George Osborne has only tinkered with the welfare state

Type: Think Pieces Written by Tom Clougherty | Thursday 21 October 2010

Tom Clougherty responds to the spending review and argues that a mature reassessment of the welfare state is the only way we will avoid fiscal calamity.

There’s no doubt that the Comprehensive Spending Review contains severe cuts. But it is misleading to focus too much on specific areas of spending, while neglecting the bigger picture. Overall spending is only going to fall by 2 or 3 per cent in real terms, returning us to 2008 levels of spending. It’s hardly the public sector apocalypse that some commentators would have you believe.

Indeed, there is a case for saying that George Osborne should have gone further. The Labour government increased spending by almost 60 per cent between 1997 and 2010, so there remains plenty of waste to target. Nevertheless, efficiency can only take you so far. Even if you trimmed every ounce of fat from the public sector, governments would still struggle to keep spending under control, because demographic changes mean that the burden of the welfare state is going to grow unbearably large in the years ahead.

One respected international organisation, the Bank of International Settlements, has even predicted that our debt will soar to more than five times GDP by 2040 if we stick with current policies – a disastrous state of affairs, which would leave us spending three-quarters of our tax revenue on debt interest payments.

And here’s where George Osborne’s spending review falls down. Although he tinkered around the edges of the benefits system, and even announced a rise in the retirement age, he failed to question the fundamental assumptions behind the modern welfare state. But questioning those assumptions is precisely what we need to.

I’m not talking about free schools, or the NHS internal market, or even Iain Duncan Smith’s welfare plans, welcome as all those things are. What I’m talking about is abandoning the comprehensive, universal, free-at-the-point-of-use ethos that formed the basis of the post-war settlement.

We can’t continue paying today’s pensions with today’s tax revenues, for example – the sums just don’t add up. We need to move towards a fully funded model like Chile’s, where people have to save for their own retirements, and the sooner we do so the better. We can’t afford to make the NHS sacrosanct either: we must learn from Singapore, where people have to put money aside for their health costs, and government support is targeted only on those who can’t take care of themselves.

These are just two examples, but their guiding principle can be applied across the board: government should always act as a safety net, but nothing more. In the long run, that mature reassessment of the welfare state is the only way we will avoid fiscal calamity.

Published in the Daily Telegraph here