Jeremy Hunt still has a fiscal hole to fill, and Britain’s fabric is fraying

When UK prime minister Liz Truss was interviewed on local radio last month, she was asked about a hospital that is so dilapidated its roof is being held up with thousands of wooden and steel props. Truss, whose own constituency is near the hospital in Norfolk, said she couldn’t make any promises but would lobby on the issue “as the local MP”.

The exchange summed up the juncture at which Britain finds itself. The fabric of the country is fraying, but the government is seemingly helpless to do anything about it, and indeed might be about to make the situation worse.

The idea of slashing welfare payments in the middle of a cost of living crisis has already been chewed over and spat out by many Conservative MPs

Jeremy Hunt, the new chancellor, scrapped most of Truss’s unfunded tax cuts on Monday in an effort to reassure markets that the UK was a fiscally sensible country. But that still leaves a hole to fill. He said spending in some areas would have to be cut.

The problem is: cut what? The idea of slashing welfare payments in the middle of a cost of living crisis has already been chewed over and spat out by many Conservative MPs. Uprating working-age benefits by earnings rather than inflation next year would save the treasury about £5 billion (€5.75 billion), but it would not meet Hunt’s promise to “prioritise the most vulnerable” at a time when people are already asking food banks for items they don’t need to cook because they’ve switched their gas off.

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Public services are not an easy target for cuts either. On Monday, the Institute for Government published its annual assessment of the state of nine public services: general practice, hospitals, adult social care, children’s social care, neighbourhood services, schools, police, criminal courts and prisons. The report found that, after a decade of austerity, many public services went into the pandemic with longer waiting times, reduced access, missed targets and other signs of diminishing standards.

Since then, demand has grown and backlogs have ballooned. NHS waiting lists for elective treatments reached over seven million people by August this year, the highest on record. In the crown court, the backlog was 59,700 cases in June, slightly below the peak in 2021 but higher than any point since at least 2000. “There is no meaningful ‘fat’ to trim from public service budgets,” the authors concluded.

Holding down public sector pay is also difficult at a time of high inflation. With a tight labour market, public services from education to health and prisons are already struggling to recruit and retain people on current pay levels. The most recent official pay data showed private sector wage growth was 6.2 per cent while public sector wage growth was just 2.2 per cent.

Day-to-day spending is less visible, at least until your local hospital roof is propped up with stilts

Nor is there public appetite for more austerity. In 2010, only 31 per cent of the British public were in favour of higher taxes to spend more on health, education and social benefits. In 2021, that figure was 52 per cent. In light of this, the government will be tempted to cut public investment instead of day-to-day spending, which is less visible — at least until your local hospital roof is propped up with stilts.

But lower investment makes public services less efficient, and therefore more expensive in the long run. Take health, for example, where the hospital in Norfolk isn’t a one-off. Parts of the NHS estate “do not meet the demands of a modern health service”, a report by the National Audit Office found in 2020. Indeed, 14 per cent of it predates the formation of the NHS in 1948.

The NAO said “high-risk” backlog maintenance had grown by 139 per cent between 2014/15 and 2018/19. “High-risk” is defined as “where repairs/replacement must be addressed with urgent priority in order to prevent catastrophic failure, major disruption to clinical services or deficiencies in safety liable to cause serious injury and/or prosecution.”

Capital spending on healthcare is much lower in the UK than similar OECD countries, according to the Health Foundation. It’s not just about buildings, it’s also about modern equipment and technology. Among the EU15 and G7 countries, the UK has the lowest number of CT and MRI scanners per capita. And underinvestment problems go beyond health. As the Institute for Government concludes: “In many cases, there are too few staff, with excessive workloads, working on outdated equipment in rundown buildings”.

When in office, Conservative chancellor George Osborne liked to describe his austerity programme as “fixing the roof while the sun is shining”. Now the government has boxed itself into a very tight spot. The sun isn’t shining but, as the people of Norfolk know, we still need to fix the roof.

— Copyright The Financial Times Limited 2022