Robert Peel: “Of all the vulgar acts of government, that of solving every difficulty that might arise by thrusting the hand into the public purse is the most illusory and contemptible”.
Why General Public Services Spending Matters
General public service spending has been restricted in the last few years, but remained at more than £56.1 billion in 2015 (7.6% of total Government spending).
General Public Services Spending, 2010-11 to 2014-15 (£ Million)
Source: HM Treasury
Before looking at the UK spending, European comparison shows the UK is a below average spender:
International Benchmarks of Public Spending on Public Services, 2014 (% of GDP and % of Total Government Spend)
In total UK spending on public services is under the average for Europe. However, this disguises where the money is spent and therefore the opportunity to reduce it:
In 2015, the general public service spending was as follows:
Breakdown of General Public Services Spending, 2014-15 (£ billion)
Source: HM Treasury
It is also possible to place this breakdown in an international context:
International Breakdown of General Public Services Spending, 2014 (% of Total Public Spending)
It is evident the UK is overspending on public debt and foreign economic aid in an EU context.
Public Debt Transaction Spending
Public debt transaction spending accounts for almost 60% of the total budget. Central Government spending spiralled in 2011 and it dominates the spend. It is a result of Government overspending, and at £33.5 billion is equal to more than 4.5% of the total Government spend. To place the debt funding in context it alone is higher than the Government spend on:
- public order and safety
- environmental protection
- housing or
- recreation, culture and religion
and a quarter of the level spent on health; almost 40% of the spend on education or 92% of the defence spending.
Comparing the Government deficit with other European countries shows how out of control it has become:
International Benchmarks of Government Deficit/Surplus, 2015 (% of GDP)
Source: Office for Economic Co-operation and Development
The debt (and cost of servicing the debt) is growing irrespective of the political party in power:
Growth in Public Sector Net Debt, March 2002- 2015 (£ billion)
Source: Office for National Statistics
In 2015 a further £8.8 billion was spent on foreign aid. This is set to stay at 0.7% of gross national income (GNI), which is the United Nations target and has been adopted into government policy. The UK is already a generous contributor to overseas aid by international comparison. Three years ago the UK became the first country in the G7 to reach the 0.7% target. The UK is also the leading donor for overseas development aid in Europe, and second only to the USA in the world in absolute terms.
International Benchmarks of Overseas Development Aid, 2015 (US $ Billion)
Source: Office for Economic Co-operation and Development
Forward Thinking General Public Services Policies
A major reason there has been no significant fall in the general public services spending over the past few years is the huge interest cost. Removal of the interest payments is a long-term project. However any measure to reduce the borrowing has an impact on the payments. Given the long-term pressures on overall spending from health and pensions, which are a result of the ageing population, this is an area where spending can be reduced without affecting any service provision. It can also reduce the need for tax income.
With almost 7% of the total Government income now directed to interest payments it is not spent on public services. It is effectively the cost of one of the previous political parties’ policies which supported its vote winning spending in excess of taxation. Any short-term gains in tax income or efficiency drives need to be used to reduce this debt. This will deliver long-term efficiency like paying off debt on a credit card is the first line of thrift for households.
A further 19% of the general public services spending are on legislative organs and external affairs. This can be marginally reduced by cutting layers of government, simplifying taxes and benefits and improving the efficiency of central government. A more stable political base would, in the long- term, reduce the need for legislation. Short term such expenditure is likely to rise as the costs of negotiating the UK exit from the EU will be significant.
There is a need to review Foreign aid spending. The UK is the second highest contributor in the world after the USA (which because it is so large contributes only 0.17% of its GNI). Britain spends three times as much per head as the US, whose population of 332 million means it gave £61 per person last year. The UK, with 65 million people, gave £188 a head. The UK needs to set priorities including:
- emergency aid
- health and inoculation programmes
- initiatives that provide sanitation and clean water
- humanitarian aid
Moreover, directing cash sums to countries has no guarantee of the funding reaching the right people, and is open to abuse. A far more significant contribution to impacting the lives of people within the third world countries is afforded by negotiating tariff free trade with those countries. This provides long-term assistance and encourages economic development in such countries. Given that the UK has voted in the referendum to exit the EU, there is a need for the UK to make strenuous efforts to negotiate tariff free arrangements (TFA) with the world economy, extending well beyond the EU. By adopting widespread TFAs with developing countries the UK can make a contribution to overseas development that far exceeds its capabilities in overseas aid in terms of cash.
An average of 22 European countries’ contributions equates to less than 0.46% of GNI. This is significantly lower than the UK, and if the UK adopted that level it would reduce the contribution to £4.7 billion. This alone would save UK taxpayers £7 billion. Since the UK cannot fund through existing tax levels all its public service payments without borrowing, then such spending is adding to the interest payments. There remains poverty in the UK, and this needs addressing as a priority. Moreover, there is no logic to assume an arbitrarily decided part of the UK national income will solve world issues. An upper budget needs to be specified, but this should not be seen as a budget. Assigning budgets only encourages spending for the sake of compliance with a budget. It does not meet issues that arise which the UK should help with, such as the recent Ebola outbreak or the current refugee problem from the Middle East and Africa.
A petition to government on the issue gained sufficient votes to enforce a debate. That debate was merely a cross party self-congratulatory meeting in admiring the level of expenditure. This was not what the petition was aiming for, it wanted a real debate in government on alternative ways to examine if the expenditure was justified and spending maximised in effect.
Forward Thinking suggests the overseas aid allocation should cover all costs associated with overseas aid. So the necessary costs involved with settling refugees in the UK from war-torn countries should be met from this allocation. This is correct because this is true overseas aid. It has the further benefit of not classing refugees with other benefits which causes parts of society to object and causes confusion with immigration. The policy therefore has a contribution to unity and harmony within the country.
Grotesquely, six of the eight countries receiving the largest packages of British aid are launching their own space programmes. These six countries, were collectively given £1.5 billion of British taxpayer’s money last year, yet at the same time are funding satellites and rockets that often dwarf Britain’s own ambitions in space. These countries do not need overseas aid so much as sense of their own priorities. The UK has to move on from thinking that it can interfere in every world issue. Compassion for the genuinely needy is correct, but there is a need to be selective. The UK would not dream of sending overseas aid to the poor in say the USA, because this is a rich country. Its policies hold elements of their population in poverty, but this is correctly seen as a matter for the USA administration to solve. The UK cannot be held responsible for the policies of other countries anymore than we should receive overseas aid for our currently impoverished elements of society.
Nigeria, which received £305 million of British aid in 2014-15, is hoping to have its first astronauts within two years. Almost 70% of the country’s population live on less than 64p a day, yet Nigeria has launched three satellites into orbit.
India is the world’s fourth largest economy. It is the biggest receiver of non-humanitarian aid from Britain yet already has 60 satellites in space. It has received almost £860 million from the UK in the last three years. India has already launched the first part of a £154 million domestic satellite navigation network to rival the well-known GPS system created in the USA.
Ethiopia, will receive £261 million this year, announced in February that it was making plans to launch its own satellite and that tests had begun. Pakistan, which received £203 million this year, launched its first satellite in 2011. Meanwhile Bangladesh has announced it will launch its first in two years, by which time it will have received £196 million.
The chief executive of the TaxPayers’ Alliance has said “If a foreign government has enough cash to invest in an ambitious space programme, it should not expect to be receiving cash from the UK which is earmarked for helping the world’s poorest”. It is difficult to argue with the statement.
At the least a full inquiry into the spending is needed. The UK should end cash payments (reported to account for 25% of such spending) as ‘budget support’. This funds the treasuries of some of the world’s least competent, honest or responsible governments. It also has to check the pay of those undertaking the support. This led to the 2013 Times story of aid workers being paid £1,000 a day as the end of budget spending frenzy took place.
In the same way as taxpayers have a right to efficiency in public spending in the UK, then it applies to overseas aid. Maximum benefit needs to be achieved for the spend. It has to be making a lasting difference to those in a plight through no-fault of their own or their government’s.
A more concerted diplomatic and political effort needs to support foreign aid. The UK has a tendency to look to a European solution, but this is a far wider issue. It should be tackled at an international level such as the G20 or the North Atlantic Treaty Organization (NATO). However, by far the greatest contribution to UK can make is in negotiating TFA’s with developing countries.