There are respectable arguments on both sides for increasing and decreasing the size of the state – in normal times. Those who favour low taxes and public expenditure emphasise growth and productivity and those who favour expansion of the state point to fairer forms of growth and strong public services. Regardless of the merits of the arguments themselves, the pendulum is about to decisively shift towards state expansionists for a least a decade and probably more. The reason is clear. Health and care expenditure will have to increase as society ages, the population expands, and costs increase.
Before more progressive voices celebrate too loudly, this change could potentially be highly damaging for those who see an enhanced role for the state in providing baseline support for people in a highly divided economy and unequal society. Within local government, there has been a chart called the ‘jaws of death’ which has been around for a number of years and demonstrates how statutory social care obligations will in time consume all local government budgets. The same process will happen to national budgets as result of health and social care expenditures unless early action is taken.
A signal of the changed nature of the debate came from Times columnist, Danny Finkelstein, this week. ‘Sheer folly’ was his response to Boris Johnson outlining a commitment to reduce many taxes and holding the rest steady. And for good reason. In all scenarios, that maintain at least the current level of healthcare provision, expenditures increase.
At the conservative end of the range of predictions, the Office for Budget Responsibility (OBR) estimates a one percent increase in NHS expenditure by the mid-2030s. This is based on increases in NHS productivity that the historical record shows are difficult to secure. The IFS sees a much greater expansion ahead. A status quo scenario would see expenditures increase by 1.6% (under their modernisation scenario which includes greater capital investment and support for those with mental health needs they foresee an increase of 2.6 percent of GDP). The Resolution Foundation forecasts an increase of health and social care expenditure together of 2.8% of GDP by 2037. The tax rises needed to fund these increases are enormous.
So if ‘jaws of death’ are not to consume all other expenditures such as housing, education, and anti-poverty – or at least severely limit them – then public expenditure is only going in one way in the next decade or two. Anything such as massive across the board tax cuts that undermine fiscal sustainability and resilience are to be avoided.
Yet for those who see the state as having a larger role in supporting people through adversity and supporting opportunity, this is a pyrrhic victory. Fiscal headroom will be used up in dealing with the consequences of demographic change (unavoidably), some affluence (a theme explored by Avner Offer), inter-generational inequality, and our failure to tackle poverty. This health driven crowding out of other social investments leaves those who seek other goals alongside good healthcare – a universal baseline of health, housing, education and lifelong learning, and economic security – fighting with one hand tied behind their back. We could not expect any meaningful indent into poverty and economic insecurity when faced with an enormous expansion of health and social care in line with some of the predictions.
The Wanless Report published in 2002 is renowned for its advocacy of increased tax funded expenditure devoted to the NHS. However, the other elements, around managing demand are more easily forgotten. As stated in the introduction to a follow up report led by Derek Wanless in 2004:
“Resources were needed not only to satisfy short-term objectives, particularly access to service, but also to invest in improving supply, by building the capacity of the workforce, improving information technology support and renewing premises, and to invest in reducing demand by enhancing the promotion of good health and disease prevention.”
Today, heading for two decades later, a similar approach is needed. For example, early investment in workforce expansion and development – an extra 640,000 healthcare professionals will be needed by 2033 according to the IFS – public health, enhancing non-hospital based care and in technology could help improve productivity and help manage demand. Tough choices will have to made on how to ensure a decent standard of social care. To just expand the state funded service rather than developing more insurance-based models will eat into education, anti-poverty and housing. The foundations that are put down in the next few years could help determine whether the cost increases look more like the OBR predictions which will be manageable or the forecasts of the IFS and Resolution Foundation, which will transform the nature of the tax system and the shape of public services and state investment in the UK.
This inverts the normal course of politics. The key goal for progressives will no longer be about the size of the state; the core focus must be its form and goals. For advocates of a smaller state, their politics will be less around offering tax sweeteners and more about developing a politics of a different mix of state and privately funded services. The 2010s has been fought on territory of fiscal retrenchment and austerity. The 2020s will be fought not only on the terrain of state expansion but on how that expansion is managed and to what end. At least that would be the healthy way for politics to proceed.