Almost exactly six years ago this month, Tony Blair gave an interview to Sir David Frost in which he made the momentous pledge to raise health spending in Britain to the European Union average. It was a pivotal moment in the history of new Labour. If the National Health Service was to be showered with billions of pounds of taxpayers’ money, the prime minister’s beloved education reforms could not be left out of this new largesse. It had taken longer than usual but the Labour government had rediscovered tax and spend.
We warned at the time, and have warned repeatedly since, that pouring money into unreformed public services would be the equivalent of giving alcoholics the keys to the distillery. Mr Blair, with the full backing of Gordon Brown, saw it differently. They both argued that the only way of persuading the public services to reform was to give them shedloads of money upfront. That would demonstrate that the government was committed to health and education, and reform would follow. Whitehall officials, aghast at such naivety, buttoned their lips.
The folly of the Blair-Brown strategy is now being demonstrated in Technicolor. A private Treasury presentation on the NHS revealed last week that the government has succeeded in creating the best-paid GPs, nurses and consultants in Europe and little else. Nye Bevan, father of the NHS, said that he had secured its introduction in 1948 against the objections of the British Medical Association because he had “stuffed their mouths with gold”.
New Labour has followed the Bevan strategy, but with less effect. A quarter of NHS trusts are in deficit and are cancelling operations. The service has become a byword for inefficiency and falling productivity and it has failed to use its massive spending power to cut the drugs budget; the NHS pays 20% more for branded drugs than the rest of Europe. It beggars belief that after such a massive injection of taxpayers’ money the health service should be strapped for cash. When it was starved of cash we could at least comfort ourselves with the fact that a mediocre service was relatively cheap. There is no such comfort now.
The NHS’s problems are matched in education. Any improvement in exam results under this government is down to grade inflation and a reclassification of vocational qualifications, not genuine improvement. Even with grade inflation, 62% of boys fail to achieve A* to C passes in maths and English at GCSE. The education budget is littered with examples of failed initiatives, few better than the £1 billion anti-truancy drive that has seen a 10% rise in truancy rates.
No wonder Mr Blair is desperate to get his schools bill through the Commons. The fact that many of his backbenchers — led by his old ally Lord Kinnock — will not let him tells you all you need to know about the depth of Labour’s commitment to genuine public service reform. With Lord Kinnock opposing him, the prime minister should have the public on his side. Sadly, however, he has left it too late. Root and branch reform of our schools should have been the policy from day one, not a late add-on aimed at giving Mr Blair a legacy.
The downside of that legacy is Britain’s increasingly shackled and arthritic economy. Labour inherited a lightly regulated economy, with low taxes and the most flexible job market in Europe. This year, according to the Organisation for Economic Co-operation and Development (OECD), Britain’s tax burden of 42.4% of gross domestic product will exceed Germany’s 42.1%. Next year the state’s share of the economy will overtake German levels. This is not a mark of success.
Germany has been desperate to get its tax and spending burdens down.
Germany’s employment rate, despite years of slow growth and an unemployment level that has been above 5m, is about to rise above that of Britain. Figures last week showed that the number of economically inactive working-age British people has risen to its highest level since records began in 1971. The government is desperate to get people off incapacity benefit. Increasingly, however, there are no jobs for them to go to. Thanks to the shackling of Britain’s economy, unemployment is rising on all measures.
Businesses, of course, are fully aware of this. Under Labour Britain has fallen from ninth to 22nd in the International Institute of Management Development’s world competitiveness rankings, and from seventh to 11th in the growth competitiveness rankings calculated by the World Economic Forum. Britain has done better than the euro area on economic growth, although it is now converging with slow-growing Europe, but has performed poorly in relation to other English-speaking countries. The prime minister and chancellor may trumpet their record but compared with Australia, Canada, New Zealand, Ireland and the United States it is poor.
In 1997 Britain’s tax burden, broadly defined, was 39.3% of gross domestic product, according to the OECD. That was within sight of other successful English-speaking economies, notably America at 34.6% and Ireland at 38.3%. By next year the OECD says Britain’s burden will have risen to 42.5%, while America’s will have dropped to 32.7% — a 10-point difference — and Ireland will be down to 34.6%.
We know the damage this does. Higher taxes damage incentives and inhibit economic growth. Pouring tens of billions of pounds into unreformed public services is not only wasteful but it brings down productivity, the lifeblood of the economy and the source of future prosperity. The Tories like to characterise Mr Brown as a 20th-century chancellor out of step with the 21st century. They are right. Tomorrow they will launch another of David Cameron’s policy positioning exercises, a business-led review of Britain’s competitiveness, or lack of it. When the Tories were in opposition under Margaret Thatcher in the 1970s they used their time productively, forging an alternative to the union-controlled, state-dominated economy of Jim Callaghan.
The task for the Conservatives now is to come up with an alternative to the outdated economics of Mr Blair and Mr Brown. They have been following a model that other countries abandoned in the 1990s. The average tax burden across the industrialised world was 39% in 1997 — identical to Britain’s — but is now 37%. The Labour government is taxing its citizens and businesses more at a time when other countries are doing so less. It is the road to an unsuccessful, uncompetitive economy. Ultimately it is the road to ruin.
