5th November 1995

Hugh Gaitskell and Rab Butler (for whom I invented the new dictionary word Butskell) once jointly told me they had to temper their economics to survive in politics but were never so completely politicians that they could not be trusted to handle the national economy. We are now at the stage when that last charge has to be thrown at both our main political parties. Start with the devils we have. This week the chancellor and his team will begin preparing the budget which will be announced at the end of this month. It should depend on how the Waldegrave spending cuts have been handled in cabinet. The right word is "cheatingly”.

Once again the most unctuous lobby correspondents swallow proud civil servants’ private claims that failures to cut even 5% waste off their budgets show their spending is at an “irreducible minimum”. In a paper for the European Policy Forum Dr Walter Eltis, one of the most distinguished retired civil servants, says those claims are “never true”. In the two years after 1976, the International Monetary Fund easily ordered the Callaghan government to cut real public spending by 8%.

Today’s Tories are at the opposite fag-end from that. Ministers tell civil servants to cut spending. The latter, guessing Labour will run them next year, increase it — especially to Labour local authorities. Says one despairing ex-minister: “In a business you can tell a subordinate to cut costs, because he knows you will review his salary and job at the end of the year. We have no such power in Whitehall.”

November 28’s Tory budget will add more than £1 billion to spending in our two wildest wastelands, education and health, and try to take pre-election credit for doing so. We learned last week that several hundred million Asian children are far further advanced in maths than British children, even when those Asians are in classes more than five times larger (thus more than 10 times cheaper) than Britain’s present worst comprehensive school. The latter is galled Hackney Downs, with only eight pupils per teacher, twice the national average spending per child, but with dreadful educational records and. militantly trade-unionised teachers. Gillian Shephard’s extra £800m next year will go to councils that keep that sort of school alive.

For the first time in my life I have recently been attending one of our most famous hospitals three times a week for treatment of a minor worrying complaint. Although I have every patient’s admiration for the devoted staff, anybody in the long queues can see the hospital is riddled into inefficiency by the professional piques that drown it in who-may-not-do-what restrictive practices. All these public institutions first need more competition thrown at them, before throwing more money.

Despite the failure of the Waldegrave round, Ken Clarke will be able to wow his backbenchers on November 28 by various announced “savings” coming from such devices as measuring public spending on the GGE(X) formula instead of the old GGE, drawing private money (at a price) into more aspects of housing finance, stopping the further rise in Whitehall staffing (which alone will save £500m a year), and slashes in road-building and other capital expenditure (exactly the, things that should not be cut).

Labour should find this failure of the Waldegrave round easy to attack, but is assuring everybody that it would strive to make things worse. In this paper last week, Tony Blair attacked the view that Britain should imitate the low-tax tiger countries of Asia. Although some of his statistics would spin Hugh Gaitskell in his grave, he rightly judges the tigers’ secret has been high investment. But they have high investment because low taxes make business very profit-able, not because of government investment in schools like Hackney Downs.

Labour’s second prong of attack last week was a “world prosperity league”, claiming that Tory Britain since 1979 has fallen from 13th to 18th place in income per head. The country that has fallen just behind us, to 19th place, is Sweden, which after the war was the richest country in the world. It has dropped like a stone because the percentage of GDP spent by its mostly Social Democratic governments has risen from 36% in 1965 to 72% in the recent recession. As Dr Eltis shows, the 25 largest Swedish-owned companies now employ only 25% of their labour in Sweden. They have moved the rest to lower-tax lands. He finds a direct correlation. In low-tax countries, investment goes to build businesses and employment. In high-tax countries, it goes mainly to save labour, which is the road on which Europe is set.