You don’t have to be a fan of Tony Blair to know that he is undoubtedly right about at least two issues he has highlighted this week.
Firstly, if Britain’s dismal productivity figures are not addressed, taxes will have to rise further to pay for the ageing population, leaving everyone relatively worse off in the long run.
The other is that AI offers a possible savior, with the potential to reduce the public sector workforce by as much as 40%. Technology, we hope, will come to our rescue.
Getting more for less from our public services has long been the holy grail of government ministers. There is nothing particularly original or insightful about Blair’s observations.
The potentially transformative powers of AI were a hobbyhorse of the previous Chancellor of the Exchequer, Jeremy Hunt, but the election campaign only came after he had had a chance to really test his ideas.
The need for radical action has also long been self-evident. Both in absolute terms and relative to private enterprise, the public sector workforce has continued to rise since the Brexit vote eight years ago.
Under George Osborne as Chancellor of the Exchequer, the government made some progress in reducing the record number of seats that had existed at the end of the Blair/Brown government.
But all that hard work has since been wasted and we are now back to where we were when Labour was last in power. The pandemic is clearly the main direct explanation for this explosion in public sector employment, but it had been rising sharply for much longer.
Nor has there been any improvement since then. On the contrary, the latest statistics up to March this year show a continued increase, with total public sector employment reaching its highest level since early 2012.
At the same time, standards have fallen – our public services have become an object of national shame. Sadly, we have had to get used to paying more for less.
Every economy has a breaking point: the threshold at which an additional tax hike begins to impact growth and thus becomes counterproductive in terms of the goal of generating revenue.
For some, the threshold is higher than for others. The Nordics seem to tolerate a particularly high tax burden without undue damage to the wider economy. France also seems to tolerate a very high tax level, but somehow still manages to show some growth.
But for Britain it looks set to be much lower, around a third of GDP. Anything below that is likely to be stimulative – much above that and growth starts to falter. At a forecast 37%, the UK is already on the edge of its pain threshold. It can’t afford to go much higher.
Back to Blair’s analysis. As it happens, the previous government was already on the case. Hunt’s last budget was all about productivity, although no one paid much attention to it amid the wider spectacle of the Tory slow-motion train crash.
Yet the thinking was entirely correct. To pay for the extra defense spending, the government at the time promised to reduce the size of the civil service to at least pre-Covid levels.
£3.4 billion has also been set aside for healthcare IT, with the aim of increasing NHS productivity growth from the current level of 1.5 per cent a year to just under 2 per cent.
This may not seem like an overly ambitious target, but against the general trend of public sector productivity growth of a negligible 0.5%, it would have been a major step forward.
At the heart of it all was the idea that AI, if applied effectively, could free up resources for frontline services, delivering more for less.
Hope is not a strategy, it is often said, but much of it is based on the idea that AI can provide a comprehensive solution to the problem of public sector reform.
The history of this stuff, it must be said, is not encouraging. It is hard to remember a public sector IT project that has delivered what was hoped for.
In the NHS, the record is poor to abysmal. An IT system to digitise patient records, then the world’s largest, was finally abandoned in 2013 at a cost of more than £10bn.
As for the Post Office’s Horizon IT system, the less said the better. There are exceptions. The Passport Office, which was seen as a complete shambles just a few years ago, now appears to be functioning remarkably effectively on a substantially automated basis. Yet the case for AI is far from proven.
It is generally accepted that this is the eminence gray Behind the new Prime Minister and the rest of the Labour leadership, Blair may not be as influential as he seems.
His renewed idea of ID cards as a gateway to more efficient public services and a mechanism for controlling migration has already been rejected by both the new Economy Secretary, Jonathan Reynolds, and the Home Secretary, Yvette Cooper. It sounds too much like Big Brother for their tastes.
One also wonders how far Labour will hold out when it comes to maintaining public sector wages, let alone allowing AI to erode a large proportion of public sector employment, as Blair suggests.
As Prime Minister, Blair avoided confrontations with public sector unions like the plague, perhaps aware of the damage previous Labour governments had suffered from persistent workplace unrest.
But economic conditions were much more favourable when he was in charge and, largely stripped away by previous Conservative governments, the unions were easier to manage. Today it is very different and much more challenging.
If Labour gives in and gives junior doctors the 35% pay rise they demanded, it will trigger a domino effect of higher pay demands across the public sector. Then all of Finance Minister Rachel Reeves’ campaign promises not to raise taxes will go up in smoke.
The Tony Blair Institute has calculated that the pressure on government spending from an ageing population is so great that, without a change in approach, taxes would need to rise by 2% of GDP by the end of this parliament, 3% by the end of the next parliament, and 4.5% by 2040.
These would be the German tax levels in GDP, but without the Progress through technology of German public services. Structurally, it would be very difficult for the British economy to cope with this. Growth would struggle and British living standards would fall further behind other advanced economies.
AI offers the possibility of less alarming alternatives on a grand scale, but does Labour have the courage and vision?