Nothing is certain except death and taxes (or compulsory spending)

The victory of the Conservatives has put them in charge of the UK for the next five years. But it has not resolved many uncertainties. Indeed, it has created new ones. Among these is the future of the state.

According to the International Monetary Fund, the share of government spending in UK gross domestic product will fall from 41 per cent in 2014 to 36 per cent in 2020. If so, this would put the UK's share below Canada's 39 per cent and Australia's 37 per cent and only fractionally above the 35 per cent forecast for the US. Many prosperous economies would be far above UK levels: among them France on 53 per cent, Denmark on 51 per cent, Sweden on 49 per cent and Germany on 44 per cent.

The UK's spending plans raise two questions: the first is how they might be delivered; the second is whether they can be politically tolerable.

On the first, rough calculations suggest that if health and the aid budget were protected in real terms and education, defence (and maybe Scotland) were more-or-less protected in real terms, other departments would be cut by a further quarter in real terms, even if £12bn were taken from welfare. Such cuts would exceed those in the last parliament. The idea that they could be achieved through higher efficiency is fantastic. They would be noticed.

On the second question, the envisaged share of spending in GDP has been achieved only twice in the past 70 years - in the mid-1950s, and between 1999 and 2001. It was not sustained, because it turned out to be politically in tolerable. Is this time different? The arguments that it is are three: first, the country cannot afford more; second, it will be able to dispense with much spending; and, third, it will be possible to find other ways of funding services.

On the question of affordability, one must dispense with the fallacy that high taxes doom an economy. It is possible to be internationally competitive and prosperous with higher taxation and lower taxation. The UK, for example, has a huge current account deficit while Germany has a surplus, yet government receipts were 36 per cent of GDP in the former and 45 per cent of GDP in the latter in 2014. Germany's real GDP per head (at purchasing power parity) is also higher than the UK's.

The question of what is done via the state and what is done through private action is a social choice. So, too, is the decision on how much income to transfer among households. When the tendency is towards greater inequality and the population is ageing, the desire for the publicly provided services and transfers to rise as a share of GDP is strong. The failure of housing supply adds to the pressure. Furthermore,the decision to transfer an area of spending from public to private does not eliminate the cost. To take one example, the US spends far more on health than European countries, although (I would say, because) more of it is privately paid for.

On the question of alternatives, it is essential to distinguish the role of the state as provider from its role as purchaser. It is often desirable to have private providers of many services, but that may not make them cheaper. They might just be better. It would be splendid, too, to pay service providers for results, but they must still be paid.

On the question of alternative sources of funding, more myths abound. One is that private philanthropy might fill the gap. But even if one ignores the gaps it leaves and the fiscal cost of the incentives, the sums are too small to offer an adequate replacement. Even in the US, total giving is less than 2 per cent of GDP. In the UK, it is half that.

Another myth is that charging would make a big difference. This is highly implausible unless one is prepared to cut sharply into the use of services by the worse off. The attempt to charge generates complex means testing, which creates perverse incentives. If instead, people were encouraged to save for such expenditures, one would either have to provide costly incentives or impose compulsory savings, as in Singapore. Compulsory saving is not so different from taxation, particularly if the state contributes on behalf of the poorest. An important study of health and social care by the King's Fund shows that charging for health would be difficult and raise very limited resources.

The election has delivered a government that has promised to reduce British state spending to US levels. But it is still required to provide services and transfers that meet British expectations. The challenge for the government is to persuade the British that they are happy with US spending. If it succeeds, it will have delivered a political revolution. My bet is that it will fail.

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