Sorry, We Have No Money – Britain’s economic problem Contents Introduction Part 1: Britain’s structural economic problem: Public expenditure and economic performance Chapter 1: Britain’s supply-side challenge in the 21st century The need for a strong public sector Public goods A welfare state that goes beyond narrow public goods Efficient and extensive welfare states can improve the functioning of market economies There are diminishing returns to welfare spending Deadweight cost of public expenditure Public spending and economic growth The 35 per cent rule of thumb Britain passed 35 per cent in the 1960s Britain’s public expenditure crisis in the 1970s Britain’s fundamental problem: too few producers Stabilising Britain’s public finances In 1997 Britain still had a supply-side problem rooted in public spending New Labour’s public expenditure mistake The fall in output in the Second Great Contraction Chapter 2: Britain’s fiscal problem Budget deficits represent a choice about the timing of taxation Government debt markets yield economic benefits The problem with a large structural budget deficit Government deficits and interest rates The 1929 public works White Paper and Treasury orthodoxy in the 1920s The Poincare stabilisation of the 1920s and French fiscal crowding in Government debt imposes a real economic cost: the chimera of burdenless debt Borrowing heavily in wartime and other emergencies is not a problem Should governments deliberately tolerate inflation to liquidate public debts? Britain has a budget deficit problem The Coalition government’s necessary emergency budget in June 2010 Eliminating the budget deficit will not be sufficient for an optimal economic performance Chapter 3: How effective is fiscal policy in demand management terms? Chapter 4: Can sovereign states go bust? Chapter 5: Public sector efficiency in the UK Fundamental efficiency challenge in public services Value for money and public sector reform New Labour: spend, spend, spend Measuring public sector output in the national accounts The row: public sector productivity falls Atkinson Review Comparative health spending and efficiency within the UK
NHS consultants’ pay and GP contracts Children’s care services Education standards and quality UK’s ranking falls in OECD study Why did New Labour’s spending yield disappointing results? Public sector trade union power and economic rent seeking Chapter 6: The failure of public sector reform Cash limits and abandoning funny money The Financial Management Initiative The Audit Commission Contracting out and privatising services Government agencies Shadow prices, internal markets and purchaser provider splits The Citizen’s Charter The private finance initiative New Labour’s public service reform agenda Chapter 7: Britain’s regional problem: the caring hand that cripples? Chapter 8: Centralised public sector pay bargaining and public sector pensions Public sector pensions Chapter 9: Social security transfer payments and age-related spending The changing nature of the causes of poverty Structural unemployment, unemployment and poverty traps The damaging effect of means-tested benefits and tax credits Saving money and getting a labour market that works Britain’s long-term social spending challenges
Part 2: Capitalism, market limits, state failure and an over-expanded state Chapter 10: Why markets generally deliver, sometimes fail, and why correcting market failures can create state failure Markets deliver the goods Private vices, public virtues and Mandeville’s notorious paradox Markets need rules Capitalism remains the only show in town Chapter 11: The neo-classical analytical paradigm Conditions for Paretian optimality The efficiency presumption against public expenditure X-efficiency Externalities market failure and public goods Asymmetries of information, adverse selection, moral hazard and limitations of insurance markets State failure and public sector inefficiency Over-expansion of the state Rising real unit cost of public expenditure: Baumol’s disease Public sector X-inefficiency Competing bureaucracy, privatisation, contracting and contested public sector markets
Chapter 12: Sweden and the Nordic model Conclusion Bibliography Figures and tables Figure 1.1: Total managed expenditure as a percentage of GDP Figure 2.1: Government spending 2010–11 Figure 2.2: Government receipts 2010–11 Figure 4.1: G7 debt maturity in 2008 Figure 5.1: Total managed expenditure, 1970–2015f (£ billion) Figure 5.2: Total managed expenditure, 1970–2015f (£ billion, 2008–09 prices) Figure 5.3: Total public service output, inputs and productivity estimates 1997–2007 Figure 5.4: Productivity in the market sector and public services, 1997–2007 Figure 7.1: Working days lost per 1,000 employees, by region, 2008 Figure 7.2: Regional shares of total GVA, 1995 and 2008 Figure 7.3: Regional GVA per head indices compared to UK average, 1995 and 2008 Figure 8.1: UK public sector employment head count including and excluding the major financial institutions, 1999–2009 Figure 8.2: Median gross weekly earnings for full-time employees, 1999–2009 Table 5.1: Total managed expenditure by function 1997–2009 Table 5.2: General government final consumption expenditure weights by service, 1997–2007 Table 7.1: Median gross weekly pay for full-time and part-time employees, 2009 (£) Table 7.2: Trade union influence in the workplace, 2009 (%) Table 9.1: Projections for age-related expenditure (per cent of GDP)