POLITICS
Wielding the axe in Whitehall; or, an old way to pay new debts
SIMON HEFFER
We are at that time of year when one not so much paddles as wades through the deluge of leaks from worried ministers about the forthcoming public spending round. Such leaks have two things in com- mon. First, the leakers all revile the Trea- sury for its reluctance to give them vast amounts of public money; adjectives such as 'unrealistic', which many might think better apply to the size of our budget deficit, usually accompany the description of the Treasury's attitude. Second, there is the dark hint of chaos if the demands are not met, and the occasional supplementary veiled threat of going `to take the matter up with John' if the Treasury digs in its heels. Last year, regrettably, John went over the heads of his Treasury ministers rather too often, and set a painful precedent.
For an object lesson in this art form, note the campaign that friends of Mrs Bottom- ley, the Health Secretary, have conducted during the last couple of weeks in an appar- ently successful attempt to limit cuts in the cash available for National Health Service dentists. There were threats that the den- tists would resign en masse from the NHS (a threat doctors tried and failed to carry out in 1966). Whispers at Westminster (not, it must be stressed, traced back to Mrs Bottomley herself) suggested the Gov- ernment would get all it deserved from the public on this front because of the 'unreal- istic' attitude taken towards the allegedly real needs and aspirations of dentists. A daring government would have seen this as the chance to put dentistry in the private sector by force majeure, while washing its hands of responsibility for this desirable end. This would also have given dentists a welcome exposure to market forces that many of them might not have found entire- ly profitable or enjoyable. Within weeks, many resignations would have been torn up. Despite the alarming state of the public finances, that sort of confrontation is, sadly, unthinkable to this Government.
Yet confrontation there will have to be. It is hard to find a cabinet minister who takes seriously the estimate of £28 billion for the Public Sector Borrowing Require- ment next year. This is partly because they see no recovery, and suspect revenues will be lower and expenditure higher than allowed for at the time of the Budget. They are almost certainly right. It is, though, Mr Lamont's job to prove them wrong. He knows there are simply too many ministers living beyond their means. They have not grasped that Britain is in such an economic state that not only can no luxu- ries be afforded, but real cuts must be made. Nor do they seem to have grasped that, being four years at least away from an election, there is much more room for rig- orous cost reductions than were politically possible last year. Since so much of the public purse goes on wages and salaries (75 per cent of the £30 billion or so spent on the NHS, for example, pays labour costs), that is the obvious place to start.
If it is true that the report on top peo- ple's pay soon to be presented to the Cabi- net recommends increases of up to 30 per cent, that must be rejected out of hand. If top people find that unacceptable, they can go and test the private sector to see if, in the depths of a recession, it provides a bet- ter hole for them. Even an inflation-linked rise for them may be too much, given what the market would be likely to bear. There is not the demand there was for retired gen- erals or mandarins to sit as non-executive directors, a fact some of them ought to find out. A similar message will have to be given to workers lower down the scale; that if they feel underpaid, let them try elsewhere. The million or so who have lost their jobs since Britain went into the ERM have mainly gone from the private sector, while the public has remained fat and secure. In the interests of economic efficiency, that cannot remain the case
The NHS has been given what amounts to a five per cent real annual increase in funding throughout the Tory government. That must stop. There must be a review of welfare benefits, and stricter enforcement still of the rules for claiming the dole. The traditional creators of new jobs — small businesses — have been gravely hit by the recession. If larger concerns that have sur- vived are to have any takers for the low- paid work they can sometimes offer, the labour market cannot be distorted by a mass of people refusing to take such work, preferring instead to live off the State. Cir- cumstantial evidence suggests that Mr Lil- ley, by a happy coincidence the Social Secu- rity Secretary, is one of the few cabinet ministers with the toughness to support a crackdown on the undeserving poor. His less robust colleagues need, once more, to remember that the first year of a govern- ment is traditionally apportioned to the acquistion of unpopularity.
There are specific schemes the Treasury should simply squash as being inappropri- ate to a great debtor nation of sinking income. Why do we pay £1 billion of agri- cultural support to our farmers each year?
Why do we need the State to finance a £2 billion roads programme? If such roads cannot wait three or four years until the recession has ended, cannot the private sec- tor finance them and be allowed to levy tolls? And why, above all, do we need to spend £1.8 billion on the Overseas Devel- opment Agency, over which the perma- nently outraged and appalled voice of liber- al Conservatism, Lady Chalker, presides like Lady Bountiful? As a sign that he means business, Mr Lamont should carry on where he left off with the NEDC, and simply close the ODA down. The best help we can give the third world is to tell them to invite the City of London's privatisation experts to teach them capitalism (though preferably the non-monopolistic variety), and how to produce things other countries want to buy.
Then there is the European Fighter Air- craft, projected to cost £8 billion or so before it is finally delivered in 2000. Once deployed it will have less capability than three American aircraft (the F-14, F-15 and F-18, for those of you who follow these things) and two Russian ones (the SU-27 and MiG-31). The enthusiasm for this pro- ject is political; it is a way both of co-oper- ating with our partners and of giving a boost to British Aerospace. The fact that the product will be outdated before it even flies must be the most important considera- tion, though, for those looking for savings.
Above all, the Treasury must never lose sight of the fact that one of the best ways to cut the deficit is to cut the cost of financing it; that is, by reducing interest rates. Such a cut might also stimulate the growth of jobs, and remove some. of the welfare burden. The Treasury points out that this (even if possible in the ERM) would be inflation- ary. A £28 billion deficit, however, has inflationary pressures of its own.
It is to be hoped the Treasury will pursue its quarry in Whitehall with ruthless zeal.
But they must not forget that cutting spending treats a symptom of our economic malaise. Ultimately, the Government will have no choice but to address the cause.
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