Civil society is key to tackling public spending deficit

Civil society is key to tackling public spending deficit
Stephen Maxwell, TfN

27.08.10

 

AS presented by some of Scotland’s regular media commentators the UK’s current budget  deficit speUs the end of the modest experiment in extending social  democracy pursued by successive  Scottish governments since the  creation of the Scottish Parliament just eleven years ago. 

 

Some write regretfully in the tone  of a requiescat, but the free market  zealots among them can hardly contain their glee at the prospect of a  bonfire of such Scottish vanities as  free social care, free school lunches,  free bridge crossings, free bus travel  for pensioners and free university  tuition. 

 

Contrary to the claims of the  media Savonarolas the current  budget deficit was not created by  the runaway profligacy of Scottish  devolved government. Prior to the  banking bailout Scotland’s level of public spending as a proportion of  national income was in the middle  of the OECD rankings. 

 

Comparisons of regional spending within  the United Kingdom certainly show  Scotland in the upper half of public  spending as a share of "regional"  income but only because Scotland’s  North Sea oil and gas output is excluded from her regional income by  Treasury convention. With that  added Scotland is just 1.2 per cent  above the UK average. 

 

Scotland has of course enjoyed  the benefits of the three to four per  cent annual growth in UK public  spending provided by UK Labour  Governments between 2001 and  2007, and there is at least as much  scope in Scotland as in the rest of  the United Kingdom to argue about  how wisely the increased resources  have been applied. But the attacks  on Scotland’s devolved governments for spending the money allocated to them by Westminster on  their devolved social responsibilities seem overcooked. 

 

After all the  Scottish Parliament was set up by  Westminster as primarily a spending authority with only minor powers over taxation and economic  development. If Scotland’s  predilection for additional welfare  expenditure is profligate how to describe the billions of pounds spent  on a strategically useless nuclear  deterrent, a disastrous and counterproductive war in Iraq, failed IT  systems for England’s NHS and the  now aborted national ID database,  the hyper profits enjoyed by the  early PFI ventures and other Whitehall follies? 

 

The UK’s structural deficit, that  is the deficit of public spending  over tax income leaving out the effects of the economic cycle, is estimated at about half of the total  deficit, or around £70bn in 201O/1l.  That is one of the largest in the  OECD. 

 

But as the product of the  balance between spending and tax  revenue the deficit is sensitive to  the structure of the tax system, and  over the last three decades the UK’s  personal and capital taxes have become notably less progressive. Nor  is it purely a negative factor. In  times of recession, particularly  global recession, it sustains the  level of economic activity by funding public services in the process  providing some protection to the  most vulnerable members of society. 

 

Scotland shares the financing  costs of the UK’s structural deficit and its benefits. Now it has to share  the social and economic costs of the  coalition Government’s reckless  rush to cut the deficit, costs which may yet include a second dip recession. Given the government’s balance between service cuts and tax  increases for reducing the deficit we  know that the lowest income groups  will feel the most pain even if a second recession is avoided. 

 

The voluntary sector is right to  use the crisis to press its case that  it can provide better value for  money in many service areas than  the public or private sector. But it  should be careful to distinguish its  claims from those who are using the double failure of banks and  banking regulation to cut the responsibilities of the state. The  biggest injury of the recession and  the spending cuts will be a further  increase in the already gross inequalities we endure with all the  social damage and economic loss  they entail. 

 

If that challenge is to be  taken up as Scotland emerges from  recession it will only be through a  combination of an active social  democratic state and an empowered and engaged civil society.