Spending reviews mid-way through an election cycle should be about communicating responsibility and steady progress, as the space for more radical thinking lies ahead in the coming election campaign. This one, however, is politically more important and there are seriously thorny and controversial issues that need grasping.
The first reason is that the Spending Review is earlier in the Parliament than originally planned and only covers a year into the next one. This allows the Coalition parties the space to progressively build the separate platforms they’ll need for the 2015 election, including campaigning against each other over differences like welfare and defence spending, if either were to form a new government (or different coalition). Expect a lot of fun and games on that front in future.
The second reason is to do with the Opposition. The Coalition parties remain united on the central mission of deficit reduction – a consistent front which has helped the Government poll clear of Labour on economic competence. Polls even show Labour to be blamed more for the current cuts than the parties actually implementing them. In the absence of any serious spending pans from them, this is a bruise the Government will want to keep on punching and the Spending Review is the ideal platform.
In terms of the actual spending package to be revealed this month, the most important influencing factor has been the economic forecasting that came with the recent Budget. It showed low growth to the next election, and that the tax receipts needed to move us from reducing our annual deficit to tackling our accumulated national debt aren’t coming in nearly fast enough. George Osborne will want to show he’s pulling out all the stops to turn this around. That means further focus on shifting what money we do spend onto productive areas of the economy, such as infrastructure and keeping business tax low, and away from unproductive areas such as welfare and Whitehall.
There is clearly appetite to go further on welfare. It has a huge budget and the public approval ratings for cuts are I think the largest I’ve seen for any government policy. The system was in chaos, but the low-hanging fruit has now gone and there needs to be fresh thinking about further reform. Policy Exchange will soon be publishing proposals for paying charities and social enterprises for doing more with the hardest-to-help people who lie furthest away from work.
Further welfare cuts will be more controversial, but the glaring anomaly has been the billions in benefit perks still going to rich pensioners who neither want nor need them. Since I left Government last year, I’ve been saying that this situation looks deeply unfair, particularly in the face of large cuts to the working age welfare budget, and is an open goal for Labour. Labour have indeed now said they’d axe them, leaving the Tories the only party preserving them. Labour would, however, only cut winter fuel welfare, leaving a raft of perks untouched; the bus passes, eye tests and other bungs. This is about fairness and the Tories should respond or their popular position on welfare reform will be compromised.
Another thorny issue will be the ring-fenced budgets. While it is right to protect areas like health and education, some could be asked to do more with their protected envelopes. Health is by far the biggest of these budgets and supporting elderly care, which is closely interlinked with the NHS, but under huge pressure because it’s funded mainly from council tax, is an obvious example. As is populist action like boosting health-related support for troops returning from conflict zones. Higher rates of welfare problems, driven by poor mental health, now plague our service veterans and are a national badge of shame.
The big issue for the Chancellor elsewhere will be justifying his message of further cuts and that is where he needs to show the Government will embrace real public sector reform. On the back of my own research into this, I cannot see our public sector lasting out the decade as currently configured, because while we reduce spending on services, demand for them only rises due to population growth and ageing. Without opening services to the best possible new providers, they will simply collapse.
The public are overwhelmingly supportive of bringing more choice, openness and new providers into our public sector – especially poorer people who suffer most from failing monopolies. We must let them be genuine consumers of services like health and schools, with the right to compare, choose and switch them from a completely open field of providers. And our public sector staff should be rewarded according to achievement, rather than having to accept uniform, automatic-progression payscales.
This is another area where the Tories must own the territory or progressives in the Labour Party – if they can keep the unions on a leash and go for it – will steal the centre ground. Other areas of importance here are tackling the planning bureaucracy and NIMBY-ism that kills growth at birth, as well as building more family housing by selling off grossly expensive council properties in posh areas – issues on which Policy Exchange has led thinking.
A more political job of the Spending Review for the Tories is to help tackle recent frustrations over their overall narrative and focus on issues that regular families care about. This is an issue of communication, rather than policy, however, and Tories should actually be able to be very populist. Addressing ordinary people’s concerns about immigration and welfare with the most radical cuts ever, for example. Lowering business taxes and taking poorer workers out of tax altogether. Freezing council tax and fuel duty to help families with the cost of living. Taking on the teaching unions to provide a better education for poorer kids. The list goes on.
The Chancellor doesn’t usually disappoint on the politics around his job, and Tories will hope he has one eye on 2015 for this Spending Review, using it to communicate the clear, confident and distinctly Conservative platform the Party needs to be telling people about from here to the election.
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