POLITICS
A budget Derek Draper would have been proud of
BRUCE ANDERSON
Gordon Brown had a presentational triumph. There has been only one other occasion in this Parliament when the Labour benches were so delighted: the day they thought that they had begun the process of banning fox-hunting. That is an instructive comparison, for it demonstrates that for all the talk of New Labour, the best way to arouse the Parliamentary Labour party is still via the old Labour erogenous zones: class war and higher public spending.
Not that the spending increases were anything like as high as yesterday's head- lines claimed. The degree of exaggeration needed to arrive at the figure of £57 billion was worthy of Derek Draper. Once infla- tion and double-counting are stripped out, the real increase turns out to be £27 billion. In real terms, health will receive, not £21 billion, but an additional £5.4 billion. This will enable health spending to increase by 3.6 per cent a year, higher than the Tories' 18-year average of 3 per cent, but not spec- tacularly so. Education, meanwhile, is not gaining £19 billion, but £6 billion. After 18 years of Conservative governments which spent vast numbers of additional billions and received hardly any credit for doing so, we now have an administration which knows how to squeeze every last drop of political advantage out of a public spending statement.
This could all sound like an ideal com- promise, with the spin doctors in charge of the headlines while prudent Treasury housekeepers are in control of the real totals. Not so; even without the rhetoric, the increases are too high. They are also higher than Mr Brown is admitting.
After using Drapered puffery to arrive at the £57 billion, the Chancellor employed accountancy practices worthy of the late Robert Maxwell to justify his claim that public spending would increase by 2.75 per cent a year in real terms. He has simply excluded a number of inconvenient items such as Working Family Tax Credit and various capital projects; the Office of National Statistics is known to be unhappy about the Chancellor's figures, and espe- cially about the Working Family Tax Credit. If the exclusions were restored, the real- terms spending total would rise to over 3 per cent.
That, of course, is significantly greater than the growth rate. So the Chancellor has ensured that public expenditure will rise as a proportion of national income (GDP). He has also made a range of assumptions about the economy, which have one thing in common; they are all highly optimistic. If — as is almost certain — the economy performs less well than the Chancellor has predicted, public expenditure's share of GDP will not only increase, it will increase sharply and dangerously.
Mr Brown has never shared Mr Blair's enthusiasm for portraying himself as the heir of Margaret Thatcher; unlike the Premier, the Chancellor is primarily inter- ested in his standing with the Labour party, not with the Daily Mail. But Mr Brown did give the impression that he would be a tough chancellor. Though he never actually said that he would repay national debt and reduce public spending as a proportion of GDP, he did not contradict anyone who attributed those aims to him. He has now made it manifest that he was never interest- ed in those goals, any more than he was in tax cuts. He has also broken one pledge, and in such a manner as to suggest that he was never sincere in making it.
A few months ago, Gordon Brown claimed that it would be possible to finance higher spending on education out of sav- ings from the welfare budget. That was a laudable ambition, but it has now been revealed as a cynical fraud. Even on Mr Brown's own figures, welfare spending is set to rise by 2 per cent a year in real terms, and that is almost certainly an underesti- mate. Welfare expenditure is not cash limited, but demand-led. If someone turns up who meets the entitlement criteria and asks for the cash, he cannot be refused. As unemployment is now due to rise, welfare spending will rise with it, at more than 2 per cent a year.
Mr Brown never attempted to think through the problem of welfare restraint, so his promise of economies was just a sound- bite. That might also be true of one of the keynote terms in Tuesday's speech: effi- ciency. The Chancellor is well aware that the most naive of all the fallacies relating to public expenditure is the belief that merely by increasing spending in a given area by x per cent, a government can guarantee an x per cent better service. So he tried to fore- stall any criticism and to insist that, this time, everything would be different; there was going to be efficiency, so as to provide value for money.
But he showed no sign of understanding the fundamental problem facing any gov- ernment which tries to maximise value for money in public spending: a problem of human nature. Private citizens have an interest in obtaining value for money; it is their money and there is only a limited amount of it. Private enterprises have an interest in delivering value for money; they have to survive in competitive markets.
Those restraints and disciplines are much weaker when public servants spend taxpay- ers' money. The previous government tried to import private practices into the public sector, with limited success. Since the elec- tion, however, many of those initiatives have been frozen or cancelled, especially in edu- cation. But although they could have made a contribution towards efficiency, they were never going to be the whole answer.
By 1997, some of the more thoughtful Tory ministers had come to believe that pri- vate sector-style competition could not solve the public sector's problems, and that there was only one answer: privatisation. As far as possible, the government should never attempt to provide itself with goods and services; it should purchase them after competitive tendering by private sector firms and contractors. That would lead to much greater efficiency: to a nearer approach to the unattainable goal of ensur- ing that every taxpayer's pound disbursed by the government is spent as efficiently as the taxpayer spends his own pounds in one of the big supermarket chains. But without privatisation, efficiency is just a slogan.
Which creates a further problem for Mr Brown. Not only would efficiency help him spend the additional money wisely; it was also going to deliver savings. On Tuesday, he spent those savings, before they have arrived. That indeed was the theme of Tuesday's statement: spend before you earn. The government, that is, spends before the taxpayer earns. But what if the earnings are not enough?
It is easy to win cheers by promising phantom billions in future years. But what happens when the bills arrive and the billions are not there? It has often been the case that a budget which was applauded at the time was subsequently revealed to have been a serious mistake. That may well prove to be true of Mr Brown's spending plans.
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