Will the Tories drop their pledge to protect NHS spending?

Figures from left and right urge Conservatives to abandon costly pledge to ring-fence NHS spending.

At this morning's cabinet meeting, George Osborne cited figures from the Institute for Fiscal Studies suggesting that spending in non-ring-fenced departments could fall by 15 to 20 per cent. Unfortunately for Osborne, that forecast is out of date.

More recently, the IFS has suggested that spending in unprotected areas will need to fall by 25 per cent for the Tories to meet their deficit reduction targets.

In light of this, David Cameron is under growing pressure to abandon his pledge to ring-fence spending on the NHS and on international development.

Earlier this lunchtime, Nigel Lawson, who remains an influential figure on the Conservative right, told The World at One that "nothing should be ring-fenced. Everything should be judged on its merit."

The economist and Labour peer Meghnad Desai has also called on the Tories to break their pre-election pledge to protect spending on the National Health Service.

"Anything said before the election is off. Health is overextended," Desai said. "We can get something out of the NHS."

Nick Clegg, of course, distinguished himself during the election campaign by refusing to ring-fence spending in any area. Here's what he told the BBC back in March:

We're not entering into this Dutch auction about ring-fencing. Good outcomes aren't determined by drawing a red line around government departmental budgets.

The Tories' pledge on the NHS had everything to do with political positioning and nothing to do with economics. Clegg was right to call them out on it.

Intriguingly, the final coalition agreement rather ambiguously stated:

We will guarantee that health spending increases in real terms in each year of the parliament, while recognising the impact this decision will have on other departments.

The impact that it will have on other vital areas (most significantly, education) means that this commitment is unsustainable. Will Clegg now have the confidence to put this argument to Cameron?

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George Eaton is political editor of the New Statesman.

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Autumn Statement 2015: How we got here

The story of Britain's finances in six charts. 

Today George Osborne did two things. He gave give his annual ‘Autumn Statement’, in which he’ll detailed how his estimates for growth, debt and the deficit have changed since the Budget in July, and he laid out the Spending Review, which detailed exactly how much government departments will spend over the parliament.

We’ll have coverage of today’s decisions shortly, but first, how did we get here? After five years of austerity, why is the government still cutting so much?

As we all know, in 2008 the party stopped. In the same way that the Paris attacks are a product of 9/11, today’s Spending Review can trace its origins to the fateful crash of the global financial system seven years ago.

So let’s return to 2008 and remember that government debt is any Chancellor’s greatest fear. If your debt gets too high you will become bankrupt: global markets will not lend you the money you need to keep running your government.

For 15 years, from 1993 to 2008, government debt was not a great worry. Gordon Brown was able to spend his decade as Chancellor doling out the fat of the land. Debt never rose high than 41 per cent of GDP, and was only 37 per cent in spring 2008, not much higher than it had been in 1993.

Then the financial crisis happened.


In seven years the government’s debt has doubled, from 41 to 80 per cent. The Tories spent five years very successfully blaming the last Labour government for causing this spike by overspending from 1997-2008, but, as this chart suggests, the greatest cause was the global crisis, not Labour profligacy.

Regardless of who was responsible, the debt is now at a historic high. If we rewind our chart back to 1975 we can see that today’s debt levels are even higher than those Thatcher railed against in the 1980s, when she, like today’s Tories, also cut spending heavily upon entering office.

But while she succeeded in wrestling the debt down, Osborne failed in his first term. In his 2010 budget he promised to reduce the budget deficit by 2015. After five years of austerity, the debt was going to start falling. But that hasn’t happened.

But while Thatcher succeeded in wrestling the debt down, Osborne failed in his first term. In his 2010 budget he promised to reduce the budget deficit by 2015. After five years of austerity, the debt was going to start falling. But that hasn’t happened.

So now the UK must endure another five years of cuts if we are to run the surplus Osborne is targeting and which he recommitted himself to today. If we don’t run a surplus our debt levels will continue to slowly creep up towards 100 per cent of our GDP.

According to Eurostat, who measure things slightly different to the Office of National Statistics, our debt is close to 90 per cent and is among the highest in Europe. 

We are still just below the level of the PIGS (Portugal, Italy, Greece and Spain), those countries whose debts ballooned after the financial crisis and who have gone through a succession of governments as austerity has been imposed by international markets.

But most of those countries have now started to cut spending severely, as for instance in Greece, whereas the UK is still running a relatively high budget deficit (nearly 6 per cent of GDP according to Eurostat). If we continue to do so we will keep adding to our debt, and could approach the level at which markets will no longer lend to us.

That, at least, is the Tories’ line of argument. So we are set for another five years of cuts. And everything is also dependent on growth. The figures I’ve quoted for debt and the deficit are all expressed as a percentage of GDP. A country’s total levels of debt don’t matter; what matters is how great they are compared to the size of your economy.

The cuts Osborne announced today will only succeed in cutting the deficit if growth is as high as he hopes it will be (as Paul Johnson of the IFS pointed out on the Today programme this morning).

How likely is that? Well, the estimates he gave in 2010 seemed over-optimistic in 2012, when the economy was flat-lining and Osborne was at his political nadir, but eventually seemed just in 2014, when the economy recovered.

Osborne’s political future will thrive or dive depending on growth over the next five years. Many economists have argued, including Robert Skidelsky and Simon Wren-Lewis in these pages, that Osborne’s focus on austerity in 2010 caused growth to stall in 2012. If he continues to cut, growth could stall yet again in 2017 or 2018.

The cuts over the next five years are going to be more severe than those from 2010-2015, and are greater than those any other major economy is planning. If they cripple growth, Osborne’s plan will need readjusting once again if both he and the UK are to survive. 

Harry Lambert was the editor of May2015, the New Statesman's election website.