Wednesday, June 07, 2006

Crashing The Buffers

The history of Big Government is littered with the wrecks of runaway spending trains that ended up crashing the buffers of fiscal reality. The Blair/Brown Special is about to do the same.

Since the brakes failed in 1999-2000, spending has increased by 5 per cent of GDP; by 2008/09 it will be 5.6 per cent. That’s equivalent to £70bn in today’s money, or 20 pence on the standard rate of income tax.

It’s unsustainable. I know it, you know it, and as his panicky speech yesterday showed, Tony knows it too.

When they set off, Brown’s hope was that he’d just reapply the brakes in 2008/09 and pull up gently at the platform of transformed public services.

In reality, much of his extra spending- as always– has gone into higher costs, bigger bureaucracies, and mad mega projects like the NHS supercomputer. To the frontline managers who have to balance the books, these things are now fixed costs. And when the money runs out, the easiest things to cut are, yes you guessed it, services to customers. Hence all those stories about hospitals sacking nurses and canning operations.

So what will happen? One possibility is that the government ignores its flimsy “Golden Rules” and just borrows more. We’ve blogged many times about how they are finding ever more novel Enron techniques for borrowing off-balance sheet, and we should expect such efforts to intensify. Unfortunately, lenders demand an ever higher price, which soon intensifies public sector cost pressures even more: witness the mounting problems of paying for those PFI deals.

Another possibility is that they carry on taxing. The Telegraph recently compiled a list of 80 new taxes since Labour came to power, and 100 is now pretty well a done deal. But it’s tricky, because even we dumb taxpayers can now see what’s going on.

So once again our public services are heading for the buffers. But this time, as we crawl from the wreckage, let’s try to remember the key lesson: no matter how much money it spends, Big Government is incapable of giving us good public services. Big Government politicos should never ever EVER be allowed near the cab.

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