‘I know to my cost how high debt and high interest rates have made the public finances a nightmare since 2022.’
Sir Jeremy Hunt
John Healey's resignation as Minister of Defence could not have come at a worse time for Sir Keir Starmer and Rachel Reeves. The crisis in public finances lies at the heart of the UK Government’s challenges, together with its stubborn unwillingness to change tack, particularly in the area of welfare. Gross overspending in this area has forced the extension of stealth tax thresholds, which have destroyed public support for the Government — please see our commentary on 11 May 26. It has also forced constraints on spending in all other areas, as Keir Starmer acknowledged last week, in his BBC interview following Healey’s resignation.
Not surprisingly, the Sunday newspapers were filled with a sense of imminent governmental collapse, but tucked away on the bottom of page 5 in The Sunday Times was an interesting reflection by former Chancellor Sir Jeremy Hunt, ‘Here's how I'd have found the cash for defence’.
He understands the dilemma facing the UK Government very well, from first-hand experience. As our opening quotation makes clear, this is not a problem which can only be laid at the door of this Labour Government: it goes back to the pandemic, but its roots are much earlier than that , as we pointed out in our commentary on 26th May.
As Jeremy Hunt says in his article, and as Alan Milburn and even Andy Burnham now recognise, the only solution is wholesale welfare reform.
His assessment is that if we got the cost of working age benefits back to pre-pandemic levels, it would save the public finances £58 billion per year within five years, even accounting for inflation. He estimates that replacing the pension triple lock with an inflation guarantee would generate a further £5 billion per year.
He may recall that our commentary on 17th October 2022, when he had just moved from being Minister of Health to Chancellor of Exchequer, showed the major reduction in health service costs that could also be achieved by introducing mandatory private health insurance for wealthy old people, on which the NHS could draw as its services were used. Combined with his proposals for welfare benefits and pensions, the overall savings to public finances could be well over £80 billion per year.
It is therefore possible to crack the problem of a public sector addicted to debt and restraint, but it calls for a total change in attitude in order to look for opportunities with determination and hope, rather than remaining shackled to the past seventy-five years of democratic socialism.
In the area of defence, there's an illustration of how government mindset needs to move forward in the lead article of The Sunday Times Business Section with the headline: ‘Billions can be saved on UK defence’. This would welcome private sector involvement at a much earlier stage of establishing procurement contracts, so that private sector investment and development spending could lift the burden from the taxpayer.
When Sir Keir Starmer came to power in 2024, his mantra was all about ‘change’. Perhaps he should have been pressed harder to explain what he meant by that, since there's very little real change in evidence.
For the past two years, The Share Foundation has been pressing for change to deliver one of the previous Labour Government's flagship policies, the Child Trust Fund. Its particular focus is on the HMRC-allocated sector of these accounts, whose owners are 70% more likely to be low-income than with family-opened accounts, and who are generally wholly unaware of their existence.
HM Treasury's inflexible mindset has doggedly refused to introduce an ‘automatic release at 21’ process throughout this time, notwithstanding there being no cost to Government: the accounts are already in these young adults names, just earning fees for their account providers.
The Share Foundation has established that there are no insuperable issues in terms of legal, data or operational concerns that should hold back the resolve to deliver Gordon Brown's major initiative for young people. However, it's now estimated that these young owners of HMRC-allocated accounts are already missing out on over £600m which would flow forthwith from the automatic release process.
The UK Government is surrounded by examples of inaction such as this: a curious outcome for an administration with such a strong resolve to bring about change. The sceptics would no doubt refer back to those time-honoured programmes ‘Yes, Minister’ and ‘Yes, Prime Minister’ in order to illustrate how the Civil Service has nurtured this characteristic.
However, Jeremy Hunt has experienced all this himself at the sharp end, and he's clearly not convinced. Perhaps he ought to revisit his reluctance to return to politics, together with several of his Conservative former colleagues: there are far too many of them metaphorically applying for ‘The Chiltern Hundreds’, at too young an age.
Gavin Oldham OBE
Share Radio