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19 March 2015

Without a mission of public sector reform, Osborne’s longterm economic plan is meaningless

Only with reform can the public sector survive the cuts that are to come.

By Andrew Haldenby

The economy and the NHS are two of the three issues that will determine the general election.  George Osborne spoke to the first of those, emphasising his success in bringing down the deficit while delivering, recently, some of the strongest growth in the Western world.  He contrasted a Conservative ability to manage the economy over the long term with, in his view, his opponents’ more short-term approach. He repeated the Conservative campaign slogan of a “long term economic plan”, putting the phrase, with a smile, into the mouth of the Secretary-General of the OECD.   

(Indeed Conservative spokesmen have grabbed every opportunity to drive home their Election slogan of a “long term economic plan”.  That has even included ministerial scandals.  In his resignation letter at the last Conservative Party conference, Brooks Newmark rather wonderfully said that he remained a loyal supporter of the Government “as its long term economic plan continues to deliver for the British people”.)

George Osborne clearly wanted to move the political argument on from the cuts of this Parliament; as he put it, from “austerity to prosperity”.  Ed Miliband’s strongest retort was to point out that there are still big cuts in spending to come in the next Parliament (as there would be under a Labour Government).  He was right to point out that the Chancellor was surprisingly silent on his vision for the public services that are funded by government spending.  The head of the NAO, Amyas Morse, made an analogous point on the eve of the Budget when he warned that civil servants lack information on the actual impact on public services as they  draw up their spending plans. 

In fact the long term numbers are not on George Osborne’s side.  A careful reading of the OBR forecast shows that his victory on deficit and debt will only be a temporary one.  Around ten years from now, both of those numbers start to rise inexorably again. 

Above all he needs to unleash a wave of greater productivity from within the NHS.  The OBR has shown that unless efficiency of the NHS rises to a much higher level than its historic performance, the national debt will rise steadily towards 200 per cent of GDP, a level only seen during the Napoleonic Wars and the Second World War.  Without a step change in the value for money delivered by the biggest public service, the public finances are guaranteed to fail.

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Certainly the country does need to run surpluses at some point to bring the national debt down over a period of years.  George Osborne promised a surplus in 2018-19 and a fall in the national debt in 2015-16.  An unproductive NHS would make it impossible for any Prime Minister to achieve a sustained success of that kind.

In practice future governments need a stronger sense of restraint as they make their public spending decisions.  George Osborne could do much worse than to strengthen the OBR and to replace short term promises to tackle the deficit with a new long term commitment to bring down the debt.  The OBR could then assess whether current Government policy is helping or hindering progress towards that target.  

The Conservative “long term economic plan” actually depends on reforming the NHS, typically seen as Labour’s trump card.  George Osborne showed himself to be a radical NHS reformer only two weeks ago, when he suggested putting Manchester in charge of its local health service.  He will need much more of that radicalism if he is to deliver on his long term promises to the country. 

Andrew Haldenby is Director of the independent think tank Reform.  Its new report A framework for fiscal sustainability is available at www.reform.uk.