Last week’s budget hit the headlines for apparently proposing government spending cuts of £110bn over the next five years. In fact, these are just cuts in projected increases: Sir Humphrey’s definition of a cut in spending is not the same as the definition most households and businesses would use. Total Government spending will rise more or less in line with inflation, though certain departments might face deep cuts, especially if welfare spending outpaces inflation.
We currently have unprecedented levels of peacetime Government spending – the Government will spend 54p in every pound you earn this year. Quite contrary to the suggestion in Archbishop Vincent Nichols’s recent Sunday Telegraph article, the emergency Budget did not address the consequences of the crash; it addressed rapid and unsustainable structural growth in Government spending. As a proportion of national income, the British Government is spending about half as much again as, say, the Australian government. Something, somewhere, is wrong.
There is a danger that we will deal with these problems by “salami slicing” – and the budget did quite a bit of this. Benefits might be cut a few per cent, school budgets squeezed, and so on. This approach, if continued, will be a wasted opportunity. Wholesale reform of welfare, health and education is likely to bring much greater benefits. This need for reform is widely understood in political circles and the lack of recognition of this in Archbishop Nichols’s Telegraph article was a huge omission. The archbishop’s main budget plea was for the Government not to decrease financial spending on overseas aid and on needy people receiving benefits.
This focus on public spending inputs, as if they automatically turn into outputs, is naïve and reductionist. Is there a relationship between overseas aid inputs and development? The evidence suggests not. Some focused aid may help, but overseas aid can distort economies and systems of governance in ways that can cause the poor in under-developed countries serious problems. We know that Government provision of aid can crowd out more effective charitable endeavours – US charitable giving to the under-developed world is an order of magnitude greater than that of most EU countries.
Government aid via charities can also distort the activities of those charities. Cafod’s income from Government is now equal to 30 per cent of its charitable donations. Is it a coincidence that spending on education, policy and advocacy has doubled in five years while grants to under-developed countries have increased by only just over a third? Spending on campaigns and related activities within Cafod, which is a relatively small charity working in a focused sector, is perhaps 10 or 15 times the total research, education, publication and outreach budgets of the most influential Westminster think tanks, which range across huge areas of work. The growth in the supply of Government spending creates its own demand as vested interests campaign for ever-bigger Government programmes.
There are related problems in domestic welfare policy, Archbishop Nichols’s other concern. The model of eliminating poverty by increasing spending has been tested to destruction. The welfare bills are huge – over 30 per cent of households receive more than 50 per cent of their income from the state, not allowing for benefits in kind such as housing, health and education. And the welfare system has cut off the routes to human flourishing.
Three essentials for economic fulfilment are work, saving and family. Our current welfare system crucifies all three. A depressing result, as mentioned in George Osborne’s budget speech, is that we have the largest proportion of children in Europe brought up in workless households. In fact, perhaps responding to Archbishop Nichols, the Budget did increase welfare spending at the very bottom. But in so doing it increased to record levels the number of people who gain little financially from working.
Most organisations judge their success by the quality of their outputs. Government tends only to be judged by the amount of money it spends – the quantity of inputs. It is vital that the Bishops’ Conference – tempting though it may be for an organisation with a bureaucratic way of thinking – does not judge in this way.
When the Church’s message is put constructively and thoughtfully, as in the bishops’ pre-election document, people will be attentive. She has much to say about the welfare state. Pope John Paul suggested in Centesimus annus that welfare states were failing because of a lack of understanding of the tasks proper to the state. Pope Benedict emphasised in Deus caritas est that the needs of the poor cannot be met either by the state alone or by money alone.
Welfare should start with charity, the community and reciprocity. The state should play the supporting role. Where welfare is provided by the state – especially in the form of income transfers – it should run with and not against the grain of human nature. It should not penalise work, family formation and saving. The status quo, based on spending ever-larger amounts on income transfers, is not an option. It is also grossly unfair on those who struggle to be independent and who pay ever-higher taxes on relatively low incomes – a particular problem for poorer, single-earner couple families. It is ironical that, despite his emphasis on financial inputs in his budget recommendations, Archbishop Nichols recognises where that approach has led us in wider commentary he made on the state of the nation – though his emphasis was strange. He criticised the “relentless focus on GDP” as a measure of success and lamented the human misery that remains in our prosperous society.
It is odd that he should criticise a supposed focus on GDP. Election manifestos said little about economic growth; and the coalition document mentioned economic growth only once in 36 pages – and did not mention GDP at all. Britain’s sustainable growth rate forecast has been slashed and, if economic growth were the main driver of Government policy, Government spending would be closer to 25 per cent than 50 per cent of national income. But, while the archbishop was wrong to suggest that governments emphasise GDP growth too much, he was right to say that income growth is not the key to happiness. Wealth makes us more comfortable, but not necessarily happier.
It is religious belief, stable families, work and vibrant communities that bring fulfilment and happiness. This provides another reason to reform the welfare state along work-friendly and family-friendly lines. But ultimately it is the Church that has the answer to human fulfilment and the bishops are the repositories of her teaching. Archbishop Nichols ended his article by calling on “society” to “explore” what brings fulfilment. In fact, the Church – not the Chancellor – has the answer and she needs to pursue evangelisation and re-moralisation with vigour.
Professor Philip Booth is editorial and programme director of the Institute of Economic Affairs