If we don’t reform the state now, we never will
Throwing ever greater quantities of money at an unreformed public sector is inefficient and unfair
Seemingly, there is a Winston Churchill quote for every occasion; the one that springs to mind for today’s heady mix of pandemic-related challenges is “never let a good crisis go to waste”.
If ever there was a time to press the button on long overdue and muchneeded institutional reform of our bloated public sector – which despite the herculean efforts of NHS and other essential public sector workers, Covid has found wanting on multiple different levels – it is now.
Crises normally and naturally give rise to radical thought and solutions; perhaps the biggest curiosity of this one is that so far it hasn’t. Except in this regard: in putting the economy on what amounts to a wartime footing, the Government has hugely expanded the role and reach of the state.
As we discovered after the Second World War, once this type of economy is established, it is extremely difficult to get rid of. Wartime regimes, and the social support arrangements they put in place, are not easily dismantled; they remain sticky long after the emergency that created them has passed.
According to Office for Budget Responsibility forecasts this week, UK public expenditure is due to surge by a staggering 16.4 per cent of GDP to a peacetime record of 56.3 per cent this financial year.
This tapers away in the central forecast until it reaches the same level of spending in five years’ time as before the crisis, at around 40 per cent of national output. That may be what the Government is aiming for, but given the hard choices that need to be made in getting there, it is going to be politically very difficult to achieve.
In any case, we’ve already thrown more money as a proportion of output at the problem than any other advanced economy bar Canada. Once loan guarantees and other forms of liquidity support are taken into account, other countries such as Germany have admittedly gone further still. But their upfront public spending has been significantly less.
Channelling such a huge increase through an unreformed public sector has proved a scandalously wasteful process. We have not had good value for money. If success is measured by excess deaths per capita, only Spain has performed worse than the UK among advanced economies. On any objective analysis, the UK has proved shockingly inept in its handling of the pandemic crisis.
That said, it is hard to see how ministers could realistically have acted differently in terms of the overall approach. I’m something of a lockdown sceptic, but would readily acknowledge that politically it would have been extraordinarily difficult to adopt alternative strategies while all around in Europe and beyond are responding in the way they have.
In previous pandemics, people on the whole simply got on with their lives regardless of the disease. The mounting death toll was seen as just part of the human condition. But we are rich and medically savvy enough today not to have to adopt such a fatalistic approach.
Imagine the headlines if Britain had stood alone in letting the virus rip, and as a consequence seen its health service overwhelmed and the vulnerable dying en masse. It is not a risk that any responsible government with political survival in mind could take. Nor is it even certain that the economic impact of such an approach would have been less.
The higher the incidence of disease, the more people are likely to choose voluntarily to shield themselves, especially in advanced economies where many people are rich enough to forgo earnings and home working is easier. The economy might have substantially shut down anyway, regardless of Government instruction.
Be that as it may, the pandemic has exposed myriad failings and weaknesses both in our system of governance and in the provision of our public services. Nowhere is this more apparent than in healthcare, where decades of penny-pinching and rationing of provision have created a capacity constraint that necessitates closing down much of the economy merely to prevent the system being overwhelmed. There could scarcely be a better example of false economy.
As a nation, we need to be spending more on health and social care to provide the sort of service people increasingly demand and expect, perhaps two to three percentage points of GDP more. Institutional reform – allowing healthcare to be transformed from the producer-determined service it is today into the modern, consumerled business healthcare needs to be – would flow naturally from changing the funding model from general taxation to a system of hypothecated social insurance.
Public or private, in principle it makes no difference. The NHS was a glorious thing when it was conceived, but it has become marooned in time. It is no accident that no developing nation has chosen it as a model for universal healthcare.
If we can’t reform even after a crisis as serious as Covid, we never will. Sadly, there seems to be little if any appetite for it among our perpetually firefighting political leaders.