Two old myths and one new one about public spending and “CEOs”

In my world good quality public sector health and education services are a good thing. In Labour’s world high levels of public spending on health and education are a good thing. The two things can be different.

Labour have always peddled two myths – that spending more on the public sector is always a good thing, and employing more people in any given service area is always a good thing. That is why it was such a breakthrough when a small group of Conservatives in the 2001-5 Parliament forced Labour into accepting that there were inefficiencies in the public sector, and persuaded them to set up a unit to try to get more for less, to run things better. The significance of that change or break through was not fully understood at the time. Part of the reason is that Labour adopted the rhetoric of efficiency, but were not good at securing it. Many Labour people, and the government itself, have often lapsed back since into the high spend is good, higher spending is better mode of thought. So often if you ask a Minister about the quality and reliability of a given public service you get an answer about the increases in “funding” instead of an answer about what is being delivered.

Now, deep into Mr Brown’s return to socialism, we are given a third myth about public spending – “it sustains the economy” and the withdrawal of the spending ” would undermine the recovery”. They have no understanding of the dynamics of the economy. The extra money spent by the government has to be taken from the private sector by higher taxes or more borrowing. The increase in one sector is therefore matched by a decrease in the other sector. It is not reflationary. Because their banking Regulator is busily squeezing the private sector to free the money for the public sector, it is arguably unhelpful, because private sector lending through the banking system would increase activity by more, given the gearing involved.

This morning we learn that many CEOs in the Health Service have had inflation busting wage increases on their generous pay. They belong to that large, growing and privileged group of senior Executives in the public sector who are called CEOs and have pay comparable to larger private sector companies, but whose jobs are nothing like private sector CEOs. As I have pointed out before, around 70% of a private sector CEO’s job is winning business, increasing the revenue,taking steps to secure and grow the turnover. Public sector chiefs simply bill the taxpayer, who is sent to prison if he does not pay. The remaining 30% of the typical private sector CEO’s job is controlling the costs and seeking to do more with less. Few publlic sector CEOs bother with this bit of the job either, preferring to write continuous propaganda to say that if they are not sent more money their service will fall to bits.

Labour have employed more than a million extra public employees. The overwhelming majority are not “front line” employees like nurses, teachers and doctors. They are administrators, auditors, regulators,spin doctors and advisers. The Conservative party has made clear it is not going to make anyone compulsory redundant. It is also clear that as around 300,000 or more leave or retire every year, any government that wants to control the deficit is going to have to employ fewer as the vacancies arise, whislt replacing the “front line” employees. They will also find as I did when I applied just such policies to parts of the public sector I have been responsible for in the past that service quality as well as efficiency can rise. They should discover you can employ too many managers, administrators and bogus CEOs. As they leave voluntarily, abolish the post or promote someone from within who is good whilst abolishing another post. That’s good for morale and for cost control.

Promoted by Christine Hill on behalf of John Redwood, both of 30 Rose Street Wokingham RG40 1XU

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30 Comments

  1. Simon
    Posted April 12, 2010 at 8:43 am | Permalink

    What is so sad is that this in not blindingly obvious to many people. Presumably it will become apparent when the reality of budget deficit reduction hits after whoever wins the election is forced by the markets to behave with fiscal responsibility.

  2. Mick Anderson
    Posted April 12, 2010 at 8:53 am | Permalink

    All quite true, although many of us in the private sector would simply like the million non-jobs to be removed immediately, not waiting for voluntary sacrifice.

    I do appreciate your comment about morale, but when the countries finances are in such a mess, perhaps it's not quite so important. Sacking those with unneccesary jobs will have an adverse effect on those collegues left behind (assuming the whole Quango in question isn't simply deleted), but it should also improve the morale of those in the private sector whose taxes pay for them!

    • waramess
      Posted April 12, 2010 at 11:37 am | Permalink

      Anybody who has been in the private sector will know that provided redundancies are done quickly the morale of those left behind is not affected; more likely great relief they were not among those made redundant.

      Shedding 20 percent of the workforce would not be impossible for a company in the private sector and should not be considered impossible for the public sector.

      It might be considered uncomfortable for the politicians who would far prefer to sit around pontificating rather than getting down to a bit of real business

      • Mick Anderson
        Posted April 12, 2010 at 2:13 pm | Permalink

        Not sure about that, Waramess.

        A company I was working many years ago for was taken over, and the new management culled duplicate and surplus staff. They were literally escorted out of the building, with personal effects to be sent on.

        It was quick and brutal, and left all those who remained waiting for the next time, although it never happened. We had all the assurances from management that it was a one-time event and that our jobs were safe, but we couldn't bring ourselves to trust them.

        I've seen it happen in other companies since then, and have understood the feelings of those left behind.

        Another company gave the staff the choice of 20% redundancy or a four day week. They pulled together and took the latter. Can't see the Unions allowing Public sector workers to have that choice, though.

        I believe that Public sector morale would suffer – but I think it's a price worth paying. There are well understood reasons for something like this happening, so it's easier to explain the logic behind it. Look at the reports coming from Ireland.

        However, I do concur that the UK politicians (of any hue) are far more likely to sit on their hands than take the radical action that the countries finances demand.

        • Simon
          Posted April 13, 2010 at 12:03 pm | Permalink

          Escorting people off the premises like that is a spectacularly stupid way of treating people and runniing a business .

          This is not usually the British way , what nationality was the company which took you over ?

          Did the management have any interest in the long term future of the company or were they just interested in raping it for whatever cash it could generate in the short term ?

          Of course you've got to cut your cloth to suit but ultimately , like carving a statue , it's not what you remove but what is left that matters .

  3. Carol Whitaker
    Posted April 12, 2010 at 9:12 am | Permalink

    It's a shame that the main battle of this election is over very minor areas of spending such as NI. With the absolutely enormous debt's,increasing each day, that are hanging over the UK we are not hearing any real debate about what needs to be done to set the country right.
    Tinkering with efficiency savings is all well and good but we are running £180 billion deficits and that's not counting all the off books fiddles and bank liabilities that Gordon has set us up for. It is highly unlikely that the UK economy, which is set up to run on property debt not industry, will show any signs of meaningful growth in the next few years. Therefore to avoid a collapse in foreign investment and a run on the pound we need huge cuts in government spending.
    To get the finances back on even a vaguely sensible course we're talking £50 billion cuts each year and all we hear from Conservative, Labour and Liberals are squabbles about £6 billion here or £5 billion there.
    Are the political classes unaware of reality? This is not a rhetorical question- any politicians reading this please answer.

    Reply: Try reading this blog and my speeches -I think I understand the scale of the problem

    • Carol Whitaker
      Posted April 12, 2010 at 10:25 am | Permalink

      Yes I believe you do Mr Redwood but that you are something of a rarity in your party and mainstream politics, UKIP being the only party that proposes radical cuts and solutions.

      reply: UKIP, Labour's friend, because it wants to stop Conservatives winning seats

    • waramess
      Posted April 12, 2010 at 11:54 am | Permalink

      If you do indeed understand the financial problems confronting us I wonder why you are not talking about 60 billion plus savings as an initial ball park sort of number.

      I read your Blog daily and I have yet to see you recommending the sort of cuts that will be necessary to put this economy to rights.

      Maybe Carol Whittaker is right or maybe the scale of the problem is seen as too politically sensitive to acknowledge.

      Either way our politicians do seem to be sleep-walking into a nightmare.

      Consider seriously letting Gordon have this election and prepare for the next by making Cameron and his cohorts redundant as a first priority

      Reply: I have listed cuts and set out processes for reducing spending which would indeed tackle the overmighty deficit. How many more times do I have to list them?

    • adam
      Posted April 12, 2010 at 12:55 pm | Permalink

      They are deliberately avoiding discussing the real issues, carol.

      The strategy of these people is to hide the truth from the plebs, its the only way they can get away with what they are up to – destroying our country

      Fraud and deception

  4. Paul
    Posted April 12, 2010 at 9:34 am | Permalink

    "They are administrators, auditors, regulators,spin doctors and advisers.The Conservative party has made clear it is not going to make anyone compulsory redundant."

    I fear that a policy of waiting for those people to retire might test the market's patience a tad, Mr Redwood.

  5. JohnOfEnfield
    Posted April 12, 2010 at 9:40 am | Permalink

    FYEO

    It should read "wage increases" not "age increases".

    Not that it changes MY view of the policy!

  6. Alfred T Mahan
    Posted April 12, 2010 at 9:52 am | Permalink

    I rather agree with Paul, John. Euphemistically named "natural wastage" won't be nearly enough to trim costs as quickly as they need to be cut – witness the IEA's view just published.

    Besides, there is an underlying assumption that the state needs to carry on doing what it's doing now. That is wrong. The state needs to do less, to restrict its areas of activity, if we are to return to a healthy economy.

  7. Martin
    Posted April 12, 2010 at 10:11 am | Permalink

    I find the election discussions so far have almost been trivial.

    We have a vast public sector debt.

    We need rational discussions about how to cut the public sector. Does anybody have a clue when the banks will be in a fit state to be sold off? Do we sell the banks off quickly – or do we encourage the private sector to invest in manufacturing instead?

    Instead we get paper clip budget trimming, sacred cows and even a tax cut.

    The huge waste of life and treasure in an ill defined war in Afghanistan continues.

  8. alan jutson
    Posted April 12, 2010 at 10:11 am | Permalink

    Good to see a politician who understands the real difference between a private sector CEO and a Public sector one. Its a shame many more do not have such an understanding.

    You rightly point out that the Public Sector CEO has a fixed and retained customers base, that they remain customers no matter how you perform or how much they are asked to pay, that they default on payment at the risk of jail, that their customers are billed VAT free, so no tax to collect, record and return. No foreign currancy transactions are required, (unless you had invested in Iceland) where you perhaps need to hedge exchange rates, where there is no research and development programme investment required for new products, or an advertising budget and programme needs to be effective and productive.

    One is forced to ask why such an organisation needs a CEO at all really. Yes they need to be managed, but to claim reward on the same scale as the Private Sector CEO is simply a farce.

    Whilst I understand your statement about natural wastage, is this really enough ?

    As for voluntary leaving, this seems rather unlikely given, first of all the salaries involved, the gold plated Pensions and the state of the economy.

    Clearly the above is a start, but we need a seed change of culture and attitude before we are really going to get to grips with the huge expenditure of such a service.

    In addition we need to simplify our tax and benefits system, and perhaps think in terms of a five year contribution record, before any benefits entitlement.

    Reply: With more than 300,000 leaving public sector employment every year just not replacing people could make a big impact over a Parliament.

  9. Brian Tomkinson
    Posted April 12, 2010 at 10:40 am | Permalink

    No one has explained how or when the massive public debt will be repaid. Success is said to be a reduction in the annual deficit over a Parliament by 50%, leaving us with a debt which by then will have INCREASED to £1.3trillion and annual interest payments of £60billion! After the election the markets will force whichever government is elected to bring in measures that all the parties seem to be determined to avoid even discussing during this election. The result of this dishonesty will be strikes and riots – but politicians only care about getting elected – they think that such inconvenient consequences can be brushed aside until they are safely occupying their Whitehall desks.

  10. gac
    Posted April 12, 2010 at 11:10 am | Permalink

    Ah, but John, the Labour spinners may not understand the Economy but they do understand what the majority of the public are prepared and have been conditioned to believe!

    So spending on 'front line public services' is good and sustains the economy = no pain for you good folk to have to endure. Spending on the PUblic Sector is 'investing' = this is the future, fair for all, not cuts like those nasty Tories.

    etc etc etc

    Labour has been doing this for over 13 years and they are good at it – the message is more important than the substance and the more you say it the more the people will believe.

    Beats rationale and sound argument every time!

  11. Stuart Fairney
    Posted April 12, 2010 at 11:22 am | Permalink

    I don't know whether I am sickened or quite impressed that about 3 out of 10 people have been persuaded by the socialists that the best possible thing to do, when deep in debt is to rack up more debt. It seems a good example of cognitive dissonance both on the part of those making the argument (some of whom obviously believe it) and those who are convinced by it.

  12. Acorn
    Posted April 12, 2010 at 11:55 am | Permalink

    There aren't many sites that are not talking about petrol prices. Everyone going on about crude oil speculators; greedy oil companies and Refiners. There is some evidence for this but hey, where else can you get a return on your savings.

    I have just filled up for 118.9 pence per litre. The receipt says I paid £5.96 in vat and the net was £34.04, on a £40 fill up. Now I know that £19.24 of that was duty – 57.19 pence per litre which is VATable; tax on a tax. So the retail, before tax, price was 44 pence per litre.

    95R was selling for 790 US dollars per tonne cif, landed at a UK port. That is 38.16 pence per litre. So, 5.84 pence for retail margin; distribution and marketing, not a lot. Producing crude is good business; refining and selling it is not, not all refiners are producers. At current refinery gross margins, (see "crack spread"), you would not want to own a refinery or a petrol station.

    Reply: Good analysis. I have regularly urged the petrol companies to put the tax and their charges clearly on the bill and pumps.I will repeat your points in a blog soon.

    • Martin
      Posted April 12, 2010 at 2:54 pm | Permalink

      You state that "Producing crude is good business". North Sea Oil exploration and production isn't cheap. An exploration rig went down to the Falklands Islands and found next to nothing – very expensive.

      The risks of production and exploration are very high. Refining and Distribution is less risky than exploration.

      The big supermarkets tend to rely on volume rather than just margin on Petrol to make their money. Buy a bottle of water at the petrol station and I suspect you see margin rather than volume.(Often more expensive than petrol too!)

      If you want excise duty reduced on petrol it will have to go on something else. The money has to come from somewhere to pay off UK plc's IOUs.

  13. Mark Parker
    Posted April 12, 2010 at 12:03 pm | Permalink

    It looks like Labour have created 700,000 non-front line jobs in the public sector. The reason they did this is pretty clear: it's a payroll vote. This article by Dr Theodore Dalrymple is proof of that.
    http://www.city-journal.org/2010/eon0322td.html

    Sacking these 700,000 would save at least £20bn a year – assuming they cost £30K pa to employ, and there's probably another £20bn to be had out of the NHS's £122bn budget by reducing senior salaries, both administrative and medical. Top doctors may argue they deserve to earn several hundred thousand a year because they could get more in the private sector, but the only reason for this is because the NHS has pushed up the going rate. Other countries don't feel the need to pay their doctors so much.

    The Institute for Fiscal Studies claims that leaving the EU would save the country £120bn pa – including both private and public sector savings.

    (Para re migrants left out-ed)
    Turning back asylum seekers at the border rather than entertaining their claims for years of appeals would also save a lot of money. They are all bogus – every single one of them could have found safe haven closer to home.

    These savings wouldn't balance the budget, but they would be a big step in the right direction. The current Lab-Con arguments over £6bn-£12bn are completely irrelevent to the big picture. Deck chairs and Titanic come to mind.

  14. Norman
    Posted April 12, 2010 at 1:11 pm | Permalink

    I have confidence that the Conservatives will take the tough action needed, there is no choice. If they don't grasp the nettle, and make signifcant cuts in both spending (to reduce costs) and taxation (to increase revenue) then, irony of ironies, it won't be Labour who are finished – it will be us!

    Imagine if everything collapsed 18 months into a Conservative administration that sidestepped around the important issues. I know some will say 'That will be wonderful, we'll get a proper conservative leadership and back to our traditional comfort zone values' but the country at large won't see it like that.

    The unions here will make what is happening in Greece at the moment seem serene, and does anyone think the BBC and other organs will give the Conservatives any easier of a ride? The blame will firmly be pinned on the Tories and Gordon Brown portrayed as some sort of financial oracle.

    It doesn't bear thinking about.

  15. BillyB
    Posted April 12, 2010 at 5:05 pm | Permalink

    Both public sector and private sector CEOs come across to Joe Public as just being privileged, self-interested and greedy, not talented or skilled or worth the money. Their salary multipliers vs the average employee have become obscene over the lifetime of this Labour government (socialism!?). Will the Tories reverse this?

  16. Lindsay McDougall
    Posted April 12, 2010 at 6:06 pm | Permalink

    Is this promise of no redundancies in the public sector something that you intend to stick to or just for the election? Once again, public sector employees are being treated more favourably than private sector employees. When order books decline in the private sector, you have to get rid of staff; there is little choice.

    You will probably find that natural wastage slows to less than 300,000 until the private sector creates more jobs. Also, you have made the arguement that getting public expenditure down – and much of it is payroll cost – is part of what is necessary to create additional private sector jobs, so why delay?

  17. Richard
    Posted April 12, 2010 at 7:00 pm | Permalink

    I hope you are assisting David Cameron with his preparations for the debates. Many of these points would hit home with the public.

  18. no one
    Posted April 12, 2010 at 8:05 pm | Permalink

    So when you cut the perm headcount through natural waste

    how much of the work will you aim to subcontract?

    and how much will be subcontracted to let me see Indian nationals both in India and here on Intra Company Work visas?

    will you simply replace public sector workers with Indian national workers on less money?

    Just wondered

  19. Peter Turner
    Posted April 12, 2010 at 8:42 pm | Permalink

    Obama is introducing Health Care into America. He is basing it upon an Insurance based system but he is not suggesting that the Government runs the hospitals. Would that we could remove the Government from running our hospitals as a Bureaucracy is not a suitable organisation structure for the management of a complex, technological/skill based, adaptive industry existing in a dynamic environment. Indeed, bureaucracy is an impediment

  20. Deborah
    Posted April 12, 2010 at 10:09 pm | Permalink

    "Now, deep into Mr Brown’s return to socialism, we are given a third myth about public spending – “it sustains the economy” and the withdrawal of the spending ” would undermine the recovery”.

    It would be helpful if Stephanie Flanders, the BBC "economics expert", didn't help to peddle this myth that by saying that cutting public spending "takes money out of the economy".
    Does she really not understand basic economics?

  21. John C
    Posted April 13, 2010 at 2:55 am | Permalink

    I have now come to despair at the quality of journalism in this country.

    I've been banging on for years that the Labour party only ever talk about inputs ("investment" – spending of taxpayers money). They hardly ever talk about outputs ("achievements" for the money they spend). Yet very few journalists challenge them on this.

    I wanted more money spent on the NHS but I think it is obscene that we have doubled "investment" and achieved so little for these extra billions (double "investment" since 1997). PFI means we are saddled with these debts to the private sector for the next 25/30 years.

    I'm almost giving up on the coverage of the election so far. There is so much focus on personalities and the leaders' wives.

    All this talk of the Tories taking £6 billion "out of the economy". I'm sure most journalists don't fully understand this. The argument is whether the £6 billion should stay in the (mainly) private sector or be absorbed into an even larger public sector.

    It is not going out of any economy. The argument is whether the £6 billion would be more productive in the private sector or the public sector. These two combined make "the economy".

    Apart from people like Jeff Randall and Andrew Neil (*), the political journalists in this country don't seem to have a clue.

    (*) Andrew Neil went down in my estimation this week when he could have flawed Phil Woolas live on TV over the number of foreign born workers who took up UK jobs in the last 13 years. The figures he was quoting from 1997 and 2009 were "snapshots" of the makeup of workers at those times and were directly comparable. From Neil's body language I felt he was a bit unsure of his ground. I knew he was right and was screaming at the TV. He allowed Woolas to get away with blue murder on live TV – very disappointing.

    • alan jutson
      Posted April 13, 2010 at 9:46 am | Permalink

      John C

      The problem you highlight, seems very real about present day Journalism, certainly when applied to the Television, and hits the nail on the head.

      It is more about presentation and looking good, rather than substance. A picture paints a thousand words has now been taken too far.

      In my view the forensic type news paper journalists of yesteryear who specialised in economics and finance, seem now to be few and far between, sensationalist headlines seem to be the order of the day for most news print (as it gets circulation figures up).

      On BBC radio 5 yesterday, on reporting on Labours manifesto pledges, a reporter broadcast that labour were promising to half the Country's debt in 5 years, not the deficit, but the debt !!!!!

      Clearly this reporter thinks that the yearly deficit, is the same as the National Debt.

      Says it all really, what chance have the general public got for understanding the real problem, when this sort of reporting is allowed. Mind you it is this sort of rubbish (media policy of deliberate confusion) that the Labour machine is using to try to hide the real financial problems we face.

      • John C
        Posted April 13, 2010 at 4:10 pm | Permalink

        Sadly I think it is going to get worse.

        I've seen the future of TV news and it's Fox News. Have no doubt, that is the standard of TV news to come in this country and it will drag down ITN and the BBC. Fox News is a clever mix of fact and opinion dressed up as a 'fair and balanced' news which is used as propaganda to push a very right wing agenda.

        The Daily Show with Jon Stewart picks them apart brilliantly almost nightly to show that they tell bare faced lies. Stating 'facts' in their opinion pieces which are the direct opposite of the truth.

        At the moment, Fox News are currently portraying Barack Obama as some sort of lilly livered communist who is making the US vulnerable to rouge states by giving up a third of nuclear warheads in a treaty. A real patriot would do no such thing they say. Cue to a clip of Ronald Regan doing exactly the same in the 80s (almost using the exact same words).

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    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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