Five things we learned about the future of government in 2014

2014 was the year the pre-election political contours solidified and the most controversial dividing lines centred on the future of government. Next year’s election will offer up some big choices. Here are five things we learnt in 2014 about the future of government:

1. There will be a big fiscal choice in the 2015 election

2014 began with Ed Balls setting out Labour’s fiscal rules at the Fabian New Year conference. The party promised spending restraint and falling national debt.  But it also said it would aim to balance the current budget only, with no formal limit on capital spending. By the time of George Osborne’s Autumn Statement, which forecast that public spending would fall to 35 per cent of GDP, the difference between the two parties was stark. The IFS calculated that Labour might need to cut less than £5bn between 2015/16 and 2019/20, compared to the £50 bn implied by the coalition’s stated plans.

While the chancellor promises a further four years of public service cuts on the same scale as those of this parliament, Labour’s rules require few if any cuts to overall public service spending (given it has promised some modest earmarked tax rises). This Labour ‘best case’ path for public service spending echoes the recommendations of the 2013 Fabian Commission on Public Spending Choices. But even these plans will be hard to stomach – services like the NHS will struggle even if its budget rises slightly and other spending areas will undoubtedly see cuts.

2. The election will be about the role of government, not just its size

Our 2013 spending commission warned that future governments were at risk of sleepwalking into a situation where spending was skewed towards old age, at the expense of everything else. 2014 seemed to confirm that view, with all the political parties promising to increase real spending on the NHS and protect the state pension.

As a result every other area of government activity faces huge pressures (and especially under the Conservatives’ plans for major cuts).  The latest OBR numbers on the chancellor’s spending plans to reveal:

• NHS: The NHS will comprise 41 per cent of all public service spending under Conservative plans for 2019/20; this contrasts to just 29 per cent in 2009/10.
• Unprotected services: Real spending on ‘unprotected’ public services (everything but health, schools and international development) will fall by half between 2009/10 and 2019/20. This calls into question the continuing viability of the armed forces, criminal justice, care for older people, child protection, local amenities etc.
• Social security: Spending on social security inside the ‘welfare cap’ (ie excluding the state pension and JSA) will fall from 6.3 per cent of GDP in 2013/14 to 5.3 per cent of GDP in 2019/20. This is a massive and unannounced distribution of national prosperity away from low and middle income households. This will hit family living standards which have already been declining for a decade.

Supporting people in later life is a vital function of government. But as the 2013 Fabian spending commission said, we badly need a debate on the purpose of public spending. Politicians must ensure that investment in the future and support for people during their working lives is not squeezed out.

3. Tax is a dividing line, but politicians are ducking the real debate

The political pledges of 2014 suggest we are set for another general election where the political parties talk a lot about tax but duck a grown-up conversation. Labour said it would raise taxes, but only for the very wealthy. The Conservatives promised £7bn of tax cuts but could not explain how these would be paid for on top of all their spending cuts.

Neither promised a broader debate about how much and also how we tax. The 2013 Fabian spending commission argued that the overall tax take should rise as a share of GDP over the long term, not to close the deficit, but to sustain a state that is dedicated to investment, tackling inequality and world class public services. People on the right may disagree, but in that case they should spell out the consequences for society and for the economy of a less activist government.

And we should look at how we tax as well as how much. The tax base is fragile and increasingly dependent on vulnerable economic sectors; as well as individuals and companies who seem able to reduce what they pay while remaining within the law. And on top of that we tax earnings very heavily, but hardly tax wealth at all, which means the tax system is exacerbating intergenerational inequalities. A truly radical Labour government would embark on a five-year review of the whole tax system.

4. The election offers a choice on public services too, but a fuzzier one

During this parliament Labour has reacted with anger to the coalition’s radical programme for public services, condemning the reforms of Lansley, Gove and Grayling. But the party has been far more circumspect regarding its own alternative. In part this is because many coalition figures have delighted in pitching their marketising reforms as ‘continuity’ new Labour.

In 2014 Labour started to be more specific about what it what it would do differently. In the Spring, Ed Milibands gave the Hugo Young lecture on public services; then there was the Blunkett Review on the oversight of free schools and academies and a Labour bill to reverse the Lansley reforms.

But no one should pretend that Labour has a fully-fledged roadmap for public services that lies between neo-liberal marketising zeal and unresponsive state monopolies. Our November report Going Public is a guide to the next stages.

5. We’re all localists now

This Autumn, Labour politicians were left spitting when George Osborne unveiled major devolution for the big cities of the North. In fairness, the party set out some pretty impressive ideas for decentralising power in its arms-length reviews on economic support, local government, skills, schools, whole-person care and housing (the upcoming edition of the Fabian Review considers them all).

But it was the fallout from the Scottish referendum which put the whole debate on the front pages. Labour offered radical devolution within England as the alternative to two-tier MPs at Westminster. Yet to date there has been more aspiration than concrete commitment. The party pulled back from promising councils major powers on health commissioning or housing finance. There is also a risk of new democratic deficits, for Labour is in danger of creating power without accountability above the level of the elected local authority.

Still, Labour has a newfound zeal for localism, which is shared by pretty much all the major interests and pressure groups within the party. Even the Fabians are localists now, with our own radical ideas on decentralising power.