Newspaper Article

So many choices – but none is easy

Date: 20 April 2017
Authors:
Publisher: News International
Published in: Times

General elections ought to be moments for confronting difficult choices. We face more than our fair share of those at the moment, but we must not let the inevitable focus on Brexit blind us to some of the other choices we face.

At the heart of those choices is one over the size and the shape of the state that we want, and how to pay for it. This is a question which politicians always duck. Collectively we can’t keep on avoiding it.

The issue is this: seven years of unprecedented austerity have not eliminated the deficit. It still stands at more than £50 billion. It is clear that the quality of some public services is beginning to suffer. Waiting times in the health service are rising, for example, as is violence in prisons. The first few years of spending cuts were managed without noticeably reducing the quality of public services but it is hard to maintain that, and even harder to believe that additional cuts will not have an impact.

And that’s a choice. We can maintain our current levels of taxation and accept lower-quality public services, but not even the Conservatives are offering that choice. Ever so gradually, the tax burden is rising towards its highest level since the mid 1980s — but because the population is ageing, and the amount we need to spend on pensions, health and social care is rising, this isn’t enough to maintain service delivery across the board.

Spending on health has been protected. It will be more than 10 per cent higher in 2020 than in 2010, but the population will be bigger and older; there will be two million more over-65s, for example. Spending per person, once you adjust for age, will actually be lower.

Increasing health spending beyond 2020, if not before, is unavoidable if we are to maintain a comprehensive system free at the point of use.

Spending on pensions is also rising and the pressures on social care forced the chancellor to allocate more money to it in the most recent budget. Between them these age-related elements of spending are even now taking an increasing fraction of national income. Pretty much everything else has had to be squeezed as a result.

Other choices are available. One is to raise taxes — on most of us. To a quite remarkable degree, the past seven years have seen most people on average salaries and below protected from tax increases. Higher earners have seen their tax payments increase significantly. It might be possible to take that further but there should be no pretence that a real change in the provision of public services can be funded just by taxing the rich, and big companies, and by closing tax loopholes.

I hope no party again promises not to raise income tax, national insurance or VAT. As we saw in the March budget, such promises are incompatible with sensible management of the economy and public finances. The tax system needs to evolve to keep pace with the changing patterns of work and that must mean overhauling how we tax the self-employed. We urgently need to sort out the taxation of housing, the absurdity of the National Insurance system and the increasingly bizarre structure of the income tax system. But none of the main parties will suggest such a thing.

At a time when the older generation is doing far better than those below pension age we need to look at the logic of asking pensioners to pay less tax than others and also at the logic of the triple lock.

Elections should be about choices. My guess is we will be presented with false choices. Maintaining the current level of public services with no more tax on the one hand. Substantially improving public services by only taxing the rich, the multinationals, on the other. Neither looks real. The real choices facing us are much harder than that. We need to be treated as grown up enough to make those choices or we will all end up disappointed.

This article was first published in The Times and is reproduced here in full with permission. Paul Johnson is director of the Institute for Fiscal Studies. Follow him on @PJTheEconomist