The Spectator

The madness of ring-fencing government spending.

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As ministers trooped one by one into George Osborne’s office last week for negotiations over the Spending Review, most looked pretty grim, steeling themselves against news of cuts to come. But three more cheerful figures stood out: the Secretaries of State for Health, Education and International Development. Their budgets, which between them account for more than a third of public spending, have been ring-fenced, with the result that the Chancellor is left scratching around elsewhere to hit his target of reducing spending by £11.5 billion.

And although £11.5 billion sounds like a lot of money, in the context of what’s needed, it is a pitifully small gesture. Three years after an ‘austerity budget’, the government is not overspending by just £11.5 billion a year; it is splurging nearly £130 billion a year more than it receives in revenue. The scale of the problem should be far too great for any budget to be ring-fenced, let alone the budgets of Health and Education — two of the biggest-spending departments.

So what could the Chancellor be thinking? It’s inconceivable that he has been through the Health and Education budgets line by line and concluded that there is no fat to be trimmed. He might have at least queried the fact that 7,800 NHS staff are being paid more than £100,000 a year.

The decision to ring-fence Health and Education is, of course, raw politics. The Chancellor, who is keener on political campaigning than economics, has studied the Tony Blair manual to attaining and keeping power and has come to the conclusion that there are two things — schools and hospitals — that the electorate minds more about than any other. The government must therefore, he thinks, avoid at all costs being accused of ruthlessness or, God forbid, not ‘caring’. As a result, unnecessary legions of NHS managers will continue to draw vast salaries, money will carry on being frittered on fancy school buildings, and head teachers will be left to bid up their salaries — all because the government fears a backlash at the polls if the word ‘cuts’ begins to appear in the same headline as the words ‘health’ and ‘education’.

As for international development, that’s a trickier ring-fence to understand. Why would any sane government in so much debt be so determined to waste money abroad — unless it helps to boost ministers’ egos when they fly off to international conferences? Setting a target to reduce the number of children in the developing world who die of dysentery, or to increase the number who go to school, would be worthy. But the government has ensured that much of the international aid budget will be wasted, because it sees spending as a good in itself. As Gordon Brown discovered when he committed Labour to increasing the share of GDP spent on health to the European average (without specifying what he wanted to achieve) the easiest way to get rid of money is simply to insist that it is spent, never mind how.

George Osborne is not wrong to fear that there would be political fallout if he cut the Health and Education budgets — Labour can be guaranteed to exploit it to the full. But so large is the deficit that sooner or later someone in government — preferably before the nation goes bankrupt — will have to face up to the fact that public opinion does not add up to a balanced budget, and will have the nerve to act accordingly.

Don’t privatise justice

Privatisation has been a hugely successful policy over the past 30 years. Unfortunately, though, the government seems to have learned the wrong lesson from it. The proposal to sell the Courts Service’s buildings, and transfer some of its staff to the private sector, promises to bring out the worst aspects of the policy: it gives a desperate government a chance to raise cash in a hurry, relieving the taxpayer of assets at a knockdown price.

Meanwhile, it does nothing to replicate what has been good about privatisation: that it has opened up lazy state monopolies to competition.

Claims that the measure will save the public purse £1 billion a year should be taken with a pinch of salt. Similar claims were made when the NHS handed over hospitals to private finance consortia. What happened was that NHS Trusts signed lengthy, inflexible contracts, which enable private interests to profit hugely when, inevitably, the requirements of the NHS change.

The real enemy is monopoly — whether it comes in public or private form. Any organisation that knows it can take its customer for granted is likely to gravitate towards complacency, regardless of who owns it. Given that the government is unlikely to want to open the courts to competition, giving criminals a choice where they can be tried, it is hard to see what is going to be achieved.