Oct 08 2007
Loads of money - background to the Spending Review
One of the absurd consequences of Labour’s domination of the debate on the virtue of more public spending is the idea that reductions in cost are "cuts" in services. Yesterday I drew attention to the stupidity of a debate which concentrates on getting the total costs of the public sector up each year, and presents this as a caring triumph. Today we need to look a little more at the consequences.
If the Health Service started to take the government’s apparent concern about burning too much fuel seriously it could doubtless make a substantial reduction in its fuel bill. Offices and other facilities could be better insulated, better heating and air conditioning controls could be introduced, average temperatures could be set at more economical levels (with due regard to patient safety and comfort in wards), the vehicle fleet could be made more fuel efficient as vehicles became due for renewal. Let us supppose this was done and after a couple of years fuel use was down by 10%. If there were no other changes in the NHS budget at the two year stage spending would be lower by 10% of the fuel bill.
In Labour’s world this would be a cut - as they wrongly say a "cut in investment" in the Health Service.
Conversely, if several hospital trusts get into trouble with the media response to their "reconfigurations" of services, and decide to employ additional Spin doctors, and to spend money on media consultant contracts to help them present the closure of facilities as modernisation, this increases the amount the NHS spends. This is called by Labour "investment" in health.
Unfortunately the Conservatives in the last election were driven off the pursuit of waste, by Labour’s insistence that all public spending was good and more public spending is always better. I understand the polling background to the then Conservative position, but we now have time to develop a more sensible argument.
The argument should be:
1. There is massive waste in Labour’s public sector. They have built a huge bureaucracy, with a much expanded central civil service, many more and larger quangoes, more central targets and regulations, and many more spin doctors, consultancy contracts, bogus and genuine consultations, and poor direction of the large increase in spending on their watch.
2. The public sector in general has a long way to go to reach best private sector standards of labour productivity, fuel efficiency,quality and streamlining of process.
3. Instead of presenting a string of large and largely meaningless figures for spending each year on each department, the oral presentation should concentrate on telling us what service levels we are going to get for all the money, and what steps are being taken to spend the bulk of the money wisely.
The government concentrates on small sums of money (by public sector standards) which are called "new money", and suggests that magic powers will be afforded to the small additions at the margin that are not possessed by the large base budgets to which they are being added. This is nearly always the triumph of hope over experience.
The whole idea of "new money" is an odd one. All the money to be spent next year on Health is "new money" in the sense that that money has not yet been taken from taxpayers and has not yet been spent. Many politicians play a politicians game, in which "new" money is money that has not yet been announced or earmarked as money they intend to raise and pay in a certain way. They seem to think only new money counts.
Each year in a competitive business in the private sector good managements review total budgets and ask about each item of spending "Is this necessary?", "Can we spend this more wisely?", "How can we do more and better for less?".
In the public sector the institution starts from last year’s cost base. It then adds an amount for inflation to last year’s costs, and may also add something for "growth" to last year’s costs. It then presents this demand as the new base. If the Treasury suggests offering less than this inflated figure, then the Treasury is said to be "cutting" the budget or even said to be "cutting" spending. They are told normal services cannot be delievered. The war of the bleeding stumps begins, with both sides misleading the public about what is really happening. The Treasury claims it is being tough, when we all know spending will still go up (this time by around 4-5% in cash terms), whilst the other side portrays a series of horrendous service reductions they will have to make if they only get a 4% increase.
The public deserves better. We learn today of the growing squeeze on personal incomes thanks to stealth taxes and other taxes. It is high time the new Treasury team changed the language of debate, and shone some brighter lights into the wasteful corners of their massive public spending. Why not start with a staff freeze on the main bureaucracy of the civil service and the quangoes? Then follow that up with a target to halve the number of media handlers (last counted at 3259 press officers) to show they mean what they say when they say they want a more honest politics geared around debate in Parliament?
John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College...
I find it incredible that the Conservatives are going to stick to Gordon Brown’s spending plans if/when they return to government. Surely if we scrap government targets, which David Cameron has already committed himself to, we can cut bureaucracy and save huge amounts of money - thereby reducing public spending and hopefully reducing our borrowing requirement.
http://lettersfromatory.wordpress.com
[Reply]
What happened to all the efficiency savings recommended to Brown in the Gershon Report? There seems never to be any meaningful follow up and evaluation of these “initiatives” in government - its easier spending other people’s money! Given the events of recent days and the success of the Conservatives’ tax announcements at the conference, now must be a good time to drive home your arguments for insisting on value for the tax payers’ money. You know what Labour’s retaliation will be but they are on shifting sand and your case, if correctly presented, is unarguable.
[Reply]
Fine article exposing Labour’s economic sophistry. I always feel I learn something when I come to this website. Labour ministers would do well to pay a daily visit to the diary too.
Reply: Thanks. The lack of value is so great now do hope someone is reading and listening from the government. After all they are going to need some savings to pay for the Inheritance tax cuts we have made so popular!
[Reply]
Unfortunately, the media (mainly the bbc) are four square behind nulabour and rig every discussion to undermine any sensible suggestions from Conservatives, as I think you know to your cost. This means we have to keep our head down until we gain power.
[Reply]
One option to make NHS spending something that could be sensibly debated would be to hypothecate (ok ringfence) NHS spending. According to the last figures it was
[Reply]
The reversal of this way of thinking is going to be the biggest problem the Tories will have to face. (Turning round and ocean going liner) but worse still as lots of big and small fiefdoms have been created these last 10 years and breaking into that pattern and way of thought is a massive task as it’s not just financial it’s ‘personal’ too.
I hope the party is ready for it and fully realises what they will be up against.
[Reply]
What a refreshing view on an old subject.
Unfortunately, the whole ‘new money’ thing just helps to support the misconception that it isn’t ever possible to deliver improvements without additional funds. It’s not helped by the inevitable arguments between the parties as to whether or not the money in question is really ‘new’ or not. As you say, what is needed is an injection of the sort of thinking that’s standard throughout any successful business in the private sector.
Like ‘Letters from a Tory’ I find it difficult to understand why, when re-elected, a Conservative Chancellor will stick to Labour’s spending plans. We’re effectively saying we’ll continue to chuck money onto the bonfire even when we’re in office!
In my view, all that does is further reinforce the message that it’s the *sum* of money that matters, as opposed to *how* it’s used. I can understand that there’s a need to provide financial stability during the transition period between governments, but is there no other way to achieve that without undermining our own message? Shouldn’t the focus be on assurances about maintaining or improving the ‘deliverables’, rather than just keeping the cash supply lines running?
Reply: Yes of course - guarantee service levels not cost.
[Reply]
It seems to me that Mr Brown is modelling his public sector on the Starlinist model of the former USSR.
Overmanning in administration posts, too many pointless monitoring process, too many frontline professionals weighed down with endless paper work to provide more statistics and we all know about statistics, the list is endless. I have heard that in some northern towns, more than half of the population work for the civil service. Is this true John?
Mrs Thatcher spent much of her time as PM cutting down on quangos and waste and as usual, the Labour government have reintroduced them and more.
Perhaps we need a campaign by our party to high light just how much these quangos etc are costing each and everyone of us each year. Combine these figures with the continued cost of being part of the EUSSR (
[Reply]
I have never understood the argument that incontinent spending of public money somehow delivers better services and is a laudable attribute for a chancellor. By that token we might as well have had Viv Nicholson at the Treasury for the last ten years.
I don’t have any particularly great ideas, but we seem to need some killer facts to jolt the electorate out of its current New Labour induced stupor. Something like all the money spent on quangos is enough to subscribe the whole country to BUPA (I don’t know if any study like this has ever been carried out).
I do have real concerns that at some point in the future people will wake up to just how much of the money they earn supports central and local government incompetence. I’m worried that Labour have discredited the government’s ability to manage the delivery of services and increasingly people will pay private firms to do so. If it gets to the point where people are paying for their own education, health-care, rubbish collection and more, they may question whether they actually require government for the delivery of any service at all.
Despite being a conservative and a businessman I don’t believe that private firms can deliver all services, only where a value versus service compact is satisfied and there’s no inherent threat to national security in doing so.
Therefore against my anti-statist tendencies; I believe action needs to be taken to improve the value and standard of service government delivers before the majority demand a more pay-as-you-go approach and threaten to withhold taxes (as some pensioners have already at local level, which could gain further momentum). This would leave the government greatly emasculated and society much less cohesive as a result.
I’m hopeful that the next Conservative government (GB is now mortally wounded, I personally doubt he can recover) will resist this continued largesse with public money and ignore the squawking of certain newpapers and broadcasting corporations. Unfortunately the incumbents in government appear to buy the weekly shop with their own preferred currency of ‘hospital beds’, instead of pounds sterling, which has conveniently closed down debate.
[Reply]
John, you kindly posted my remarks at 11.44 on 8th. I have no wish to sound pedantic as I note that that you did not see fit to comment but I see this issue as absoutely vital.
The readiness for the party to take on the quangos and fiefdoms created by Labour with their cronies in well paid and often pensioned jobs.
This is what Margaret Thatcher did and it was was politically costly and bloody at times but those totally unneccessary bodies must just be closed down in many cases and reduced drastically in others - this will be no easy fight often with your own friends involved and unions and possible strikes etc. but there will have to be a Thatcher bloodbath markII if this waste is to be taken seriously in every possible sphere.
IF you are honest about it the public will be with you, mess around at the fringes and you will be seen as two-faced. Take it from me.
Reply: I did not comment but I agree we need to tackle these public sector excesses,a nd have often written about it.
[Reply]