A decade in denial

10 Dec 09
The past ten years have seen the economy go from boom to bust, and the public finances spiral out of control. Tony Travers relives a decade of war, terrorism and financial collapse – and asks, is it time to face facts?
By Tony Travers

10 December 2009

The past ten years have seen the economy go from boom to bust, and the public finances spiral out of control. Tony Travers relives a decade of war, terrorism and financial collapse – and asks, is it time to face facts?

Amid all the economic and political ­ballyhoo, the end of the ‘noughties’ is upon us. Indeed, Britain’s endless preoccupation with the economy and the coming general election had, until recently, avoided an avalanche of ‘that was the decade that was’ analyses. But as the turn of the year finally arrives, it is inevitable that commentators will revisit the ten years since the end of 1999.

A decade ago, public and private institutions were struggling with the threat of the ‘Millennium Bug’, an imagined technical glitch that, it was believed, might have planes plunging from the sky and the entire internet seizing up. In the event, absolutely nothing happened. The challenge provided by the move from 23:59 on December 31, 1999 to 00:00 on January 1, 2000 has proved, as the decade has progressed, to have been a leading indicator of the evolution of the ‘politics of fear’. Subsequent events, notably the terrorist attacks in the US on September 11, 2001 and developing public concern about issues such as antisocial behaviour, pandemics and climate change, have only exacerbated this trend.

The near-collapse of the global financial system from late 2007 onwards has provided yet another reason to be frightened. It is hard to think of a ten-year period since the 1950s when the threat level has been higher. Then, the problem was fear of nuclear annihilation. Now, society appears to be assaulted by threats of terrorism, regional wars, disease, cyber-crime and, in Britain, economic misery. It would be all too easy to forget the sun-kissed recent past.

Not long ago, the country was marvelling at 15 years of continuous economic growth. ‘Boom and bust’ had been banished. Cities were being regenerated from their cores outwards, the fabric of hospitals, schools and social housing was being replaced by public and private finance. Indeed, for Britain’s public services, the decade since 2000 has seen a sustained period of real growth. Treasury figures show that in the years from 1999/2000 to 2010/11, real-terms public expenditure will have risen by 60%. No recent decade has seen anything similar.

Thus, Tony Blair and Gordon Brown will be seen historically as the prime ministers who pushed up public spending faster than any leaders in modern times. Given how disliked Blair, in particular, is on the Left, it is curious that he allowed such a massive splurge of money across the NHS, schools and in an effort to reduce poverty. The ‘Old Labour’ leaders of the 1960s and 1970s achieved much less.

But the future will be very different. Labour had taken office in 1997 committed to sticking with former chancellor Ken Clarke’s restrictive public spending plans. Blair believed that the electorate feared Labour profligacy and tax rises. By tying himself to the Tories’ plans, it was imagined, people could vote Labour safe in the knowledge there would be no fiscal excess. Clarke subsequently made clear he would almost certainly have spent more than these planned figures. So tight were the numbers that by 1999/2000, public spending was down to 36% of gross domestic product – the lowest level since the Harold Macmillan government of 1957–1963.

This year, it is likely public spending will have risen to 49% or 50% of GDP. The fall in output and rising state spending has combined to push up the figure well above the long-run average.

In Frank Capra’s much-loved seasonal film It’s a Wonderful Life, James Stewart’s character has a near-perfect existence that is severely challenged by financial problems on Christmas Eve. Faced with this personal banking crisis, he contemplates suicide. At the last minute, a guardian angel shows him what life would have been like without him and convinces him not to finish it all. He then goes home and finds that the local community have got together to raise money to help the business. The film ends with the return of Stewart’s war-hero brother. All ends well.

There are possible lessons here. The government might not have a guardian angel, but the future can hardly be as bleak as the worst forecasts have suggested (some from me, it must be said). For a start, the massive expansion of public services from 2000 to 2010 provides a relatively comfortable starting point for the cuts that lie ahead. The electorate might not voluntarily rush round to Downing Street to offer cash to the chancellor, but the economy should start to grow next year. There will then be an opportunity to use the tax system to bring in slightly more money. Public spending cuts cannot be avoided, but they will almost certainly not be so deep as to remove all the gains made since 2000.

Looking back, the additional spending levels are not New Labour’s only legacy. By common consent, the British (mostly English) public sector has been subjected to an extraordinary array of performance regimes, targets, initiatives, regulation and central control. Once the Ken Clarke spending plans had been left behind, Blair and Brown used policies such as Best Value and New Localism, backed up by audit and inspection on an epic scale to suggest they were prudent with taxpayers’ money. Given the massive growth in government borrowing, Chancellor Darling is now having to demonstrate that he too is being careful with future ­generations’ tax payments.

Office for National Statistics figures suggest public sector productivity has lagged well behind the private sector in recent years. Although ministers continue to challenge these findings, there is good anecdotal evidence to imply that parts of public sector spending, notably doctors’ pay and conditions, were not handled in a way that led to improvements in outputs commensurate with the scale of inputs. On the other hand, the shrinkage of hospital waiting lists, improved hospital and school buildings and falling crime figures show improvements have been made.

The offices of senior officials within local government, the NHS, the police, fire services, further education and benefits agencies have been filled with hundreds of documents churned out by the government during the years since 2000. While hard to prove, it is almost certain that no decade in history has produced so many consultation papers, guidance notes and other publications.

Documents with 200 pages have become commonplace. The Treasury twice a year produces ‘suites’ of Budget papers on different subjects. The most recent bundle has just hit the streets with the Pre-Budget Report.
This documentation has been crammed with the odd verbiage of post-2000 government. Policies must be ‘joined up’ and ‘holistic’. The public has had to be ‘empowered’. There must be ‘participation’ and ‘engagement’ to reduce the ‘democratic deficit’. ‘Communities’ have become important, particularly if ‘sustainable’ and delivering ‘cohesion’. ‘Modernisation’ was popular for a while, as was ‘choice’. ‘City regions’ were a good idea, then a bad idea and now a good idea again. ‘Behaviours’ had to be modified. Recently, ‘entitlements’ have become important, though where migrants are concerned they must be ‘earned’ and are subject to ‘conditionality’.

Above all, ‘partnership working’ is the solution to pretty well every problem.

When historians come to sum up the ‘2000s’ they will doubtless be impressed by the scale of public service improvement that was attempted and, to some extent, achieved. Although the British did not escape their hamster-wheel effort to have Sweden’s welfare provision at US tax levels, the country did achieve a once-and-for-all improvement to much of its public infrastructure and to many major services. If the banking crisis had not popped the bubble that generated so much of the tax that paid for this taxpayer-funded largesse, it might have been possible for the chancellor to return to a manageable level of public borrowing by 2011 or 2012.

As Colin Talbot, public policy professor at Manchester Business School, has pointed out, Britain appears to be content with a long-term average of public spending equivalent to 43% of GDP. That point, more or less, is where we would be today, with annual borrowing at around 3% of GDP, had it not been for the financial ­crisis and all that has followed. Now we face a grim decade of tax rises and ­spending cuts – precisely the reverse of the period from 2000 to 2010.

Looking back from December 2019, it is likely a commentator will observe how the government elected in the spring of 2010 introduced modest, immediate, public spending reductions followed by three years in which real-terms spending was frozen from 2011/12 to 2013/14. Value Added Tax, National Insurance and excise duties will all have risen sharply until reduced tax rates in the run-up to the 2015 general election.

Some return to real-terms growth will have resumed in the middle of the decade, but by 2019 the overall numbers employed in the public sector will have fallen back roughly to the levels in 2000. If the 2010 election had produced a hung Parliament, an International Monetary Fund intervention (or worse) and still-sharper cuts might well have occurred.

Thus, the boom in public spending, employment and services that has occurred since 2000/01 will now be followed by a slump over a similar period starting next year. Productivity, which barely improved between 2000 and 2010, will grow sharply between 2011 and 2020. The public estate will be less well maintained. Few major rail, road or environmental projects will be started. Charges and co-payments will be ­significantly increased.

There will, however, be potential benefits from such a prolonged period of restraint. Whitehall might well feel it needs to give councils and local managers greater freedom to improve efficiency and to bring about change. Central government is so clumsy and risk-averse it will not want to be too closely associated with programmes of spending reductions. Passing the responsibility for ‘the cuts’ downwards will get ministers off a very sharp hook.

As we move from the 2000s to the 2010s, it is only reasonable to observe that life and public affairs do not neatly fall into decades. The ‘1960s’ arguably only started in 1964 or 1965 and ran until about 1972. The 1970s stopped dead when Margaret Thatcher took office in 1979. Decades are a construct of time and should not be over-stressed.

But 2000 to 2010 will precisely delineate a ten-year period where public expenditure started to rise sharply, maintained this growth and then halted during or just after 2010. The 2010s look set to operate in exactly the opposite way. The longer-term lesson of all this is surely that Britain needs to find a way of deciding what size of state it really wants. Do we want to be more akin to the US, where government spending represents about 35% of the economy, or like some European countries, where 50%–55% is the norm?

As the general election approaches, there will be an opportunity for the major parties to spell out this medium-to-longer term objective. Indeed, it will be easier for them to look further ahead than to tell us the bad news about 2010 or 2011. We cannot sustain a public sector of the kind enjoyed by France with US tax levels. In the short term, taxes will have to go up or public spending must come down. But once this adjustment has been made, the country needs to decide what kind of place it wants to be. When the political parties write their election manifestos, they should address this issue for the long term.

Tony Travers is director of the Greater London Group at the London School of Economics

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