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The 2020 Public Services Trust Blog

Thursday, December 10, 2009

Borrow more, borrow now…

By Ashish Prashar

There was very little change in the borrowing figures in yesterday’s Pre-Budget Report, which is impressive given the turmoil of the last year. The Treasury also estimated that the cost of bailing out the two state-backed banks will now only cost £10bn and £50bn as previously estimated and the Chancellor promised the markets that the deficit would be halved in four years. However, he ducked the decisions on where cuts would need to be made and spending for 2010-11 will surge ahead as planned.

Now although deficits look bad it has been relatively cheap to borrow since the start of the recession and we’re probably now entering the beginning of a period where the rate for government to borrow will normalise as the recession comes to an end, therefore becoming more expensive.

So if government going to go forward with spending as planned and borrow more in the near future, it’s probably a good idea to borrow now and lock it in while rates are low.

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Posted by Ashish Prashar at 11:10 am
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Wednesday, March 25, 2009

It’s all just a little bit of history repeating…

By Ben Lucas

Today’s papers lead on Governor of the Bank of England; Mervyn King’s warning yesterday that the economy cannot afford another substantial stimulus package because of the state of public finances. It has been reported that this has made public the tensions between the Bank of England and the Treasury on the one hand and No10 on the other. Apparently, the Bank of England and the Treasury are increasingly concerned about the deterioration in public finances, whilst the Prime Minister wants to keep open the option of further stimulus measures in the budget and fears the economic consequences of focusing primarily on debt reduction.

What is striking about this is how much it mirrors tensions which have existed at previous points in recent British history. Bernard Donoghue’s excellent “Downing Street Diary Vol 2. – 1976-79), launched at the RSA late last year, reveals similar battles between the Treasury, the Bank of England and the rest of government during the tense negotiations with the IMF in 1976. By 1976 the Treasury was increasingly taking a monetarist line, so its pre-occupation was with reducing debt, strengthening the pound and tightening money supply. This was strongly backed by the Bank of England. Jim Callaghan and the rest of the Government frequently felt that they were backed into a corner by the Treasury and the Bank and worried about the consequences on jobs, the wider economy and public services of Treasury orthodoxy.

There are of course some significant differences between now and 1976. We are in the middle of a global and not just British financial crisis this time round. Whereas Callaghan was infuriated by leaks from the Bank of England, now Gordon Brown has given the Bank independence and Mervyn King’s views were given on the record. In 1976 the Cabinet was locked in lengthy debates and negotiations about how to respond to the crisis, this time power is much more firmly located in No10, No11 and the Bank of England.

One other interesting and unexpected feature of the current situation is that the power balance between No10 and the Treasury appears more equal than had been expected; it had been assumed that Gordon Brown would be an all powerful PM, with the Treasury much weaker than at any point in recent memory. But the logic of economic events has strengthened the Treasury and Bank of England’s hand and they are much more significant in the balance of power than anyone would have guessed. This is why Mervyn King’s intervention was significant.

Out of all this we are beginning to see the contours of where future political debate will lie. Much of this will be about the role and efficacy of the state, and about what its scope and form should be. Some within the Government will want to push ahead with further counter cyclical stimulus measures in the budget, even at the risk of worsening the debt picture – in order to reduce the impact of the recession, and to maintain a political dividing line with the Conservatives. The Treasury and the Bank of England will oppose this, increasingly reverting to type as advocates of fiscal restraint. The Conservatives, albeit warily, are attaching more and more importance to fiscal rectitude and reducing debt.

A tougher attitude to debt across the main parties will necessitate cuts to public service spending on a much greater level than anticipated in the PBR. So the choice between the parties may not be one of cuts vs. investment, but over the scale of cuts. This will make the Government’s current battle-line difficult to maintain.

What neither party are yet talking openly about are the big choices which will have to be faced about public spending and public services. The question for progressives across the party divide is what would a progressive strategy for public spending retrenchment look like?

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Tuesday, January 27, 2009

From individual consumption to social contribution…

By Ben Lucas

The times are changing and the era of individualism, which stretches back to the 1980s in the Anglo-American world, looks like it is drawing to a close. President Obama’s inaugural speech last week contained a strong call for society to embrace a much stronger ethic of responsibility. This responsibility stretches from big corporates, whose perceived greed, especially in the banking sector, has precipitated the global recession to individuals who will be expected to pull together to get through these difficult times.

As Obama said: “What is required of us now is a new era of responsibility — a recognition on the part of every American that we have duties to ourselves, our nation and the world; duties that we do not grudgingly accept, but rather seize gladly, firm in the knowledge that there is nothing so satisfying to the spirit, so defining of our character than giving our all to a difficult task. This is the price and the promise of citizenship”

What is striking about the new emphasis on responsibility is that it not only introduces a new expectation of social responsibility to the business world but it also calls into question the language of consumerism which has been used to drive reform in public services. If, as Obama has said, we are going through difficult times which require a more mature conversation about how these challenges can be met, then we have to think about the relationship between citizens and the state as being a more active one than consumerism implies.

In Britain, politicians are still playing catch up with this new world. Last week saw two interesting developments which could suggest a new direction. The Government published its long awaited NHS Constitution and David Cameron set out his thinking about the key elements of progressive Conservatism. Both of these put an emphasis on responsibility as well as choice and consumer rights. But both need more development. Last week also saw the publication of a sobering report by the New Economics Foundation, which shows just how far Britain will have to go if it is to move from unhappy individualism to become a more socially responsible society.

The aim of the NHS Constitution is to entrench the NHS in the British political settlement and to entrench citizens’ rights in the health service. It sets out a collection of legal rights, pledges and responsibilities for both patients and NHS staff. These include a right to make choices about healthcare and to information to help exercise that choice, as well as new rights in relation to vaccinations and drug treatments. The Constitution continues the process of rebalancing the power relationship between doctor and patient, so that patients are able to have greater choice.
The problem is that it is stronger on ideas associated with consumerism than in relation to individual and collective responsibility for health. When the constitution talks about responsibilities for the public it does so in the context of their being patients, rather than in the wider circumstances of preventative health care.

Likewise, whilst David Cameron’s speech sets out an interesting new framework for progressive conservatism and embraces the idea of responsibility, there are still some significant shortcomings in this approach. Cameron defined four progressive ends which he says progressives across all three parties share: fair society; equal opportunity society; green society; and a safer society. He said that what distinguished progressive Conservatives was the means which they want to use to achieve these ends, these include devolving power and responsibility to individuals and communities based on ‘nudging’ rather than regulating, the family, economic growth and fiscal responsibility. He also set three tests for deciding the appropriate policy response to future problems which reflect these means. Leaving aside the question of how these tests would have helped a Cameron government to respond to the credit crunch, there is also a wider question about what this framework has to say about the hard choices which will have to be made on public services in the future. To live up to the tag of ‘Progressive Conservatives’, the Cameron Conservatives will need to initiate a more honest discussion with the electorate about what shared responsibility will mean in the context of rising demand for public services, just when the money will have run out to pay for improvements.

The reality is that our public services face growing demand pressures, including ones which fall outside traditional institutions such as schools, hospitals and prisons. Many of these are behavioural challenges, from combating obesity to spurring ambition and social mobility through to encouraging greater civility. These are in addition to the growing cost of caring for an increasingly ageing society and the, as yet unquantifiable, social costs of the recession. Yet we know that even on the Government’s optimistic PBR forecasts public spending will need to be cut by at least £37billion in the next spending round. What we need from British politicians is a more open conversation with the public about how we are going to square the circle between society’s growing expectations of public services and the fast diminishing resources to pay for these.

Part of the answer will have to lie in accelerating public service reform, through once in a generation innovation and productivity gains. But this is also going to have to lead to a much greater emphasis on how and what individuals and society can contribute to public services. We need to move from an ethos of individual consumption to an ethic of social contribution. More personal responsibility in relation to self-regarding behaviour (health, ambition etc), greater social responsibility in relation to working together to get better outcomes from public services, and a willingness to pay for better outcomes either directly or indirectly through taxes and charges. This will build on some of the existing, but so far marginal, work on ‘co-production’, ‘co-creation’ and ‘co-payment’, but needs to be expressed in a more compelling and accessible language. The challenge for politicians is to re-frame the public debate, so that it is better aligned with economic and social reality.

The scale of this challenge is underlined in National Accounts of Well Being, a new report published by the New Economics Foundation. This found that Britain ranks lower than any other European country amongst 16-24 year olds when it comes to trust in each other and in social institutions – a reflection of just how individualistic Britain has become. But a social model built on individualism will not deliver the well being that Britain’s will want for themselves in the future. David Cameron is right to talk about responsibility and Gordon Brown would do well to start to do the same. But British politicians will have to go much further than this if they are really to help facilitate the development of a new social model based on responsibility and contribution rather than passivity and consumption.

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Tuesday, November 25, 2008

The return of zero-sum

By Ben Lucas

Yesterday’s PBR, prompted by the global economic crisis, saw the return of zero-sum to mainstream political economy in the UK. For more than a decade New Labour has defied the idea that public policy necessarily has to involve choices which create winners and losers. This has been best exemplified by its use of the conjunction “and” as in “social justice and economy efficiency”, or “tough on crime and tough on the causes of crime”. The Cameron Conservatives also went along with this consensus, hence a policy based on “sharing the proceeds of economic growth” which allowed both tax cuts and high public service spending.

But what is now clear is that we are entering an era of hard, and probably increasingly clear choices, which will create winners and losers. The Government, in order to reassure financial markets, was explicit yesterday that while there will be short term winners from the economic stimulus package there will be long term losers, particularly high earners. Moreover, whilst in the short term some £3bn of capital projects will be brought forward to boost the economy, in the medium term public spending will be the loser as an even tighter straight jacket is put on public service spending from 2011 onwards.

But where the main political parties are still not facing up to the new reality is what this will mean for public services in the medium to long term. The general message is that the ‘party’s over’ for public services. But the demand pressures on public services will grow and grow. In the very short term this will be seen with much higher benefit bills, welfare spending was 35% of all public spending at the height of the recession in the 1980s, it was 25% of all public spending in the 1990s recession, but at present only stands at 15% of public spending. This is bound to rise as a result of unemployment.

But the long term pressures will be even more stark. The demographic timebomb is far more potentially explosive than the future tax plans unveiled in the PBR. We will have to find a way of paying for an increasingly elderly society, which will see a 50% increase in the number of people over the age of 85 by 2020. At the same time society will have to confront a number of behavioural challenges, such as obesity and re-offending, which current public services are ill equipped to deal with. On top of which will be the cost of mitigating climate change and managing risk, including systemic market failure.

To suggest that the only response to these new pressures is some variation on a cost-reduction exercise is to fail to grasp the extent of the challenge which public services will face in the future. Here too we are probably going to have to make some hard choices, about what is really important for society and what is less important. About what the state should be responsible for and what it shouldn’t, about how services should be paid for, how they should be delivered and how rights, responsibilities and risks should be allocated between the individual, society and the state. These are the big issues which the PBR failed to touch on. They will be the focus of our shortly to be launched Commission on 2020 Public Services.

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