The urgent need to make huge budget savings happens to coincide with the Conservative Party’s ambitions to shake up the ways in which essential services, especially education and health, are delivered
Britain’s new Conservative/Liberal Democrat coalition government is engaged in two bold, and risky, initiatives: to eliminate almost all of the government’s record budget deficit within five years, and to reconfigure the scope and shape of the state. The two are closely linked, with the extent of public borrowing being used as the justification for the attempt to recast the state. But the latter – proposed by the Conservatives, the majority partners in the coalition – may turn out to be the more significant in the longer-term, and will certainly be the more controversial.
The deficit is huge, reaching a peacetime record of 11 percent of national income in the last financial year, currently the highest level among G20 countries. Gordon Brown’s Labour government, which left office in May, was committed to halving it within four years, and even said there should be more than £40 billion of spending cuts over the period, though it did not identify where these would be made. In his election campaign, Brown sought to emphasise investment, or extra spending, over and above the planned cuts.
The Conservative Party argued that Labour’s deficit reduction plan was insufficient in view of the spreading sovereign debt crisis and worries over the UK’s rating. The initially sceptical Liberal Democrats were persuaded – as part of the coalition agreement they reached after the May election – that not only should cuts start in the current financial year but that the deficit should be reduced more rapidly. In his June budget, the new Chancellor, George Osborne, spelled out plans to reduce the deficit to 2.1 percent of GDP by 2014/15. This would involve eliminating the core (or structural) deficit a year earlier. Initially, a sizeable portion of the adjustment will come from tax increases, notably from a rise in Value Added Tax from 17.5 percent to 20 percent next January, but over the whole period nearly four-fifths will come from cuts to public spending.
Some programmes are being protected, in particular the National Health Service and international aid, while others, such as schools and defence, will suffer smaller than average cuts. This means that many departments have to come up with very sizeable reductions in programmes over four years, with options of both 25 and 40 percent savings being examined. This has produced warnings by local authorities, and by the Labour opposition, that tens of thousands of public sector jobs will be lost and core services slashed.
Despite the headlines, the basic principles of the post-war welfare state are not being challenged. Health provision will still be largely free at the point of use, apart from charges for prescriptions, although there are exceptions where no charge is made such as for people aged over 60 and for children, pregnant women and new mothers. Similarly, schooling will remain free and, although the number of places in universities and in higher education is likely to be squeezed and tuition fees may be raised, financial help will continue to be provided for the least well-off.
But the coalition wants a smaller state with less intervention from the centre. Managerial responsibility is being pushed down to the local level. Targets, which proliferated during the Labour years, are being pruned back, while central government is no longer guaranteeing uniform standards of provision. This was one of the main goals of the post-war welfare state even if it was seldom achieved in practice.
Services will be shaken up in unexpected ways. In health, there are proposals for abolishing strategic health authorities, which plan the allocation of resources, and replacing them with the commissioning of services by local doctors or general practitioners. In schooling, the Education Secretary, Michael Gove, has already piloted legislation through parliament allowing successful schools to become semi-inde- pendent academies free of local authority control, and allowing parents, teachers and others to set up similar ‘free’ schools within the state sector. And the police are to come under directly-elected commissioners.
The coalition, or rather the Conservative part of it, is also keen to move from the ‘big state’ to the ‘big society’. Apart from decentralisation, this means limiting the role of the regulatory state by abolishing the proliferation of arms-length public bodies (‘quangos’). For example, the Audit Commission overseeing spending by local councils is to be abolished. Ministers are making much of the reduced use of outside consultants, but the effect of closing the Audit Commission will be to increase the use of the same external firms to audit the activities of local councils.
The ‘big society’ agenda is also about increasing the use of the voluntary sector in providing services. Such bodies are seen as more enterprising and less bureaucratic but they are also heavily dependent on state/taxpayer funds, and these are the very budgets being cut back by central and local government. Indeed, for all the talk of ‘localism’, local councils look like having to bear the pain of the cuts, rather than having the freedom seen in many other countries to set new taxes.
The biggest challenge is the attempt to reduce spending on unemployment and disability benefits to the substantial numbers of families which have not worked, at least for any sustained period, sometimes for two generations. The Work and Pensions Secretary, Iain Duncan Smith, is seeking to streamline the system and to increase incentives for the unemployed to get back into work. But this could initially be expensive and the Treasury is insisting on savings elsewhere. This has opened up the politically explosive area of middle class benefits, payments made regardless of income such as child benefit, which is paid to all families with children, and winter fuel payments and transport subsidies for those aged over 60. Scaling these back could ignite a furore of protest.
The coalition is being attacked not only for threatening programmes that protect the vulnerable, but also for being too radical. The ambition is as great as the other two transforming governments of the past 65 years – the Attlee administration which established much of the welfare state in the late 1940s and the Thatcher government which shifted industrial and trade union policy in the 1980s.
