The ICAEW (the accountants) had a conference on securing public finances on Tuesday. They published a document including my contribution in Securing the Public Finances. It is comforting that a consensus is emerging that we need to develop a new approach to public services with much better transparency and accountability that we presently have. Whether within government or for citizens, there is inadequate accounting and financial management and too few ways in which citizens can understand or contribute to what is going on.
Jonty Oliff-Cooper from Demos was particularly interesting in talking about new ways in which we need to open up to new ideas and citizens’ input. Clare Tickell also described the work that we have been doing at PST2020.
The consensus of the professionals engaged in delivery and of those actually managing the money contrasts with the approach taken by some economists. I hear there is a petition out there arguing that it is essential to keep borrowing ‘until the economy recovers’. They call upon the ghost of Keynes in supporting additional borrowing in a crisis.
I think this is misguided. Firstly, we have absolutely followed the Keynesian advice to borrow in a crisis to keep the economy going. That is why borrowing is now reaching 12 per cent of GDP. This does not mean that even more borrowing is thus justified.
Now that the economy has turned the corner we need to give the private sector space to recover. This will not be achieved by continuing to fill the bucket with more public borrowing which will crowd out other investment, raise interest rates, and damage our international standing.
It is very unfortunate that economists live in a static world in which the ideas that recovery takes time and needs confidence fails to fit the models. The confidence of investors appears often in Keynes’ writing but in the subsequent models has been lost in favour of a simplistic view that somehow government and private spending can just be switched on and off.
The crisis has created the best chance we have in a generation to get some focus on the size and deliverability of public services. On the previous path, there was a lack of control and trends in demand for health and on aging which cannot be met. I think it is essential that we debate this and decide what a new model of public services might look like.