As far as anyone knows, Eric Pickles and Philip Hammond get on well enough with Andrew Lansley. We shall see how good relations survive a 25 per cent cut in Mr Pickles’ budget at the Communities Department and the same in Mr Hammond’s at Transport while Mr Lansley lives it up in the protected Department of Health.
It is a shame that the health budget has been protected for political reasons because this is a moment for a fundamental assessment of what government should and should not do. Over 13 years of Labour government the State has become like Gaudí’s Sagradia Familia — accumulating yet another ill-designed feature, poorly coordinated with the rest. The coalition Government needs to emerge from the autumn spending round with a State designed on clear principles.
Between 1994 and 1997, the Candian Government eliminated a budgetary deficit of 5.3 per cent of GDP. It did this by setting out five tests for all government activity: does the programme continue to serve a public interest? Does government have a legitimate role at all? Which level of government is the appropriate body? What part of the programme could be transferred to private and voluntary sectors? Could it be more efficient? The Program Review, as Jocelyne Bourgon, the former Clerk of the Privy Council of Canada wrote in a report for the Institute of Government, was more about what to preserve than what to cut.
George Osborne has said that he wants 77 per cent of the money raised to come from spending cuts. He cites OECD and Treasury research to suggest that tilting the balance more in favour of taxes is injurious to growth. Nobody can doubt his mettle because by far the easier course is to raise taxes. Two successive Budgets in the mid-1990s raised more than 2 per cent of GDP this way.
All the other options involve both pain and logistical difficulty. Expenditure on benefits makes up a third of total spending and pay settlements a further quarter. Each decision involves a real person docked a real benefit or losing a real job. In any case, taking staff off the public payroll cannot be done without incurring redundancy cost. Central government has limited control of the workforce — only 10 per cent of the public sector workforce are employed in the Civil Service. A great deal of government spending — especially in education — is at the discretion of professionals in the public sector. This has another, unintended, effect. Professionals tend to protect their budgets as best they can. The innovation that is the upshot of crisis in the private sector is unfortunately rare in public sector crises.
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The Lib-Con coalition will also find that there is little expenditure with no return at all. Its approach will have to be, as Bevan once said of socialism, in the language of priorities. The main priority has to be returning the country to the growth on which recovery in the public finances depends. It is also critical, for the fortunes of the coalition and for the demands of basic justice, that the load be evenly spread across the population as a whole.
To retain consent for their programme of cuts, Mr Osborne and Danny Alexander, the Chief Secretary to the Treasury, are going to have to do more than scrimp and save. They will have to restructure parts of the State. For that, they will need more than just a target for public spending. They will need a set of clear and limited ambitions for government.