Never mind how poorly George Osborne’s austerity policies have worked out, the chancellor remains confident that voters will remember that the global financial crisis took place on Labour’s watch. With the economy finally on the mend, regaining economic credibility remains one of the most urgent questions facing Labour in the run up to 2015.
If Ed Miliband is to receive a fair hearing on spending he will need to present a humane, pro-growth and fully costed alternative to the coalition’s rushed, ad hoc approach to deficit reduction. But that will not be enough. Labour must earn the public’s trust through reformed processes and new institutions designed to open the black box of the spending process and prove that it can spend the public’s money well.
This is the view of the Fabian Commission on Future Spending Choices which reports today after a year spent thinking about the public spending choices facing government in 2015. The lessons for Labour in particular are clear.
For the first time the commission has put numbers on the spending options facing a future chancellor. It argues that a future government can spend more than the coalition and still close the deficit and retain fiscal credibility, but there are tight constraints on how much more it can spend. With rising tax revenues from better than expected growth and targeted increases for high income groups, it recommends aiming to spend £20bn more than the coalition plans. But this is just a slightly looser-fitting straitjacket. The trade-offs are a little easier but they do not disappear.
In making difficult choices a much more long-termist mindset is required. Ministers need to resist the temptation of short-term political stunts and instead focus on the needs of the country over the next decades. In particular they should prioritise capital spending to create assets which will bring benefits over many years and investment in children, skills and innovation to generate capabilities for future generations.
Given its profound commitment to institutions such as the NHS and the welfare state, reprioritising spending in this way may not be easy for Labour. We argue for more capital spending and giving spending on skills, early years, innovation and job programmes the same special protection the NHS now enjoys. But to do this within fiscally credible limits implies another two years with no extra money for health and the possibility of reductions to some social security entitlements.
Looking within department budgets, the commission concludes that more can be done to offset the pressures budget-holders face. Preventative spending is a long-term investment which can be cost-effective and deliver better outcomes for service users. In the next parliament all public sector budget-holders should be expected to spend more on prevention, with the threat of compulsory ‘topslicing’ of budgets if the institutional barriers to long-termist budgeting prove intractable.
Labour also needs to open up the institutions of government to convince the public it can be trusted as a custodian of the public finances. We want to see much greater transparency in the spending process through a multi-stage, participative spending review process. This would end the situation in which the chancellor’s announcements are set in stone without external consultation. We also envisage enhanced accountability through an expanded remit for the Office for Budget Responsibility reporting to a new budgetary committee of parliament.
Rebuilding trust should also mean focusing more on what spending is meant to achieve, not just how much of it there is. For this reason we propose that the next government should establish an Office for Public Performance to monitor the outcomes of expenditure, promote productivity and identify the causes of poor performance.
None of these reforms to the public spending process will reduce the need for tough decisions in the next parliament, but they will help ensure that difficult decisions are not poorly made. Labour has demonstrated that it has a new vision for Britain where everyone has a stake. It now needs to show it can make the spending decisions which will realise this purpose.
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Andrew Harrop is general secretary of the Fabian Society and Rob Tinker is a researcher at the Fabian Society. 2030 Vision: The final report of the Fabian Society Commission on Future Spending Choices is published today – read the full report here
Yes there needs to be more government spending not less but on a highly selective basis using the old adage a stitch in time saves nine. The are many areas of public sector where spending a little more now can save much more later on. Just one example. Spending money on filling in those darned potholes can save the NHS millions of pounds which are now spent on treating pothole casualties. Helps to create jobs as well.
If every bit of additional public expenditure is presented in terms of the savings it produces down the line there would be much more public support for it.