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Guest blog: Get off the ring-fence

Emran Mian, Director of the Social Market Foundation, argues that declaring budget ring-fences one by one is no way to plan for cuts in the next parli

Emran Mian

Emran Mian, Director of the Social Market Foundation, argues that declaring budget ring-fences one by one is no way to plan for cuts in the next parliament.

The ring-fences are starting to fall into place. The Prime Minister has recently said that education spending will be protected in terms of the cash amount per pupil over the next parliament. Labour has indicated that revenues from a new mansion tax will go to the NHS, presumably on top of the present budget rather than to replace a cut in funding. While greater clarity on the parties’ spending plans is welcome, announcing ring-fences bit by bit is the worst possible way to plan for further austerity. Ring-fences create three problems. First, they pit areas of public spending against one another – ring-fencing health spending can be the other side of cutting public funding for social care. Second, they reduce flexibility – a big concern when the cuts to be made in the next parliament may be bigger than those already attempted in this one. Third, they reduce any impetus for reform – tell a government department that its budget is protected and the line goes on mute while the ministers and officials exchange high fives. If you think this is second-order nit-picking compared to the first-order political impact of announcing a ring-fence then consider that only two in five people asked by YouGov shortly after the last election thought that the NHS ring-fence meant it was safe from cuts on the same scale as other departments. Equally the Prime Minister’s announcement about education spending turned, as soon as the question and answer session after his speech began, into the headline that real terms funding per pupil would decline by up to 10%. On top of such instant scepticism, we know that parties’ promises are now subject to coalition negotiations too. In these circumstances – limited political benefit, bad consequences for other public spending decisions and another complication in coalition-making – the announcement of ring-fences has a much higher opportunity cost than ever. So it’s worth bringing into focus what a better alternative for making spending decisions might look like. When Sweden was facing a challenging spending review the Cabinet as a whole made decisions before ministers were appointed to specific roles. Every participant was forced to operate from behind a Rawlsian ‘veil of ignorance’ – the risk in putting more pain onto some lesser noticed area of public services was that you might end up with that brief yourself. Pooling budgets across departments would be even more radical. Imagine there was a budget for improving the wellbeing of people who suffer from dementia or reducing the numbers of young people not in employment, education or training; and the minister responsible for it could be agnostic as to which departments or services get the cash, so long as they make the greatest difference to the objective – and can be held to account for it. Realistically such changes to how we make public spending decisions will have to be given time to prove their value. Therefore they will have to be balanced by more immediate announcements on cuts that provide political momentum as well as practically reduce the size of the deficit sooner rather than later in the life of a new government. Once any coalition negotiations after the May election have reached a conclusion, what we might envisage is a Swedish-style autumn statement that sets consensus budgets for one financial year followed by a more patient spending review that makes decisions for the rest of the parliament. It sounds almost too good to be true, perhaps, but it’s certainly better than deciding the future shape of the state by the popularity contest of which services get a ring-fence and which don’t.

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