Lord William Wallace writes…Shrinking the State?

Liberal Democrats need to clarify where we stand on how large a public sector we support, the balance of public spending and administration between state, national/regional and local levels, and the appropriate division between private and public provision in our economy and society.  We are now faced with a Labour Party which is likely, under its new leader, to reassert large-scale state-level spending, and a Conservative Party that wants to shrink and weaken both the central state and local government.

The Conservative Government contains a number of convinced libertarians, with an almost anarchist streak in their antagonism to state action, civil servants and public services (I know – I worked with some of them until last May!).  The current rule on regulatory policy, for instance, is that ministers can only introduce one new regulation if they can find three comparable regulations to abolish: a deregulatory bias that will run into problems when the next food or health safety scandal hits.  OECD projections for government spending indicate that the UK currently intends to reduce public spending from 42% of GDP in 2014 to 36% in 2020 – taking Britain from European to North American levels of public provision.  Whitehall Departments are preparing for cuts of between 25 and 40% in ‘unprotected’ public spending.  On some calculations local authorities will have barely half the financial resources in real terms in 2020 that they had in 2010.

This ‘neo-liberal’ ideology is far from the traditional Conservative attachment to a strong state, maintaining national security and national tradition.  There’s a book to be written on how British Conservatism has been infected by the American right over the past two decades: regular invitations to think tank conferences in the USA, American money flowing into similar outfits within the UK, the impact of public choice economics (which in effect denies that there is a ‘public interest’ apart from what emerges from market mechanisms), have converted some – but not all – Conservatives into a free market minimum-state creed.  One symbol of the underlying shift is that the government is cutting police budgets severely – something Margaret Thatcher herself would never have done, given that domestic order is such a core function for any state.   Another is that the Conservatives are selling off iconic buildings along the state processional route from Buckingham Palace to Westminster; Admiralty Arch and the Old War Office have already gone, both to overseas investors as luxury hotels.  The size of the civil service has been cut sharply, and will be cut further; Conservative ministers have frozen salaries in the public sector while making no comment about rising salaries among private sector executives.  The Institute of Fiscal Studies has recently warned that this will in time reduce the quality of staff within public services.  The future Conservative model of the state will not have the human or financial capacity to intervene very far in society and economy.

Against this, Labour appears to be lurching back towards a statist approach: central control, re-nationalisation, a rising national budget and a burgeoning public sector.  Conservatives will attack this as feeding the interests of public sector unions, and building in the unavoidable inefficiencies that come from any attempt to allow bureaucrats to run services – ignoring their own record of selling off UK state assets to state enterprises from France, Germany, Denmark and beyond.

If we want to avoid being caught into the middle of this ideological conflict, we need to spell out our distinctive approach.  To start with, we should make clear to British taxpayers that the Conservatives can only achieve their goal by cutting deep into the bone of public services.  The rising proportion of over-65s in the UK means that demands for health and social services will continue to rise; so will the cost of state pensions, already the largest single element in welfare spending.  If these are to be sustained, to satisfy Conservative-voting older citizens, then education will have to be cut back even further, and public investment minimised.  So we need to argue that some tax rises must be part of the response; indeed, the government’s strategy of using sell-offs of state assets to fund current spending suggests that taxes are already too low. But as far as possible taxes should be raised and spent at the local level, not controlled in detail from London.  That means that reform and strengthening of local government must be a central plank in our approach.

We also need to insist that public service, and the public interest, are essential concepts in any democratic state.  A society in which only greed and self-interest motivate people would fall apart; altruism, community values, hold a country together.  State and society matter alongside the market; every citizen within the UK needs to have a stake in the country, to be accepted as part of the national community, to be educated to fulfil their individual potential.  Gross inequality undermines political community.   The shrunken state that Oliver Letwin and the Conservative right want to reduce the UK to is not one that can hold the loyalty or affection of its own citizens.

* Lord Wallace of Saltaire is a Liberal Democrat member of the House of Lords.

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22 Comments

  • Richard Underhill 1st Sep '15 - 12:27pm

    Cancel Trident. The Chancellor and First Minister may think he can gain a seat for the Tories at Holyrood and/or Westminter with his current anouncement on spending megabucks, but Parliament should debate the issue first.

  • David Allen 1st Sep '15 - 12:48pm

    “The current rule on regulatory policy, for instance, is that ministers can only introduce one new regulation if they can find three comparable regulations to abolish”

    Wow, government by ideologically driven painting-by-numbers. Can the author or anyone else provide a weblink for this terrible rule?

  • Eddie Sammon 1st Sep '15 - 1:27pm

    The problem is small businesses are hardly ever exempted from costly regulations, so right wing parties are still seen as the parties for small businesses.

    We need to challenge this. With taxes we have exempted the smallest, but we don’t do this with regulations.

    Something needs to change, otherwise we will continue making idealistic plans for the future and find Tories keep getting elected.

  • Tbis is both absolutely right and centrally important. But we need to spell out even more clearly (i) that the state, and only the state, can protect the weak against the strong , (ii) that (as Adam Smith knew well) markets are free only if protected against monopolies and (iii) that a state is only as strong as its tax base. The last is an issue not so much of the level of taxation as its scope, and the erosion of the tax base by trans-border manipulation, which neo-cons are detrrmined to preserve and extend at all costs – cf. Roman Empire etc. ad nauseam!

  • Spot on William. It might be worth taking a close look at some of our EU partners. My impression in Denmark for instance is that while all or most tax is collected centrally, the bulk is then passed to the regions and municipalities for them to spend on heavily devolved services.

  • Great to hear such common sense from William after all the small state stuff from the Orange bookers. Just to give an example social care for the elderly is in deep crisis. The nonsense of a privatised railway service being run by foreign nationalised rail providers – as is part of the energy sector needs to be exposed.

  • Wow! I agree with everything in that article! No wonder I am a Liberal Democrat!

  • jedibeeftrix 1st Sep '15 - 2:26pm

    “OECD projections for government spending indicate that the UK currently intends to reduce public spending from 42% of GDP in 2014 to 36% in 2020 – taking Britain from European to North American levels of public provision.”

    You make it sound like the norm, when in fact labour inherited and sustained a spending/gdp ratio of less than 40% past the year 2000. This healthy ratio was first eroded in labours second term, and cratered in the third due to the financial crash. To be clear: the ex hequer has never been able to persuade the electorate to part with more than 38% of gdp on any sustained basis.

    We do not have the continental style collective solidarity that permits spending nearly 50% of gdp on services/benefits.

  • David Evershed 1st Sep '15 - 2:30pm

    As liberals we need to make it clear that we are in favour of the state interfering in the affairs of individuals and businesses as little as possible, unlike the authoritarian approaches of the Conservative and Labour parties.

  • What is notably absent from the debate is anything about “big Society” and the role of social enterprises in delivering services that are currently delivered by the state sector. Obviously, (well if you talk to any one in the third-sector) the big issue is funding: it doesn’t really matter who is expected to provide the service, if we deem a service is needed, we need to be sure of the funding streams and sources.

  • Surely it is not beyond the wit of humankind to provide all those services which must be both publicly provided and universal from 36% of GDP in a technologically advanced and relatively stable society. The NHS takes 8% of GDP, public education 6%, debt interest and defence 2% each and overseas aid 1% [all percentages are rounded]. This comes to 19%. There must be enough left within the remaining 17% (36%-19%) to both fund all the remaining necessary government services and provide a large slice of funds to redistribute income towards those with the greatest needs and least income.

    I am fairly certain that a close study of government expenditure would still reveal much low value expenditure. For example there was undoubtedly unnecessary capital expenditure in Michael Gove’s rush to set up academies. Back in the days of Richard Wainwright and Sir Trevor Jones we used to demonstrate we could achieve better value for money by careful scrutiny of public expenditure. Whilst Danny Alexander demonstrated that we still have the ability to reduce the budgets allocated to activities sadly we seem to have lost the technical skills necessary to demonstrate that this can be done without significant loss of service.

  • This a very well presented article. We can never hope to effectively address the underlying causes of inequality without effective state provision of essential public services.

    The ability to provide an effective level of public service cannot be divorced from the tax base. Experience in the post-war period has shown tax receipts typically hit a ceiling at around 38% of national income requiring deficit financing when public expenditures exceed this level. Hence the move towards charging for all kinds of local services that were previously provided free of charge..

    I would suggest three initial policy proposals towards addressing the issues raised by the article.

    1. A targeted range of both current and capital account public spending of between 38% and 40% over the lifetime of a parliament.
    2. The introduction of a national land Value Tax to replace both business rates and council tax.
    3. Precepting of LVT to fund devolved local authority budgets together with hypothecation of a % of nationwide receipts for new housing development.

  • Laurence Cox 1st Sep '15 - 4:25pm

    “ministers can only introduce one new regulation if they can find three comparable regulations to abolish”
    but if they abolish only one regulation, it is presumably OK as that was the Coalition Government policy to which Lord Wallace was signed up.

    https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/209209/11-p96b-one-in-one-out-second-statement-new-regulation.pdf

    “Admiralty Arch and the Old War Office have already gone, both to overseas investors as luxury hotels.” I would question why it is seen to be a better use of our limited resources to maintain empty buildings in Central London, rather than ships in our Navy. Indeed, I would applaud our Parliamentarians if they were to take this to its logical conclusion and do the same with the Houses of Parliament.

    Yes, I agree that we need to distinguish ourselves from the ‘cut and cut again’ Tories and ‘tax and spend’ Labour, but that does not mean opposing every single policy that another party puts forward. What we need is reasoned opposition and the acceptance that sometimes another party’s policy is better than our own.

  • William Wallace:

    Thank you for raising this key issue. That Liberals are fundamentally suspicious of government and its tendency to accrue more powers over individuals’ lives is no justification for removing the ability of government to provide the conditions in which individuals may prosper. Moreover removing the capacity of local government to provide education, support and other services disempowers people both in terms of individual development and democratic expression.

    I hope this article is the first of a series. It would be a service if William could help to develop Liberal Democrat policy by fleshing out responses to the questions he raises.

  • Little Jackie Paper 1st Sep '15 - 8:10pm

    ‘If these are to be sustained, to satisfy Conservative-voting older citizens, then education will have to be cut back even further, and public investment minimised. So we need to argue that some tax rises must be part of the response.’

    Why? One of the most under-analysed trends under the Coalition (seemingly carried on under CON) was the fashion for ringfencing particular areas of spend. In a fiscal consolidation the only outcome was ever going to be deeper cuts in non-protected departments. I am yet to hear any serious economic justification for the triple-lock pension, a staggeringly expensive policy. The politics of it perhaps we can speculate on.

    We have an NHS that has been largely protected, again for reasons that have not really been debated at any great length in public, still less the composition of NHS spend.

    The effect of ringfencing is that other areas, notably the young, have taken a hammering and will do so for years to come. What one makes of all this is another matter. But tax rises are not the only answer. To say that they, ‘must,’ be part of a response seems to me to rather side-step questions about spend.

  • >‘If these are to be sustained, to satisfy Conservative-voting older citizens, then education will have to be cut back even further, and public investment minimised. So we need to argue that some tax rises must be part of the response.’

    Don’t see why education (and HE specifically) needs to be cut back; although with fewer UK students there may be a reduction in government funding needs. This is because education is a field that permits older citizens to remain productive. So the need isn’t necessarily to cut education but to make it more attractive to oversea’s students, thereby generating revenue to pay pensions…

  • Katerina Porter 2nd Sep '15 - 9:23am

    In Sunday’s LDV I quoted from a Demos report of last summer – that the benefit of public expenditure is not included in calculation of GDP, or it is counted as private benefit. Their figures were American ones but the same kind would apply to the UK. $185 billion public spending on surface transport $800 billion benefit. $500 billion on enforcement of the first 20 years of the US Clean Air Act $22 trillion benefit. Pure research will never be privately funded adequately. It took15 years to find a use for lasers, and the first was Oxford Street Christmas lights. It is hard to be really relaxed about outsourcing, (which of course is still taxpayers money) when there is incompetence as with having to call in the army for the Olympics and where there has been straight fraud. It is hard to believe that immigrants would be held so much longer than the government’s official policy In Yarlswood if it did not produce increased profit. As Lord Wallace says Conservative policy seems more and more like that of the Republicans in America.

  • J George SMID 2nd Sep '15 - 12:41pm

    The challenge is in the claim that “If we want to avoid being caught into the middle of this ideological conflict, we need to spell out our distinctive approach”.

    Being defined as ‘in the middle’ is unsatisfactory as witnessed by last May elections. It is also intellectually weak: to stay (to be caught) in the middle your position must move if the extremities move (by delta L divided by 2 to be exact).

    What we have to do is to develop specifically liberal position on a range of subjects. We can refer to the hypocrisy of the right (UK utilities can be owned by any government apart from British government) or incompetency of the left (re-distribution without production).

    I argued previously that “our distinctive approach” will have to provide the public with intuitive recognition what Liberal Democrats stand for. Labour do have that, even when they oscillate between neo-Thatcherism of Tony ‘Dollar’ Blair and Jeremy Corbyn. The Tories have that, even though they adopt any barmy policy as long as it sound ‘right’ (Pun intended). Despite that the majority of people still vote either Conservatives or Labour. We need to find an answer to that and the article points in the right direction: public service, public interest, altruism, community values, every citizen within the UK needs to have a stake in the country. Now we need to hammer out policies to reflect that.

  • Katerina Porter 2nd Sep '15 - 9:06pm

    PS post Reagan Republicans. For instance Nixon amongst other American presidents tried to get a Health Service through.

  • Matthew Huntbach 3rd Sep '15 - 8:49pm

    Little Jackie Paper

    We have an NHS that has been largely protected, again for reasons that have not really been debated at any great length in public, still less the composition of NHS spend.

    Didn’t you see the report in the newspapers recently about life expectancy? For about a century now, life expectancy has risen by three years every decade. People who would have died long ago in the past stay alive, with all the extra health maintenance that is necessary as one gets older. This has a HUGE impact on health spending. The result is that merely keeping still in terms of services delivered requires big increases in spending. So “protecting the NHS” by not actually making cuts to the money spent in raw terms is in reality making big cuts on what it can deliver.

  • Matthew Huntbach 3rd Sep '15 - 8:53pm

    Little Jackie Paper

    The effect of ringfencing is that other areas, notably the young, have taken a hammering and will do so for years to come. What one makes of all this is another matter. But tax rises are not the only answer. To say that they, ‘must,’ be part of a response seems to me to rather side-step questions about spend.

    Indeed, but if we are to have an alternative we need to be realistic about it. As you say, ringfencing spending in some areas results in big cuts in others. So we had an alternative to how to finance universities. How did that go down? Was our party cheered on for supporting a realistic alternative which saved the universities from big cuts and saved people on a whole from big tax rises?

    How would something similar go down as an alternative way of funding the NHS?

  • Matthew Huntbach 3rd Sep '15 - 8:56pm

    Roland

    So the need isn’t necessarily to cut education but to make it more attractive to oversea’s students, thereby generating revenue to pay pensions…

    OK, can you give us a quick estimate of how many overseas students we would need to recruit to pay enough fees to subsidise UK students in full and then leave enough over to pay for other people’s pensions? I reckon about five million. Where are you going to put them all?

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