Norman Lamb takes to the pages of today’s Independent on Sunday to make a plea to replace political heat with non-partisan light in the debate over the future of the NHS. He outlines what is currently happening:
Labour is pulling out all the stops to convince voters that the NHS is in crisis – a basket case run by private firms working to destroy it; the party searches for negative statistics and hospital horror stories to fit its narrative. On the other hand, the Conservatives have failed to come up with a plan to meet the £8bn shortfall by 2020 identified by Simon Stevens, the chief executive of the NHS.
But the NHS is far too important to be treated as a political football. The truth is that it’s neither on the verge of disintegration, nor is everything perfect. There are problems, but also triumphs. The majority of patients, for the majority of the time, receive world-class care from dedicated staff.
But as people live longer and more conditions are treatable, that puts strain on resources. So, how should we deal with this?
It is for this reason that the Liberal Democrats have called on both Labour and the Tories to take part in a non-partisan review of health and care services’ budgets. This review would ditch the unhelpful rhetoric and, instead, listen to the people with the best knowledge and ideas on how to improve our health service.
The public wants and expects politicians to bury their differences in order to sustain the NHS and vital care services for elderly people.
What would the Liberal Democrats bring to that discussion? A key element would be making sure that over-worked staff are listened to and supported and also that mental health is supported:
The Lib Dems want to invest an additional £500m a year at least in mental health. This will enable us to give equal rights to maximum waiting times to those suffering mental ill health as already enjoyed by people with physical conditions. This will start to set right a bias that has existed for years, but also makes complete economic sense: investing to save.
Only by concentrating on what works, not on what scores well in focus groups or scares voters into believ- ing the health service is in danger of collapse, and by talking honestly about the challenges we face, will patients and staff feel confident that the future of the NHS is secure.
You can read the whole article here.
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24 Comments
Norman’s appeal to ‘instead, listen to the people with the best knowledge and ideas on how to improve our health service’ goes to the heart of the matter, who are the people with the best knowledge and ideas?
30 years ago that was the practitioners. They knew the clinical answers and that included the organisational answers.
The old health authorities deeply embedded in the communities they served oversaw the remainder.
The destruction of the link with those communities and the totally artificial creation of internal markets destroyed that.
With the internal market came the need for managers and the distancing of practioners from the power to make the right decisions in consultation with their patients. It undermined the sense of vocation which allied to deep knowledge and understanding underpinned medical care.
So, would Norman allow the therapists to again make decisions in consultation with their ‘patients’?
That sounds like a great idea with the one condition that public sector unions (including the BMA),who always put their own interests before their consumers are excluded from discussions
“…But the NHS is far too important to be treated as a political football…” says a politician !
I recommend Norman Lamb just says that Liberal Democrats will not not under any circumstances break up the NHS or introduce the sort of private health insurance schemes or financial interference being heavily promoted with mountains of cash by lobbyists and Healthcare Corporations.
People would vote for a guarantee that the NHS will be protected as a public service, provided free at the point of delivery.
I think that is still party policy, is it not?
Bill Le Breton – OK…I’ll stick my head above the parapet here.
In the 2010 Parliament the NHS – one of the largest budgets on the books – enjoyed a ringfence during a fiscal consolidation like no other. It was asked to make, ‘efficiency savings,’ (whatever that means) however the inescapable point is that protection for the NHS has meant deeper cuts elsewhere. I am yet to hear any compelling argument as such about why. The same, incidentally could be said of the other ringfences too.
It is well and good to talk about clinicians and patients determining priorities, however if we are in the business of being honest we would have to accept that the priorities of those two groups are, in all probability not going to sit comfortably next to deficit reduction. The elephant in the room of course is whether or not deficit reduction/elimination SHOULD be the be-all-and-end-all, but leave that for another day.
The NHS is indeed important, but it should not be a sacred cow and nor should it be exempt from tough decisions.
I’ll sit back and take my thumping now.
@JohnTilley
“People would vote for a guarantee that the NHS will be protected as a public service, provided free at the point of delivery.”
“Free at the point of delivery”?
You seem to be unaware of NHS dentistry charges and NHS prescription charges, never mind optical services.
He is of course entirely correct that there should be consensus over the NHS but he has absolutely no chance of getting it in the run up to an election. The polls I’ve seen seem to show the public trust Labour over the Tories and Lib Dems on the NHS and they simply will not give up such a usual and potentially election winning advantage.
If politicians really wanted consensus, the time to seek it would have been early in a parliament. Sadly in this parliament Lansley had a plan and he wasn’t going to alter course to seek consensus with anybody.
Simon Shaw
I would be happy to support your policy of removing charges for dentistry.
My guess is that most Liberal Democrats and most voters would support this as well.
Perhaps we could fund it by selling off the 15 golf courses owned by the MoD ?
Or perhaps by reversing the decision to build a brand new UK military base in Bahrain ?
No doubt you will have the overall annual cost of prescriptions at your finger tips and will be able to tell me if it is greater than the cost of looking after Prince Andrew and his female companions?
On a factual point – NHS prescriptions are only charged for in some parts of the UK and only for some age groups.
In addition patients with particular conditions for example cancer have free prescriptions.
For those of us who are regulars at out-patients the biggest charge is for car-parking.
@Steve Way “Sadly in this parliament Lansley had a plan and he wasn’t going to alter course to seek consensus with anybody.”
I thought he found consensus with Clegg who I recall signed off the original white paper with Lansley and Cameron.
@JohnTilley
“I would be happy to support your policy of removing charges for dentistry.”
I don’t particularly want to remove them – but they are certainly too high. The main problem with the current charges is that I believe they are at such a level that they encourage people to opt for Private Dentistry rather than the NHS. I don’t know whether that was what the Labour Government intended, but I believe that private healthcare of any kind is to be discouraged (with the probable exception of Optical Services).
People miss the point of the NHS – it isn’t that it is free (at least in parts) at the point of use. The main point of the NHS is to remove the need for private healthcare. And the problem with private healthcare is that you cannot have a free market in healthcare (“£4500 to do that operation? I think I’ll shop around first, if you don’t mind”).
Little Jackie Paper:
You are quite right to “stick your head above the parapet” and point out that ringfencing a budget as large as that of the NHS necessarily meant ‘unprotected’ departments had to take big real-terms cuts (and in some cases cash cuts).
There were a number of arguments in favour of such a trade-off:
– The importance of the NHS to voters (it always features near the top of polls tracking the salience of different issues, along with the economy and immigration) and therefore its political significance.
– From the Tories’ perspective in particular, the decision to protect the NHS budget was intended to neutralise Labour attacks and Labour’s traditional advantage on this issue. That partly backfired because of the poor reception to the Lansley reforms, but notice how often David Cameron has contrasted the government’s NHS funding record with the Welsh assembly’s decision to make (modest) real-terms cuts.
– Cost and demographic pressures, and a weak productivity record, mean that the NHS has always guzzled money. The historical norm has been for the NHS budget to grow by 4% per year in real terms, significantly faster than the economy. In that context, a real-terms freeze (or very modest increase) over a five-year period – although a generous settlement compared to other government departments – represented a tight settlement. Hence the need to find large ‘efficiency savings’ (really productivity gains) just to stand still and deliver a comparable service in the face of ever-rising demand.
The counter-argument was put by Vince Cable before the 2010 election, which Lib Dems would do well to remember. He advocated zero-based budgeting and said it didn’t make sense to ring-fence whole departments from cuts.
In a paper for the Reform think-tank in 2009, setting out what amounted to his most detailed response to the fiscal crisis, Cable observed: “Public spending on health has enjoyed exceptional rates of growth. There is evidence that much of this spending has failed to improve services, but has been absorbed into administrative costs and higher salaries. Yet it is the one area of public spending where there is the most extreme political sensitivity to any suggestion that more (or even the same) could be done with less.”
Acknowledging the pressures from an ageing population fuelling rising demand and the high cost of new drugs, he accepted that this sensitivity about the health budget was understandable – but only “up to a point”. He argued that “there has also been large-scale misdirection of resources and it is the counsel of despair to argue that there would be no improvement in future. There is still much scope for ‘supply-side reform’ since there is much empirical and anecdotal evidence that some hospitals, in particular, operate very inefficiently despite the plethora of targets they are required to pursue.”
In the event, the coalition did not take Cable’s advice and decided to ring-fence the NHS budget from the off, thus loading cuts onto other departments. It is debatable whether this was the right decision – though I suspect that even if the NHS budget had not been formally ring-fenced any cuts would have been fairly token. It was always likely to get priority treatment in the spending review, so the practical difference between ring-fencing it and not doing so would probably have been in the low billions over the parliament.
Having read the article I don’t think that calling for cross party talks substitutes for a policy on the NHS. Norman Lamb has successfully carved out a niche for himself on mental health, but at the cost of taking in position on most of the important issues facing the NHS. This lack of leadership on a major issue is undermining our claim to be a serious national political party.
As Peter Watson has reminded us, Liberal Democrat support was vital in passing the Lansley bill, which even the Tories now recognise as their worst ‘unforced error’ in Government. To date we have not accepted that supporting that bill was a mistake. The Kings Fund names Norman Lamb as one of the key behind the scenes supporters of the bill. This a skeleton he will need to get out of the cupboard if he is to mount a leadership bid after election.
No doubt it will be argued that the whole premise is wrong: that the trade-off between ring-fencing the NHS and cutting other departmental budgets was only necessary in the context of the coalition’s overall fiscal plan.
In reality, though, all three main parties were committed to reducing overall departmental spending from 2011 onwards at the latest. It followed that protecting the NHS budget would imply significant cuts to other departments.
The macroeconomic debate about the timing and pace of fiscal tightening measures – when to start, how fast to proceed, over how many years it should be spread – is often wrongly conflated with the question of what scale of tightening is ultimately required.
The latter depends on an assessment of the portion of the deficit that is ‘structural’, ie won’t go away automatically as the economy recovers. This is a tricky question to answer because it rests on a judgement about the economy’s productive potential and how far from that ‘full capacity’ level the economy is at any given time (which cannot be directly observed). The concept of a structural deficit is theoretically useful because it indicates the scale of policy change required to balance the books. But it is a notoriously tricky basis on which to calibrate a policy response because estimates of trend GDP and the ‘output gap’ tend to shift on a regular basis and are uncertain even in hindsight.
Be that as it may, the three main parties at the last election all predicated their (rather vague and broad-brush) fiscal plans on the same working assumption about the size of the structural deficit, which at that time was estimated by the Treasury. The size of the structural deficit was not a major source of controversy between them.
And since all parties agreed that most of the policy adjustment should come through spending curbs rather than tax rises, and no party had plans to bring overall non-departmental spending down, it followed that cuts to overall departmental spending were required and that ring-fencing the NHS would have knock-on effects on other spending.
The idea that this reality could have been avoided by a different profile of fiscal consolidation is a chimera. Extending the period over which a structural adjustment has to be made does not make it smaller.
(I know Bill will argue that austerity leads to a vicious circle of downward revisions to potential GDP estimates, an ever-rising structural deficit and more austerity. Others will argue that a drawn-out consolidation pushes up the stock of debt and the cost of servicing that debt, necessitating more austerity. But I’m side-stepping that debate here because the point is that economists of pretty much all hues – and all three main parties – accepted that the UK had a big structural deficit in 2010 requiring policy action.)
As for the common the charge by those who disapprove of coalition fiscal policy that Vince Cable had backed Labour’s figures and was sold down the river by Danny Alexander and David Laws at the negotiating table, I think a jury would have to return an unproven verdict given the shifts and evolution in Cable’s position over the 2008-10 period.
But even if we grant that he broadly accepted Labour’s headline numbers for the first phase of fiscal consolidation, he argued that Labour was “almost certainly” underestimating the further measures that would be required post-2015.
In his Reform pamphlet he wrote: “The period after 2014-15 will be punctuated by a further election at which choices can be debated in the light of the facts then known. It seems highly likely that the fiscal pressures will continue unabated and the government assumes a further fiscal tightening of 3.2% of GDP in the period 2014-15 to 2017-18. I have argued that this is almost certainly an underestimate of what is required.”
Among his other observations were the following notable statements:
– “there has been an extraordinary increase in the share of public spending [in GDP] over a decade”
– “the emphasis should be on spending control… to commit to additional tax revenue-raising from the outset undermines any commitment to setting priorities in spending”
– “it is impossible to duck the fact that public sector pay will be severely constrained in any attempt to stabilise the budget”.
‘People would vote for a guarantee that the NHS will be protected as a public service, provided free at the point of delivery.’
Why would anyone want to protect the NHS from incompetence and competition?
Do you really believe a patient gives a monkey’s whether the provider is private or public if the service remains free of charge at the point of use
@ Alex Sabine
“the three main parties at the last election all predicated their (rather vague and broad-brush) fiscal plans on the same working assumption about the size of the structural deficit, which at that time was estimated by the Treasury. The size of the structural deficit was not a major source of controversy between them.”
“an assessment of the portion of the deficit that is ‘structural’, ie won’t go away automatically as the economy recovers.”
Your comments are interesting. No one believed that the UK had a structural deficit in 2006. The Labour government had a budget surpluses 1999-2001 and the deficit was moving downward from £37 billion in 2006 to £25 billion in 2007.
The real question should have been what caused the increase in annual deficits. It is my understanding that part of it was caused by increased benefit payments because of more people being unemployed or on low incomes and some by increased government spending to stimulate aggregate demand. Some was caused by there being less income from taxation. However it has been suggested that this was worse because of the banking crisis and the income the government received from the financial sector. It was this that caused the “structural” deficit. It therefore seems that the logical solution would have been to look at ways of generating extra revenue for the government from those people who caused the financial crisis, rather than the poor and those on shrinking incomes.
The NHS is a legitimate political issue or set of issues and we should never seek to take it out of politics any more than style of policing or treatment of asylum-seekers or university funding should be out of politics. But Norman has a point that the NHS is a big ship that turns slowly, something the Thatcher/Major government with repeated administrative reorganisations failed to recognise. So it does make sense to try to establish some long-term strategies and directions across party lines so that planning can exceed the life of one parliament.
I do think that Bill Le Breton’s view of the past is rose-tinted. I’m not sure if by “practitioners” he means all medical professionals or just GPs, optometrists and so on, but in the old set-up hospital consultants got their way far too often. This led to prioritising of expensive equipment over work on prevention and to the medical model ruling. The present system puts a lot of power in the hands of GPs, but I have no faith that GPs as a class will make the right decisions. Any credible system will need managers: the question is, who sets their priorities and monitors their decision-making. He is right that local NHS authorities should be deeply embedded in the community and should listen to the expert advice of the professionals (including nurses, pharmacists, counsellors etc), but there will often be some tension between the one and the other. In my view we need to go back to the argument between Morrison and Bevan over local authority control of local health services.
I agree with Norman Lamb’s view, and see no reason why our party should not call for “all party consensus” on the general direction of the future of the NHS to take place at the beginning of the next parliament. It needs to be done now, so messages from all parties have to be realistic.
I am intensly privileged in all of this, which worries me, but I don’t know the solution without excessive means testing which I know is not only expensive and bureaucratic to andminister, but puts people off having what they need.
Not only do I get free prescriptions, eye tests etc, but had my knee replacement op in a private hospital under an NHS contract. In addition to these wonderful priveleges, I have sufficient income (because my husband does, i’ve very little of my own) to pay for extra herbal supplements for various conditions and a subscription to the private leisure club near to where we live for gentle swimming and since the op use of some of the gym equipment for essential exercise whilst it is icy outside – and a car driven by husband to take me there. Also for a number of years I had ilndividual pilates sessions which has literally kept me moving and I am sure contributed towards my recovery from knee op. none of this would have been available on the NHS, so others not so fortunate would have had these advantages and not been able to “live life” for a number of years.
I don’t know the answers, but do have the questions !
Calling for consensus is, I fear, primarily an elegant way to waffle and say nothing, while posing as sagacious and open-minded.
It’s all very well to accuse the other parties (Labour first, natch) of playing yah-boo politics. Actually, that’s basically a snide means of saying something pretty much like “yah-boo” yourself.
@ Michael B-G
I’m afraid the evidence flatly contradicts the claim that the structural deficit arose because of the financial crisis.
Numerous statistics can be used to gauge the health of the public finances, and on virtually every metric the UK was in a weak position in 2007. Moreover, the rot set in not in the immediate run-up to the crisis, but as far back as the start of Labour’s term in 2001.
– The headline deficit, Public Sector Net Borrowing, was £37 billion in 2007-08. In every fiscal year from 2002 onwards it was at least 2.3% of GDP, and in 2004-05 – near the top of the cycle, and with a general election in prospect – it was 3.4%. For a period of 6 consecutive years in which the economy was growing strongly, Chancellor Brown was borrowing between £27 billion and £44 billion annually (an average of approximately £45 billion per year in today’s money).
– The cyclically adjusted or ‘structural’ balance, which takes into account the fluctuations of the business cycle, paints an even clearer picture of imprudence. From a structural surplus in 2000-01, the budget swung into a structural deficit of more than 2% of GDP by 2002-03, peaking at 4% of output in 2004-05. On the eve of the crisis in 2007-08 it stood at 3.7% of GDP, or £52 billion. On the Maastricht treaty definition it was 4.3% of GDP. Even the primary budget balance, which excludes the cost of servicing debt interest, was in structural deficit by 2% of GDP, having been continuously in the red since 2002-03.
– As I explained above, the trouble with cyclically corrected measures is that they hinge on a judgement about the level of potential or ‘trend’ GDP (the output the economy can produce when it is operating at its maximum sustainable capacity), which is never directly observable and can be difficult to pin down even in retrospect. Back in the days when a politicised Treasury was marking its own homework, Brown notoriously used this to his advantage by changing the start and end dates of the cycle so as to comply with his ‘golden rule’ by a whisker. And just as he abused the concept of cyclical adjustment by changing the dating of the cycle to flatter his record, Brown took the opportunity presented by the current/capital split (which in principle makes sense) to reclassify what was really current spending as investment.
– The IMF takes a more pessimistic view of the economy’s supply-side capacity in the pre-crisis years; it thinks the economy was overheating badly, with aggregate demand running well above underlying supply capacity. As a result it puts the 2007 structural deficit at a whopping 5.2% of potential GDP (£72 billion) – nearly 2 percentage points higher than that of any other G7 country. The OECD reckons it was 4.6%. On any plausible estimate of the output gap, the structural deficit was at least 3.5% to 5% of GDP.
– The OECD verdict on the implementation (or rather non-implementation) of Brown’s ‘golden rule’, though couched in diplomatic code, is censorious. In its 2011 survey of the British economy it observed: “The UK’s previous fiscal rules failed to avert a deterioration in its structural fiscal position. In 2008 the sustainable investment rule and the golden rule were deemed to have been met for the cycle that ended in 2006. Concerns were raised at the time when the dating of the cycle was adjusted, and OECD estimates point to a different dating of the cycle. In any case, the framework was unable to prevent a substantial worsening of the deficit and the debt level as the cycle reached its zenith, illustrating a major drawback of backward-looking rules.” It added that, while compliance with any cyclically-adjusted mandate is inherently difficult to assess reliably because it relies on non-observable data (the output gap) to trace the cycle, under Brown’s Treasury “this became particularly problematic as estimates of the output gap were provided by the government rather than an independent agency.”
– As you allude to, at the turn of the century things had been very different. There was a sizeable budget surplus and Brown actually repaid some £31 billion of national debt during Labour’s first term (the main contribution coming from the lucrative auction of 3G mobile phone licences, which netted a spectacular £22 billion.) However, the switch to high-spending mode from 2000-01 onwards swiftly undid the good work, and over the following 7 years he ran up £242 billion of new debt. During that period of sustained real GDP growth averaging more than 3% per year (well above the UK’s long-run average), a prudent Chancellor would have harvested surpluses, thereby continuing to reduce the stock of debt in absolute terms. Instead, debt rose by a net £211 billion over Labour’s first 11 years in power, ie before the financial crisis. With an unusually favourable global backdrop giving the economy a following wind, to increase the stock of debt by circa 60% in cash terms and 25% in real terms can hardly be considered prudent.
– Since GDP was growing briskly, Brown did manage to trim the debt-to-GDP ratio from 40% in 1996-97 to just under 37% in 2007-08 – though with two clear phases, an initial sharp fall during Labour’s first term followed by a gradual but sustained rise as heavy year-on-year borrowing kicked in.
However, the UK’s performance was unimpressive by international standards. On the gross debt measure used by the OECD, debt was reduced from 52% of GDPin 1997 to47% in 2007. Over the same period debt fell by 23 percentage points in Australia, 16ppt in New Zealand and 31ppt in Canada. The US ratio barely budged. In Europe, there were dramatic improvements in Sweden (33ppt), Denmark (41ppt), Finland (23ppt), the Netherlands (31ppt) and, from a high base, Belgium (40ppt). Between 2001 and 2007 the average OECD debt ratio fell by 6ppt while the UK’s rose by 7ppt and was still creeping upwards when the financial crisis came.
– Likewise, most developed countries used the ‘good times’ in the Noughties to improve their fiscal balances, while ours worsened. Australia, New Zealand, Canada and the Scandinavian countries ran year-on-year budget surpluses. Consider these fiscal balances from 2007: Australia +1.8%, New Zealand +4.5%, Canada +1.4%, Germany +0.2%, the Netherlands +0.2%, Sweden +3.6%, Denmark +4.8%, Finland +5.3%, Luxembourg +3.7%, Spain +1.9%, Korea +4.7%. These are surpluses, remember. In that context, our OECD deficit of 2.8% (fractionally worse than France and significantly worse than Italy) hardly marks out the UK as a paragon of fiscal rectitude.
As the scrupulously non-partisan IFS concluded in its 2009 ‘Green budget’: “Labour entered the current crisis with one of the largest structural deficits in the industrial world and a bigger debt than most OECD countries, having done less to reduce debt than most countries since 1997.”
So let us have no more of this nonsense that there wasn’t much wrong with the UK’s public finances in 2007 and it was all the bankers’ fault. On the contrary, the bankers helped to disguise the true scale of the problem by paying epic amounts of tax on their epic salaries and bonuses during the ‘bubble’ years. The raw figures for deficits and debt actually understate the problem because they take no account of the sustainability of the tax base. Analysis by the OBR suggests that the high level of asset prices and transactions in the years preceding the financial crisis was boosting the apparent strength of the structural fiscal balance by up to 1% of GDP by 2006-07.
Alex Sabine: “Let us have no more of this nonsense that there wasn’t much wrong with the UK’s public finances in 2007 and it was all the bankers’ fault.”
Up to a point, Lord Copper. You also say “On the eve of the crisis in 2007-08 (the structural deficit) stood at … £52 billion”. Well, if I recall correctly, it then shot up to something like £150 billion, thanks to the crash, which caused a catastrophic fall in tax receipts. So, whilst Labour were at fault (and the Tories, who wanted to be even less prudent, were also at fault), the banking crash was the main cause of the deficit.
Alex Sabine
The Labour Party was at fault because they were following this neoliberal focus on privatisation is best, inequality and triple down is a proven benefit and that deregulation is the mantra to follow.
They were though at the same time trying to repair some of the terrible damage that the Tories did to our infrastructure over 18 long years
The criticism I have is that they had the chance to be something else and they didn’t take it
It is funny now that the Lib Dems, amongst them you, who are still supporting that same mantra and that all the fault was due to ‘over-spending’ – it is the same thing that the Blairites try to do to undermine Miliband and also the Tories do to justify their ideological destruction of the state infrastructure
I do not know what you and your party stands for anymore – you seem to have become part of the Blair/Tory consensus
@ Alex Sabine
A budget deficit is not the same as the “structural” deficit. UK economic growth was 4% in 1994, 1998 and 2000, therefore economic growth of 3% does not mean that we were at the height of the economic cycle. If we assume that the role of government is to keep growth constant then looking at the rate of economic growth is not a good way of discovering where the highs and lows of the economic cycle are. The Labour government did aim to deduce the budget deficit in 2007 assuming a 7 year economic cycle, but history shows that 2008-09 was a new low in economics and economic cycles are unpredictable.
Looking at unemployment we had about 1.5 million unemployed from 2001 to 2006. This means that even if we only counted these people we had spare capacity. There were over a million other people not in work who could work who are not counted. Therefore in 2001 and 2006 we had not reached total capacity and more growth should have been possible, which would reduce the deficit. To assume that the deficit in the years 2001 to 2007 was completely “structural” is to assume that we have to have 1.5 million unemployed and another 1 million who could work not counted in these figures but were at full capacity and I refuse to accept this.
I accept that the Labour governments from 2001 increased public spending. The reason was to make good the lack of investment during the Tory years. I accept that it can be difficult for the government to invest to meet Keynesian objectives rather than to build for the future.
Between 2007 and 2009 Norway was one country that had levels of unemployment low enough that their economy might be classified as at full capacity. None of the countries you list seem to have had unemployment levels low enough for their economies to be at full capacity as far as I can see.
My point about the financial sector was that they were paying taxes and it was only if you accept that following the financial crisis they would never pay as much again would that which they contributed be seen as “structural”.
I still believe that if wages were higher then less would be paid out in benefits (including in work benefits) and more would be taken in tax and therefore the deficit would decrease.
David: You’ve cited the lowest estimate of the 2007 structural deficit, which is 3.7% of GDP. In fact I now see from a more recent OBR publication that the figures have been revised upwards. The lowest estimate is 3.9% (OBR), the OECD puts it at 4.9% and the IMF at 5.3%. Both the IMF and the OECD reckon the structural deficit peaked at around 10% of GDP in 2009. So on this basis up to half of it pre-dated the crisis; imprudence throughout the 2001-07 period, far from being a mere sideshow, is central to the story.
Of course the financial crisis and recession caused a further deterioration. That is not in dispute. The point is that the UK public finances were already in very poor shape going into the crisis, worse than any other country in the G7 by a long way. Compare our deficit with the surpluses in the numerous other countries I listed.
After the banking crash there was indeed a big drop in tax revenue, much less than the USA experienced but more than many European countries. As Anatole Kaletsky has argued, this partly reflects the fact the UK tax system (and the US one even more so) raises a greater proportion of its revenues from taxes on incomes, capital and corporate profits which tend to bear more heavily on the better-off and fluctuate more with the economic cycle. Many EU countries rely more heavily on payroll, energy and consumption taxes.
It may be counter-intuitive for many on the left, but Kaletsky cites OECD figures that show the share of total household taxes paid by the richest 10% of the population is much higher in the US and UK than in (say) France and Sweden. Because top salaries and business profits fluctuate more with the economic cycle than middle-class incomes and household spending, the US and British tax systems tend to produce much bigger deficits in recessions.
You seek to share the blame for the weak public finances between Labour and the Tories. Up to a point, Lord Copper… Gordon Brown as Chancellor, and Labour as the party in government throughout this period, have to shoulder the primary responsibility. At various points in the 2001-05 parliament the Tories had warned that the deficit was becoming a problem – but by 2007 they were in full ‘detoxification’ mode and this involved cravenly allowing Brown to frame the debate on the basis of his chosen ‘dividing lines’. One of these was ‘investment versus cuts’ so the Tories ended up matching his spending plans at that stage – though I don’t think there’s any evidence to support your claim that they “wanted to be even less prudent”.
As for the Lib Dems, it was hard to keep up with the twists and turns, but at no point in the 2001-07 period – when fiscal policy was at its most imprudent – were the Lib Dems calling for a tighter overall stance. Up to 2005 they were proposing even bigger spending increases than Brown, matched by additional taxation. Thereafter they signed up to his spending totals and argued for revenue-neutral tax reforms.
Alex,
We agree to a fair extent. I think it’s the implications about which we agree least. The Tories seek to propagate a simple myth “it’s all Labour’s fault”. But since the biggest cause of the deficit was loss of tax revenues due to the global financial crash, and since the other cause of the deficit (imprudence) was supported by Labour and Tories alike, the Tory myth is untrue and unfair. That’s my point.
You say “It may be counter-intuitive for many on the left, but Kaletsky cites OECD figures that show the share of total household taxes paid by the richest 10% of the population is much higher in the US and UK than in (say) France and Sweden.” Well, it isn’t counter-intuitive for me. The US and UK are more grossly unequal societies than France and Sweden, so the richest 10% earn a greater percentage of total earnings in the US and the UK. The taxman then comes along and takes more money from the richest 10% in US and UK, simply because there is a lot more money that can be taken. But after tax the US / UK richest 10% are still more grossly better paid in US / UK than in Sweden / France.
So yes, one of the many disdavantages of a grossly unequal society is that, as you’ve indicated, it is liable to bigger deficits in recessions. Crudely, if all the UK’s income is bankers’ bonuses (the rest of us earning a negligible pittance), then government revenues thrive when bankers bonuses are high, but collapse when they fall. The bankers, of course, have salted away what they gained in the good times. Osborne comes along, and tries to soak the poor in order to rebalance his budget. Syriza would go after the rich, and quite right too!