Today marks one year since the publication of 2030 Vision the final report of the Fabian Society’s 2013 Commission on Future Spending Choices. Since then Ed Balls has announced fiscal rules which would enable the commission’s central proposals to be adopted: a call for the next government to spend at least £20 bn more than is currently planned by the coalition. At the time it seemed like a big number. But the IFS calculates that Labour’s announced fiscal framework would enable the party to spend up to £28 billion more than George Osborne plans.
By committing to a less extreme version of deficit reduction, Labour has side-stepped the need to make an agonising choice between either major tax rises for low and middle income households or savage cuts to social security and public services. Difficult decisions will still need to be made on all three fronts, but Labour has set itself a realistic goal. By contrast George Osborne’s goal of cutting £12 bn from social security and £13 bn from non-ringfenced public services is totally implausible – which is why Labour must resist the temptation to promise to match Tory spending plans after March 2016.
The hidden consequence of Labour’s fiscal rules is that from 2016 the party will be able to adopt a broadly flat current budget for public services, in contrast to another huge round of coalition cuts. Unchanged departmental spending would still pose real challenges, because the NHS and social care will collapse without an above inflation settlement, so moderate cuts elsewhere will remain essential. A flat settlement will leave precious little room for public service pay rises until the public finances are in balance, while growing global insecurity means a Labour government will now struggle to make major savings to the defence budget. But as the Fabian commission showed that, with a flat public service budget, it’s at least possible to sensibly set priorities.
The Fabian commission made recommendations on these priorities – on the composition of public spending as well as its overall level. In particular the commissioners called for spending to be more targeted on the future: investment, education, children, science and jobs. Under Conservative plans we now know there will be a drift in the opposite direction, with a higher and higher share of public spending devoted to health and pensions (rising from 31 per cent in 2012/13 to 35 per cent in 2018/19).
Labour can avoid this fate – firstly because it has given itself the leeway to spend more overall (so that health and pension spending makes up a smaller proportion of the total budget); and secondly because Ed Balls has excluded capital investment from his main fiscal rule. This means Labour can spend a lot more on areas like housing, infrastructure and new school places if it wishes to – as long as it meets its commitment to reducing the total national debt during the next parliament.
So ‘clear red water’ is starting to emerge, along the lines the Fabian commission envisaged in 2013. However none of the parties have embraced our single most important recommendation, which was to situate short-term spending decisions in their long-term context. We called on politicians to start each spending review by thinking about the evolution of expenditure over 15 years or more, before taking immediate decisions for the next parliament. As yet, no one has responded to our invitation and perhaps this is too much to hope so near to the election.
But as a result the election debate will obscure two inconvenient truths of the UK’s current approach to public spending. The first is that if we want to maintain the scope and quality of public services most people in the UK want, the tax burden will need to rise. The second is that if we continue with current social security policies then the living standards of typical families will stall and inequality and poverty will rapidly worsen. Sadly not even the Office for Budget Responsibility has made this point, in its otherwise admirable report on social security published today.
Neither truth is easy for politicians of any party to confront. But unless Labour turns its attention to the long-term consequences of its fiscal choices, the party risks presiding over a steady drift towards a Britain that invests less in its future, supports people less when they need help and is riven by ever greater inequality. A 2030 vision matters.