The Conservative Government's PR machine is working overtime to prepare us tor the Chancellor's mini-budget on the 17th November. One day the "leaks," "rumours," or whatever you want to call them emphasise tax rises, on another there is speculation about cuts in spending. The purpose of all this "kite flying" is to try to assess the public reaction to the various alternatives: more about what will go down well politically rather than what is best for the economy and our well being.
More sinisterly we are bombarded day by day with phrases such as "difficult decisions," hard choices," "essential efficiencies" to fill the "black hole" in the public finances. These try to give the impressions that we now have a brave, grown-up government, prepared to made the tough but inevitable choices for the UK to survive and hold our own in a harsh and cruel world.
It is nonsense
There is only one, very easy, choice.
This should be based on two incontrovertible facts.
Fact 1. The UK's entire range of public services (NHS, social care, social security safety nett, local government services, legal system and prison services, education system. . .) is on its knees, underfunded understaffed and physically dilapidated.
Fact 2. The UK is a relatively moderately taxed country. Most similar countries pay a bigger share of their national income in tax than we do, as this table shows:
https://en.wikipedia.org/wiki/List_of_countries_by_tax_revenue_to_GDP_ratio
Here are some comparable examples:
France: 46.2% of GDP collected in tax
Germany: 37.5%
UK: 33.3%
USA: 27.1%
The UK's 33.3% comes just below the OECD average.
Hence there is plenty of scope for tax increases to bring us up to the average or, better, slightly above it.
The figures are for 2020 and will have changed slightly becasue of expenditure on the pandemic and as a result of rising fuel prices, but the relative positions are unlikely to have changed significantly
Some "trickle-downers" make much of the fact that the US is, or appears to be. a low tax country and a very enterprising one. However. if we examine our position relative to the US we see the we in the UK spend 10.15% of or GDP on health care. Most of that is included in government expenditure financed by taxation. The US spends 16.7% of its GDP on health care and most of that is privately funded and not included in government expenditure. Simple arithmetic shows that the US could be sending a greater proportion of its national income on government expenditure plus health care than does the UK.
So the choice facing the Chancellor as he prepares for the 17th November, is easy.
Raise taxes in order adequately to fund our dilapidated public realm.
As emphasised repeatedly in this blog, the fun is to chose those taxes which make least impact on current economic activity (known in the trade as the "circular flow of income." ) There are plenty to chose from: profits taxes (not just windfalls windfalls), property taxes, land taxes, capital gains, financial transactions, , pollution taxes, tackle the use of tax havens . . ..
I'd love to be part of a team advising the Chancellor on the pros and cons of these options. Enjoy! The choices will be intriguing but cause no hardship.
What we need is for the state to do fewer things, but to do the things it needs to do, better.
ReplyDeleteThe thing about the public sector is that it's basically dead money. It doesn't achieve anything. If the country were a company the public sector would be, like, the HR department, or technical services, or facilities management, or whatever: you need to have it but it does actually produce anything, it just exists so that the important bits, the bits which actually matter, can function.
So you need to keep it running but you also need to make sure that the costs don't get out of control, and that the people running it don't start empire-building and running nonsense things like free yoga classes or hiring for useless posts like diversity champions, and just cost money and don't add anything of value.
Hence: make sure it is funded enough to do the things it really needs to do, but rigorously cull those things down to the absolute bare minimum.
Whether the government provides these services and products itself (eg military personnel) our outsources them to the private sector (eg military equipment, most railway transport at the moment) it still has to provide sufficient funds. via taxation, to finance them to perform satisfactorily.
DeleteWhether the government provides these services and products itself (eg military personnel) our outsources them to the private sector (eg military equipment, most railway transport at the moment) it still has to provide sufficient funds. via taxation, to finance them to perform satisfactorily.
DeleteYes, obviously when I write 'public sector' in the above I mean anything paid for by the government, not just things the government notionally owns. That's what we need to slim down as much as possible, and that which absolutely can't be done away with must be done as well as possible.
In practical terms the benefit of the government not doing something directly but contracting a private company to do it is that, presuming there is competition between private companies for the contract (not always a given, what with the rather-too-cosy relationship some companies have with civil servants), it means the company which does get the contract has an incentive to do the job well lest it lose the contract to a competitor, whereas a civil servant has zero incentive to do the job well because they cannot lose their job, so the job will always end up being done badly.
But that's mere detail: for the purposes of the above it all counts as 'public sector' if the government is paying, whoever actually provides the service.
(So NHS GP surgeries, for example, although private businesses, are wholly paid for by the government, so count for these purposes as part of the public sector. Railway transport is public sector to the extent it's paid for by the government in subsidies, private sector to the extent it's paid for by passengers' fares.)
DeleteYou assume that , because of the possibility of competition, public service functions outsourced to the private sector are more "efficient" than those carried out in-house. The opposite was he case at the height of the pandemic. The test-and-trace system, outsourced to the private sector, was a costly failure (to the tune of an incredible £30 bn) whereas the distribution of the vaccine, carried out in-house by the NHS, was and continues to be, a great success.
DeleteOn the whole, by and large and in the main, by definition, the private sector's guiding principle is to maximise its profits, whereas the public sector puts service first.
The test-and-trace system, outsourced to the private sector, was a costly failure (to the tune of an incredible £30 bn)
DeleteOkay, you know that's not true, right? For a start the £30 billion includes the cost of all those little plastic strips that the government threw about like confetti; that's a good few billion right there, and while I personally think it was totally unnecessary, it's not true to claim that it was a 'failure' according to the aims of the programme.
What did fail was the It part of the project, the app'. Now an interesting correlation here is that all public sector IT projects fail — whether outsourced to private companies or not — while some (but by no means all) private-sector ones succeed. So the problem here doesn't seem to be with whether or not the app' was outsourced: all the evidence suggests that if it was done in-house it would have failed just as hard.
whereas the distribution of the vaccine, carried out in-house by the NHS, was and continues to be, a great success.
And the creation of the vaccines, which was the most important part of that, the part without which any of the rest of it would have been futile, was done by private companies.
And what's more, the distribution itself was not done entirely in-house by the NHS. Private companies like, for example, Pharmacy2U, were contracted by the NHS to provide logistics for the distribution effort.
On the whole, by and large and in the main, by definition, the private sector's guiding principle is to maximise its profits, whereas the public sector puts service first.
And it's because privately-owned companies aim to maximise profits that (provided there's competition) they give better service than things done in-house by the government. Because if an employee in a privately-owned company fails to give good service, their company will lose the contract, it will go bust, and they will lose their job. They therefore have an incentive to give good service.
Whereas a civil servant cannot lose their job no matter how lazy and incompetent they are, which is why there is no incentive to do a good job and most of them hardly work.
We have a govnt that likes to cut cut cut NOT invest.The funds will have to be maintained at the yearly inflation level plus 1% for security of supply service.The problem is that there is a habit of cutting into the bone which seriously affects performance then things collapse.That is the danger.
ReplyDeleteThe funds will have to be maintained at the yearly inflation level plus 1%
DeleteAt that rate it'll be about 30 years until public spending is 100% of GDP; is that what you want? (Obviously at that point it will have to stop increasing because it literally can't go any higher).