NHS spending is to be protected, in real terms, until 2020. This was the news from the Labour, Conservative and Liberal Democrat conferences. Labour and the Lib Dems also promised a tiny amount of extra cash over and above the ‘real terms’ commitment. The three major parties are agreed that health service funding is to be ringfenced for several years to come.
Pensions, which make up over half of the welfare budget, are already subject to a consensus ‘triple lock’ to protect the growing number of older citizens. It is hard to imagine schools’ funding being cut very much, while the defence lobby is working hard to reverse the shrinkage in the UK’s armed forces. Taken together, these upward pressures on spending mean that either taxes will have to rise or the rest of spending will have to be reduced sharply.
Apart from the Liberal Democrats, there was little enthusiasm to talk about higher tax. Moreover, national politicians will only countenance extra taxation for the rich. It is impossible to raise much extra from the top one or two per cent of taxpayers, so tax as a share of GDP will flatline at 37-38% of GDP. Worse, there is evidence that UK tax receipts are not rising in line with economic growth. So the government’s deficit is not falling as quickly as forecast.
Put simply, the 2010-15 juxtaposition of deficit reduction, a frozen tax burden and ringfenced public spending programmes will continue till 2020. For councils, the police and fire services this will inevitably mean that their budgets will have to fall by a further 15-20% in real terms in the five years following next year’s spending review. Some authorities’ spending will be 40-50% lower in 2020 than 2010.
If, as seems likely, the NHS has to be rescued with significantly larger increases in real terms funding, as a report this week from the Nuffield Trust suggested was inevitable, local government, the police and fire will inevitably face even bigger cuts. National politicians act as if they are powerless to escape this pattern of lop-sided austerity. Councils, for their part, must plan for a shrunken future.