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Lord William Wallace writes…Shrinking the State?

September 2, 2015 11:18 AM
By Lord Wallace of Saltaire in Liberal Democrat Voice
Originally published by East Midlands Liberal Democrats

Liberal Democrats need to clarify where we stand on how large a public sector we support, the balance of public spending and administration between state, national/regional and local levels, and the appropriate division between private and public provision in our economy and society.

We are now faced with a Labour Party which is likely, under its new leader, to reassert large-scale state-level spending, and a Conservative Party that wants to shrink and weaken both the central state and local government.

The Conservative Government contains a number of convinced libertarians, with an almost anarchist streak in their antagonism to state action, civil servants and public services (I know - I worked with some of them until last May!). The current rule on regulatory policy, for instance, is that ministers can only introduce one new regulation if they can find three comparable regulations to abolish: a deregulatory bias that will run into problems when the next food or health safety scandal hits. OECD projections for government spending indicate that the UK currently intends to reduce public spending from 42% of GDP in 2014 to 36% in 2020 - taking Britain from European to North American levels of public provision. Whitehall Departments are preparing for cuts of between 25 and 40% in 'unprotected' public spending. On some calculations local authorities will have barely half the financial resources in real terms in 2020 that they had in 2010.

This 'neo-liberal' ideology is far from the traditional Conservative attachment to a strong state, maintaining national security and national tradition. There's a book to be written on how British Conservatism has been infected by the American right over the past two decades: regular invitations to think tank conferences in the USA, American money flowing into similar outfits within the UK, the impact of public choice economics (which in effect denies that there is a 'public interest' apart from what emerges from market mechanisms), have converted some - but not all - Conservatives into a free market minimum-state creed. One symbol of the underlying shift is that the government is cutting police budgets severely - something Margaret Thatcher herself would never have done, given that domestic order is such a core function for any state. Another is that the Conservatives are selling off iconic buildings along the state processional route from Buckingham Palace to Westminster; Admiralty Arch and the Old War Office have already gone, both to overseas investors as luxury hotels. The size of the civil service has been cut sharply, and will be cut further; Conservative ministers have frozen salaries in the public sector while making no comment about rising salaries among private sector executives. The Institute of Fiscal Studies has recently warned that this will in time reduce the quality of staff within public services. The future Conservative model of the state will not have the human or financial capacity to intervene very far in society and economy.

Against this, Labour appears to be lurching back towards a statist approach: central control, re-nationalisation, a rising national budget and a burgeoning public sector. Conservatives will attack this as feeding the interests of public sector unions, and building in the unavoidable inefficiencies that come from any attempt to allow bureaucrats to run services - ignoring their own record of selling off UK state assets to state enterprises from France, Germany, Denmark and beyond.

If we want to avoid being caught into the middle of this ideological conflict, we need to spell out our distinctive approach. To start with, we should make clear to British taxpayers that the Conservatives can only achieve their goal by cutting deep into the bone of public services. The rising proportion of over-65s in the UK means that demands for health and social services will continue to rise; so will the cost of state pensions, already the largest single element in welfare spending. If these are to be sustained, to satisfy Conservative-voting older citizens, then education will have to be cut back even further, and public investment minimised. So we need to argue that some tax rises must be part of the response; indeed, the government's strategy of using sell-offs of state assets to fund current spending suggests that taxes are already too low. But as far as possible taxes should be raised and spent at the local level, not controlled in detail from London. That means that reform and strengthening of local government must be a central plank in our approach.

We also need to insist that public service, and the public interest, are essential concepts in any democratic state. A society in which only greed and self-interest motivate people would fall apart; altruism, community values, hold a country together. State and society matter alongside the market; every citizen within the UK needs to have a stake in the country, to be accepted as part of the national community, to be educated to fulfil their individual potential. Gross inequality undermines political community. The shrunken state that Oliver Letwin and the Conservative right want to reduce the UK to is not one that can hold the loyalty or affection of its own citizens.

* Lord Wallace of Saltaire is a Liberal Democrat member of the House of Lords.