Tough choices looming on how to fund public services
PROMISES, promises. Politicians love to make them. They even deliver some. But in general the pledges end up competing with each other for time, money and energy and many are disappointed.
Others are irreconcilable from the start. Before she headed for the British Irish Council on the Isle of Man yesterday, Nicola Sturgeon put Brexit firmly in this last category. Theresa May, she said, was heading for disaster by promising too many things to too many factions, and they could never all work out.
Mrs May is not the only one prone to excess promise-making, of course. A report from Fraser of Allander Institute this week highlighted the many promises made by Ms Sturgeon, and her growing difficulty in keeping them.
Its jump-out statistic was on health. Day-to-day resource spending on the NHS was 37% of the Scottish budget at the start of devolution 20 years ago. By the end of this parliament it will be almost 50%.
This partly reflects necessity – there is rising demand from a growing population, particularly the elderly population, but also ambitious political commitments to protect health from austerity, plus a boost from the recent UK budget.
The Fraser of Allander report coincided with a related one from Holyrood’s finance committee. MSPS said there was a “demographic risk” to the budget. Namely, lots of old folk, not enough taxpayers.
This is a familiar theme in Scottish politics. There have been warnings about a “demographic timebomb” for years. But the Holyrood report said the fuse had now been lit.
From 2018 onwards, Scotland’s working age population, the 16- to 64-year-olds whose income taxes account for about one-third of the budget, will start to fall. Meanwhile, Scotland’s elderly population will accelerate from 2021, faster than in the rest of the UK. The number of over-75s will double by 2039.
It therefore makes sense that the health budget is expanding. But health’s insatiable consumption of public funds has consequences.
It’s not fair to characterise it as a zero-sum fight with other services over cash. Spending on employment, education, skills, and alleviating poverty can lead to long-term improvements in health and so diminish demand. It’s complicated.
But the focus on health since 2010 has undeniably been accompanied by a 9% real terms fall in the second largest slice of public spending, local government. Education is down 4%, environmental services 9%, roads and transport 14%, culture and libraries 20%, and planning and development a mind-boggling 35%.
Nor is health the only protected service. Besides promising to increase resource spending on the NHS by £2bn to £13.5bn by 2021, the Scottish Government has also pledged to maintain the police budget, put an extra £1.5bn into doubling nursery care, put hundreds of millions more into closing the attainment gap in schools, and have more generous devolved benefits. And while it has been quick to trumpet the promises, it has been near silent about the challenges other services are facing.
When ministers published their five-year Fiscal Outlook earlier this year, it implied spending on non-priority areas would fall by 12% in just three years. The UK Budget, with £950m of extra funding under the Barnett formula, has reduced that to 4%, but it shows the brutal squeeze that ministers, sotto voce, were ready to countenance.
The Fraser of Allander says it can’t go on. It recommends “radical change”, a phrase guaranteed to strike fear into the heart of even the most outwardly radical politician.
One idea, a return of tuition fees, is a radioactive non-starter. But others are more practical. Like giving councils the power to set their own taxes. Not just a tourist tax, but a tax on employer car parking spaces, which has raised revenue and cut congestion in Nottingham.
The think-tank also floats a tax on vacant land and an overhaul of council tax, which is increasingly detached from house prices. There hasn’t been a revaluation since it was introduced 27 years ago.
What about a national social care fund to help our ageing population? The Welsh Government recently published a report on the idea. Individuals would pay between 1% and 3% extra income tax according to age and means as an insurance against social care in old age.
Costs would be spread fairly across the generations, and the benefits would be linked to people’s contributions, so last-minute retirees from outside the country couldn’t piggyback on it.
“The fact that Wales is having such a discussion, but Scotland is not, suggests that we need to up our game in Scotland with regard to the level and quality of the debate,” the Fraser of Allander says pointedly.
The current break between elections at Holyrood was supposed to be the time when MSPS were going to take on these big issues.
Brexit has understandably got in the way, sucking the oxygen and adrenaline from the body politic.
But even Brexit cannot go on forever. The debate over how to pay for public services – what to tax and what to cut – is inescapable.
As Ms Sturgeon also told the Prime Minister yesterday: “It is time to be straight with people.”
Even Brexit cannot go on forever. The debate over how to pay for public services – what to tax and what to cut – is inescapable