Why public spending is a question of balance - David Howell

Is Chancellor Sajid Javid being reckless with the public finances?
Is Chancellor Sajid Javid being reckless with the public finances?

WHEN it comes to public expenditure, we are treated by analysts and the media to a sort of Punch and Judy pantomime show between polarised extremes.

Either public spending is depicted by one side as a mass of ruthless cuts, making austerity a dirty word – that is what it has become in the language of both political debate and outside as well – or, from the other pole, as a sea of extravagant waste of taxpayers’ money, driving us all ever deeper into debt.

Boris Johnson has been on a public spending spree since he became Prime Minister in late July.

Boris Johnson has been on a public spending spree since he became Prime Minister in late July.

In fact, in this digital age, a rough practical balance is asserting itself throughout the world’s economies between obvious and growing public spending needs, and the capacities of the private sector.

Much of our political debate is manufactured – it is the way it comes out with party politics as we have played it in recent years – but it has very little influence on what is really happening in the trend of public expenditure.

These deeper forces all around the world bring about a sort of figure for total public spending – as a proportion of all spending, investment and GDP – that hovers between a percentage in the mid-30s and the high 40s.

Although, of course, it is always with upward pressure and with endless political promises, which all politicians and Governments make, to spend on favourite causes and lobbies. It depends on what gets included in definitions of public spending, what is deemed off budget and what is simply ignored.

David Howell was a Cabinet minister in Margaret Thatcher's first government.

David Howell was a Cabinet minister in Margaret Thatcher's first government.

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In the world of economic statistics, there is chaos, because all the traditional views are being undermined. The very concept of GDP and all the aggregates that were invented by Simon Kuznets in the 1930s – taken up by Lord Keynes – which were very relevant to the pre-digital economy, do not fit into the arrangements and patterns of business, economics and wealth creation that we have today.

Even the Asian miracle economies, where all the growth will be in the next 10 to 20 years, including even the autocracies, find that the state, markets, public spending and private enterprise cannot do without each other when it comes to finance, resources and national objectives. Even China, with its swollen state-ownership sector, wildly inefficient in many areas, finds ​that it has to grope all the time for a new public-private balance with its belt-and-road initiative and in its tax policies.

My advice to Chancellors, past and present, not listened to, is not to talk about austerity or ending austerity, but to talk much more about balance and constant control, which is always necessary on all public spending, whether it is growing or shrinking.

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All public spending programmes always grow, unless a hand is kept on them. All public spending has to have a very tight hand kept on it, so the idea that you can stand back and say, “Austerity is over, now we can let everything rip”, is a recipe for disaster. It is a serious imbalance in how the economy and society work.

Back in the 1970s, the idea was to focus much more on results and actual outputs of public policies, and on questioning whether the right systems were in place to deliver, rather than simply on whether they should be state or private systems.

Indeed, we had no OBR (Office of Budget Responsibility) in those days and our forecasts were very primitive. In some ways, there was a questioning of whether a particular expenditure programme was the right one to deliver the results required for the consumer and the public. That was the genesis of privatisation; it was rapidly concluded that many of these operations should not only be contracted out but put into the private sector.

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When it comes to public spending now, I say open wide the crystal fountain, by all means. Just make sure that the fountain works well and delivers top-quality flow in places and in ways that people really want it.

We should look for balance between public finance and private enterprise investment, harnessing both in delivering quality government with public infrastructure and social care programmes, which will always expand through need and demand. Above all, in the digital age now upon us, we need to remember that the best levels of public spending and the best programmes to ​meet people’s real need will be decided by technology advancing ever more rapidly every day – not by politics, yesterday’s tired ideologies or economic and political theories.

David Howell is a Tory peer. A Cabinet Minister in Margaret Thatcher’s first Government, he spoke in a Lords’ debate on spending. This is an edited version.