The main theme of the event was to discuss how the UK’s fiscal policies could be made more sustainable. After an introduction from a KPMG Partner, Ben Gummer, Member of Parliament for Ipswich and Parliamentary Private Secretary to International Development Minister Alan Duncan, began his comments by stating that he believed the way the Government’s Budget is done in the UK is wrong and needed to change. Media interest coupled with the short term interests of politicians meant that the Budget was generally a political affair, which did not overall take into account the needs of the country and did not have a long term outlook. This meant that the UK generally had higher debts than countries that were growing much faster, such as China, India and Russia, hindering its international competitiveness, and that social welfare in the UK was reaching unsustainable levels. His answer was that the UK should adopt a system similar to that of Sweden, where budgets are set by Government not in direct monetary terms, but determined as a percentage of GDP for the next three years. As these years then approach, a Government organisation similar to the Office of Budget Responsibility (OBR) converts this percentage into a cash sum, and the money is distributed by Government. Gummer claimed that this led to a complete change in the way Sweden’s economy worked, instigating supply side reforms, and allowing them to reduce their debt even during the recent Banking crisis in 2008 – the only G8 country to do so. This also had the interesting side effect of changing the priorities of the Swedish Government, because if a Minister or the Government wanted to increase the budget in a particular area, they now needed to grow the economy, to grow their budgets.
In contrast to this, the Economics Editor from The Times, Sam Fleming, took a different approach to the session, and threw the audience some red meat as he speculated on what George Osborne might be announcing tomorrow. He suggests that he will be telling Parliament and the country that growth will be halved and that the OBR may be revising their growth forecasts for the UK economy once again. He believed that the Chancellor’s message will essentially be “We’re on the wrong track but we won’t turn back”. He believed there would also be a handful of infrastructure announcements, but due to the Chancellor’s previous rhetoric, these would be limited. He also believed from his various sources that the Budget will overall focus on support for small businesses, particularly for hiring new employees, and support for families struggling to get on.
Fleming also predicted two wild cards for the Budget. Firstly, a potential change in the remit of the Bank of England, he believed that there may be an announcement on this, but that as the outgoing Governor Mervyn King had been talking this down, it could be a red herring. Secondly he believed that following meetings between the Bank’s Financial Policy Committee and the FSA, there could be an announcement addressing the fiscal hole in RBS and Lloyds bank.
Reform’s Chief Economist Dr Patrick Nolan argued that overall, debt levels were reaching 100% of GDP, which can be dangerous as it begins to act as a drag on growth. He similarly noted that merely through debt servicing, the UK already pays 5% of GDP and this could increase to 9% of GDP in 2018, which would put significant burdens on the British economy. He noted that those such as Ed Balls made the Keynesian argument for the economy, borrowing now to spend on measures that would help growth, but he highlighted that the UK’s economic woes are largely structural, rather than cyclical, with spending on the NHS, education, defence and pensions as large areas which need to be addressed if fiscal consolidation is to be considered seriously.
Following a series of questions from the floor, the panel recognised that overall ring fencing of budgets, such as that for the NHS, was an indication that Governments are not serious about tackling areas of spending which could be brought down. Ring fencing also allowed other Ministers without ring fenced budgets to argue that their budgets should also be spared, and further to this, it exposed a rift in the Cabinet – something which Reform’s Dr Nolan noted hadn’t happened when similar fiscal consolidation was undertaken in New Zealand.
The session ended with all agreeing that if politicians really wanted to put Britain on a secure and sustainable economic footing, serious questions would need to be answered on not just how politics and Government are conducted, but what sort of social welfare and National Health Service we want for the future.
By PLMR Account Executive Antonio Dorileo