Must we scrimp on the basics while giving youngsters cheap rail travel?
It is heartening that the Chancellor still cares about Britain’s massive debt, but he misses the bigger picture
My local police station is closing, one of 37 facing the axe in London. Over the past 10 years some 400 have shut down across England and Wales as forces seek to live within tighter budgets by removing what taxpayers want while retaining what they often don’t need.
Meanwhile, another defence review is threatening to hollow out our armed services still further. General Sir Richard Barrons, the former commander of Joint Forces Command, recently told the Commons defence select committee that there were “existential risks” to the UK which the Armed Forces were unable to deal with. He said the military needs an additional £2billion a year or it could simply “fall over”.
On Budget Day, a brighter light than usual is shone upon the spending choices that we make as a nation, or rather the choices that are made on our behalf. Most people, I suspect, would like to keep the reassuring presence of a nearby police station, even if they rarely go there themselves. They would also rather know that the country had a proper army, navy and air force and was not cheeseparing on defence. Unlike healthcare or education these are not things we can buy for ourselves. Yet we now prioritise entitlements over necessities.
Since Labour came to office in 1997, the number of schemes that involve entitlement spending has soared. Free television and travel passes for the elderly; winter fuel allowances; free nursery schooling; free school meals; help with childcare costs; payments for staying on at school; and a huge expansion of overseas aid. We now spend the same on financing our debt as on defence, more on housing benefit than policing and we have ring-fenced the aid budget. How much of the £40billion that we are about to hand over to the EU will be gobbled up by extraordinarily generous pensions paid for by taxpayers who cannot afford such largesse for themselves?
In his Budget today, Philip Hammond is expected to announce that young people will be given concessionary rail travel to help bridge the alleged intergenerational divide. Since this will have to be funded from borrowing, the very same young people will have to pay it all back at some point in the future, or more likely just pass the debt on to their own children.
The Chancellor is often derided as a bean counter, a man lacking in great vision, which nowadays means a willingness to spend yet more money that we have not got. He has resisted pressure to end austerity completely, even if he did relax the fiscal targets set by his predecessor to give himself more Brexit breathing space. Mr Hammond evidently expects to impart some good fiscal news in the Budget. He told the BBC on Sunday: “We are at or near the point where our debt has stopped growing and starts to decline.” With productivity so poor, it seems unlikely that he will be running a surplus any time soon and to do so would be quite an achievement. The last was during the boom of 2001-2 before Gordon Brown turned the cash taps on again; and there were only seven non-deficit years before that going back to 1960. Given the uncertainties surrounding Brexit, it would be foolhardy to predict another. But maybe Fiscal Phil has pulled it off.
Even so, official debt is only a small part of the story. As the Treasury’s Whole of Government Accounts show, when public sector pensions are included, total liabilities rise to £3.5 trillion. One independent calculation even put them as high as £8.6trillion. So much for austerity. Still, at least Mr Hammond is keeping an eye on the fiscal ball when many in his own party want him to match Labour’s promised spending splurge by cutting tuition fees and increasing state-sector pay. This is a dangerous approach. Public spending is now around 41 per cent of GDP and under Jeremy Corbyn it would go much higher.
The main reason why we have run an almost permanent deficit since the 1960s has been the explosion of entitlements that fractured the something-for-something contributory principle originally espoused by Beveridge. The state gives money to people because of who they are rather than what they need and irrespective of what they have paid in. And once commitments are made they are set in stone.
To give one example: when my children were young (not that long ago) there was no free nursery schooling; yet not only does this new entitlement continue despite our indebtedness, it has been expanded to curry favour with a particular group of voters. Woe betide any Chancellor who tries to cut it.
Over time such entitlements have supplanted contributory benefits and given rise to resentment among the people who pay the taxes to fund them, who are in turn dissatisfied with the standard of services they receive from the state. In a non-collectivist world, they could get better schooling for their children and higher levels of health and social care for themselves if they could spend more of their own money on what they wanted rather than what they are given.
We should have started to uncouple personal welfare from public spending years ago as the country became richer, leaving the state to help only the very poor. Instead, radical ideas such as top-up education vouchers and treatment co-payments in health have been killed stone dead. It is heartening that Mr Hammond remains focused on spending restraint; but like most recent Chancellors he misses the big picture, or is simply unable to redraw it. Mr Brown, in particular, went off in the collectivist direction, deliberately dragging ever greater numbers into the welfare net.
We are now in the perverse position of relentlessly cutting the things the state is supposed to provide such as defence, policing and infrastructure, while political parties vie with each other to promise more people more things that they could and should do for themselves. Those who want to see the proportion of GDP taken by the state reduced to around 30 per cent, with commensurate tax reductions to boost productivity, choice and growth, are hardly heard from any more.
We are doomed to pile up debt while periodically chipping away at it without making a discernible impact. The entitlement culture has won.