Could it be magic?

9 Jun 09
David Cameron has promised to conjure up ‘more for less’ if the Tories win the next general election. But, argues Philip Johnston, there is no secret formula, and a Tory prime minister might have to radically reform the public services to balance the books

22nd May 2009

David Cameron has promised to conjure up ‘more for less’ if the Tories win the next general election. But, argues Philip Johnston, there is no secret formula, and a Tory prime minister might have to radically reform the public services to balance the books

The last time the Conservatives came into office after a period of Labour rule, 30 years ago this month, the public finances were in a shocking state and the economy was in decline.

‘We were dealing with crises on a weekly basis during the second half of 1979 as we scanned the figures on public spending and borrowing against the background of an international economy slipping faster and faster into recession,’ then prime minister Margaret Thatcher wrote in her memoirs, The Downing Street Years. ‘Our first task was to make what reductions we could (and) we had to begin by reopening the public expenditure plans we had inherited from the Labour government. The scope for cuts was limited. We had promised to increase resources for defence and law and order and not to cut spending on the NHS.’

It is to be hoped that the young team running the modern Tory party has a sense of history because it is about to repeat itself. Assuming an outright victory for the Conservatives at the next election (and that is still a big ‘if’ given the electoral mountain they need to climb), leader David Cameron and George Osborne, the likely chancellor, will confront a level of state indebtedness that makes the late 1970s look like a model of prudence.

It is often imagined that no sooner were Mrs Thatcher’s feet under the desk at Number 10 than a programme of slash and burn began in an attempt to cut back public spending. This was not so. To begin with, there was serious opposition in the Cabinet to the economic approach that she and her chancellor, Sir Geoffrey Howe, wished to follow. Only when these so-called ‘wets’ were removed from the Cabinet was the Treasury free to get on with its task.

The result was the 1981 Budget – widely regarded as one of the most draconian of the post-war era and consisting of swingeing tax rises and spending cuts. This was the Budget that brought in a new and coherent system of public spending control known as PESC, the public expenditure survey committee.

The enforcer of this new regime was the Treasury chief secretary, a post given extra clout by a place in the Cabinet. When departmental ministers cut up rough about the attempts to reduce their spending, arbitration was provided by a committee of senior ministers. This was dubbed the Star Chamber, after the court that sat at the Palace of Westminster until 1641 and became synonymous with the exercise of awesome and arbitrary executive power. Throughout the PESC years, there was an annual ritual that began a few months before the autumn spending statement. The Treasury would start to brief that there had to be deep cuts in programmes X or Y; departmental ministers would brief back that such cuts were out of the question; then the Star Chamber would sit in judgement and usually reach a compromise somewhere in the middle.

In 1981, the Thatcher government was trying to rein in an extra £5bn of planned spending, as promised increases for the police and the armed forces were going ahead and the recession meant a greater call on the public purse to pay for unemployment benefit. In the end, they managed a £3bn cut and that was bloody and painful.

How on earth would a Tory government elected in 2010 cope with financial circumstances that threaten to be far worse than they were in 1979? Finding out the answer to this question is not straightforward because few senior Tories will say anything on the record about the details of their public spending plans – understandably, considering the hostage to fortune that would be given if they did.

Cameron has made one keynote speech on the subject to set out the general principles that would apply. At his party’s spring forum in Cheltenham, he spoke of a new age of austerity and a ‘government of thrift’. ‘Some people say: “let’s get through the recession, let’s get through the election. We can keep on spending more, keep on borrowing more, and deal with the debt crisis later. They are wrong – seriously wrong”,’ said Cameron. ‘Unless we deal with this debt crisis, we risk becoming once again the sick man of Europe.’

However, Cameron believes this can be done by delivering what he called ‘more for less’. He added: ‘We have no option but to weed out spending that is not essential. In opposition, that means not making pledges you can’t keep – and we haven’t. It means not signing up to spending plans you can’t afford – and we didn’t. We won’t arrive in government with a whole bunch of unaffordable commitments.’

Is that true? Cameron has said the NHS budget is off limits. The Tory criticism of Labour’s alleged failure to fully fund overseas military commitments implies either more defence spending or a rethink of UK foreign policy priorities. Twelve years of denouncing Labour’s law and order record will need to be backed up in some way. The automatic stabilisers that push up public spending in a recession will still be in evidence in a year’s time unless there is an economic miracle in the interim.

Has Cameron found the Philosopher’s Stone that turns base metal into gold? How can there be more for less? Yet talking to principal Tory figures who may well be responsible for spending our money in 12 months time, this is the party line and they are sticking to it.

The plan at the moment is not to re-establish the same Thatcherite system of annual public spending rounds but stick with the three-year cycle established by Gordon Brown when he was chancellor. The thinking here is that this makes sense for departmental planning and prevents wasting a substantial amount of political capital fighting yearly battles over money.

But how would disagreements be resolved? One Tory source said: ‘We want to go back to a Cabinet government approach, which means not just sharing the pain but making sure that in a period of very constrained public spending we will evaluate the competing demands of public spending on a genuine cross-government basis.’ While this might be the aim, history (there it is again) suggests this is so much wishful thinking. Ministers will always try to play the importance of maintaining their budget against that of a colleague. It won’t be long before they are fighting like ferrets in a sack and some form of Star Chamber-style system will need to be revived.

Whatever happens, this is likely to enhance the role of the Treasury chief secretary once more. In the 1980s, it was a post in which many rising Tories first made a significant impact, with John MacGregor, John Major and Norman Lamont all cutting their Cabinet teeth there.

The man lined up for the job in a Cameron government is Philip Hammond, a businessman before entering Parliament in 1997 at 42. He is a man who prefers detail to the broad brush approach, and it is a quality he will need in abundance going through the multi-billion spending programmes of departments spending £650bn a year.

Like many of his colleagues, Hammond is careful to avoid giving any promises that might come back to haunt him. However, he said in a recent interview: ‘At any time, the proposal that we should cut back the growth in public spending more harshly than Margaret Thatcher did is pretty odd.’ He said that if the idea was ‘an extraordinary one last summer, it’s quite a barmy one now… It’s not a sensible approach at this point in the cycle’.

On the other hand, the Red Book forecasts in April’s Budget already predicate a real-terms expenditure reduction on which a Conservative government will begin office. On that basis, there will be a tight squeeze in the public sector whoever is in power, even if Labour wins again.

Tory sources say their objective in office ‘is to get through this period without the public by and large noticing the difference in terms of the public services they receive’. One senior Tory told me: ‘Can we rearrange the machinery behind frontline services so they can get what they are getting now but with less input? In the private sector, productivity gains are a prerequisite for staying in business. We should be able to do the same.’

But is this ‘more for less’ approach really feasible? Some departmental shadow ministers doubt it. They think the best that can be managed is the same for less. Others, perhaps more realistically, foresee ‘less for less’ and would like to see the party asking serious questions about removing the state from swathes of national life it could hand over to the private sector, as happened with the privatisations of the 1980s.

Some of this is already taking place, somewhat belatedly, under Labour with the move to foundation trusts in the NHS and with value-for-money drives in local government. This is the model the Tories want to follow and that they believe will deliver more for less by behaving more like a private sector organisation than a state-run one.

In the shadow Treasury team there is talk of the ‘Toyota approach’, whereby every task undertaken by the state is measured against its ability to add value to the customer and, if it doesn’t, it is removed. The team believe this can be achieved by devolving decision-making to the front line and away from Whitehall and its target mentality. Civil servants will be encouraged to find value for money and will be rewarded for doing so. The taxpaying public is entitled to better value and might well ask whether the expenses scandal that has engulfed Westminster, exposing the cavalier way that MPs treat public money, might have something to do with the profligacy of recent years.

But if spending less is meant to manifest itself in the same level of services for the public, what does it mean for the frontline: the people who work in the public sector who might have cause to fear a Conservative government that has been less than complimentary about much that they do?

Cameron has been at pains not to alienate this group. He has promised to honour existing pay deals, including any three-year agreements, though many of these will end before the end of this Parliament if it goes the distance. The Tories believe there will be widespread support in the public sector for the pledge to give them greater autonomy by removing the dead hand of Whitehall from telling doctors whom to treat and teachers how to teach.

‘We do not want to adopt a dogmatic approach of public sector bad, private sector good,’ said one senior Tory. ‘The public sector is a wealth-creating sector – schools, for instance.’

Senior Tories are playing down any notion of a root-and-branch reform of the public sector, although they might not be able to avoid one once (and if) they get into power. For all his ‘more for less’ optimism, David Cameron may find the grim realities of governing will mean much harder choices must be faced than his team has so far been prepared to contemplate or to admit.

Philip Johnston is assistant editor of the Daily Telegraph


Did you enjoy this article?