Before we wade into this blog, disclosure is required: 1) I am a wrinkly, being two years past retirement age and so admit a personal interest in their welfare and; 2) this blog is full of charts and figures. Numerically queasy readers may wish to skip elsewhere.
Since the whole wunch of bankers who should have known better got it horribly wrong on ‘financial derivatives’, it has been pretty much seven years of famine for rest of us, even as the wunch themselves retain eye-watering bonuses. But the real story is not just ‘us-and-them’, as the media and politicos would have us believe. The problem is actually your Nan. To explain, we examine historical UK government expenditure.
Once the declining 1960’s, disastrous 1970’s and strife-torn 1980’s were over, this last quarter century has seen increased affluence, even allowing for the fiscal crisis of 2007/8. Over that period, UK government expenditure grew by from £200bn to £760bn or some 280% at a time when inflation only totalled 120%. This means some £320bn more (in real terms) is now being spent each year, compared to 25 years ago.
So…err…what did we get for that extra money?
The answer is: not much. Let’s break the expenditure down and focus on six major categories to see where the increase(s) went to:
So, while there was a tripling of transport spend under Labour the 5-year decline under the Tories was halted this year with their commitment to spend £10bn on Roads England, broadband, HS2 and Crossrail 2. But, despite it quadrupling, it remains the smallest of the six major pots.
Despite what Tories might say about being strong on defence and security, the doubling in defence spending happened under Labour and has stalled since. Allowing for inflation, this means a decrease in real spend, mostly under the last government. But what about more human budget areas?
Surprisingly, welfare spend increased under the Tories, stalled in the first few years of Labour and then stalled again under the Tories after almost doubling in a decade. Taken over the piece, there has been a real increase—but all of it was in the 1990’s and since 2010 it has stalled, i.e. declined in real terms.
Education, about which everyone makes a song and dance, grew steadily under both parties, outstripping inflation by over 50%—until it hit a brick wall under the Tories since 2010 when it also declined in real terms.
So Welfare and Education also don’t explain why budget outlays are continuing to rise. Yet in the last five years, expenditure has risen by £90bn (~13%). One factor is that interest paid on ballooning debt has risen £20bn. But the real rises have been in two areas that now account for one in every three pounds spent.
After quintupling in the first two decades, the NHS now needs one in every six budget pounds. That funds more expensive equipment, higher paid doctors and flurries of prescriptions. But the biggest single element—some £24bn—comes from older people, who are living longer and making increased demands on medical services as a result.
Health’s £138bn is topped only by the £154bn in pensions. And this is increasing even faster than Health. As can be seen from the last two charts, both trends are linear and show no sign of wavering. This is because:
- Our population over 65 is growing living longer and claiming state pension for longer
- Public sector pensions now benefit from wages comparable to the private sector
- Pay-as-you-go public pension funding means that today’s taxpayers fund pensions directly; actuarial reviews are jacking up the liability and thus the payment required
So, with demands on both Health and Pensions driven by the elderly and nobody at Westminster minded to upset this electorate who vote habitually, it appears we are between a wrinkly rock and a fiscal hard place. Squeezing the ‘normal’ budget areas has not reined in expenditure and is now starving key areas like education so these two areas must be addressed. Soon.
Neither economist, nor rocket scientist is required to work out this is leading to disaster. That the UK has an ageing population is no surprise, nor is the corollary that they require more support as they age. While ministers may choose to build roads, schools or aircraft carriers, no progressive government can (or should) curtail basic rights of the elderly.
But both politicians and media are blanking this unavoidable truth. Unless something radical is done to encourage the elderly to keep their skills and experience engaged later in life, our ideal of a welfare state and health free at the point of need will collapse under the sheer weight of demand.