Ideas for the UK: election economics week one

The first in our new series of election economics newsletters sets out the big policy ideas announced in the past week and adds evidence on the proposed measures to help you decide whether they are good ones. We also review election briefings from the major economic research institutions in the UK.

Mandatory national service

The Conservatives have pledged to re-introduce national service for 18-year-olds. Under the proposal, teenagers would participate in a year-long military commission or spend one weekend a month volunteering for public service organisations, such as the NHS or the fire service. The idea, Rishi Sunak has argued, would help young people to develop skills and instil a sense of public pride.

The UK phased out national service – which was only for men – in 1960. So we need new evidence to assess this policy, which is expected to cost around £2.5 billion a year. The UK has around 775,000 18-year-olds, which equates to around £32,000 per person.

Around £1.5 billion of the total cost will come from abolishing the UK shared prosperity scheme (UKSPF), a regional fund launched in 2022 and designed to replace lost European Union funding for UK regions and a core part of the ‘levelling-up’ agenda.

David Phillips of the Institute for Fiscal Studies (IFS) argues that this will mean cuts for localised growth projects. He assumes that the new money will be distributed based on headcount rather than measures of socio-economic disadvantage, warning that this could mean poorer areas see a real-terms funding squeeze.

Wales would be over £250 million worse off, and Cornwall – one of the UK’s poorest regions – would lose £72 million a year under the proposal, according to the IFS analysis. The North East and Tees Valley would also lose out. By contrast, the highly populated and relatively affluent South East would receive a substantial increase in net funding. The policy, according to David, seems at odds with a commitment to tackling regional inequality.

All policies come with costs and, in some countries, the benefits of national service are cherished. Across the OECD group of countries, there are 14 countries with some form of national service, and 18 countries in Europe.

Figure 1: National service in Europe

Source: various

One 2019 report by the Royal United Services Institute explains what happens in Denmark, Finland, Norway and Sweden, and argues that the competitive national service model could be used in the UK. The authors claim that this model is beneficial as it offers selective and prestigious opportunities, drawing from a broad talent pool, to enhance armed forces’ capabilities.

Other benefits associated with national service include skill development, employment opportunities, government subsidised education, discipline and work ethic. It is seen that the comprehensive training and structured environment of national service can provide both technical and soft skills that are valued by employers.

In the UK, around 54% of young people are employed, while 12% are not in education, employment or training, according to the latest labour market statistics.

A Center for Information and Research on Civic Learning and Engagement study argues that although young people should have multiple pathways for career success, national service can be seen as an opportunity to acquire skills and experience with positive effects on social, academic and economic spheres. But service experience does not significantly matter more for employers, though it can be a potential leverage for young people without college degrees.

While there may be benefits, the Swedish case offers a warning. National service in Sweden is a longstanding tradition, having been introduced in 1901. But a recent paper by Randi Hjalmarsson (University of Gothenburg) and Matthew Lindquist (Stockholm University) shows that military service resulted in crime rates increasing by 32% among young men. The system fails to ensure mixing of Swedes from all backgrounds, with those from already disadvantaged groups ‘pooled’ together. The Swedish case suggests such policies would need careful design.

A bigger police force

Labour have promised to increase policing in UK towns, and would hire 3,000 new officers and 4,000 new police community support officers (PCSOs). This would increase the number of officers by 1.8% and PCSOs by 52%. But, thus far, the party has not stated when this additional capacity will be in place.

The UK police force has ebbed and flowed. The number of police officers in the country peaked at 172,000 in 2010, but fell to a low of 150,000 between 2017 and 2019. Figures have since risen to 171,000 in 2023.

These numbers do not include PCSOs – a role introduced in 2002 as part of the Police Reform Act. Numbers of PCSOs peaked at nearly 17,000 in 2010, but have more than halved since, down to 7,900. After adjusting for population, police numbers are yet to recover to levels seen in the 2000s (see Figure 2).

International comparisons suggest that the UK police force is middle-of-the-pack. Of the world’s largest economies (by population), Iran has the most police oversight, at almost 800 per 100,000 people. At the other end of the scale, India has just 145 police officers per 100,000 inhabitants. England and Wales have 227, which is close to Japan (255) and Canada (184).

Figure 2: Police officers, England and Wales, 2003-23

Source: Home Office, Office for National Statistics (ONS)

Police tend to be relatively costly. The wage of the median officer (sergeant and below) in 2023 was £44,830, which is 28% above the median for the UK as a whole. This is despite a near 20% fall in real wages between 2000 and 2024. By way of comparison, band six nurses (more senior and specialist nurses) earn between £33,706 and £40,588 per year.

More police tend to reduce crime. A 2016 Cambridge study of PCSO foot patrols found that proactively targeting crime hotspots netted a five-to-one return on investment by preventing future prison costs.

A final factor to consider is that policing is a devolved policy. The UK has 43 territorial police services, ranging in size from the massive Metropolitan force (34,900 officers) to the tiny Warwickshire force (1,100 officers).

But as Tom Kirchmaier (Centre for Economic Performance, CEP, at the London School of Economics) points out, an increase in policing necessitates additional resources for the entire justice system, and may not be a silver bullet. He argues that:

‘There are a large number of issues with policing, but very few are related to officer or PCSO numbers. Everyone likes to see a bobby on the beat, but police officers are only effective if they are directed well, and their actions are targeted. We also expect an efficient processing of any crime so that the criminal justice system can work.

The long spell of austerity in policing has meant that back-office functions have been depleted. This was because police staff were the only ones who could be made redundant as police officers are Crown employees. As a result, back-office functions were reduced to the bare minimum, with police staff being replaced by officers. These officers were then both missing out on the front line, and often ill-equipped to do administrative work. In short, before we talk about hiring new officers, we should talk about rebuilding healthy organisations.

With it comes the issue of police funding. The current funding formula is inherently unfair and needs urgent attention. The size of police forces is also very unequal, with many being very small and some very large. Rationalising the 43 forces into, maybe, half that number should also be a high priority.’

Tom is one of the many UK experts on standby to talk to journalists about policy ideas. If you work in the media and would like access to our media list, please contact Ashley (ashley.lait@bristol.ac.uk).   

Shorter NHS waiting lists

Labour has also said that it will hit an 18-week waiting list within five years. As of March this year, the waiting list stood at 7.54 million cases, made up of around 6.29 million individuals waiting for treatment. Of these, close to 3.23 million patients have been waiting for longer than 18 weeks, and 309,000 for over a year.

Figure 3: Waiting times for consultant-led elective care

Source: British Medical Association analysis of NHS data

Wait times at accident and emergency remain high – with just under three-quarters of visitors seen within four hours in April this year, below the 78% target. Cancer patients receiving their first treatment within one month from a decision to treat sat at 91% in March, falling under the 96% operational standard.

For common procedures – such as cataract, hip or knee operations – waiting times in the UK were comparable with many other countries before the Covid-19 pandemic, according to a 2023 King’s Fund report, but they have ‘deteriorated sharply since’. The pandemic also meant that 32% of older people in the UK with long-term conditions missed or delayed care – figures were the same in the Netherlands (32%) but lower in France (22%), Sweden (18%) and Germany (11%).

What’s more, as the British Medical Association highlights, this is just the visible backlog. Its ‘hidden’ counterpart includes those in need of care who have not yet been to a healthcare provider, individuals waiting for non-consultant-led treatment or patients waiting for follow-up appointments.

Shadow health secretary, Wes Streeting, argued that under a Labour government, the NHS will be empowered to make use of spare capacity in the private health system, while remaining free at the point of use.

This founding principle of our health service does not come cheap. The Department of Health and Social Care’s spending in 2022/23 was £181.7 billion – 94.6% of which went on day-to-day costs including salaries and medicine. The remainder is spent on buildings and equipment, such as new MRI machines or CT scanners. This makes international comparisons complicated as these longer-term fixed assets are not always classified as healthcare spending elsewhere.

Nevertheless, OECD data can provide some insights, particularly around spending per capita and as a proportion of GDP. The UK spent 11.3% of GDP on healthcare in 2022, according to the latest estimates. This figure is above that of our closest neighbour, Ireland (6.1%), and above the OECD average of 9.2%, but sits below those of the United States (16.6%), Germany (12.7%) and France (12.1%).

The UK spends $5,493 on healthcare per person, $4,479 of which is government money. This is broadly comparable to spending in Finland, Iceland, Japan and New Zealand, but short of a number of European neighbours including France ($6,630), Austria ($7,275) and Germany ($8,01) and far below the United States (at over $12,000 per person).

Figure 4: Health spending per capita, US dollars

Source: OECD, data for 2022 or latest available

Pensions

Turning back to Conservative proposals, the party has pledged a boost to pensions. They have stated that if re-elected, they will raise the tax-free pension allowance and strengthen the current ‘Triple Lock’ system.

This protects UK retirees by ensuring that the state pension – currently £221.20 a week for those who reached state pension age after April 2016 – rises each year in line with whichever of the following measures is highest: inflation (measured by the consumer price index) in September of the preceding year, the average increase in wages across the UK, or 2.5%.

Under the proposed upgrades, the state pension would also be kept below the tax-free threshold, meaning that retired people would never pay income tax on their basic pension. Indeed, within the next three to four years, the flat-rate state pension may ‘start to exceed the personal allowance’ for the first time, as pointed out by Jonathan Cribb, Carl Emmerson and Paul Johnson at the IFS.

These kinds of protections are costly. The Conservative Party claims that it will cost £2.4 billion per year through to 2029/30. But, as the IFS report highlights, around half of this comes from cancelling planned tax increases for pensioners. The authors equate it to ‘taking £100 off someone, giving them £200, and expecting them to think they are £200 better off’.

Water companies

There is no doubt that the UK’s water companies are failing. In England, sewage spills have surged. South West Water alone spilled sewage into rivers and waterways for 530,000 hours last year, up 83% from 2022. Indeed, water contaminated with cryptosporidiosis, a water-borne disease, led to residents in South Devon having to boil their water to ensure it was safe to drink.

In Wales, the not-for-profit water provider, Welsh Water, has admitted to releasing untreated sewage for years. In the capital, Thames Water – the UK’s largest provider – is on the edge of collapse and hundreds of households have been warned that their tap water is not safe to drink.

The Liberal Democrats have pledged a three-pronged attack here. First, they will restructure water firms into public benefit companies, a structure modelled on US public benefit corporations. Examples of these include Ben and Jerry’s, Patagonia and Danone.

This would not mean renationalisation. The companies would not be government owned and would be allowed to make a ‘reasonable profit’, but they would have a codified legal duty to the environment. The timetable for these changes is unclear but a doomed private members’ bill, introduced by Tim Farron, makes it clear that they would start with Thames Water.

Second, they would abolish Ofwat. The industry’s regulatory body was established in 1989 but has been criticised for weak oversight in recent years, failing to hold companies accountable or to constrain profits and dividends. Instead, the Liberal Democrats have pledged to replace it with a more powerful regulator.

Finally, they would ban chief executives’ bonuses – which the party says have totalled over £50 million since the last election – until the sewage crisis is tackled.

The extent of water privatisation in England and Wales is unusual. In much of Europe, water is supplied through public-private partnerships, where firms are contracted to handle operations, but ownership of the infrastructure remains public.

In France, for example, water supply is dominated by a few firms that operate water services under ‘affermage’ contracts with municipalities – though there have been movements away from privatisation, such as the remunicipalisation of Paris’ supply in 2010. On the other hand, Chile is a rare example of a country with a more privatised water supply, something that was enshrined in the 1980 constitution.

Water supply in the UK is a devolved issue. In Wales, Welsh Water has operated as a not-for-profit company since 2001, with surpluses re-invested and not paid out as dividends. Yet, Welsh Water has suffered the same issues as its for-profit English counterparts, and in March, was ordered to pay £40 million for misleading customers and Ofwat over its failure to report leakages.

In Scotland, water services remain publicly owned under a single statutory corporation, Scottish Water. Uniquely, in Northern Ireland, households are not billed for water, and its government-owned supplier, Northern Ireland Water, is funded through general taxation.

Policies in brief

• No rise in value-added tax (VAT). All three main parties have announced that they have ruled out raising VAT during the next political cycle.
• Taxing tech to help teenagers. The Liberal Democrats have called for higher taxes on big technology companies to fund mental health services for children.

New reports

The National Institute of Economic and Social Research (NIESR) posted three new election briefings this week:

• Public finances and tax options. This report by Ed Cornforth examines the state of UK public finances, exploring risks to the government’s fiscal position and what they entail for the wider economy. He assesses various policies to improve the country’s fiscal position, focusing on the impact on economic growth, productivity and disposable incomes. Given current tax and spending plans, Ed finds that the debt-to-GDP ratio (currently at about 98%) will decrease slightly over the next five years, while the deficit-to-GDP ratio will fall (from 5% now to about 3% by 2029/30). Crucially, Ed notes that the incoming government must either raise taxes or cut spending to meet the existing fiscal rules.
• Living standards. This briefing by Arnab Bhattacharjee, Adrian Pabst (one of our lead editors) and Robyn Smith examines the evolution of living standards since the 2019 general election. They have fallen by an average of 7% since Britons last went to the polls. This has hit the bottom half of the income distribution hardest: for the poorest 10% of households, living standards are down by around a fifth, equating to an income shortfall of £4,600 in current terms since 2019. Looking forward, the authors predict that, under current trends, the living standards of households in the bottom 40% of the population (earning up to about £34,000 per year) will not return to pre-pandemic levels before April 2028. Targeted support (such as the uplift in universal credit and the rise in the minimum wage) could help the poorest in the short term, but policies to promote growth and productivity are vital for longer-term prosperity.
• Macroeconomic context. Ben Caswell provides a useful overview of the state of the UK economy since 2019, highlighting the need for supply-side reforms and a new fiscal framework with a focus on economic growth and better living standards. Over the past five years, the UK economy has been marred by weak growth and stagnant productivity (both by historical and international standards). In the short run, any recovery to either metric is likely to be modest, rising to around 1% per year for the rest of the decade. Ben argues that raising public investment in key areas like healthcare, infrastructure and housing, as well as unlocking greater business investment, will be critical for reviving the UK economy. He also notes that ‘integrating public sector net worth as a fiscal target’ can help incentivise higher government investment. This, in turn, will improve the UK’s growth prospects – for the next parliament and beyond.

Economics Observatory articles

There is more on many of the issues and ideas above on the ECO website and we will be adding more in the coming weeks.

• Tax and growth. Ed Cornforth (NIESR) looks at which taxes are most effective for boosting economic growth.
• Understanding fiscal rules. Andy King (Flint Global) explains the role of fiscal rules and how they’ve worked in the UK.
• Reforming fiscal rules. Another new article by Ben Caswell (NIESR) looks at the potential for reforming the UK’s fiscal rules.
• Crime trends. Tom Kirchmaier and Carmen Villa-Llera (both CEP) explore how the pandemic affected the rate, and types, of crimes committed in the UK.
• Health woes. Max Warner (IFS) discusses how the NHS is performing and why recent developments make short-term solutions unlikely.
• Pension age. Edmund Cannon and Ian Tonks (both University of Bristol) address the impact of ageing populations on state pensions.

Events

• Devolution at 25: Productivity and Skills - 21 June, Queen’s University Belfast. Across two panels, speakers, including academic experts and economy representatives from each of the political parties in Northern Ireland, will discuss the role that skills can play in boosting productivity and how the Northern Irish economy can grow for the benefit of its citizens. Find out more and sign up here.

Chart of the week

This week’s #ChartOfTheWeek presents voter turnout data for every constituency at the 2019 general election.

Across the UK, voter turnout was 67.3%. Of the UK’s constituent nations, Scotland saw the highest turnout at 68.1%, and it was the only nation where turnout was higher than in 2017.

The highest turnout in the UK, at 80.3%, was found in Scotland’s most marginal constituency, East Dunbartonshire. At the other end of the spectrum, three of the four lowest constituency turnouts were in Hull, with less than half (49.3%) of registered voters in Kingston upon Hull East casting a vote.

Visit our Data Hub to explore and create your own charts.

Authors: Andrea Correa-Jimenez, Dénes Csala, Richard Davies, Josh Hellings, Ashley Lait, Finn McEvoy, Charlie Meyrick and Romesh Vaitilingam