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Essay: Conservative & Labour fiscal strategies & how these impact management of the public sector

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  • Conservative & Labour fiscal strategies & how these impact management of the public sector
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The main recognized difference between public and private organisations is their ownership (Rainey et al 1976). The public sector ‘consists of governments and all publicly controlled or publicly funded agencies, enterprises, and other entities that deliver public programs, goods, or services’ (Dube & Danescu, 2011). Whereas ‘private firms are owned by entrepreneurs or shareholders, public agencies are owned collectively by members of political communities’ (Boyne 2002). The public and private sectors have shaped and impacted political manifestos both individually and cohesively.

Focusing on the various Conservative and Labour Parties who came to power over the last 70 years starting with Attlee in 1945 to Theresa May in 2017, I will examine their various fiscal strategies and how these have impacted the management of the public sector. Throughout the essay I will explore the diverging and converging views of the political parties, arguments for individualism versus collectivism and centralization versus decentralization.

Each party has very different views on how the state should be funded and its functionality. For example, right wing leaders such as the Conservatives and classic Liberals support a small state, low levels of taxation, regulation and public spending. On the other hand, left-wing leaders such as the Labour Party and Liberal Democrats favour a larger state, higher taxes, trade unions and higher spending of GDP.

Political Party influence on the management of the public sector

After World War 2, many thought Churchill would be re-elected, however Labour were voted in as Clement Attlee led the party to victory in 1945. Post-war austerity affected the state as people wanted to move away from the shadow of the war. Attlee’s socialist reforms policies focused on dealing with post-war Britain through Nationalisation and the Growth of the Welfare State. Nationalisation was introduced as industries struggled before and after the war and fear of industrial collapse was prominent. They were ‘ripe and over-ripe for public ownership in the direct service of the nation’ (Tookey & Edwards, 2000). Attlee’s manifesto of ‘Let us Face the Future’ involved economic replanning through nationalisation of fundamental industries such as fuel and power, railway, iron and steel. The Coal industry was nationalised in 1947 and Railways in 1948 which helped revive the damaged network infrastructure and generate a more structured and co-ordinated service. It was thought that Nationalisation would boost the economy by ‘ensuring that companies had sufficient investment and profits were passed onto consumers through lower prices’ and increasing productivity (Economist, 2015). However, nationalised industries were managed inefficiently as the government failed to implement objectives. Competing with other government departments such as health and education for investment resulted in a “prolonged period of under-investment in these industries” (Economics Online).

The second reform was the Growth of the Welfare State, this involved support for the citizens in terms of better access to ‘equal standards of health care, family income support, pensions, public housing and education’ (Scharpf & Schimdt, 2000). The NHS is regarded as the most extensive reform of the Attlee government that provided free treatment to the public and is mostly funded by taxation revenue. However, as the welfare state expanded, an increasing percentage of the population became heavily dependent on the state therefore increasing obdurate pressure for continuous government spending, which in turn burdened the public with increasingly high taxes. For the welfare state to remain sustainable it demanded an economy with the majority in market sector employment and high productivity. Both reform policies shaped the public sector as they led to the welfare state and nationalised industries that will be majorly debated throughout various governments.

Margaret Thatcher came to power in 1979 and represented for many, laissez-faire economics and individual self-determination (Steele, 2018). She believed in power of the market, utilizing it to restore the stagnant British economy and moving away from state provided services. In 1979, cuts resulted in reducing the standard rate of tax from 33% to 30%, the top rate from 83% to 60% and finally cutting public spending by 3% (Bolick, 1995). She reduced the amount of public spending, from 50% to 43%. Thatcher felt high taxes discouraged the incentive to work however, effects of tax cuts increased income inequality through as high earners saw ‘the top 10%- did far better, with their incomes increasing from the equivalent of £472.98 in 1979 to £694.83 in 1990’. The uneven distribution of wealth saw the poorest families receive the least. Reductions in public expenditure affected health, education and social services which created a knock-on effect with substantial loss of public sector jobs resulting in decreased spending on goods and services.

Privatisation became Thatcher’s most important and long-lasting legacy. She revealed in her memoirs that it was crucial for ‘reversing the corrosive and corrupting effects of socialism’ Parker. In the 1980-90s, due to fiscal pressures, Thatcher’s conservative views on private ownership and public discontent with the current regime saw the privatisation of public owned entities. For example, the sale of just ‘over 50% of shares in BT and the sale of British Energy in 1996’ (Berrington, 1998). Other privatised industries included electricity, gas, British steel, public bus transportation and other public services. As a result, workforces declined as ‘employment in the electricity and gas industries was cut in half’(Edwards, 2017), problems arose in the regulation of private monopolies to prevent abuse of power, however improved ‘economic growth and improved living standards as privatised businesses cut costs, increased service quality’ (Edwards, 2017).
Thatcher can be seen as the key instigator of the sweeping shift from traditional to ‘New Public Management’ initiated by public service reforms. NPM involved the adoption of private sector management ideas to improve structures and processes in the public sector. Thatcher who led the 1980s ‘New Right’ administrations, that put a ‘shrinking government and reduced taxation on the agenda’ (Ferlie, 2017). Thatcher also wanted to remove ‘inefficiency in the state bureaucracy and the deprivilege of the civil service’ as she concluded that the public sector was ‘wasteful, overbureaucratic and underperforming’ (Ferlie et al., 1996). Thatcher wanted to identify areas of waste and inefficiency in the government and ‘improve service quality and customer-orientated service’ (Pollitt, 1996) whilst reducing costs. This led to the founding of the Efficiency unit in 1979.

The Efficiency Unit was designed to examine specific areas of government work such as the Civil Service in order to provide solutions to identified problems, discover ways to save money, improve effectiveness and make better informed decisions. ‘At the end of 1984 had identified potential savings of £600 million a year’ (Efficiency Unit, 1985 cited by Sözen, 2002). The Efficiency unit represented the beginning of ‘broader changes in the public sector management…and accountability’ (Gray and Jenkins, 1986).

In 1982, the Financial Management Initiative was introduced and designed to complement the Efficiency Unit. It was a ‘large-scale review of departmental systems of managerial responsibility, financial accounting and control’ (Panchamia, N., and P. Thomas. 2014) aimed to radically change the style of management to create clear objectives and short-term targets for managers whilst exerting ‘greater control over the civil service’ (Walsh, 1995). However, it was later discovered that the initiative didn’t deliver on the promised changes. New Public Management reforms altered the management and processes within the public sector by creating new ways of doing things.

In 1990, John Major became Thatcher’s successor. Major’s management style was different to Thatcher as he operated an inclusive Cabinet and attempted to bring people together, through the Northern Ireland Peace Process. In 1991, The Citizens Charter was founded, aimed to ‘achieve better quality in the provision of public services and to make them more responsive to public demands’ (Coombs and Jenkins 2002). This Charter was applied to a variety of fields including railways, schools and the NHS in terms of waiting times and appointments.
In 1997, The New Labour led by Tony Blair alongside colleagues Gordon Brown and Peter Mandelson came to power for 10 years. In the past, the Labour Party was criticised for over-spending, but had now ‘modernised’ their traditional social democratic policies by distancing themselves from trade unions, public ownership, high taxation and become more business orientated. The Party reduced poverty through welfare expansion, introduced the national minimum wage, tax credits and the devolution of Wales, Scotland and NI. However, their promise to reform the public sector had proven more problematic to implement than anticipated. Blair controversially used Public Private Partnerships which utilised private companies to deliver improvements to the public sector. “Where private sector providers can support public endeavour, we should use them”(labour election manifesto). The largest failure of using the PPPs was the modernisation of the London Underground. The problems started with ‘significant delays and cost overruns, accompanied a deteriorating working relationship between the public and private sectors’ (Hallikeri, 2012). This failure had significant costs for the shareholders, damaged the reputation of companies involved and risked additional costing falling on the passengers and taxpayers.

In 2010, the General Election saw a Conservative-Liberal Democrat coalition headed by David Cameron who faced a tough fiscal climate. The most prominent issue they needed to address was the country’s debts. To reduce the deficit, public spending was cut rather than increasing taxes. Areas such as NHS, schools and pensions were protected from major cuts. These large-scale reforms were designed to ‘reduce the size of the State, stimulate private and voluntary provision and increase personal responsibility’. Other policies promised were the re-structuring of welfare, taxation and education, pension reforms, reducing eligibility for services and benefits and devolution of power. These promises failed as the highest taxation was not placed on ‘those with the broadest shoulders’ but instead saw the poorest twentieth of the population lose 3% of their incomes (Wintour, 2015). ‘Unprotected’ services such as adult social care was cut despite an ageing population. Lower income families saw reduced benefits, while higher income households saw tax reductions.

Most recently, in 2015 the Conservatives unexpectedly won a majority which saw David Cameron remain as Prime Minister. However, a referendum was held on the UK membership of the European Union. Cameron was keen to remain part of the membership, however, following the vote to leave, he resigned, and his successor was Theresa May. Her leadership started in July 2016 and has been dominated by the Brexit discussions. In 2018, she lifted the 1% public sector pay cap, which allowed selected public sector employees to receive pay rises of up to 2.6%. However, there are concerns as to whether departments can afford to cover salary increases as according to Shaheen (as cited in Merrick, 2009), “lifting the public sector pay cap either means further job losses or cutting public services, an impossible and unfair choice”

Political party differences

The Conservatives first set out a policy to privatise nationalised industries. This involved the use of private companies providing services within public entities such as the NHS. The Labour government also shared this view and continued the privatisation of the Rail service and use of Private Finance Initiatives to fund schools and hospital buildings.

However, each political party had diverging views on poverty. Due to the Conservative’s views on economic stability and individualism, they don’t view reducing poverty as a central aim. Under the Conservative government from 1979-1997 there were no declarations that poverty even existed. They claimed to be concerned for the welfare of each citizen, however, they failed to implement any plans for the delivery of services to those under the poverty line.

The Labour government had dissimilar views on poverty, demonstrated by their implementation of various anti-poverty strategies, including work to reduce the incidence and severity of child poverty by introducing minimum wage, working family tax credits and Sure Start.
‘Higher education in England has changed between 2010 and 2015 to a greater extent than in any other comparable time period’ (Temple,2015). In 2010, Liberal Democrats voted for the Students’ promise which read ‘I pledge to vote against any increase in the fees in the next parliament and to put pressure on the government to introduce a fairer alternative.’ (Fisher and Hillman, 2014). As the abolition of fees was central to their manifesto it enabled them to win a large proportion of the student vote. This followed in the footsteps of the Scottish Nationalist Party and later by Plaid Cymru. However, the Liberal Democrats were unsuccessful in negotiations on the policy and therefore it was abandoned. ‘On tuition fees we should seek agreement on part time students and leave the rest. We will have clear yellow water with the other [parties] on raising the tuition fee cap, so let us not cause ourselves more headaches’ (Watt, 2010). This approach was introduced by Tony Blair with the implementation of the Higher Education Act in 2004, making provisions for higher fees and consequently increased levels of student debt.

The Coalition government reduced ‘public spending on University teaching from 2010- 2015 by £3 billion a year and enabled tuition fee income to rise from £2.6 billion to £8.1 billion’ (Hillman, 2016). They tripled tuition fees to £9,000 per year. Each party had very contrasting perspectives on the higher education fees; Conservatives and Labour were in favour of funding through fees as opposed to Plaid Cymru, Liberal Democrats and the Scottish Nationalists. There is a view that the period of higher education turmoil was described as more of an evolution rather than a revolution (Hillman, 2016).

Another difference between the Conservative and Labour parties is their Manifestos which we can view prior to the 2017 election. The Conservative party promised to build 1 million homes by the end of 2020, and an extra 500,000 by the end of 2022. Whereas the Labour government promised to build 1 million homes, including 100,000 council and housing association homes a year over the next five years. Another area of divergence is Health and Social Care; the Conservatives promised to increase NHS spending by a minimum of £8bn over next 5 years whereas the Labour government pledged an extra £30bn in extra funding over the next parliament. The last disparity is regarding tax. Labour set out to increase tax from 19 to 26%, whereas the Conservatives plan to cut tax from 19 to 17% by 2020. As we can see there are major differences in each government, the Labour party increase public spending to areas such as Health, Education, which in turn increases taxes. The Conservatives however prefer a smaller welfare state, lower public spending and lower taxes.

Individualist vs Collectivist state

‘People are born into tightly knit in-groups that protect them in exchange for unquestioning loyalty’ (Hofstede 2010).

This collectivist approach is underpinned by solving problems such as healthcare through state intervention. Corbyn has adopted the view of collectivism and has opted for a pro-nationalisation shift away from centre- ground leaders, such as Blair. He introduced the ‘Third Way’ policy, incorporating an individualist approach by adopting PPPs. Corbyn moved more towards the left and implemented the views of Attlee in regard to high taxes and public spending. As he stated in the 2017 Labour manifesto about the abolition of tuition fees, ‘a policy that will cost £9.5bn’ (Kentish and Peck, 2017), ending NHS cuts and reducing waiting lists by increasing funding in the region of £6bn per year. Corbyn also stated the desire for re-nationalisation of industries such as the rail services, costing over £200bn. However, Corbyn has failed to identify any solutions of payment or how they would make improvements to these reforms. This raises the question of the pragmatism of Corbyn’s policies?

Individualism is a society where ties between individuals are loose and everyone is expected to look after themselves and their immediate family. They also believe in low taxation, self-reliance and hard work and ‘everything should be provided through the market or non-state collective actions’ (Flynn, 2007). Those who support this approach are Thatcher and Cameron. Thatcher famously said there was ‘no such thing as society’ meaning individuals had to take care of themselves and it was futile to blame society for one’s problem. Nevertheless, collectivists challenge this issue through providing benefits, housing and education through the state. The individualists believe this creates a dependency culture or ‘Nanny state.’ David Cameron followed Thatcher’s attitude, however cleverly re-branded to distance himself by saying, ‘there is such a thing as society, it’s just not the same thing as the state.’ David Cameron’s ‘Big Society’ aimed to heal Britain with greater individual responsibility and the use of the voluntary sector to operate housing projects and youth groups.

Decentralise vs Centralised State

Decentralisation is the ‘transfer of authority and power in planning, management and decision making from higher to lower levels of organizational control’ (Saltman et al, 2003). The Coalition government favoured decentralisation by claiming a ‘radical shift of power from the centre to citizens and communities’ (Clegg, 2010) under the Localism Bill that aims to rebalance the shift of power whilst ‘enabling places to tailor approaches to local circumstances’ (Tomaney et al., 2011).

An over-centralised London would benefit from some degree on decentralisation to assist in ‘breaking the problematic link between the politics and government of the UK and the politics and government of London’ (Oliver, 2004). Theresa May stated in her 2017 manifesto to ‘move civil servants out of London’ promising to reorganise economy away from the centre. Successive governments over the last 70 years have sought to change this through the likes of devolution to Scotland, Wales, and NI, and the various city deals. In the 2018 Budget, Northern Ireland has received £350 million for a city deal to assist in further decentralisation to the city and provide an “opportunity to accelerate economic growth, create record levels of new jobs and transform our local communities.” (Nigel Dodds as cited b)

The increased need for decentralization of power of the UK’s nations and regions came from the overwhelming support for the Scottish Referendum. For successful decentralization it involves widespread support, accountability, responsibility and meaningful transfers of power that is understood by the public. Decentralization comes with risks due to the resistance by national government lacking faith in the capability of local government, accountability if failure occurs and struggles within the local government. Resistance from the public is another risk as some members of the public are ‘apathetic to local reforms and sceptical about more powers to politicians, even locally’2.

“The UK is one of the most centralised countries of its size in the world” (Tom Gash, as cited by Sharman, 2014).

A centralised government comes with benefits such as cost savings due to reduction of duplication within the administration, easier and faster to implement reforms due to concentration of decision making power and reduced discrepancies between different regions. For example, the NHS Plan can be perceived to be a ‘centralising policy statement’. There will always be a need for some degree of centralisation in order for the country to operate. However, the Labour party stated in their manifesto that ‘centralisation of power only helps the powerful.’ They want to break from the ’suffocating British government’ and the ‘conservatives that threaten the stability of the UK’ (Labour, 2001).
Overall, the debate for a more decentralized government is ongoing as it is pushing back against hundreds of years of a more centralised approach that was very much focused on London.

In conclusion, the management of the public sector has undergone significant reform since the 1950s due to the ever-changing political economy. Over the last 70 years, many successive governments have evolved from the traditional Labour Party of Attlee, through Margaret Thatcher, John Major to the modernized New Labour Party of Tony Blair, David Cameron to recently the Conservative Party of Theresa May. New policies have been introduced that have affected the public sector such as the constant fluctuation of public expenditure and taxation, introduction of nationalization and privatization, New Performance Management and various other policies. Each policy impacts the public and private sector management, government pressures, inequality, efficiency of government departments and implications of cost cutting in the NHS.

Each reform reflects the difference in principles and opinions of each political Party for example, The Labour Party supported reduction in poverty, higher public spending on health, education and housing which supports a socialist, collectivist view. Whereas the Conservatives favoured low taxation, reduced public spending and individualism which supports the believe of self-reliance and individual responsibility.
The degree to which the state should be centralized or decentralized is a topical issue as this impacts the variances in institutions and policies in each of the countries of the UK. London has become extensively centralized over the past hundred years and still remains to some degree as it is required in order for the country to function. However, governments such as the Coalition have supported the theory of decentralization, pushing back against hundreds of years of a more centralised approach that was very much focused on London. Decentralisation has commenced in NI, Scotland and Wales through devolution and is an ongoing policy as the 2018 budget, has supplied various city deals to Northern Ireland supporting the need for a more decentralized economy.

11.11.2018

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