It’s the fiscal quandary of our times: where does all the money go? When the Government says that there’s enough funding for public services, their critics point to workers striking, backlogs from the NHS to the asylum system, and a Defence Secretary battling for sufficient resources, even amid a European land war, as evidence there isn’t enough cash being put in.
When the Opposition says the Government is starving public services, ministers can reasonably point to the fact that the British state spends more money than ever before, that taxes are at their highest for many decades, and that in a cost of living crisis there are precious few people with money to spare.
The painful problem facing both Jeremy Hunt and his opposite number, Rachel Reeves, at this week’s Budget is that both competing accounts appear to be true. The state is spending record amounts and levying eye-watering taxes, and the state is malfunctioning on various fronts.
That’s the worst of both worlds – a massive, costly budget, without proportionate upsides in public services, standard of living, healthcare, policing and more.
This suggests a few immediate political lessons.
First, that it’s a mistake to use the amount of money spent as shorthand for how effective public services are. Bigger bills don’t always buy proportionately better results. This Stella Artois approach, that a Budget can be “reassuringly expensive”, makes for easy speech writing. But it would be a mistake to measure the effectiveness of pandemic PPE spending simply by how much was spent – rather than what was bought, when it turned up, and how effective it turned out to be.
The news that doubling a budget doesn’t automatically double the return is bad enough, but sometimes a glut of spending can actively damage efficiency, too.
For example, the race to hit the target of spending 0.7 per cent of gross national income target on aid led the then Department for International Development to send money out to bodies like the World Bank purely to be able to say they had “spent” it. The result was billions of pounds sitting unspent in the recipient agencies’ bank accounts – not spent on the world’s poor, and no longer available to provide services or alleviate tax rises in the UK either.
So how did we end up here? The roots lie in the strategy applied to austerity in the George Osborne era, and the political imperatives of the Coalition years.
For all the rhetoric about the supposedly dogmatic nature of “ideological” austerity, the truth is that the Tory modernisers never really wanted to cut spending, or even balance the books. They certainly weren’t gagging to spend their careers, and their political capital, enforcing unpopular spending constraints.
Remember, they started off hugging every husky or hoody that strayed into arms’ reach. As late as November 2008, well into the financial crisis, they were still echoing Blair’s 1997 pledge to match the Government’s spending plans if elected. They were only pushed off that path by the undeniable pressure of a global banking, credit and then fiscal crisis – and even then reluctantly.
Having pivoted out of necessity, they then failed to win the 2010 election outright – in part because they couldn’t issue a full-throated charge that Gordon Brown’s spending plans had been irresponsible, given they were promising to match them mere months earlier.
Without a majority of their own, and retrofitting a critique of the size of the state, they had to implement austerity without the votes required to follow it through.
The experience of other countries which had faced similar challenges, suggested that it was best to fight large, targeted battles on public sector reform early, in order to reap the longest-lasting rewards on spending and productivity.
Political logic suggested the same – put bluntly, if you massively piss off 10 per cent of people, it does less damage on polling day than somewhat pissing off 100 per cent per cent of people, because one person can only take away one vote from you, regardless of how pissed off they are. And early action would give the best chance of showing results by the next election, which would help to salve the anger.
Except the Government didn’t have a clear majority. It needed to carefully court the votes of Tory backbenchers and the Lib Dems, so soon the about-turns began.
Rather than swift, radical but time-limited action, we got sustained salami-slicing, saving enough money to hurt but never enough to permanently solve the problem. Politically, the Conservatives got all of the pain but not much of the gain. Fiscally, the nation got something similar: austerity that started but never seemed to finish, and didn’t even reduce the amount being spent.
Voters were willing to take tough times for the greater good, but were left feeling like they only got half of the deal.
So here we are, over a decade later, with most of the structural problems of the British state still intact but all the available political capital and popular will to address them burnt up. That binds the hands of Jeremy Hunt and would bind the hands of Rachel Reeves in just the same way.
We can all feel and see that something isn’t right, as we ask why nothing seems to work and wonder where all that money goes. But it’s hard to see which chancellor in the years to come will have the political will, the insight and the popular backing to diagnose and then fix the issue. One side says they’ve solved the problem, and the other says it doesn’t exist – and in the meantime, the people carry on paying the price.
Mark Wallace is chief executive of Total Politics Group and director of ConservativeHome, a blog that is independent of the Conservative Party