the fiction that austerity is over, as it takes us to record levels of taxation. But don’t worry – it’s all ‘investment’. So we should expect something back, shouldn’t we?
John O’Connell is chief executive of the Taxpayers’ Alliance