Hearing 1

Fabian Society Commission on Future Spending Choices

Hearing 1: ‘What is public spending for?’

20th November 2012


  • Margaret Hodge MP (Chair, Public Accounts Committee)
  • Peter Taylor-Gooby (University of Kent) – read paper
  • Patrick Diamond (Policy Network) – read paper

Key Questions

  • What is the purpose of public spending and how has it changed over time?
  • According to which criteria and values should public spending decisions be made?
  • How can difficult public spending choices be made in a way that retains the core functions of public spending as we understand them?


Margaret Hodge MP  opened the session by describing the left’s historic commitment to public spending as a vehicle for equalising life chances and advancing the values of an inclusive and cohesive society. Contrasting New Labour’s spending on public services with prior years of underinvestment she also argued that despite its achievements in meeting these aims the party had been poor at basing decisions on value for money. In particular she criticised the fact that too often the fight against waste in government had been associated with the political right and criticised the value and inflexibility of major out-sourcing contracts. She concluded by arguing that at a time of fiscal consolidation governments must think more seriously about how public spending could be more preventative and called for spending on early intervention and childcare.

Prof Peter Taylor-Gooby began by describing the changing patterns of public spending over past decades, including the rise in the welfare state as a share of economic activity. He argued that spending has risen over the last 150 years as a consequence of external shocks (ie wars) but then not retreated to previous levels. There is no precedent in British history for a permanent reduction in public spending as a share of GDP.

While the UK’s public spending was unexceptional by international standards, Professor Taylor-Gooby argued that the same could not be said of the Government’s current deficit reduction strategy, which only Greece is following. Expanding on earlier comments by Margaret Hodge, he argued that support for low income groups risked getting squeezed by pensions, healthcare and education due to hostile public attitudes.

Moving on the type of state envisaged in a period of spending restraint, Professor Taylor-Gooby dwelt on the recent debate around how best to leverage the regulatory power of the state, although he noted that regulatory approaches are partial and enforcement does cost money. Professor Taylor-Gooby concluded by arguing that public spending should encourage demand in more collective services that do not exacerbate stigmatisation of the disadvantaged.

Patrick Diamond opened his remarks by underlining Professor Taylor-Gooby’s evidence on the historically stable patterns of public spending in the UK, but also pointed to the path dependency that has existed in this regard. He argued that Labour had created a structural gap in the public finances by successfully making the case for good public services and pensions while failing to make a commensurate and necessary case for higher taxation.

He argued that while attractive in principle the idea of ‘switching’ public spending is difficult because voters support existing spending and are less positive about spending to address emerging needs. He argued a political strategy based on honesty and transparency would be necessary to manage this.

More specifically Diamond set out ideas for transferring spending including means-testing pensioner entitlements, transferring tax credit spending to childcare services and freezing or absorbing Child Benefit into tax credits. With the hearing’s other witnesses he emphasised the need to focus on efficiency in spending, but raised the challenge of how to couple this with a focus on making the state more relational in people’s day to day lives. This raised the further issue of the style of management in public services, and broad agreement emerged among participants that New Public Management philosophy had failed to deliver efficient and people-oriented services.

Moving onto the longer-term demographic challenges facing in the UK, Diamond asked whether today’s spending pressures required a de-politicisation of issues such as adult social care. To do so would require a transition to a more inclusive, service-orientated state with expanded early-years and elderly provision.


Peter Taylor-Gooby’s submission to the hearing (download)

Patrick Diamond’s submission to the hearing (download)

Background paper (download)