Blog Making government spending matter GDP, inflation and the government deficit reign supreme in the budget - but are they giving us the results that we want? By Daniel Button 10 March 2021 Our dominant approach to policymaking too often focuses on an excessively narrow set of priorities. Indicators like gross domestic product (GDP), inflation and the government budget deficit reign supreme, but we fail to question whether we are achieving the social, economic and environmental outcomes we want. As we emerge from the crisis, and think about how to build back better, a
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Making government spending matter
GDP, inflation and the government deficit reign supreme in the budget - but are they giving us the results that we want?
10 March 2021
Our dominant approach to policymaking too often focuses on an excessively narrow set of priorities. Indicators like gross domestic product (GDP), inflation and the government budget deficit reign supreme, but we fail to question whether we are achieving the social, economic and environmental outcomes we want.
As we emerge from the crisis, and think about how to build back better, a key step should be ensure that government policies – including budgets and spending decisions — are designed to address the things that matter to us and our quality of life: such as good jobs, adequate incomes, quality care or warm homes on a healthy planet.
Where are we spending our money?
The 2021 spring budget has not indicated a full return to austerity just yet, with the Covid support package this year and next reaching £352bn. But there were some worrying warning signs. Rishi Sunak cautioned about the supposed need to “fix the public finances”, and set out plans to raise corporation tax in two years’ time, while making additional cuts to ‘non-protected’ public services like transport and local government. This was a clear indication that the government intends to prioritise bringing down the deficit going forwards. Let’s be clear: the consensus, even among organisations that have supported austerity in the past, is that deficit reduction at the moment is a political choice and not an economic necessity.
IPPR have rightly pointed out that what we need is a stimulus akin to the USA’s, where the government has proposed a $1.9tn package of measures to revitalise the economy. Our spring budget, according to IPPR, only puts forward half of the money that is needed to ensure a strong economic recovery. But the problem is not just about how much money is being spent, but where spending is being directed, and crucially, where it is not.
The chancellor announced extra resources for eye-catching proposals like the new National Infrastructure Bank, with £10bn of backing. This will be aimed at supporting private infrastructure projects that return a profit, so it is likely to exclude vital social infrastructure that is crying out for investment. At the same time, spending on essential public services has been grossly neglected. Additional support for the NHS and education sector to recover from the backlog of harms caused by the pandemic has been cut to zero from 2022/23 onwards. And beneath this, there were additional cuts to the tune of £4bn a year to spending by non-protected departments, adding to the £11bn a year set out last November. To put this in context, that’s equivalent to the median salaries of around 250,000 care workers (NEF calculations based on Annual Survey of Hours and Earnings, assuming that the median salary of care workers to be equal to median wages for ‘caring personal service occupations’).
Instead of announcing additional support that is desperately needed for adult social care, for example, this vital piece of community support will now need to be funded out of an even smaller local government pot. Adult social care has been hit hard by Covid, and the government have been promising to reform the care system for years. Investment – and reform – would not only improve the welfare of those with unmet and under-met needs, but would also help to drive our economic recovery. Research by the Women’s Budget Group has shown that investing in care creates 2.7 times more jobs as investing the same amount in construction. But once again, the can has been kicked further down the road.
We need a new deal that protects public services, reduces inequalities and tackles the climate crisis. The budget didn’t deliver, with spending going in the wrong direction. This, however, is unlikely to change unless we change the way we set budgets and decide on spending priorities.
The promise of a wellbeing budget
Building our budget around wellbeing, or quality of life, could change things. Governments from New Zealand to Iceland have been pioneering approaches to setting budgets using a wide range of outcomes. These governments have set publicly stated budget priorities from a long list of quality of life indicators, and designed the budget around boosting a short list of them. Closer to home, Wales and Scotland have indicated their intent to set a wellbeing budget and have joined the Wellbeing Economy Governments alliance (WEGO) grouping of countries exploring how to shift their economies’ priorities towards social wellbeing.
Not only would this make government spending decisions more transparent, and ensure that spending is directed towards what actually matters to us, but a wellbeing budget approach could change how we judge the success of government policy more broadly. For years now, many have argued about the inadequacies of GDP as a metric and proposed alternative indicators to replace it. A wellbeing budget could be just the bridge we need between these alternative indicators and policy change.
Let’s ensure that government spending goes towards what really matters. To do this, the government should take a leaf from the book of countries like New Zealand, Iceland, Wales and Scotland and begin to think through a new budget process linked to better outcomes. The autumn budget would be the ideal place to start.