Set childcare spending free Will Horwitz In its editorial last week Progress argued that in the long-term spending on childcare will bring savings in the benefit budget and increased tax revenue but ‘in the short term that additional investment will need to be funded by money from elsewhere.’ IPPR, in its new proposals for universal childcare, finds that additional investment by freezing child benefit budget, which is in turn why Labour have rejected it, unconvinced by the message it would send during a ‘cost-of-living crisis’. But the debate is taking place within an unnecessary straitjacket, in the form of Treasury spending rules. Currently we can spend money upfront in order to reap benefits into the future, but only if it is to build something. We call it capital spending, and it is treated separately from resource spending in public accounting. It is a vital distinction. It means we do not have to stop running buses in order to pay for High Speed Two, or cut the numbers of nurses and doctors to build more hospitals. This distinction between capital and resource spending was introduced precisely because government recognised the value of investing in infrastructure and did not want to be hamstrung by needing to pay for services at the same time. Another vital distinction in public spending – that between ‘annually managed expenditure’ and ‘departmental expenditure limits’ – was introduced to stop sudden uncontrollable fluctuations in big budgets like the social security bill or debt interest payments from wiping out the budgets of small departments. The Treasury has changed the spending rules to better adapt the public spending system to new challenges, and it can do so again. Why is this necessary now? IPPR, Policy Network and others have argued for the increasing importance of ‘social investment’ in institutions, as a response to our changing economy and labour market. In general they do not mean building new buildings (which would count as capital spending) but rolling out new systems and processes and, primarily, training and paying staff. Without changes to the public spending rules the money to get these going will only ever come by penny-pinching from existing budgets, often from the same people the policy is trying to help. Freezing child benefit for school-age children penalises parents of the over-fives to pay for childcare for the under-fives. The money IPPR sensibly suggest investing in skills training for school-leavers comes from those very same school-leavers by ending their entitlement to jobseeker’s allowance. If we are to achieve a shift towards spending on new institutions we need new public spending rules to allow it to happen. As the Early Action Task Force has argued, we should begin to treat some social spending in a similar way to capital spend. The Treasury would be understandably sceptical of departments immediately claiming every spending line as an ‘investment’ so it would have to be undertaken slowly, perhaps only on one spending item (like a childcare service) to begin with, and each proposal carefully scrutinised. If – as everyone seems to agree – childcare would lead to reduced benefits and increased tax revenues relatively quickly then those savings should be enough to justify the investment upfront. In his first major speech as prime minister Tony Blair warned that ‘Government must not fall into the trap of short-termism.’ That trap currently resides in the Treasury. It is time it was abolished.
Posted on: Thu, 10 Jul 2014 15:50:11 +0000
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