Open up the spending debate

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The Independent Online
William Waldegrave yesterday raised once again the banner of Margaret Thatcher and Keith Joseph. The long-term aim, he declared, must be to get public spending down not to 40 per cent of the GDP - the Government's current mid-term aim - but below it.

Mr Waldegrave is flying in the face of history. Only twice since the mid-Sixties - and then only by a fraction, and even then only for the two years of the Lawson boom, which contributed so much to our present troubles - has that been achieved.

It is a goal for which Mr Waldegrave aims at a time when upward pressures on spending are all around. Education, the sine qua non of a modern, successful economy, demands more resources. An ageing population requires more to be spent on health and pensions. Persistent unemployment is keeping spending up, not helping it down. And many of the key measures that contributed to the fall in public spending from 46.5 per cent of the GDP in the early Eighties to 43 per cent now - selling off the loss-making nationalised industries and cutting defence, for example - have largely run their course To achieve anything like that which Mr Waldegrave hopes for, radical action will have to be taken.

The first question to be asked, given the current demography, is whether Mr Waldegrave's goal is even desirable. In a growing economy, a set proportion of public spending can produce both more private and more public consumption, and the "right" level of public spending is not a self-evident figure. America, Japan and the emerging economies on the Pacific rim operate on lower levels of public spending. But much of Europe and some other industrialised countries operate on higher levels. Some of the questions about the right level of public spending can only be answered by deciding the sort of society we want to have.

So when the choices are made they should be informed by principle, not political expediency. The answer will not always be more private rather than more tax spending. In education and training, a case can be made that they bring their own returns to the individual. Parents - and children as they grow older and move into higher education - can make decisions about how much they want to invest. New ways of allowing them to top up continuing provision by the taxpayer may have to be found. But in health - where needs are far less predictable for individuals both in their scale and their timing - a society can rightly decide that in order to ensure that those in need do not suffer, high levels of collective provision and therefore of public spending should remain.

A mix of public and private provision for pensions is now, and will remain, the way ahead. Below pension age, changes in the balance of incentives within the tax and benefit system are more important in encouraging people back to work than arcane debates about whether people should insure privately for unemployment benefit.

It is into these areas that the debate needs to go if the argument about spending and taxes is to be anything more than a short-term attempt to win elections, regardless of the long-term cost.

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