Education, health, welfare: none of it is sacred now19 August 2012
Britain has led many of the social and cultural advances of the past few hundred years. The rule of law, participatory democracy, emancipation, universal education and universal health provision were each fundamental steps in the development of a modern society.
By enhancing individual freedoms they brought an increase in the wellbeing and prosperity of our society. Niall Ferguson, the historian, has suggested that the rise of the West since the 16th century was down to the development of six “killer apps” (competition, scientific revolution, property rights, modern medicine, a consumer-oriented society and a strong work ethic).
As the opening ceremony of the Olympics reminded us, Britain has played its part in all of those and we are lucky in our inheritance. But we have forgotten a number of fundamental truths about government. Government is the largest actor in the economy but, like any organisation, it needs clean objectives and realistic budgets. The result is that we face an economic mess that will take years to put right.
Why did we allow governments to run deficits in 35 of the past 40 years? Why have we permitted the biggest increase in public spending since 2000 of any leading country? Why did we raise £5,000 billion in taxation in the past decade yet leave ourselves without the £500 billion needed to maintain and expand our transport and power infrastructures?
The Reform think tank’s estimate is that the coalition will get the deficit under control for only one parliament. After that the government’s commitments to pensions and health spending will see emergency-level deficits return again. Other western countries have made the same mistakes. The latest estimate of the US Congress is that the American deficit will reach 250% of GDP in 2030. Well before that point, America would lose any claims to global economic leadership. Italy, Spain, France and Germany are in the same position.
These countries have treated government as a Ponzi scheme. Success in politics has been bought by promises with costs far in excess of the tax base, particularly to elderly voters. We have hoped for a tomorrow in which record economic growth will yield record levels of tax to cover the promises when they come due. As the crisis showed, tomorrow never comes. In no other walk of life would we routinely take risks of this kind with other people’s wellbeing.
Our legacy to our successors should not be a temporary austerity but a permanent, massive reform of government. We have to be unflinching and utterly practical in recognising the scale of the challenge. That should include a level of public spending at about 35% of GDP (compared with a current level of 43%, falling to about 40% in 2016). This is not ideological: according to the academic evidence that is the right level to enable economies to deliver strong growth. Further, the average annual tax burden for the past 20 years has been just over 35% of GDP. To insure ourselves against deficits for the long term, we must keep public spending at about that level.
A spending level of 35% would require an uncompromising drive for value for money in public services. Why should we maintain a public sector near-monopoly in health services when countries with competitive services, such as those in Germany and Switzerland, are better and more efficient? It would mean changing the nature of the welfare state so that a much higher proportion of pensions and healthcare is provided collectively — but not by government. Why do we provide generous benefits to people, including pensioners, who are too prosperous to need them?
It would mean an administration as strongly focused on performance as the best private sector organisations. The coalition has commissioned research into the most effective civil services in the world, such as New Zealand.
Even this would not be enough. Can we achieve equality of opportunity when only one in six 16-year-olds achieves English baccalaureate standard?
Radical reform of parliament and education is an essential part of a growth agenda. We are all but guaranteed overspending and slow growth if parliament cannot hold a government to account. On the 100th anniversary of Milton Friedman’s birth, we should take on his idea that the government pays for schooling but anyone can provide it, including independent schools.
Our legacy to our children must be a transformation of government to provide higher growth. Even if other countries continue towards rocketing deficits, we can take a different path.
The economic crisis is not the moment to delay reform but to accelerate it by questioning the received wisdom in every aspect of our economy, government and politics. I look forward to playing my part.
Chris Gibson-Smith is the new chairman of the advisory board of the think tank Reform (reform.co.uk). He is chairman of British Land and of the London Stock Exchange.
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