Date created:24 June 2002
Last modified: 24 June 2002
Maintained by: John Quiggin
John Quiggin

UK turns left for national health

Australian Financial Reviee

24 April 2002

The startling first-round defeat of French Socialist PM Jospin by Jean-Marie Le Pen, the French equivalent of Pauline Hanson, mostly reflects the caprices of the French system of Presidential election. Nevertheless, Le Pen's strong showing is part of a shift to the right in the core European countries, and an indication that the political efficacy of appeals to anti-immigrant sentiment is not confined to Australia. The French farce has overshadowed developments across the Channel, which may prove more significant in the long run.

Both supporters and opponents have recognised that last week's Budget brought down by Chancellor of the Exchequer Gordon Brown represents a fundamental break with the 'Third Way' promoted by Tony Blair, and a return to a more traditional version of social democracy. The Budget includes a substantial increase in payroll taxes, dodging, though not exactly breaking, an election promise not to increase income taxes. These overt tax increases, combined with 'stealth taxes' such as bracket creep will provide the funding necessary to increase expenditure on the National Health Service from 7.7 per cent of GDP to 9.4 per cent over five years.

In political terms, the Budget must be viewed through the lens of the long-standing rivalry between Blair and Brown. Blair's popularity has waned in recent months, and Brown has been able to shift the domestic policy agenda to the left.

Brown is no Old Labour troglodyte. He supports most of the market-oriented reforms on which the first Blair government pinned its faith, including some of the sillier ones, such as privatisation of the London Underground. The Budget speech promised that more money for health would be accompanied by more reform. But Brown has clearly recognised that even in the most favorable cases, reform will yield modest improvements in efficiency. The only way to deliver substantially improved services is to spend substantially more money.

In the case of health, moreover, the options for radical reform have been explored and found wanting. An extensive inquiry by the former chairman of Natwest Bank, Derek Wanless, yielded the conclusion that no alternative system of financing health care would outperform the NHS.

There is an element of traditional attachment here. For most Britons, and the Labour Party in particular, the NHS is a symbol of national unity that would not be lightly discarded. Nevertheless, if there were an alternative system that could deliver major improvements in health care at no extra cost, it would certainly have been adopted.

The Conservative Party, seeking to shed its image of relentless opposition to public services, has floundered. The Tories have conceded the need for more spending and, at one stage, it appeared they might actually support higher taxes. However, the basic political logic of opposition ultimately reasserted itself and their response to the Budget has focused on the government's breach of promise.

The other main opposition party, the Liberal Democrats, are also in a difficult position. Having advocated higher taxes and more spending at the last election, they were forced to welcome Brown's theft of their clothes, while joining the Tories in condemning the dishonesty of the election campaign. As Labour moves slowly to the left, the Lib Dems face the choice between returning to their traditional role as a centre party, or maintaining their more recent position as a social-democratic alternative to Blairism.

There remains the risk that the extra money will not deliver tangible improvements in time for the next election. The Tories have pinned their hopes on this possibility, and it should not be neglected. The recent defeats of Labour governments in Norway and Denmark were partly due to anti-immigrant prejudice, but also reflected a widespread view that higher taxes had not yielded comparable improvements in services.

Thus, although the ratio of taxes to GDP is rising in Britain, it is likely to fall in other European countries. However, these are adjustments at the margin. The ratio of public expenditure to GDP may be a little above 40 per cent in some countries and a little below in others, but the differences will be less important than the similarities. The Thatcher program of radical cuts in the public sector was consigned to the dustbin of history at the last UK election. The Third Way illusion that social-democratic levels of public services could be achieved with neoliberal tax rates has now gone the same way.

Professor John Quiggin is a Senior Research Fellow of the Australian Research Council, based at the Australian National University and Queensland University of Technology.

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