Lord Hannan of Kingsclere is a Conservative peer, writer and columnist. He was a Conservative MEP from 1999 to 2020, and is now President of the Initiative for Free Trade.
Alright, but where is the money coming from? I know that’s considered an indelicate question these days. Politicians don’t like to ask it, for fear of coming across as Scrooges. But it isn’t their own dosh they’re talking about, for Heaven’s sake. The debts they are running up will fall on all of us – including those our national poet called “your children yet unborn and unbegot”.
Billions have already been briefed in advance of today’s budget, as if Britain were a country with a healthy budget surplus. Five hundred and sixty million pounds to improve adult maths skills, £170 million extra for apprenticeships, £355 million more for improved street lighting and CCTV, £628 million in border technology and an eye-watering £7 billion on transport projects outside London.
Individually, each of these items might be defensible. But – again, I don’t like coming across as a miser, but someone has to say it – we are already spending and taxing at record levels. The state is spending a trillion pounds a year: two million pounds a minute. As Harry Phibbs reminded ConHome readers the other day, public expenditure has risen to a staggering 46.5 per cent of GDP.
Yes, the pandemic was a one-off challenge. Almost all free-marketeers understood that, and acquiesced in levels of emergency expenditure that they would never normally have countenanced. But that is not what we are talking about now. These are not spending rises caused by the epidemic or by the shutdowns. Those – the furlough, the emergency grants to businesses and so on – can reasonably be treated like a war debt, to be paid off over many decades. No, this is something else: a generalised and permanent increase in the size of the state, unrelated to the recent crisis.
Even when it comes to healthcare, we are way past contingency spending. The NHS was recently awarded an extra £36 billion in the last three-year settlement, but is reportedly in line for more than £4 billion more to pay for digitisation. By 2025, the NHS will account for fully 40 per cent of all government spending, up from 28 per cent in 2005. Britain is well on the way to becoming a healthcare system with a government attached.
At the same time, we are promised significant hikes in public sector pay and in the minimum wage. Once more – sorry to be a bore – where is the money coming from? Real wages tend to rise over time as technology advances and productivity improves. But simply decreeing higher wages, Ceausescu-like, does not make a country wealthier; it pushes up inflation. We are now hearing a deranged argument to the effect that higher wages are needed to pay for rising prices. Do I really need to spell out where that ends?
None of this profligacy is the result of Covid-19 – not directly, at any rate. There are, though, two ways in which the epidemic has indirectly altered the terms of the debate. First, and most obviously, it has blasted away our pre-2020 notions of proportionality. When a government is conjuring hundreds of billions of pounds into existence through quantitative easing and spending it furiously in emergency grants and subsidies, it becomes much harder to question hundreds of millions – vast sums by any normal reckoning – allocated to transport, policing or whatever.
Second, as this column has been glumly observing these past 19 months, the epidemic has altered our brain chemistry. Behavioural psychologists have long observed that wars, natural disasters and other collective threats make people more authoritarian, less tolerant of dissent, more demanding of the smack of firm government. Hence the overwhelming support for almost every lockdown measure, regardless of how founded it was in science. And hence the rise in support for a big state.
I have previously drawn a pessimistic parallel with 1945, when the authorities proved reluctant to let go of powers they had seized on a supposedly wartime basis. Identity cards remained until 1952, rationing until 1954, conscription until 1960 and most of the economic controls until the 1980s – not because voters were prepared to put up with them, but because voters actively demanded them.
There is another melancholy parallel to be drawn with 1945. Then, as now, there was a huge mismatch between what the nation could afford and what the electorate felt it had earned through its privations. Then, as now, the national debt was colossal (it is currently around 100 per cent of GDP). Then, as now, the recent trauma had engendered a collectivist mood. In 1945, it found expression through the creation of a monolithic welfare state. In 2021, it takes the form of public sector pay rises, nationalisations and industrial strategies.
In the short term, these things are very popular. Even in the longer term, they do little harm to their authors’ reputations. Clement Attlee is remembered as the man who gave poor people a safety net, not as the man whose nationalised behemoths eventually led to the collapse of the 1970s. There is a deal of ruin in a nation.
I don’t doubt Attlee’s decency. He believed he was spreading opportunity to those who had never had a chance. The trouble is that his reforms were not affordable in a state which had just emptied its treasury in the struggle against Nazism. Subsequent governments sought to inflate the debts away, with a catastrophic effect on our national competitiveness. Not until the Thatcher reforms was our decline arrested.
Just as Attlee had set his heart on state-funded health and welfare systems, so Boris had set his on some gargantuan government-led projects: levelling up, the nationalised financing of social care, big infrastructure schemes, net zero. Neither PM had the money to do the things he wanted. But, with the electorate demanding more government, it is always easier to spend today and let others worry about the bill.
For the avoidance of doubt, I want Britain to be a high-skills, high-wage economy. Who doesn’t? I want us to have first-class public services. Who doesn’t? The question is how to pay for these things. Do we gouge a chunk of revenue out of the private sector now, thereby shrinking our economy overall? Or do we try to ensure that GDP grows so that wages rise naturally and there is plentiful revenue for the Treasury?
Margaret Thatcher knew the answer. Contrary to widespread belief, overall public spending rose in every year that she led the government. But she ensured that the economy grew faster than the government. So while public spending fell in proportionate terms, it rose in absolute terms. Every leading member of the present government lived through that era. They know that her approach worked. How sad that they seem too scared to copy it.