Lord Hannan of Kingsclere was a Conservative MEP from 1999 to 2020, and is now President of the Institute for Free Trade.
There are two ways to shrink the state. The obvious one is to spend less. This, however, is next to impossible in a democracy. Human beings are loss-averse, and no politician likes to wind up a programme once voters start to take it for granted.
Cuts thus tend to happen only after calamitous economic shocks – and their authors are usually booted out at the next opportunity.
Ireland and Greece, for example, made meaningful spending reductions after the 2009 euro crisis. Politicians, public sector workers, benefits claimants – all had to take haircuts. In Britain, to find anything comparable, we must go back to the aftermath of the 1976 IMF bailout, when the Callaghan Government had to think the unthinkable – even on healthcare.
(Despite all the talk of “Tory cuts”, the NHS budget has grown in 74 of the 75 years of its existence – the exception being 1977, under Labour.)
The best a country can do, in normal times, is to ensure that the private sector grows faster than the state sector, so that government spending, while increasing in absolute terms, falls as a percentage of the economy.
That was Margaret Thatcher’s achievement. Contrary to almost universal belief, state spending grew in each of her eleven years as prime minister; but the economy grew faster, so that state spending fell from 42 per cent of GDP in 1979 to 36 per cent in 1990. Today, after the New Labour years and the pandemic, it stands at 50 per cent.
Which budgets would have to be cut to lower than percentage? The biggest growth, even before the pandemic, was in health and social security. Any politician who promises to control spending without halting the increase in those two areas (which has continued since the end of the lockdowns) is being disingenuous. But can they be touched?
The Cameron Government showed that benefits cuts are acceptable, even popular, when they are perceived as fair. Under Iain Duncan Smith, welfare incentives were tweaked in important ways. Some benefits were capped, while the amount that people could earn before they paid income tax was raised, with the result that unemployment fell to a record low.
Sadly, the lockdown undid a lot of Duncan Smith’s work, habituating the country to handouts. When it ended, many people were reluctant to return to work.
Some took early retirement. Some had mental health issues triggered by the lockdowns. Others pretended to have them. Yet others realised that claiming universal credit, while topping it up with the permitted £631 a month from working, was more attractive than doing a full-time job.
Employers around the country are finding it hard to compete against legal benefits. Tweaking the incentives again is necessary and, I think, potentially popular.
A larger element of social security is the state pension. Equalising the retirement age for men and women (the WASPI issue) is the single greatest saving ever made by the British state, netting £58 billion.
Yet no Tory government will go near the subject and, in purely electoral terms, understandably so. Even during and after the lockdowns, the triple lock was maintained; terrible economics, but forgivable politics.
If pensioners may not be touched, what about slightly younger people? Why not allow the retirement age to rise with longevity, starting with my generation (born 1971)? Most of us expect to be active well into our seventies, and hardly any of us expect to live on the state pension. A bold government would follow Sweden and tie the pension age to average life expectancy, so that each rise became a good news story.
What, then, of health, the behemoth that swallows every saving made elsewhere?
As Sajid Javid pointed out, the NHS has gone from 27 per cent of our day-to-day spending in 2000 to 44 per cent today, and will be 50 per cent by the end of the decade. The quip about Britain being a health bureaucracy with a government attached has become literally true.
It is hard to see how that spending could be cut, for each breakthrough in healthcare creates new pressures. When we conquer a disease, we create survivors who need other kinds of treatment. It’s a happy story overall; but it means that the demand for healthcare always rises.
If nothing else, the past 20 years have shown that spending more on the NHS has little impact on outcomes. Two thirds of the money goes on staff, so higher budgets fund pensions rather than procedures. With spending on the NHS at a record high, and more doctors and nurses than ever, waiting lists have reached an unbelievable 7.6 million.
Might reform rather than resources be the answer? And might voters be prepared to countenance it? Back in 2009, when I suggested to American TV viewers that they should not copy our system, I became the most hated man in Britain. The fact that no other country in the world had copied us was no defence.
As recently as 2015, in the aftermath of a series of scandals, notably at Mid Staffs, I wrote on ConHome that the electorate was getting what it demanded, namely an unreformed system (Hands Off Our NHS!).
Now, though, I am starting to wonder. In 2009, when I had people harassing my elderly mother because I had blasphemed, 70 per cent of voters were satisfied with the NHS. Today, that number has fallen to 28 per cent – perhaps reflecting the fact that no one can pretend than the problems are down to lack of money.
In theory, it is possible to see improved productivity coming from efficiency reforms while the budget holds steady.
In practice, only Labour would be trusted to act. Because of Thatcherism, we tend to think that reforms come from Tory radicals.
But, in this regard at least, we are the Anglosphere outlier. In the other English-speaking democracies, reforms were usually initiated by left-of-centre politicians: Paul Martin in Canada, Roger Douglas in New Zealand, Bill Clinton in the US. They could reduce entitlements without being accused of murdering the poor.
Might something similar happen under Sir Keir Starmer? Probably not. The NHS will continue to be the single biggest drag on our economy, not only in the sense of gobbling resources, but in the sense of making the workforce less fit. I’m afraid it will take another 1976-type breakdown to stimulate reform.
Then again, I’m afraid that might happen sooner than we think.