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The Chancellor’s Spending Review and the case for responsible government

By David Robinson

George Osborne, MPIt was never likely to be painless. Several important decisions shaped the scope and content of the Chancellor’s Spending review statement last week, long before the negotiations began with departmental ministers in the spring.

The Conservatives promised before the last election that the heavy work on reducing the deficit would be borne by spending cuts, not tax increases. At the time there was an expectation that the balance would be roughly 80:20. In practice the IFS say that the exchequer is now on course for an 85:15 split. This was a clear political choice inevitably hurting the most disadvantaged – particularly given the further decision to raise most of the additional tax revenue from VAT, the most regressive form of taxation.

Then there was the decision to protect health, education and overseas aid. We might argue that there has been some sleight of hand with this commitment defending, for example, spending on school-age children but not on under-fives. This sits particularly uncomfortably with ministerial rhetoric on the early years from the PM and across the front bench. However not withstanding such important but random inconsistencies the principle has been generally applied and three big budgets have been protected leaving those that remain to carry a heavier burden.

Finally, as we have pointed out before, there was the foolish and wholly unnecessary decision to reduce the spending review from three years to one year when common sense cries out for longer term planning, not shorter.

This mistake should never be made again.

Very simply investing in early action and reducing long-term need can be done in three ways:

First by spending more. This isn’t as na├»ve as it sounds but nor will it ever be the complete answer. Our emerging independent funders alliance is exploring ways of prioritising early action, BIG lottery, the UKs largest independent funder, has significantly switched the balance of its portfolio towards earlier action in the last two years and the use of social investment to finance transition is increasingly important. All important steps but not enough.

Second by making choices and reallocating funds, for example cutting police budgets and paying for detached work. Public policy is all about choices all the time but these can be particularly difficult.

Third by extending the budget cycle and rebalancing the spending without altering the overall size of the envelope. This would enable governments to spend now on fences at the top of the cliff AND ambulances at the bottom and then save towards the end of the cycle when the preventative strategy has begun to reshape and reduce the patterns of demand. We sense a developing momentum behind this idea and the establishing the instruments needed to make it work. Most recently todays interim report from the Fabian Public Spending Commission specifically backs our proposals for a ten-year test. This isn’t playing silly games with the numbers. Any intelligent enterprise anticipates future liabilities and off sets them if it can. Government does it already to a very small extent with, say, immunization programmes so why not also with the detached youth work that reduces rates of offending or even, indeed, with the focused support on the early years which makes such a big difference to longer term life chances but which took such a hit in the Review last week

Decisions about the balance between tax hikes and spending cuts and about the protection of ring fenced budgets will always involve political choices, pleasing some, offending others. Developing a more intelligent, long-term approach to budgeting so avoiding very short-term false economies and backing sustainable solutions surely shouldn’t be considered to be a choice. It is responsible government.

No other organisation would plan for just twelve months. Nor should the treasury, ever again.

Photo: Ewan McIntosh via Flickr

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