The Pre-Budget report envisages current government spending growing by just 0.4% a year in the three years to 2014-15. Is this a lot or a little?
In two senses, it’s not a great squeeze. There are two precedents for spending growing more slowly - the late 80s and mid-90s. Also, even by 2014-15, spending is envisaged to be 39.6% of GDP - well above its 1999-2000 level of 34.4%.
In other senses, though, it is a tight squeeze.
First, current spending is only part of the story. It’s net investment that’ll be clobbered. Darling sees this falling by more than half between now and 2014-15. And he foresees gross investment falling to 2.6% of GDP - less than in any year under the Thatcher government.
Secondly, those two precedents for such a spending squeeze also suggest that spending can’t be squeezed for very long: after them, spending surged. The trouble is, with net borrowing in 2014-15 forecast to be 5.6% of GDP - don’t even ask about the error margin around this forecast! - such a surge looks infeasible.
Thirdly, the fact that spending has been a smaller share of GDP even quite recently is meaningless; it’s much harder to reduce spending as a share of GDP than to increase it, especially if GDP isn’t growing much.
One question raised here is: is it possible to reform the public services with spending growth so slow? Two things suggest not:
1. Low spending rises - which imply low pay rises - antagonize public sector workers and so increase hostility to reform. People who are scared for their jobs are rarely enthusiastic about innovation. When Nye Bevan introduced the NHS he famously overcame doctors’ resistance by “stuffing their mouths with gold.” This won’t be an option.
2. Some desirable reforms require higher spending, at least initially. For example, if parents are to be given genuine choice among schools, there must be an excess supply of school places; if not, schools will choose pupils, not vice versa. But how can this be achieved with real spending almost frozen?
In two senses, it’s not a great squeeze. There are two precedents for spending growing more slowly - the late 80s and mid-90s. Also, even by 2014-15, spending is envisaged to be 39.6% of GDP - well above its 1999-2000 level of 34.4%.
In other senses, though, it is a tight squeeze.
First, current spending is only part of the story. It’s net investment that’ll be clobbered. Darling sees this falling by more than half between now and 2014-15. And he foresees gross investment falling to 2.6% of GDP - less than in any year under the Thatcher government.
Secondly, those two precedents for such a spending squeeze also suggest that spending can’t be squeezed for very long: after them, spending surged. The trouble is, with net borrowing in 2014-15 forecast to be 5.6% of GDP - don’t even ask about the error margin around this forecast! - such a surge looks infeasible.
Thirdly, the fact that spending has been a smaller share of GDP even quite recently is meaningless; it’s much harder to reduce spending as a share of GDP than to increase it, especially if GDP isn’t growing much.
One question raised here is: is it possible to reform the public services with spending growth so slow? Two things suggest not:
1. Low spending rises - which imply low pay rises - antagonize public sector workers and so increase hostility to reform. People who are scared for their jobs are rarely enthusiastic about innovation. When Nye Bevan introduced the NHS he famously overcame doctors’ resistance by “stuffing their mouths with gold.” This won’t be an option.
2. Some desirable reforms require higher spending, at least initially. For example, if parents are to be given genuine choice among schools, there must be an excess supply of school places; if not, schools will choose pupils, not vice versa. But how can this be achieved with real spending almost frozen?
Surely the politics of choice is dead in the water given the state of the economy?
Posted by: Anthony | December 09, 2009 at 11:21 PM
" is it possible to reform the public services with spending growth so slow?"
It certainly wasn't possible to reform the public services when spending growth was high. (At least not with Labour in power - I would like to see a chart of public sector productivity over the last 30 years or so.)
Anthony, part of the point of "school choice" is to force the schools to compete against each other. As in the private sector, where companies compete with each other, and manage to have productivity growth.
Posted by: ad | December 11, 2009 at 06:10 PM
Surely the best strategy is to pull out all the stops for economic growth? this might mean some pretty fundamental changes to industrial policy and fiscal incentives etc.
Aren't most deficits best tackled by higher growth rather that public spending massacres?
Posted by: Glenn | December 15, 2009 at 01:17 PM
Never frown, when you are sad, because you never know who is falling in love with your smile.
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Posted by: chi flat iron | January 18, 2010 at 09:46 AM
So after his budget - what do you now think?
Posted by: Loans | March 30, 2010 at 12:09 PM
In last weeks Economist, there's a semi-decent article on reading sentiment from large masses of anecdotal data (tweets, mainly).
Posted by: red bottom sole | October 04, 2011 at 09:32 PM