Leading article

Osborne's ringfence cycle

28 November 2015

9:00 AM

28 November 2015

9:00 AM

By now, George Osborne had hoped to have completed his austerity programme. Instead, he finds himself making what is, still, the most ambitious round of cuts of any finance minister in the developed world. The Chancellor is paying the price for the leisurely pace that he decided to take in the last parliament – due to his habit of buying time by deferring pain.

The Chancellor still doesn’t seem to be in too much of a rush. In his spending review statement this week, he decided to spend some £83 billion more over the parliament than he said he would at the general election.  Foreign aid is not just protected, but will increase by some £3 billion – more than the budget for the Home Office. The science budget, Tony Blair’s great plaything, will increase to £4.7 billion. The NHS budget, the biggest of any government department in the world, will rise by a further 20 per cent. And to pay for all of this, the pain will fall on the people who have already taken most of the pain over the last five years: transport (whose budget is already squeezed by HS2), local authorities and those on welfare or being helped back to work. So people are not ‘all in it together’, as the Prime Minister once said. Some are being protected, others celebrated — and others put to the wall.

The departments that have been cut have coped admirably. The council grant was cut by 40 per cent, yet polls show no drop in satisfaction with services. The police budget is down by a third, but surveyed crime has fallen even more steeply. The education budget is down, but secondary schools are opening at the fastest rate for decades — with 500 more free schools on the way. Just as Labour’s spending splurge did not really help public services, five years of austerity has not really hurt them. And this is, in large part, thanks to the resourcefulness of the public servants in those departments.

The Chancellor ought to have congratulated them. They have demonstrated that cuts need not mean worse service. And by doing so, they illustrate an important point: that ‘protecting’ a department does not necessarily mean pouring more money into it.

Take the NHS, for example: its budget has not only been protected but increased — it is set to rise by £19 billion, to £120 billion over the next five years. But as a result it has not been forced to be as resourceful as other branches of government. Free prescriptions and GP visits are still given to people who could easily afford to pay for them, and basic disorganisation still means the NHS pays through the nose for part-time doctors. Being ‘protected’ has left the health service far too dependent on the government. And sheltered from the need to reform.

Had the NHS not been ringfenced, the austerity era might now be over — and the NHS might well be in a stronger as a result. The universities were not ringfenced at the last election, and radical tuition financing reform was introduced with fees of up to £9,000. But this also forced universities to innovate, and use about a third of the fee money to support poorer students. As a result, more English students from poorer backgrounds are going to university than ever before.

Perhaps the best single decision made by the Chancellor was to abandon his plan to cut tax credits, and instead phase them out — precisely as this magazine argued he should do. Such a move would have deprived the Conservatives of the right to refer to themselves as the ‘workers’ party’. They can still claim this title — just. But it would never have come into question had pensions not been ringfenced, at the expense of support for those of working age.

The Chancellor’s decision to spend £80 billion more makes one key assumption — that there will not be another crash. So far, he has borrowed as much as the market allowed him — and he plans to carry on doing so. In other words, his plan for the next five years is a massive gamble on there being no more boom and bust. We can only hope that he is right.

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