Growth of the public sector and increase in the tax burden




21 March 2006


Eve of the Budget


Key points


Growth of the public sector and increase in the tax burden


§                     Together with independence for the Bank of England, the prolonged expansion of the British public sector has been the Chancellor’s key policy decision.  Since 2000, the growth in public spending in percentage points of GDP has been more than three times greater than in the USA, for example, which is widely considered to have increased public spending too rapidly over this period.


§                     As a result the tax burden will rise to its highest level for 25 years in this Parliament and will rise above Germany’s this year.


§                     Public sector employment is now higher than it was in 1979 (excluding the former nationalised industries).  In English regions such as the North East, North West and South West, the majority of new jobs since 2000 have been created in the public sector.


Absence of reform


§                     In 2001, under pressure over the prospect of tax rises to increase health spending, the Chancellor promised: “I am going to insist that any additional resources must be matched by reforms so that we get the best value for money.  There is not going to be one penny more until we get the changes” (The Sun, 30 November 2001).  


§                     In fact reform has barely begun:


                                  In health, the beginnings of a coherent reform programme are in place – elements of patient choice, a very small amount of delivery by the independent sector, part of a new framework for purchasing within the NHS (“payment by results”) and GP practice commissioning – but is far from complete or certain to be completed.


                                  In policing, police forces are slowly introducing a more preventative style of policing through the “Safer Neighbourhoods” programme of council ward-based teams of six officers.  But the programme will not be complete in London until April 2007 and in the rest of the country until well after 2008.


                                  In education, in clear contrast to health, the thrust of policy has been to strengthen central regulation and frustrate parental choice.  Key initiatives such as specialist schools have led to only tiny variations on the national model.  While the Education and Inspection Bill has belatedly recognised that a new approach is needed, based on school autonomy and greater choice, its measures again will mean very little change.  For example, the new “trust schools” can only apply for greater management freedoms for a period of three years.


Rising costs, falling productivity


§                     The result is that extra spending has led to hugely rising costs and falling productivity. 


                                  In health, as Reform has shown, the increase in spending on extra staff, higher pay, hospital building programmes and new drugs will push the service into a deficit of £7 billion by 2010 unless urgent action is taken.


                                  In education and crime, the extra spending has made no difference to the trend of very slowly improving examination results and falling crime.


                                  Institutions such as the OECD and the International Monetary Fund have warned that the spending increases have been poorly used.


Reform alternative


§                     The Chancellor’s decision to postpone the next Spending Review until next year should not mean that the Government postpones decisions on spending discipline and public service reform.  These should include:


                                  In public spending, a “Growth Rule”.  The Chancellor has already accepted that public spending rises will slow to around the rate of growth of the economy after 2008.  A more disciplined course would have much greater economic benefits and would represent a more realistic view of the effectiveness of public spending.  Reform’s “Growth Rule” – which would limit departmental spending growth to two percentage points below the trend growth rate of the economy – would save £32 billion by the end of this Parliament.  This would be sufficient to reduce the basic rate of income tax by around 7p, from 22 per cent to 15 per cent.


                                  If the Chancellor had increased public spending in line with the rate of growth of the economy i.e. a real terms increase per year of 2.5 per cent – he would have saved £61 billion by this year, sufficient to reduce the basic rate from 22 per cent to 8 per cent.


                                  In health, an immediate action plan is needed to review existing cost programmes and improve financial management.  Following that the Department of Health needs to accelerate its progress towards the completion of the foundation trusts, practice-based commissioning and payment by results programmes to give confidence in the reform progress.  A larger independent sector, confident of its place in a reformed NHS, will drive the much needed productivity gains in the service.


                                  In education, above all the regulations on planning school places need to be relaxed to allow more taxpayer-funded schools, whether public or independent sector, to emerge, in particular in areas of poor provision.  The Education and Inspection Bill could be amended to achieve this.


                                  In policing, the shift to preventative policing will be most successful when it is supported by an effective framework of accountability.  This requires new thinking due to the proposed halving of the number of police forces from 43 to 24.  A new economic regulator would help to achieve greater value for money, for example by encouraging greater use of contestability such as private custody suites.



Filed under News and politics

3 responses to “Growth of the public sector and increase in the tax burden

  1. sweeti's

    I went trough ur pics
    When i saw Kabir Bedi   Great actor
    I admire him
    He was a tv serie here in Belgium some years ago.
    Succes with everything ur doing

  2. Anant M

    Marij (Sweeti)
    Thank you for visiting my space even if it was Kabir that caught your eye. I’ll have to improve my image I suppose.
    I saw your pics and quite fortuitously I have the same louvered unstained wooden doors on my wardrobe in my bedroom with pine knob-handles in exactly the same places!?
    From your blog I sense that we have the similar emotional intelligence. I often communicate psychically and enjoy it when it happens the way you describe in your, what I call, ‘swinging affair’.
    You appear to be the type that would be moved by Indian Poet Laureate (Sir) Rabindranath Tagore’s poems and writings.
    I would like to search for his poem which starts with:
    "I long to sit by your side and say the truest words I have to say to you
    But I dare not; lest my heart comes out of my lips."

    "I long to sit by your side and say the truest words I have to say to you
    But I dare not; for fear you may not believe me …."
    Should you find it and find it touching the right cords – do let me know.

  3. sean carroll

    MAN! this shit is fukin crap. U seriously must be fucked up m8….
    OH! hi ppl….if u like this u 2 must have a mental problem.

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