The Government’s Efficiency and Reform Group this week revealed progress in tackling wasteful spending, finding an additional £14.3bn in savings for the 2013/14 financial year. This builds on savings of £3.75bn (2010/11), £5.5bn (2011/12) and £10bn (2012/13).
Cabinet Office Minister Francis Maude and his team should be commended. Over previous decades, wasteful spending has skyrocketed. The public sector has too often spent over the odds, blowing taxpayers’ money on ridiculously expensive stationery, on poorly-managed contracts, on an army of consultants, on far too much. That money should have instead been spent on essential services – or simply not spent at all, and left in the pockets of taxpayers.
So news of successful moves to tackle inefficiency is welcome. Finally, some common sense is being applied to running central government.
But for this to translate to a better deal for taxpayers, this can only be the opening battle of a war on waste. Taxpayers worked 148 days this year just to cover their tax bill. Yet they still find wasteful government spending contributing to our enormous public debt, and eliminating waste is the first step in lowering people’s taxes across the country. That’s the thinking behind our War on Waste Roadshow, taking our message of transparency and accountability to 30 towns and cities across the country.
There is no doubting that, as Francis Maude himself has admitted, there is plenty more to do. An attitude that abhors waste and chases efficiency has to be the norm rather than the exception throughout the public sector if the Government is to deliver the value for money that taxpayers deserve.
Nick Clegg announced two new fiscal rules that Liberal Democrats would implement should they form a new coalition after the 2015 General Election. The Deputy Prime Minister told an audience at Bloomberg that they will “significantly reduce” national debt as a proportion of national income each year until it reached “sustainable levels”, so long as growth is positive. The second rule would be to only run cyclically-adjusted balanced budgets after ignoring capital spending “that enhances economic growth or financial stability”.
So what do these rules mean?
The wording of Clegg’s debt rule is surprisingly tight. He’s not saying that the national debt won’t carry on growing. He’s just saying that it will grow less quickly than national income, and then only when the economy is growing. The main ambiguity concerns what “significantly reduce” means, and what “sustainable levels” are. Looking at Budget 2014, the OBR estimated that net debt would fall from 78.7 per cent of GDP next year to 78.3 per cent the following year. It would then fall by 1.8 and then 2.3 percentage points to reach 74.2 per cent in 2018-19. This is probably what Clegg means.
But what are the risks? These OBR estimates assume interest rates on gilts edging up slowly from 3.3 per cent in 2015-16 to 4.0 per cent in 2018-19. In addition, they assume GDP increasing at 3.9, 4.6, 4.5 and then 4.4 per cent in cash terms. This is important because most of the national debt is not adjusted for inflation. If economic growth slows down but by enough to suspend the rule, not only would that increase the debt-to-GDP ratio, it would also mean that tax revenues would disappoint, spending pressure would increase and interest rates on government borrowing might rise faster than expected. The plans also assume the Government will carry out cuts to welfare spending which it has penciled in but which remain unspecified.
Mr Clegg’s balanced budget rule is somewhat less tight. First, it only applies to ‘cyclically adjusted’ budgets. That means if the economic cycle is miscalculated too much spending or absent tax revenue could be cyclically adjusted away. It also only applies to current spending which is problematic for two reasons. It assumes any capital spending will recoup itself through stronger growth and because, as Mr Clegg said about spending under the previous government, ministers might be tempted to “slap the words ‘capital spending’ on anything and everything just so they could get away with borrowing to pay for it”.
The problem is that not all capital spending by government is so efficient and productive. And by including housing in our ‘infrastructure’, Mr Clegg began his campaign to spend much more of our money on his projects.
we cannot build a stronger economy and a fairer society where there are opportunities for everyone unless we are prepared to put our shoulders to the wheel and use the muscle of the state – if necessary through borrowing – to rewire and revamp our infrastructure. Nowhere is the problem more acute than housing.
We aren’t building the infrastructure we need, whether that’s housing, transport or telecommunications. But the problem is too much “state muscle”, as he puts it, not too little. Planning rules are stopping developers from building the homes we need in the places buyers want to live, and they are making it much too expensive to build them in the first place. And Heathrow is desperate to build a new runway to provide new capacity for our air transport networks in the place where they’re most wanted. But it can’t, because “the muscle of the state” has decided it wants to spend the years writing a report while spending billions of our money on a seriously flawed high speed rail project that no private business has any interested in building with their own money.
The problem is best summed up when Mr Clegg rallied listeners to the cause of spending taxpayers’ money on housing projects:
It’s time to put our money where our mouth is.
Mr Clegg, it’s not your money. It’s ours.
Last night I debated ‘Is a Smaller State a Better State‘ at the Bristol Festival of Ideas, with Labour peer Maurice Glasman and the Observer’s chief leader writer Yvonne Roberts, chaired by the Observer’s assistant editor Julian Coman. The debate was interesting with three distinct views, but there were also striking areas of agreement across some of the topics discussed.
My argument was largely focused on the economics and ethics of high levels of spending and taxation, while also acknowledging various other regulations and prohibitions which affect people’s lives outside the tax-and-spend framework.
On the economic question, I talked about the overwhelming evidence linking lower levels of government spending and taxation with faster, more dynamic economies. There are countless studies in the academic literature which almost universally demonstrate that the size of government where the economy grows fastest is far below the 43 per cent of our national income which the government now spends. These studies have been discussed in The Single Income Tax on pages 104 and 132. The contrast between the economies of France and Britain, and between those two countries and Singapore and Hong Kong, demonstrates the results point with remarkable clarity:
Regarding ethics, I talked about the coercive nature of tax and spend, and how it eclipses personal morality, promotes special interest lobbying and corrodes individual morality and politics. I drew heavily from the excellent essay by Eamonn Butler in The Single Income Tax (pp 79-87).
There were many areas of disagreement, but also many where we agreed. Maurice Glasman, meanwhile, made the case that incentives to work must be strengthened and Yvonne Roberts spoke of the feeling that the state does things to people rather than with them. There was also universal agreement that taxpayers being forced to bail out bank shareholders was deeply unjust.
At the end of the debate and questions session, the audience was asked to vote on whether the state was too big, too small or about right. About a third voted for each proposition.
The Sunday Times reported yesterday that 800,000 patients were turning to A&E departments and walk-in centres because they are unable to get an appointment with a GP.
Predictably, the chair of the Royal College of GPs blamed a “funding crisis” and warned that the service was “teetering on the brink of collapse.”
With constant talk in the media of an NHS cash crunch/funding crisis (delete as appropriate), it’s important to understand some basics about the NHS budget and general practice.
Historically speaking, the NHS has received large, real term budget increases for a couple of years in a row, and then had a few years of lower spending. This changed around the turn of the century when the NHS was handed big budget increases throughout the 2000s.
According to the Institute for Fiscal Studies, between 1979 and 1997, NHS spending increased in real terms by an average of 3.2 per cent. Between 1999 and 2008, this figure was 6.3 per cent.
It’s hardly surprising that spending on healthcare has increased both in absolute terms and as a share of public spending as the population ages. It’s also hardly surprising that health spending isn’t being increased as aggressively as it was in the 2000s when it went up by 92 per cent in real terms.
So it’s disingenuous for GPs to complain that their funding has fallen by pointing out that as a percentage of the NHS budget, as it now represents 8.4 per cent rather than the 10.3 per cent it did in 2004. This just means they have a slightly smaller share of a much bigger pie.
Talk of a “cash crisis” isn’t anything new. There were endless stories about impending financial disaster for the NHS during the years when it was handed unprecedented budget increases.
It’s hardly surprising that people struggle to get an appointment with their GP with the number of practices opening late or at the weekend falling.
The 2004 GP contract gave many GPs the ability to opt-out of providing out of hours care and many chose to do so. This trend has continued long after the contract was agreed, with a further 13.3 per cent fall in the number of GP practices offering weekend and evening appointments between 2009 and 2013.
The National Audit Office looked at the effects of the contract in 2008 and found that:
Simply put, in the UK we have a system which pays a small number of doctors a lot of money. Other developed countries have decided to pay their doctors slightly less, and have more of them:
The other sacrifice we make is having less modern medical equipment than most other developed countries:
If GPs’ pay fell more in line with the likes of Australia and France, there would be more of them, more out of hours care available, and fewer people using A&E departments.
Before coming up with proposals to charge for visiting a GP or demanding more money from taxpayers, GPs need to explain why they deserve to be paid so much more than their international counterparts, and why their high salaries are preferable to having more doctors and more modern medical equipment.
I run a small business in Wales. The company has grown from strength to strength in the past year, and since Christmas I have even been able to create a further five jobs. The positions created have in-house management training opportunities attached, there are no formal educational requirements – just the eagerness to learn and develop.
Many individuals claim that there are too many barriers to work, such as education, the availability of work and the flexibility of work. The five positions created all have flexibility, and as mentioned there are no formal entry requirements. However, last week I cleared my schedule so that I could interview a further batch of candidates nearly five months after the jobs had been created.
There is certainly no lack of applicants – approximately 50 per day. Unfortunately, though, the majority don’t answer their phones or return messages, and of the 20 applicants booked in for interviews this week alone, only one has shown up. And this after a lengthy telephone conversation and a confirmation text confirming our location and times.
As a small business owner, recruitment is the biggest drain on my time. Much of that time should be used to generate more business and grow the company even further, which in turn would create even more jobs and wealth. In recent weeks both the UK and Welsh Governments have been talking about reduced unemployment rates of 6.8 per cent in Wales (6.9 per cent nationally). But I would argue that the problem hasn’t disappeared, it has just moved.
The welfare state is a massive burden on taxpayers, and rather than the national or Welsh Governments tackling the problem they are merely exasperating it. A coherent approach to helping the unemployed back to work has to be adopted, rather than benefits for life. Alex Wild wrote in this morning’s City AM on conditional welfare – that would be a good place to start.
Windsor and Maidenhead Council today announced a 2 per cent tax cut proposal for 2014-15. The cut will represent the fifth successive year of rate reductions, during which time the tax burden has decreased by a considerable 26 per cent in real terms.
The Royal Borough has a track record of council tax cuts without cutting services… We run our finances knowing that it is residents’ money to spend prudently.
IT HAS been six years since the financial crisis began, and the government’s books are still in a mess. As the chancellor prepares his latest Spending Review, public sector borrowing will yet again exceed £100bn this year. And most of that isn’t even cyclical – it is structural. In other words, its annual accounts will still be in the red even when the economy returns to a normal state.
The Government has recently set aside £500 million to build a rail link between Heathrow and The West and is likely to agree a similar figure for a line running south from Heathrow. But Windsor Link Railway, a private company, is competing to build the route and for a fraction of the cost. It is proposing the first wholly privately funded new rail line in over 100 years. According to its website, Windsor Link Railway’s proposals could save taxpayers over £1 billion.
This two phased project aims first to link Slough to Staines via Windsor and then to connect Heathrow to the Great Western Main Line and The South, significantly improving access to Heathrow and giving local people a much better service. It has support from local MPs including Michael Gove and Zac Goldsmith, Transport minister Theresa Villiers confirmed that it complies with the government’s specifications too.
What’s more, 95 per cent of local residents were in support of the scheme according to recent polling and over 100 local businesses have signed a letter declaring the project better than competing schemes.
The cost per metre of track is far higher in the UK than elsewhere in Europe, a problem exacerbated by shocking inefficiency of Network Rail and the complexities in building new rail imposed by the Department for Transport. So it will be interesting to watch this develop. If new private rail could see significantly improved services for passengers and better value for money for taxpayers then the option must be seriously considered.
Commenting on the Lough Erne Declaration, Matthew Sinclair, Chief Executive of the TaxPayers’ Alliance, said:
“This summit was a distraction which was never going to address the root cause of British public disquiet over tax avoidance: our hideously complex tax code.
“The way to ensure that all companies and individuals pay their fair share of tax here in the UK is for the politicians at Westminster who created our tax system to simplify it by scrapping the loopholes they introduced and ensuring that tax rates are competitive. Only then will people again trust that everyone is paying what is due.
“Transparency is important, on the part of both tax authorities and multinational companies. But it is also vital that there is tax competition between different nations, because that pushes down overall tax rates for families and businesses alike.”
Writing for the Yorkshire Post, Rory Meakin argues that the fundamental cause of all our tax woes is that our tax code is too complicated.
GOOGLE, Apple and Starbucks are just three of the multi-national companies under fire from the House of Commons Public Accounts Committee and its equivalent in the US Senate for their tax arrangements, one of the defining issues of the G8 summit now underway in Northern Ireland.
Recently, the National Audit Office unearthed public sector bodies dodging National Insurance for employees in Britain. Tax is big news in a way that it never used to be. Barely a day seems to go by without some tax-related news hitting the headlines.
Reacting to Ed Miliband’s speech on welfare, Matthew Sinclair, Chief Executive of the TaxPayers’ Alliance, said:
“Ed Miliband is right to acknowledge the burden of our enormous welfare budget but his proposals won’t do anything to tackle it. The best way to bring down the welfare bill is to focus on the cost of individual benefits, not introduce an overall spending cap. It’s also crucial that work pays, which means cutting taxes and leaving more money in the pockets of the people who earned it. Continuing to trap people in a complex welfare system just isn’t acceptable, so politicians must get serious about simplifying benefits, cutting taxes and removing regulations.”
Several policy ideas were floated in the speech in an attempt to address some of the challenges in the welfare budget. There are better ways to deal with these problems.
The main cause of Britain’s ever-increasing housing benefit bill is a lack of housing supply due to planning restrictions, not poorly negotiated deals by local authorities. Freeing up private investment in housing will bring down housing costs for everyone, including the Housing Benefit bill. Trying to cut Housing Benefit by increasing direct spending on housing won’t help taxpayers.
Grants for living wage:
Offering taxpayers’ money to companies in return for paying a living wage would do little more than link two bad polices into one. Incentives for companies to switch from low-paid jobs to capital investment could lead to fewer jobs, not more.
Tax Credits and low pay:
Heavy business taxes and onerous regulations mean companies have to pay lower wages. The Government should stop making it so expensive to hire low-paid workers by cutting business taxes like employer’s National Insurance and let workers keep more of the money they earn.
The contributory principle:
Benefits and taxes are already too complicated. Reform should focus on expecting people to work for their benefits and preparing job-seekers for the job market while simplifying the system.
Some of this yesterday’s papers were difficult to read. “Hungry Britain” screamed the Independent in its front page splash. Page two of the Guardian declared that “Welfare cuts have caused hunger and destitution”. Both articles are drawn from a new report Walking the Breadline by Church Action on Poverty and Oxfam. It examines the rise in foodbanks and food poverty in the UK and attributes much of this to changes in the welfare system The number of families turning to foodbanks is shocking and should act as wake up call to everyone,but is the rise in the use of food banks really a simple result of “the cuts”?
Leave aside the other problems with the report. Look at figures taken from the Trussel Trust and you can see that foodbank use has been rising rapidly since 2005, nearly doubling every year.
The number of foodbanks was rising rapidly even when benefits were increasing significantly faster than wages. The most common reason people use foodbanks is actually delays in benefits being paid. This accounts for nearly 30 per cent of referrals to Trussel Trust’s foodbanks in 2011-12. We have an incredibly complex benefit system which has been made worse by years of tinkering. Yet another reason to simplify the system along the lines of the Universal Credit.
After that, low income is the second biggest reason for referral at nearly 19 per cent. The cost of living has spiralled and low wages simply can’t keep up. But instead of doing something about the taxes and regulations that undermine everyone’s living standards, they want to rob Peter to pay Paul by increasing benefits, at the expense of higher taxes.
If we want to stop people relying on foodbanks, the first step should be to cut taxes on low earners. Even those on minimum wage hand over a considerable amount of their earnings to the taxman before they get to paying bills like their Council Tax. You want a living wage? Then stop taxing the minimum wage . And when you do spend it the taxman takes an increasing chunk of the money in VAT, Fuel Duty and charges on life’s little treats whether it is a drink or a smoke. No wonder people are skint.
But it gets worse, planning laws get in the way of house building so rents are sky high. Government energy policy it makes it more and more expensive to heat a home at winter, while the Common Agriculture Policy forces up food prices.
And who do you think pays taxes like National Insurance and Corporation Tax?
Workers. In lower wages.
In all of these ways, politicians have made choices that have undermined people’s living standards. It means that those people at the margins of the labour market, and trapped there thanks to a dysfunctional tax and benefit system, are much more likely to be pushed into reliance on a foodbank when things go wrong.
The problem is that too many campaigners who want to help are wedded to the idea that the solution to poverty is just more benefits. We have tried that for the last twenty years and where has it got us? An unaffordable benefits bill for taxpayers, people paying their taxes only to be handed the cash back after it has been put through the cogs of bureaucracy and zero action on the root causes of poverty. If you want to read a real manifesto for tackling poverty read the excellent Redefining the Poverty Debate by Kristian Niemietz of the Institute of Economic Affairs.
There is far more to poverty in this country than “benefit cuts”. For too long those wedded to a failed way of tackling poverty have been allowed to set the terms of the debate. We owe it to those struggling just to put food on the table to re-examine how we tackle poverty in the UK rather than pretending throwing someone else’s money at the problem is the answer.