Andy Cowper on how a philosophical quandary faces the Chancellor as he presents the Budget
Before I start this week’s column, you need to make a note in your diary to read the new column on Sundays by HSJ’s editor Alastair McLellan on politics and the NHS. In a nod to the famous Nye Bevan quote, it is called “The Bedpan”. It is unsurprisingly very good, and will certainly be useful.
Today will see the Chancellor ‘Sumproduct Phil’ Hammond unleash his Budget on a grateful nation which has been told by prime minister Theresa May that “austerity is over”.
Mmmmm. If not mmmmmmmmmm.
The future isn’t what it used to be.
The House of Commons Library’s background briefing on the Budget shows our lagging GDP growth, despite very high employment. It is just not translating into higher wages, and the resulting increased revenue for the Treasury Munchkin community to sit atop like a collective pound-shop Gollum.
It further records that “While the situation for government borrowing looks positive, government debt – broadly speaking, the stock of past borrowing – remains high at 85 per cent of GDP”.
To understand the numbers in context, you need to read the excellent summary from the Nuffield Trust’s Sally Gainsbury on the NHS deficit situation. Sally has been one of the very best chroniclers of the financial obfuscation and game-playing over recent years.
She concludes that “the cost of restoring performance on waiting times alone could consume almost the entire available headroom in both 2020-21 and 2021-22“.
Now these are experts and facts, and neither group is in political vogue. As Ipsos MORI’s recent research for King’s College London Policy Institute outlines, the bogus Vote Leave bus claim of £350 million a week for the NHS is still believed. As many as 42 per cent of people who had heard of the claim still believe it is true, while just 36 per cent thought it was false and 22 per cent were unsure.
We ought not to be surprised. Most people are not public policy geeks, nor indeed very interested in the media or politics. While I don’t 100 per cent agree with Sid Vicious’ famous line about the man in the street, there is much more than a grain of truth in it.
Ipsos MORI’s 2016 Perils Of Perception research found that on health spending, British people “think we spend twice as much as we actually do on our health. We think we spend 19 per cent of our total GDP on health expenditure (including private healthcare as well as the NHS), when in fact we only spend 9 per cent. If our guess were right, this would be the equivalent of an extra £225bn spending on health”.
The woman or man in the street buys stories, not statistics (which they are probably bad at appraising).
Show me the money
We do not know which taxes the Chancellor will raise to get the funding. And we need to know.
The Institute for Fiscal Studies has looked at various options, as have the Resolution Foundation, but as Gavin Kelly has ably demonstrated, this all happens in the context of a welfare state that has been significantly cut and shrunk this decade.
The tax implications of addressing these problems are not small ones. The excellent Steven Toft of “Flip Chart Fairy Tales” has addressed this point in some detail.
A philosophical quandary faces the Chancellor. Most parts of the public sector and realm are now evidently, painfully short of funding. Riots in prisons are now unremarkable. The police are stretched. Schools are having to ask parents for financial contributions to balance their budgets. Oh, and there is the small matter of social care too.
Fixing any or all of this costs the very money that the economy is not raking in: a revenue problem which any kind of hard Brexit will exacerbate chronically.
And set against all that, we have the political reality that raising taxes is not something Conservative Chancellors tend to want to do.
Mr Hammond can postpone changes to tax thresholds and personal allowances. That will get him some money at the margins, in ways that most people won’t overtly notice.
But it will not be enough. “Enough” to end austerity means raising income tax quite significantly. The Resolution Foundation thinks it would cost £31 billion; the IFS reckons £19 billion. If we average the two, it’s £25 billion, which is about a 6 pence increase to the basic rate of income tax.
Is “Sumproduct Phil” a brave Chancellor?
We have no reason to believe so – yet. He may surprise us pleasantly.
The likely response he will make to the public sector doing the Oliver Twist is to paraphrase Marie Antoinette’s “let them eat brioche” and send out fudge. (which will at least raise Simon Stevens some more sugar tax revenue).
“Let them eat fudge” – but will the people be satisfied? “Sumproduct Phil” must hope so, otherwise he will find that (in the words of the classic Bob Dylan song perfected by The Byrds) “you ain’t going nowhere”.