The road to 2020: no more spending, lots more reform

Speaking on the floor of the conference, Danny Alexander declared today that there will be no ‘spending bonanza’ after the election. He aspires to continuing fiscal restraint until 2020, with the hint that his agenda – if he returns to the Treasury – is to run a budget surplus during the back half of the parliament to start paying down the stock of government debt.

While the Leader’s Speech isn’t until tomorrow, in a Q&A session with party members Nick Clegg has already said that the Liberal Democrat manifesto will keep the ringfences in place around the NHS and schools budgets through to 2020. Danny Alexander’s remarks suggest that those commitments to protecting the budgets will be the full extent of the Liberal Democrats’ spending ambitions in those areas.

This ‘fiscal quietism’ might sound boring but, in reality, it means reform, not continuity.

SMF analysis suggests that ‘protecting’ rather than increasing the NHS budget in line with the previous trend in healthcare costs means the service will effectively need to find £36bn in ‘efficiency savings’. This requires more than fiscal restraint in the NHS. Taken together with growing concern about standards of patient care and the effects of an ageing population, the Liberal Democrats, like any other party, will have to develop an agenda for transforming the NHS. More change, not more of the same.

Equally, in education ‘protecting’ the schools budget doesn’t settle all that much. Simon Hughes, speaking at a SMF event on social mobility earlier today, said that the ‘pupil premium’ was a terrible term, wishing that his party spoke instead of ‘giving more money to poor kids’. Whatever you call it, this is an important Liberal Democrat ambition, fundamental to how the party thinks about achieving social justice or its feebler cousin ‘fairness’. But, in a ‘protected’ as opposed to rising schools budget, giving more money to poor kids means changing something else.

Those are just two areas of public spending: the ‘protected’ ones. And the requirements for reform, by dint of the fiscal announcements made at this conference, are already substantial. The requirements for the unprotected areas – welfare, defence, the justice system, higher education, skills – are perhaps even greater again.

What’s more, not only do those areas first need to make cuts to balance the budget by the middle of the next Parliament, per Danny Alexander’s ambition, they may then need to absorb the impact of tax cuts for the low-paid.

There has been an unconcerted, but consistent, set of statements made by Clegg, Alexander and Cable about lifting the income tax threshold to the level where a person working full-time on the minimum wage would pay no income tax at all. That is a significant reduction in revenues for the Treasury that will have to be offset by one or more of the following: higher-than-forecast revenues from other taxes driven by higher-than-forecast economic growth (possible, but the economic recovery is hardly advanced enough to make that bet now); tax increases (likely, though the two ‘confirmed’ new taxes for the 2015 manifesto, a mansion tax and changes to pension tax relief, don’t raise much money and the ‘unconfirmed’ new tax policy, seeking to recoup more from everyone earning above £50,000 per year was quickly denied); or further spending cuts.

Perhaps unsurprisingly, this has not been the conference where Clegg, Alexander or Cable have described, far less resolved, the next level of detail. The current agenda on austerity has been defended successfully against opposition from delegates, more restraint has been promised and some hints given about what the party would like to do for social justice. That’s a lot for one conference to have achieved, and don’t expect much more policy tomorrow in the Leader’s speech.

But what has already been said means that the prospect of reform looms in the future pretty much across the whole of the public sector. What I’ll be listening for in the Leader’s Speech tomorrow is the principles and values that will guide that agenda for reform.


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