Tony Blair is right about two crucial things – but Labor is in denial

You don’t have to be a fan of Tony Blair to know that he is certainly right about at least two of the things he highlighted this week.

One is that unless something is done to remedy Britain’s woeful productivity record, taxes will have to rise more to pay for the country’s aging population, leaving everyone worse off in the long run. time.

The other is that AI offers potential salvation, with the potential to cut public sector staffing by up to 40pc. Technology is expected to come to the rescue.

The Holy Grail of government ministers getting less from our public services is long overdue. There is nothing particularly original or insightful about Blair’s comments.

The transformative powers of AI were a particular hobby horse of the last chancellor, Jeremy Hunt, but the election cycle intervened before he could properly test his ideas.

It is also clear that radical action is long overdue. In absolute terms and compared to private enterprise, the number of people in the public sector has been rising steadily since the Brexit vote eight years ago.

Under George Osborne as Chancellor, the Government had made some progress in reducing the numbers from the record highs of the Blair/Brown government.

But all that hard work has since been wasted, and we are now back to where we were when Labor was last in office. The pandemic is clearly the main immediate explanation for this explosion in public sector employment, but it has been increasing strongly since then.

There has been no improvement since either. On the contrary, the latest statistics up to March of this year show a continued rise, with total employment in the public sector reaching its highest level since the beginning of 2012.

At the same time, standards have declined – our public services are now a national disgrace. Sadly, we had to get used to paying more for less.

All economies have their break-even points – the threshold at which any further increase in the tax burden starts to affect growth and therefore becomes counter-productive in terms of its revenue-raising objective.

For some, the threshold is higher than others. The Nordics seem to maintain an extremely high tax burden without unduly harming the wider economy. France, too, seems to accept a very high level of taxation, but somehow still manages to show some growth.

But for Britain, it appears to be much lower at around a third of GDP. Anything below is likely to be exciting – much above and growth starts to fall. At a projected 37pc, the UK is already right up there on the edge of its pain threshold. It can’t go much higher.

Back to Blair’s analysis. As it happens, the last government was already on the case. Hunt’s last Budget was all about productivity, although no one noticed much in the wider scene of the Tory train wreck.

But the idea was on. To pay for extra defense spending, the government at the time promised to reduce the size of the civil service back to at least pre-Covid levels.

It has also earmarked £3.4bn for health service IT, with the aim of improving NHS productivity growth from the current level of 1.5pc a year to just under 2pc.

This may not seem like an overly ambitious target, but it was a major step forward against the overall trend of public sector productivity growth of a paltry 0.5pc.

Underpinning it all was the idea that AI, if implemented effectively, could free up resources for frontline services, thereby delivering the prize of more for less.

Optimism, it is often said, is not a strategy, but much of it is vested in the idea that AI can provide a comprehensive solution to the problem of public sector reform.

It goes without saying that this matter has a history. It is difficult to recall a public sector IT project delivering as expected.

In the NHS, the record is abysmally poor. An IT system to digitize patient records, said to be the largest in the world at the time, was completed in 2013 at a cost of more than £10bn.

For the Post Office’s Horizon IT system, yes is an understatement. There are exceptions. The Passport Office, which only a few years ago was considered a complete basket case, now appears to operate very efficiently on a substantial automation basis. Similarly, the case for AI is far from proven.

It is widely accepted that the gray eminence behind the new prime minister and the rest of the Labor leadership, Blair may not be as influential as he seems anyway.

The new Business Secretary, Jonathan Reynolds, and the Home Secretary, Yvette Cooper, resurrected the idea of ​​ID cards as a gateway to more efficient public services as well as a mechanism to control migration. It looks too much like Big Brother for their taste.

You also have to wonder how strong Labor is going to prove to even hold the line on public sector pay, let alone allow AI to cut deep across public sector employment, as Blair suggested should.

As prime minister, Blair avoided confrontation with public sector unions like the plague, perhaps remembering the damage done to previous Labor governments by repeated industrial strife.

But economic conditions were much more benign when he ruled the roost and, much to the detriment of previous Conservative governments, the unions were easier to manage. Today is completely different, and much more challenging.

If Labor comes in, and delivers the 35pc pay rise they are demanding for junior doctors, it will set off a domino effect of increased pay demands across the public sector, all campaigners promise from Chancellor Rachel Reeves without raising taxes out the window. .

The Tony Blair Institute calculates that there is such pressure on public spending from an aging population that taxes would have to rise by 2pc of GDP by the end of this Parliament, without a change in approach, by the end of this Parliament, by 3pc by the end of the next Parliament,. and 4.5 computers by 2040.

These are the levels of German taxation in GDP, but without the Vorsprung durch Technik of German public services. Structurally, it would be very difficult for the UK economy to cope. Growth would struggle, and Britain’s living standards would fall further behind other advanced economies.

In its widespread application, AI raises the prospect of less terrifying alternatives, but does Labor have the stomach or the vision for it?

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