Andy Silvester: Big picture plan to get spending under control

IT’S been heard enough to seep into the national conscience, of that there is no doubt, which one imagines was the point. But the truth is that the Chancellor’s oft-repeated “long term economic plan” – a phrase that will be repeatedly used ahead of Wednesday’s pre-election Budget – is really nothing of the sort. It’s a short-term plan, and it is one that has in one crucial respect failed – that of balancing the budget.

To this point, George Osborne’s austerity programmes has been more of a trim than a dramatic shortening of Britain’s overgrown locks – scissors only, hold the clippers. The short to medium-term economic plan the country needs would see a far more dramatic deficit reduction strategy than we have seen to date, eliminating the deficit and starting to pay off the bills, while laying the groundwork for a liberalising long-term plan that puts Britain on the path for sustainable growth.

Now it is not the Chancellor’s fault that he inherited a quite extraordinary deficit of north of £150bn, and nor is it his fault that economic headwinds at home and abroad have prevented revenues filling the gap as much as anticipated.

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It is still on his watch, however, that the deficit remains at more than £90bn, and he is the Chancellor currently observing nearly £40bn of taxpayers’ money disappearing out the door in the form of debt interest.

Despite this, neither the Conservatives or Labour have laid out a creditable plan to bring the deficit down in the next Parliament. Lip-service to “tough choices”, yes, but there remains precious little detail of what “tough choices” either would be prepared to make.

So what would a plan to eliminate the deficit look like? It would have to save £50bn a year by 2019-20. It would involve, as we’ve made clear in our landmark research project The Spending Plan, streamlining Whitehall – removing three departments including the Department for Business, Industry and Skills.

Changes to the pension system, abolishing the lunacy of the Triple Lock, would have to be accompanied by a further two-year benefits freeze and a fall in the welfare cap to £20,000.

Universal benefits for pensioners and the middle-classes would go, too, and public sector pay would have to be set at a local level rather than through national pay bargaining. That would still leave you with around £25bn of savings to find. In The Spending Plan, we find them.

But repairing Britain’s finances and balancing the Treasury abacus is only a necessary first step in building a more prosperous economy.

Getting spending under control should be part of a big picture strategy, one that would mean lower taxes for families across Britain, less debt for future generations and faster
 economic growth, creating a rising tide on which all boats might lift.

It is wise to ignore the alarmist voices, who suggest that returning government spending to 35 per cent of GDP would be a return to some kind of Dickensian dystopia. It would in truth leave Britain comparable to Australia, New Zealand and Switzerland, and allow us to look down the road with confidence rather than fearing for the next generation and concerned about the potential for our own Athenian debt crisis.

If spending was to fall further to around 31 per cent of GDP, which still allows plenty for all the basics of what voters expect the Government to do, we’d be in a stronger position to reform our creaking and illogical tax system. In 2012, the 2020 Tax Commission, set up by the TaxPayers’ Alliance and the Institute of Directors, advocated a programme of radical tax simplification and a significant reduction in the tax burden on individuals and businesses
that could boost GDP by an additional 8.4 per cent over 15 years. That’s a real long-term plan.

Such a plan would also tackle three areas with far more ambition than any of our politicians seem to show. It would involve standing up to the vested interests that enjoy the benefits of our strait-jacket planning system, allowing more people to buy their own home and bringing down the Housing Benefit bill. It would also
involve reform of the NHS and pensions.

The National Health Service, frankly, is unsustainable with an ageing population in its current form. The budget doubled between 2000 and 2010 and yet the National Audit Office suggested that there was no increase in productivity or frontline care. The answer is reform, looking to the Continent for more successful models and considering insurance-based systems, rather than closing our eyes to the future. All parties are engaged in a bidding war to pump more money into the service – but at what point do you start closing schools or releasing prisoners to pay for it? For the sake of the future, spending in the NHS has to be scrutinised far closer than anybody in politics dares to.

The same is true for the age at which the state pension kicks in. We’re all living longer – and yet politicians and their in-house psephologists refuse to raise the pension age at anything other than glacial pace because of the potential damage at the ballot box. Westminster must be braver.

• Andy Silvester is campaign director of the TaxPayers’ Alliance.