We're doomed

I watched the first ever episode of Dad's Army recently. This opens with an "I'm Backing Britain" dinner, attended by the platoon in contemporary 1968, at which the keynote speaker is Alderman Mainwaring. He harks back to their finest hour, at which point we are transported to the defiant reality of 1940. Arthur Lowe's character was a dead ringer for his northern alderman in the film, O Lucky Man, a few years later. From prawn cocktail to chocolate sandwich.

The dinner also featured some characters who appeared to have hardly aged, such as Godfrey and Fraser, an inevitable problem when actors in their 60s were playing characters in the 1940s, who now had to appear as if they were still around in the late 1960s. The addition of an NHS hearing aid to Fraser seemed to be the solution. There was poignancy in the presence of Walker, as the actor James Beck died after 5 series of the comedy.

As Dad's Army was getting into its stride in the early 70s, the BBC produced Doomwatch, a sci-fi series in which a shadowy government science agency battled threats to humanity. I still remember the first episode, The Plastic Eaters, in which a plane crashes after the plastic controls melt. While Dad's Army played it for laughs, "we're all doomed, doomed I tell ye", Doomwatch was a more sober affair that combined Doctor Who-style entertainment and thought-provoking "what ifs" about ecological and technological trends.

On last night's Newsnight, they introduced a Doomwatch-style debate on "the bigger black hole" of future welfare spending. The wilful misuse of a scientific metaphor bore the hallmark of Allegra Stratton, Newsnight's current political editor and formerly of the Guardian. She has previous in the political abuse of science. In a piece last December she airbrushed McKinsey's lobbying for private sector access to NHS scientific data (asset stripping a public good) as a bona fide of the Tories earnest commitment to science. This led her to misinterpret Karl Popper’s theory of falsifiability as “ideas only remain true until they are falsified”. As we all know, there is a Nazi base on the dark side of the Moon.

The black hole of the title was defined by Stratton as "a void that sucks stuff in". As any fule kno, a black hole is an object whose mass is so great that nothing, even light, can escape its gravitational pull. It's metaphorical role is generally as a malign influence, irresistibly sucking us beyond the event horizon to our doom. This negative register can be heard in her explanation of the substantive issue: future welfare costs go "way up", while our "means to pay shrink". In reality, both costs and revenue are adjustable: there is no event horizon. We also have the advantage that welfare spending is well understood. A black hole by definition is mysterious, as no information can get out.

The basis for the doom was the OBR's Fiscal Sustainability Report, from July last year, which projected public expenditure and GDP for the next 50 years. This showed spending on health increasing from 7.4% of GDP to 9.8%, pensions from 5.5% to 7.9%, and social care from 1.2% to 2%. This will produce year-on-year deficits, leading to public sector net debt growing from 60% of GDP in 2011 to 107% by 2060. This is deemed to be unsustainable, though debt was over 230% at the end of WW2 and didn't fall below 100% until 1962. The difference now is we're on an upward trend, not a downward one.

The central assumption is "that spending on different public services is held constant as a share of GDP for people of particular ages" (FSR, pg 55). In other words, as older people use more services than younger ones (i.e. health, care and pensions), an ageing population will result in public sector demand increasing faster than general population growth, and thus tax revenues, all other things being equal. According to the OBR, in 2011 17% of the population were over 65. By 2061, that cohort will be 26%.

The other side of the OBR equation is weak revenue growth, only up from 38.4% to 39.3% of GDP over the next 50 years. To reinforce the scariness, Andrew Haldenby of the centre-right Reform think-tank talks of "the biggest challenge we have ever faced, which is our deficit". Methinks Alderman Manwairing might have something to say about that.

The OBR's assumptions about tax highlight a number of areas where technological and social change will reduce revenue, such as fuel efficiency and lower levels of smoking, but exclude the possibility of new revenue streams, i.e. tax on goods and activities that haven't been touched or invented yet (though they do note the need for government to find these). Their brief includes extrapolating current tax policies, but does not include opining on tax composition. For example, a point they make in passing is that one of the biggest areas of revenue growth over the period will be inheritance tax, because there will be many more old people with capital. They do not comment on additional taxes such as a mansion tax or a land value tax. This is unbalanced and highlights the key problem with the analysis, which is a variation on the classic Malthusian fallacy.

Thomas Malthus, writing in the early nineteenth century, believed that any rise in prosperity would lead to more children and thus more mouths to feed. This would then cancel out the rise in prosperity and lead to famine, which would in turn correct over-population. This is an example of a univariate model, in which one variable changes but all others are assumed to be constant. In the event, advances in agricultural productivity increased the carrying capacity, while the industrial revolution increased the demand for labour. What is important is not merely that other variables may have a positive and thus countervailing influence, but that the negative variable may trigger those other positive variables. Thus a growth in population was one of the drivers for the industrial revolution, as it created more customers as well as more labour.

A specific example of this fallacy was Allegra Stratton noting mournfully that "we'll all be drinking and smoking less", which means lower tax receipts. She failed to point out that this would also mean healthier lives (unless we all start sniffing glue instead), which would have a positive impact on health. The OBR's central scenario makes two key assumptions about health costs.

First, it assumes that health sector wage growth stays in line with productivity growth, which it estimates at 2% per annum. However, the report also includes a "worse case" scenario in which health sector wages increase by 3% per annum in real terms. This pushes the share of GDP spent on health up to 15% and causes the debt to GDP ratio to pass 200% by 2060. It is this "worse case" scenario that was presented by Newsnight.

Second, the OBR assumes the single biggest factor in the growth of health service demand is increased longevity. The report "assumes that projected increases in life expectancy will be spent in poor health – an expansion of morbidity" (op cit, pgs 77-78). The OBR includes a more optimistic scenario, assuming healthier lives and thus lower demand, that would see the debt to GDP ratio grow to only 90% by 2060.

The panel discussion that followed the "presentation" accepted most of the statements made at face value. In current BBC fashion, it sought balance (and unenlightening argument) by assuming the central debate was between Keynesian stimulus and Thatcherite privatisation. The antique nature of this was exemplified by their decision to wheel out Robert Skidelsky and Nigel Lawson. The fact that the BBC are only making a big deal about the report now, fully 7 months after publication, is no doubt due to their realisation that the Health and Social Care bill will now make it to statute. De facto NHS privatisation is now up for debate.

Paul Mason did slip in the point made by the OBR that if immigration were maintained at levels seen in recent years, that "would solve things for about a century", i.e. we'd see debt as a proportion of GDP stay around 60% (op cit, pg 76), but we'd have another demographic hump further down the road as today's immigrants join the elderly cohort. For some reason, this topic was not addressed by the panel.

In summing up, Mason noted that the future may be a conservatism that is either very small state or high tax, and a social democracy that promises only limited welfare. Stratton noted that modern Tories (her chums) and some Labour (curmudgeonly Charles Clarke to the fore) are unembarrassed about charging for services. The Tory choice is no choice at all, so the consensus across left and right will be less welfare, which means more charging and more private provision (both pseudo-state and independent of state). In other words, the same policy that we've had in weak and strong forms since the turn of the millennium.

I would draw three points from this.

First, the gloomy predictions are likely to be wrong, if only because almost all predictions beyond a couple of years are unreliable. Not only will shit happen (Nazis on the Moon), but there will be unexpected positive outcomes (we acquire their advanced technology). The OBR's brief means it cannot make any assumptions about anything that is not a direct extrapolation from current policy. This means its projections on future tax revenues are incomplete. A land value tax could radically alter the landscape at a stroke. It was noticeable that the only real discussion of new taxes in the programme centred on Andrew Haldenby advocating the imposition of VAT on food, a measure that would disproportionately hit the poor and undermine public health further. A tax on salt, like a minimum price for alcohol, would both raise revenue and lessen the burden on the NHS.

Second, the projected consequences of an ageing population are suspect. The reason why we are living longer is because we are becoming healthier. The OBR's decision to assume increased longevity and simultaneous increased morbidity looks plain weird. There is no reason to believe that we will each of us use more health services in the future, either proportionate to our lifespan or in absolute terms. You can only have one terminal illness. The improvement in diet, the reduction in air pollution, and the decline in smoking mean the yoof of today are already healthier than those born during the baby boom, let alone those born and raised in the hungry 20s and 30s (today's geriatrics).

An ageing population does require a change in the pension age (or an increase in pension saving rates), but it does not make state pensions "unaffordable" any more than it necessarily means the future old will spend more time in hospital or in care. We just have to adjust. A good start would be changing tax relief to encourage pension contributions by the less well off and abolishing relief altogether for the better off.

Third, the assumptions about health sector productivity are questionable. The belief that health sector wages will grow faster than productivity is based on the premise that the health sector is relatively labour-intensive. As most productivity gains come from capital investment, this means the sector tends to improve at a below average rate, while the pressure on wages seeks on-average increases. However, the past is not always a guide to the future. It is just as reasonable to anticipate future productivity gains coming through greater preventative care and more investment in technology, both of which could result in proportionately lower labour growth. It's worth noting that the one thing that will ensure excess headcount growth is privatisation, as that will add new managerial and commercial roles.

None of this is intended to imply that we don't face a challenge. Clearly we do, though this is just the nature of historical change. Every era must adjust. My concern is the way the debate is being framed along the lines of "we can't afford this", with the implication being that "this" is the NHS. The oleaginous Claire Perry prefaced her contribution on Newsnight with "I love the NHS", before she went on to claim that it was unsustainable. Presumably she's planning some tough love.

The Tories (and the well-off generally) have never really "got" the NHS because they fail to understand what non-Tories genuinely love about it. The value of the NHS at its introduction was not that it cured people, but that it gave them dignity in death. The poor could avoid a squalid death in the workhouse (or the council infirmaries in the inter-war years) and the lower middle class could avoid the penury that the doctor's bills brought when a family member died or a breadwinner was seriously ill.

It became hugely popular because of free dentures and glasses, and because of its maternity care during the baby boom. It was then appropriated by the middle classes, who have been a major factor in the demand for high quality "cures" and the resulting tension over expensive treatments. The modern love affair is more complicated, particularly as it has become a substitute for proper elderly care, but at heart there is the belief that the NHS removes worry. It's always there when you need it.

Captain Manwairing may have been pompous and his bolshy platoon borderline incompetent, but they were reliable and they got the job done. Those are very British values. As the great man says in his dinner speech, "the news was desperate, but our spirits were always high".