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Issue 50, September 2000

Labour's public spending detour

THE JULY comprehensive spending review (CSR) by the chancellor of the exchequer, Gordon Brown, was different to his previous public spending pronouncements.

After being elected in 1997, New Labour continued the Tories' public sector pay freeze, and went on to make sweeping cuts in public expenditure during the following two years. Over the last five years public expenditure has been reduced by 50bn, equivalent to 5% of gross domestic product (GDP). This has brought public spending to its lowest level as a percentage of GDP (38%) since 1963.

The recent CSR marks a temporary reversal of that trend: a 43bn spending increase is being spread over the three years from 2001/2002 to 2003/2004. If previously announced increases for the present year are included, the overall increase amounts to around 50bn over the four years from 2000/2001.

The government has effectively merely reversed the spending cuts of recent years - on the basis of the savings created by those very cuts, combined with other economic factors. Chief amongst these has been eight years of economic growth but there are very few capitalist economists who dare predict that this will continue for another four years. Yet Gordon Brown calculates on continued growth in order to see through his spending programme. When the economy moves into recession Brown's plans will be blown apart and he will move to make new cuts in public spending.


Three-quarters of the extra CSR money has been ear-marked for five areas: education, health, transport, housing and law and order. The NHS budget is being increased by 13bn over three years; an increase of 27%. Including the current year, the increase is 35% over four years, the fastest projected increase in NHS spending since the early 1970s. An extra 1.6bn is going into housing, with one of the targets being to reduce by a third the number of sub-standard social sector houses.

The sums of money involved, however, are nowhere near sufficient for the adequate funding of services. The most recent Housing Condition Survey revealed that in England alone there is a 26bn backlog of urgent repairs. In the NHS, by the year 2005, the planned maximum waiting time for operations will only have fallen to six months, people may still have to wait two days to see their GP, and can still expect to wait for up to four hours in casualty departments! In some cases the money is accompanied by further attacks, such as in education, where the outlay is the biggest for 20 years, but performance-related pay (PRP) is being extended to cover sixth forms and further education colleges. Public sector workers face the continued prospect of low pay, as Gordon Brown has assumed that public sector pay in general will rise no faster than inflation.

Also, the decades of under-funding of public services will still be strongly felt in areas of expenditure outside the government's 'target five'. Local authority core spending will have a meagre increase of 3.1% per year. Particular hardship will be faced by benefit claimants, as Brown allows only an increase of 1.5% per year in the overall cost of benefits. Claimants will also be affected by the announced drive for 7bn per year 'efficiency savings', as the idea is to achieve a large part of these 'savings' by ruling a layer of housing benefit and social security claims to be fraudulent. Nothing was given to pensioners in the CSR, although Labour whips promised Labour MPs that an announcement on pensions will be made in November's pre-budget report.


Although the CSR gives a significant boost to public spending in some areas, it does not reverse or arrest New Labour's enthusiasm for privatisation. They continue to promote sub-contracting of previously public sector work to the private sector and want to reduce the overall size of the public sector by further larger-scale privatisation. It is therefore inevitable that a significant part of the public expenditure increase will end up in the pockets of profit-makers. This is especially marked in the transport industry: for example, government rail subsidies are set to double to over 2bn per year in an attempt to finance the biggest expansion in the rail network since the 1960s. The government is also arranging a large amount of private investment in transport alongside the increased public investment announced in the CSR; 123bn of public money is being invested in a ten-year programme, with a further 56bn coming from the private sector.

In the NHS, although the government has said they will prevent new consultants from working in the private sector for seven years, they have also made it clear that they want the NHS to pay for health care in the private sector in cases where NHS resources are too over-stretched to provide it.

The CBI director-general welcomed the spending review, mainly because he regards the increased investment in transport as essential for businesses. Trade union leaders and Labour MPs also welcomed the review, portraying it as a turn by New Labour back to its 'real agenda'. However the CSR does not mark a turn by New Labour away from their neo-liberal agenda. Blair still regards himself as a champion of deregulation and increased 'flexibility' in workplaces across Europe. Rather than a change of heart by Blair and Brown, it is clear that they felt compelled to make some concessions at this stage to try and reverse their increasing unpopularity.


Anger at their pro-big business policies was clearly expressed in the May 2000 elections, and a July Guardian/ICM poll showed New Labour's lead over the Tories had fallen to just 7%. So great is distrust towards the government, that there is widespread scepticism about the spending announcements. After three years of a deteriorating NHS, worsening public services generally, and attacks on living standards accompanied by attempts to trick people into believing that they are improvements, many people do not believe that this recent injection of money will make any difference.

The government is therefore desperate to get some tangible results before the general election, which is expected next year. This will be extremely difficult, as the CSR increases do not take effect until next April, and it will take time to achieve any noticeable change. One of their biggest problems will be to find and train the extra 20,000 nurses, 7,500 consultants, 2,000 GPs and other health service professionals they have pledged to provide.

Although there is widespread scepticism and anger, however, it would be wrong to suggest that the CSR will have no effect on New Labour's vote. A Gallup poll taken after the review (reported on 11 August) put Labour's lead over the Tories back up to 15%. Most people who bother to vote will compare New Labour to the Tories and, although New Labour is increasingly viewed as no different or even worse than the Tories, the Tories' recent call for 16bn of spending cuts will be noted. And the bad memory of their 18 years in power lingers on. So New Labour may well go into the election campaign with a lead over the Tories, but the number of parliamentary seats they achieved in 1997 is not going to be repeated this time given the general mood of disgust with Blair's government.


Blair's public opinion advisor, Philip Gould, wrote in a recently leaked memo that New Labour is 'the object of constant criticism and, even worse, ridicule. Undermined by a combination of spin, lack of conviction and apparent lack of integrity'. He warned of a dramatic cut in Labour's majority at the next general election. This is the situation for New Labour before the onset of economic recession. When recession takes hold in the USA, the world-wide repercussions will send the European economies spiralling downwards. Even the limited concessions made to the public sector in the CSR, therefore, are not safe. Economic turmoil will at some stage send the national public deficit soaring, and the government will once again try and implement a further generalised programme of cuts.

Judy Beishon

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