Economic Policy

Shrinking the state?

  • Published: May 19, 2010
  • Author: Peter Kenway
  • Category: Economic Policy

 All major political parties now accept that the public sector deficit must be cut and the growth in the debt brought under control. With total public spending as a share of GDP close to the 1975 record, and with current spending (excluding investment) at record levels now, all parties must also accept that the great bulk of the adjustment must come through getting spending down rather than putting taxes up.

History show how difficult it is to get current spending down (investment spending is a different matter). Years in which current spending has been cut in real terms are rare: just four in the last forty years, none of them (contrary to what both left and right fondly believe) in the tumultuous early 1980s. Over these four decades, there has never been a year in which current public spending has been cut in cash terms.

Against the historical difficulty of cuts must be set the strength and longevity of the period of growth in current public spending, in excess of GDP, not just during the recession but since 2002/03. If the 40 year spending record means that a sustained programme of real cuts proposed by the next government would be unprecedented, the more recent growth means that what is unprecedented should not be unthinkable.

To succeed, the new government must develop a language of priorities to adjudicate between competing claims for public money. With social protection, health and education absorbing two thirds of current public spending, choices have to be made both between these three large areas and also within them, for example between children and pensioners. Politicians and public alike also need to appreciate how things like the aging population, or the growing number with the qualifications and ambition to enter university, drive public spending and mean that is only ever partially under political control.

The Comprehensive Spending Review promised for after the election is the place where these choices will be made. All previous reviews have been conducted in periods of growing public expenditure. This one won’t. Not only does the public have a right to be involved, only by involving it can the next government expect to get through.

In this new report, Shrinking the State: the difficulty of cuts and what can be done,  based on an analysis of the 40 year record on UK public spending and public spending cuts, Meghnad Desai and Peter Kenway take a cold-eyed look at the challenge facing the next government - and what it has to do to get through.   The summary can be read here.

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