Ring-fencing budgets cannot continue

19 March 2013

Ahead of the 2013 Budget, an article published on the Huffington Post blog outlining how the Chancellor of the Exchequer should remove ringfencing of departmental budgets, and tackle the structural problems with the economy.

As the budget fast approaches, debates on how to return the UK economy back to growth are reaching fever pitch. For Ed Balls, the government will have to borrow more to kickstart the economy. George Osborne, on the other hand, is adamant that “you can’t get out of a debt crisis by borrowing more and more”. Whatever the solution, there is a consensus that in the wake of the global financial crisis, these exceptional times require exceptional measures.

But when you strip back the data on the public finances, the picture left behind shows that rather than just being the result of exceptional factors, problems in the public finances are all too familiar. The sad truth is that the UK government has been running deficits for over a decade. General gross debt rose from 37% of GDP in 2001-02 to 44% of GDP in 2007-08 when strong growth should have led to healthy surpluses. Years of unsustainable discretionary spending and tax policies have left a ticking time bomb at the heart of the public finances.

Gordon Brown’s years as Chancellor may have been characterised by an addiction to overspending, but the coalition’s plans have failed to kick the habit. Instead, by protecting the budgets for health, schools, international aid and pensioner benefits, whilst at the same time salami slicing others, the real drivers of spending have been left unaddressed. In this parliament alone, these key protected budgets will account for 60% of spending increases.

This poses a real challenge for the prime minister and the Chancellor as they prepare to announce their next budget. One budget won’t rehabilitate the government’s approach to spending, but there are clear changes that are long overdue. Indeed, as David Cameron said in the wake of the Moody’s downgrade, the government must go “further and faster” to cut the deficit.

If public spending is to be put on a sustainable footing, “further and faster” must mean placing all budgets under the same rigour of fiscal scrutiny. The financial imperative for greater value for money has driven innovative solutions in other public services already and has the potential to do the same in the NHS, in schools and for pensioner benefits. Only when these fiscal pressures are applied to all departments will George Osborne have the freedom to tackle what the Public Accounts Committee recently called the “ill thought through” pattern of spending cuts thus far. However, with the Chancellor ruling out an end to the ring-fence around the NHS and international aid, on this score tomorrow’s budget looks set to disappoint.

As the Treasury braces itself for a downgraded forecast for growth from the Office for Budget Responsibility, the temptation for George Osborne will be to continue to avoid dealing with the largest budgets. But Britain can no longer afford to spend its way out of its problems. The Chancellor will have to tackle structural problems with structural solutions if he is to put the economy back on the trajectory to growth.

Please click here to view the article on the Huffington Post website.

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