Wednesday, 8 July 2009

This, That and The Other: a recipe for cutting state spending

We are seeing some very interesting suggestions about how government spending can be reduced but far too many of them fail to address what I consider to be the central point. The position appears to be that three main factors must be catered for. First there are substantial additional costs to the Exchequer caused by increased benefit payments to those who lose their jobs. Secondly, the money the government has borrowed, is borrowing now and intends to borrow over the next few years must be repaid with interest. And, thirdly, tax revenues are being squeezed by reduced payments in income and corporation taxes as well as Stamp Duty. The other day we read that Treasury officials are preparing briefing papers in which reductions of up to 20% in government spending will be examined. The current government is slowly abandoning its absurd suggestion that spending can be maintained or even expanded beyond current, unaffordable, levels and the opposition are trying to find ways of cutting up to 10% from departmental budgets other than health, education and (I know not why) overseas aid.

This week appears to be Quango week, with both main parties suggesting how they will reduce the cost of committees that undertake tasks delegated by government. So far the approach adopted appears to have been to find cheaper ways of doing what Quangoes do now. There is the same chance of this delivering serious savings as I have of becoming the next Chief Rabbi, and I'd fail the medical. In the next few weeks and months we can expect the debate to move on to other administrative issues with all eyes being focussed on finding better ways to procure paperclips and increasing staff contributions to the tea, coffee and biscuit fund from 25p a day to 27p.

There is no escaping the fact that, if a job is to be done, it must be paid for. Anyone brave enough to take on the public sector unions might try to reduce costs by imposing the sort of wages freezes / wage cuts that many in the private sector must endure if their job is to have any long-term prospect of survival. Such measures could undoubtedly save a nice chunk of cash but it will be a drop in the bucket of overall expenditure. The size of the problem needs something far more radical. The real question is not how government can undertake its present tasks more cheaply, it is whether the country can afford to have the government undertaking all its present tasks. I think there is an easy way to answer this question, which is to see what the current government considered affordable in previous years.

At every budget since Gordon Brown departed from the previous government's spending targets, he announced that things were going jolly well and the country could now afford to spend money on things it could not afford before. Previously it could not afford an extra £X million for This, £Y million for That and £Z million for The Other. Because, and only because, the Treasury was receiving more cash could these sums be spent. Prior to receipt of the additional tax revenues This, That and The Other were not essential they were optional extras. For so long as the money was there (or, to be more exact, appeared to be there) This, That and The Other were affordable luxuries, now that the money isn't there they are non-affordable luxuries. All we have to do is go back through past budgets to see the items Gordon Brown himself identified as being newly affordable. Had they been essential all along they would have been paid for all along and other matters would not have been funded, as it is they were known not to be essential. They remain non-essential today.

It is not enough to look at budgets alone because they don't define exhaustively what government does, they concentrate on how much will be allocated to each area. It is also necessary to ask whether tasks undertaken by government now (a great many of which were not undertaken ten, twenty or fifty years ago) need to be undertaken at all. My hobby horse in this regard is the army of people employed to tell us what not to eat, drink and smoke but there are many more. Why are taxpayers subsidising the cost of staging ballets, playing music to paying audiences and making motion pictures? Why are they paying artists to ply their trade? Why does the government contribute to charities? Why does the government pay for expensive television advertisements for its policies? Why is the government involved in domestic marketing of milk, meat and potatoes? Why is the government spending our money subsidising trade associations rather than leaving it to those who seek to make a profit from trading in a particular product to pay for their own "professional" body? The list can go on and on.

Would ballet disappear from the UK in the absence of taxpayer subsidy? You can bet your pointe shoes it wouldn't. It would go out and find additional sponsors like any other branch of entertainment. Maybe fewer ballets would be staged, maybe more, no one knows, but the number staged would be the number that can be afforded without Mr & Mrs Ordinary who struggle to fund their weekly evening in the pub having to pay for them.

These are all activities which cost not just the money they hand out to third parties but also the on-going expense of the bureaucratic infrastructure necessary to decide who should be the lucky recipients. Inevitably there are also costs involved in following-up to see how the money has been spent. One consequence of deciding that all of these areas of expenditure, and many more, are unaffordable luxuries is that the Quangoes involved will go; but if we just look at the Quango without also addressing the involvement of government in the field at all we can never achieve more than a gentle trim of costs at the edges.

Some Quangoes are capable of being beneficial, such as those that advise on how to address special problems like the current spread of swine flu and those that advise on prospective changes in the civil or criminal law. In relation to these there is one very obvious way to reduce the cost; albeit one that is mere trimming. I have never understood why their members are paid out of taxes to attend meetings. Membership of an ostensibly authoritative national advisory body is a feather in the cap of every person invited to form the panel. They can (and often do) use their membership to further their own careers and/or to secure private-sector consultancy positions. I doubt that many, if any, of them would decline membership if fees for attending were discontinued, not least because the world of academe is highly competitive and Professor Previously-Snubbed would readily step in to fill the breach when Professor Superannuated throws a hissy fit. Cover their out of pocket expenses (receipts required for every penny please), bung them an OBE after five years' service, a CBE for a decade, a chance to kneel at Buckingham Palace in return for chairing the thing for two or more years and Robert is your parent's sibling. It would also reintroduce the concept of public service to membership of these bodies. If no one is prepared to serve without being paid a fee the response should be to ask why, not to offer money. The answer will, I suspect, be that membership carries no prestige because the committee is pointless; all the proof you need that it should simply be scrapped.

On the more general point, reducing the scope of governmental activity will require politicians to give-up powers they currently have. This will require a public mood for getting government out of various aspects of our lives. With any luck the combination of the increasingly unacceptable surveillance state, excessive pointless nannying and the need to cut costs severely will provide that atmosphere. Oh well, you can't stop a fat boy dreaming.


Anonymous said...

Gidday FB,
The government must (sooner or later) match the tax take. To avoid the chaos that comes from wholesale restructuring phase 1 is to cut the (bloated) pay of public servants. All above a threshold (with the exemption of front line health, Military, Police and Education) take a 20 percent pay cut. Lesser cuts for lower level bureaucrats. QED!

Anonymous said...

"Would ballet disappear from the UK in the absence of taxpayer subsidy? You can bet your pointe shoes it wouldn't. It would go out and find additional sponsors like any other branch of entertainment. Maybe fewer ballets would be staged, maybe more, no one knows, but the number staged would be the number that can be afforded without Mr & Mrs Ordinary who struggle to fund their weekly evening in the pub having to pay for them. "

Glyndebourne certainly manages to put on top opera without much public money (it gets money for touring performances).

And operas are frequently sell-outs and are stuffed full of wealthy people. There is a huge lie out there about providing art to the poor. I used to go and while there is no reason why car mechanics shouldn't like opera, the fact is that they don't go.

Chris said...


Anonymous(1) doesn't get it but you certainly do. The Government tries to do too much, should do far less and let us take responsibility for our own decisions.

Example 1: The LSC (about to be disbanded) provides up to £30/week to 16-18 year old to support their education. This cash is not spent on books; it's a bribe.

This largesse mostly achieves nothing. If pupils will only respond to a bribe then let their parents pay, not the taxpayer.

Example 2: The DTI (now the Dept. for Business, Innovation and Skills) provides grants to encourage research and development of pre-competitive technology.

Sadly, civil servants are not known for choosing the most promising ideas.

Instead of giving away our money to projects that satisfy the DTI's committee, why not encourage industry to spend its own cash by giving tax relief on such research instead.

Anonymous said...

Very good article, agree with everything you say.

Not being an expert in such matters I may be miles off but I suspect a lot of the public subsidy into the arts, using them as an example but this could be applied to anything, is things that would fail commercially but are 'edgy', 'innovative', 'cutting edge' and any other number of buzz words you can apply.

Putting on a month's run of Swan Lake or the Magic Flute I'd imagine would be a successful venture, an experimental dance troupe who use primaevel grunts and bass drums to assail our auditory senses less so but I wouldn't be surprised if option 2 was in the running for funding more than option 1.

Anonymous said...

I think the problem of excessive government spending needs to be tackled from the angle of improving the quality of spending, rather than just looking at the the number of dollars spent, if you can get better results for the same input voter pressure for greater spending will be reduced.

Government departments aren't inefficient because they're government departments, they're inefficient because they're monopolies.

There's a lot of voter reluctance to privatise government departments, but in theory market competition can be introduced by chopping up large departments, into smaller but still state owned competing enterprises.

Britain has a large enough population in a small enough area that it should be possible for parents to have the choice of several schools each competing for the dollars to educate their children, those in need of hospital care should have the choice of several hospitals competing for their health spending.

Perhaps that's still unrealistic dreaming though.

Andrew W

Chris said...

Hi Andrew,

We seem to get islands of competition.

The dentists have almost all gone private but the GPs are all publicly funded.

The universities compete, but on reputation, facilities and location as they are prevented from competing on price.

TheFatBigot said...

Thank you all for your comments.

GPs are an interesting study because they are funded out of taxation yet the majority are not directly employed by the NHS. The surgery receives a certain amount depending on numbers of patients and other relevant criteria and has to manage that money as it sees fit. A well-run practice can result in enhanced income for the doctors, a badly run one can hit them in the pocket. Guess what happens?