Tax cut hint if public sector output grows – Hunt
Chancellor Jeremy Hunt has announced what he calls “the most ambitious public sector productivity review ever undertaken by a government” in a move that hints at tax cuts.
Mr Hunt wants the Treasury to act as an enabler of reform to create “a growth mindset that delivers more for less, not just more for more”.
He told the Centre for Policy Studies: “If we replicate the productivity growth we’ve seen in the private sector and apply it to the public sector, we start to increase GDP.
“It would mean increasing tax revenues, without increasing tax rates – and it will put us on a sustainable path to lower taxes.”
He has asked John Glen, the Chief Secretary to the Treasury, to lead a major public sector productivity programme across all government departments which will report back in the Autumn.
Mr Glen will assess how the UK government can increase public sector productivity growth, both in the short and long term, and look at what it would take to deliver that additional 0.5% every year that would stop the state growing ever bigger as a proportion of output.
Mr Hunt said that according to the Office for Budget Responsibility’s long-term forecasts for the public finances from the end of this decade, the UK economy’s long term trend growth rate is 1.6% but public spending – even excluding debt interest – will grow by 2% a year.
“So every year, the OBR’s projections suggest that the size of our state will be growing by nearly half a percent more than the size of the economy.
“The consequence of a state growing faster than the economy: higher borrowing, higher taxes or a combination of the two.
“The OBR’s analysis suggests that without any action, the result of these demographic pressures could be a public sector debt of 217% of GDP by 2071, more than double the current proportion.
“I think it is wrong – morally and economically – to pass on that level of debt to future generations.”
In a dig at Labour’s plan to increase debt he said: “Other political parties might look to tax as the solution to this problem.”
He said that keeping up with projected spending pressures would mean at least doubling the basic rate of income tax and main rate of employee National Insurance.
“But to borrow an extra £28 billion would have exactly the same impact. Higher inflation would lead to higher interest rates and higher debt repayments.”
He said the public sector accounts for about 20% of national output and while he long-term pressures, whether an ageing population or the need for stronger armed forces, won’t change, “the way we meet those pressures can change. We can be much, much more efficient.”
Public sector output is 5.7% lower than pre-pandemic compared to private sector output which is 1.3% higher.
“What does that tell you? Our innovators, job creators, entrepreneurs and risk takers have bounced back but the public sector is still feelings the effects of a once-in-a-lifetime pandemic.
“But now, with that pandemic behind us, we need a renewed focus on public sector reform.”
Mr Hunt said he wants a better way of measuring productivity, noting that the UK is one of the few countries to include public sector output measures as well as input data in its productivity statistics.
“So I have asked the National Statistician to review how we can improve the way we measure public sector productivity which he has agreed to do.
“I want this to be the most ambitious public sector productivity review ever undertaken by a government, with the Treasury acting as an enabler of reform. So we will spend time getting this right. But if we do, the rewards are clear.”
He said there needs to be more innovation in the NHS and in education.
He said that the government is also enabling growth in the private sector and highlighted the 12 investment zones in left-behind areas, “mini-Canary Wharfs which will bring clusters of fastest growing industries to areas where they are most needed.”