Ask for the figures to understand the “cuts”

Yesterday a couple of Thames Valley public services came to Westminster to tell MPs about the state of their finances and the issues facing their services. Naturally both were apprehensive about possible cuts, and neither are yet well informed about the future they face. Local MPs are keen to help, as none of us wish to see cuts to valued local services.

One of the services told us their financial position had not been helped by experiencing increases of just 0.5% in each of the last two years. I asked if this was a real increase, after allowing for price increases, or a cash increase. They hesitated and then said it was a cash increase. It seemed very mean, and surprising given the large increases in public spending generally over the last two years.

When I got back to my office I looked at their wesbite. It contained some annual spending figures.These showed that this service had spent 5.1% more in 2009-10 than in the previous year, and planned to spend an additonal 2.7% this year, taking the two year cash increase to 8%.

The second service said it had experienced 14% cuts this year, but I could not find any figures that illuminated this on the relevant website.

I am not going to name the services, as I wish to help them. Their imprecision over past budgets I think tells us something about the style of public sector management allowed or fostered by the last government and the way the debate has been conducted in recent years over public spending. There is much confusion over whether budgets are being talked about in terms of cash or so called real terms. Different bases are adopted for real terms budgets. Some simply add on an amount needed to match the CPI or RPI, others have their own inflation indices which may be higher than stated national inflation.

I am trying to get more of my colleagues to look at actual figures, and to concentrate on how much cash each service has. It is difficult to make fair comparison and judgements between services, or to understand how much service they should be able to deliver, if different services use different price and year bases for their figures. Next year the government plans for the public sector to spend £651 billion on current service expenditure ( up £50 billion on the last Labour year)- surely we can get something worth having for that?

I have been asked by a contributor to the site to tell you about the state of the local police budget. The two services yesterday did not include the police. From their website the police budget was £418 million in 2008-9, combining revenue and captial spending, £433 million in 2009-10, and planned at £451 million this year. The cash increases are below RPI inflation.

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38 Comments

  1. Posted October 12, 2010 at 10:14 am | Permalink

    Go on JR, name and shame!

  2. Posted October 12, 2010 at 10:17 am | Permalink

    Can we start by getting rid of the departments that are not providing any useful services at all such the Equality and Human Rights Commission, with their absurd Fairness Report – needless to say much over reported and drooled over by the BBC yesterday.

  3. Posted October 12, 2010 at 10:29 am | Permalink

    One might add that since the narrative from almost everyone is about drastic cuts blah blah (a narrative which bears no relation to the actual truth) you may as well make cuts o this scale because you will be accused of it anyway?

    Real classical economic liberals (not just Austrians like myself) would surely support this, but I cannot help but suspect that most politicians regardless of brand, are closet Keynesians/patricians thinking the problem is insufficient aggregate demand which the good ol' government will fill.

  4. Posted October 12, 2010 at 10:46 am | Permalink

    It is so important, as Mr Redwood says, to stop debating these things in terms of the abstractions – 'fairness', 'cuts', etc – and start looking at the figures. They are sometimes startling.

    • Posted October 13, 2010 at 10:03 pm | Permalink

      Mr Parris is right

      The true cash figures are startling as they rise in cash terms, no cuts in sight.

  5. Posted October 12, 2010 at 11:06 am | Permalink

    Sounds like an episode of The Dragons Den where the pitch is going swimingly until the dragons ask about turnover and profit and find out the person doesn't have the slightest grasp of figures .

    Is the first service which received consequetive 0.5% cash increases yet increased spending 5.1% and 2.7% exceeding their budget or were they well within their budget during 2008-2009 ?

    Reply These were within budget

  6. Posted October 12, 2010 at 11:13 am | Permalink

    Not only do public sector managers have a very poor degree of financial literacy, as Mr Green points out, they have no commercial skills when it comes to buying and selling either.

    CPI and RPI inflations are silly measures for any public sector organisation to use. Council's do not get their budget then head of to Tesco to buy a basket of shopping with it.

  7. Posted October 12, 2010 at 12:17 pm | Permalink

    to be fair

    in many a private sector company the kinds of questions you are asking would only be understood in detail by the finance director. The operations director, technical director, managing director etc will have a broad feel but are likely to spend most of their time dealing with day to day detail. Of course the usual private sector company also has a sales director and he usually has a feel.

    If I was charitable I would think maybe the public sector just has more operational/delivery type folk and less finance type folk.

    I know for sure the worst companies are usually run by ex finance directors and ex sales directors, the best companies are usually run by ex ops or tech directors

    The key I guess is does their leadership team have the right balance?

    • Posted October 12, 2010 at 7:12 pm | Permalink

      Not my experience, which has been that everyone in management is expected to have a grasp and their specific numbers. E.g. the ops director would be expected to control his costs. And if the MD of a company does not have an overall grasp of the numbers, you're deep in the …

  8. Posted October 12, 2010 at 12:22 pm | Permalink

    Are there not common accounting standards applicable to all or certain types of public service which can be objectively read? I know that any accounting standard may be presented with a lot of cosmetic applied, but all the same?

  9. Posted October 12, 2010 at 12:28 pm | Permalink

    I used to work in a big company where I kept track of my department's budget with the divisions accountants. I very quickly learned that accounts are 'fluid'.

    While I could keep track of people by name, their pay (for budgetary purposes) was a nominal rate per grade. It attracted a nominal amount for 'people costs'. Similarly the department was 'given' a nominal amount for 'overheads' like stationery, accommodation costs etc. What we 'charged' our (mostly internal) customers was based on some real costs like software licenses and a rather larger proportion of imputed costs based on computer usage.

    In a sense the budget did not have to be accurate in money terms, as long as it was consistent (although most years a few items moved between capital and current accounts etc.). Eventually it all came together at a top level, although translating that into formal accounts involved another apportionment exercise.

    I'm sure you know this John – but if you want to know the details of a budget, don't talk to the boss, speak to the accountant (and even he might need a briefing from his minions).

  10. Posted October 12, 2010 at 12:59 pm | Permalink

    We agree the need for common financial terminology. If all sectors of government and political commentators speak the same language surely it’s more likely that we’ll understand and talk common sense to each other.

    2 related matters we have raised here before:

    1. Could all expenditure or savings when quoted have the period to which they relate?
    Sometimes users refer to ‘per annum’ (which we believe should be the norm as it’s easy to relate to the Budget) but we see 2 or 3 years estimates or ‘over the lifetime of the Parliament’ figures – often used to distort a case in the desired direction.

    2. Why not use the Moving Annual Total calculation on all monthly announcements – that is adding the latest figure and dropping off the equivalent one from 12 months ago. This smoothes trends and gives a far more accurate picture.
    Anyone agree?

  11. Posted October 12, 2010 at 1:39 pm | Permalink

    The last ten years has seen financial literacy plummet as the "faking it" culture took hold and those in charge decided that anyone could do head of finance. As long as they looked the part and sold themselves well , there was really no need for any experience or professional qualifications. Meanwhile the endless box-ticking demanded by the audit commission diverted external auditors' attention from exercising proper professional judgement – the whole process has been dumbed down.
    I haven't seen too many multi-nationals – or even small private sector companies – making the same mistake.

  12. Posted October 12, 2010 at 1:43 pm | Permalink

    And within this essential information we need the figures for how much is going on administration, and how much on services: i.e. how much on salaries and pensions for bureaucrats, and how much on wages and materials for manual work that needs to be done. A cursory glance at our city suggests very little has gone towards its maintenance during the boom years, while looking them up shows how many offices and departments there are in local government, and at smart central addresses too.

    The police have a peculiar problem with their pensions and I don't know what the answer is to that. Do you?

  13. Posted October 12, 2010 at 1:55 pm | Permalink

    re police budgets, in the Met (London) all the pain is being applied to the 'head office', with 'cuts' being seen (rightly) as an excellent vehicle on which to apply much-needed structural reforms. In my Borough (second largest Borough force in London) we are not losing a single officer. And as I keep pointing out, my Borough could save itself £1mn a year by not providing translations and interpreters not statutorily required.

    • Posted October 13, 2010 at 10:45 am | Permalink

      Realistically, how much more money would you end up spending if you couldn't communicate with "clients"? Imagine you couldn't offer prisoners police bail or cautions or even words of advice; couldn't interview witnesses; couldn't take statements; couldn't tell people court dates. Surely that would cost more in the long run?

  14. Posted October 12, 2010 at 2:07 pm | Permalink

    Why are councils using measures of inflation that relate to consumers? I notice that the major attenuators of the latest CPI increases are footwear, clothing and food. Councils should budget and account in cash terms only, since nothing else has any financial legitimacy.

    As to the 'inflation' faced by councils, I suspect that much of this is self-inflicted: doing things that don't need doing like translating everything into umpteen different languages and then providing interpreting and English language teaching for children and adults. Only English is an official language in England. People who cannot speak English are not our problem; it is their problem.

    The rate of inflation experienced by councils will simply reflect the amount of money they have to spend. The more they have, the more they will waste. There is however an important exception: those councils that have the misfortune to be flooded with asylum seekers and immigrants. Would it not be preferable to transfer all the costs of asylum seekers and immigrants directly onto the Home Office budget which has imported them?

  15. Posted October 12, 2010 at 2:23 pm | Permalink

    There seems to be two possibilities.

    1) The managers who run these departments don't understand the difference between cash increases and RPI adjusted increases. If my (private sector) managers didn't understand this, they would be out on their ear fairly shortly, as those sort of mistakes are what end up bankrupting business, and shareholders won't stand from them.

    2) The managers who run these departments know full well the difference between cash increases and RPI adjusted increases, and are being deliberately dishonest in the hope of attracting sympathy, and being spared some of the axe. If my (private sector) managers did this, they would rapidly be out on their ears, as the dishonest usually aren't tolerated by shareholders.

    From what you write, it sounds like these people are still in charge of these services. Why?

  16. Posted October 12, 2010 at 2:38 pm | Permalink

    Perhaps you also lobby to stop having HM Treasury's documents scaled by their magic "deflator" and just show cash numbers. Since we all agree, I presume, that inflation is bad, government central and local should not be allowed to hide it in the small print.

    When John Major left office the last budget was under £350bn (cash), when Gordon Brown left office he had just endorsed a buget of over £700bn (cash). But in the Red Book all the historical data has had the deflator applied and the scale of failure is hidden.

    Can I suggest we stop talking about pay rises in percentages as well? A percentage pay rise gives the most money to the people who need it the least. Eg police should not get 2% they should each get a £500 pay rise. I was pleased to note that George Osborne did do this a little in his emergency budget – he froze civil service pay but then gave a cash amount to the lowest earners.

    • Posted October 13, 2010 at 9:35 am | Permalink

      You have to be able to separate price from quantity to know where your economy is going. The GDP deflator is the best tool for the broad economy. Interesting to work out the price of your house, from the time you bought it, using the deflator index; compare it to its current market price. The link demonstrates how to do it; but, use the "latest figures" data. http://www.hm-treasury.gov.uk/data_gdp_index.htm

  17. Posted October 12, 2010 at 2:46 pm | Permalink

    Watching Sir Phillip Green with Jeff Randall last night I was not surprised but still appalled at the lack of integrity of our public service when spending money – this seems more of the same. My armchair view of government has always been if they were in business they would be out of business or as Sir Phillip put it " the lights would have gone out".

  18. Posted October 12, 2010 at 2:50 pm | Permalink

    The real figures to understand are the growth of the interest payments, Mr Redwood MP. See http://bit.ly/dthNsF

    Growth of interest payments is about 'passive income'.

    Cuts in 'austerity budget' are about control through artificial scarcity.

    Sabine
    Organiser, Forum for Stable Currencies http://forumforstablecurrencies.info

  19. Posted October 12, 2010 at 3:34 pm | Permalink

    It seems to me that the Conservatives are really trying to make themselves a one term Government with no hope of ever being re-elected!

    Yes I can fully understand the need for cuts after the reckless spending that went on during the terms of the Labour Government. However some areas whilst reform is needed should be less affected by cuts, namely Education, Health and Defence.

    In particular Education – Is it really right that students who already graduate with around £20k of debt are made to pay even more? This is a real vote losing idea that will push many young people (and their families) away from the Conservatives for a lifetime. Big business continue to proclaim that the UK lacks the skills and knowledge in its workforce by implementing the plans will further back up these claims. If you have any sense you will reject such moves as proposed by Lord Browne for the sake of makng the cuts less painful than what they already are.

    Defence – If you want the Armed Forces out in Afganistan then at least have the decency to properly fund them! If not then bring them home, that would save Billions of pounds.

    Health – Cut out Management and other financial waste, improve procurement and get rid of the many expensive temps in the NHS and employ them full time! If there is job for them then why pay out expensive temp rates? It makes absolutely no financial sense. Reinvest the money back into the service, then keep spending the same or up to £5-10 billion lower for the next 10 years. Any surplaces could then be handed back to the Government

    If serious money is to be saved then why are areas such as Foreign Aid and the EU not being given serious consideration? In times of financial hardship and "sharing the pain" it sickens myself and a large majority of people that billions of pounds are thrown at a whim to other countries and the bureaucratic shambles known as the EU. What exactly do we get from our billion pound contribution to this club, practically nothing. Moving out of the EU to a trade only deal would be best and would cost us next to nothing. If you want serious cuts WITH public support then look at these areas for huge savings.

    I am a Tory voter, however if some of the more hard hitting and controversial cuts being announced are implemented, then I will look for alternatives at the next Election in 2015 (or earlier).

    • Posted October 12, 2010 at 6:05 pm | Permalink

      They can't not give the EU the money they want, it would be 'illegal'.

    • Posted October 12, 2010 at 11:36 pm | Permalink

      JOHN – IS THERE A SECRET WAY OF GETTING A BLOG OF THIS LENGTH THROUGH IN ONE GO?

      Reply: I don't know. I have asked the service provider to give us as much capacity as possible.

      • Posted October 13, 2010 at 12:15 pm | Permalink

        Thanks. Mark J above hs cracked it anyway!

        regards

        Jenny

  20. Posted October 12, 2010 at 4:01 pm | Permalink

    To the man in the Street you are stating that the Government will be spending some £651 Billion next year, a whole £50 Billion up on the last Labour Budget. We know that inflation comes and goes, up and down and there is an important difference between CPI and RPI However, your Public Total Budget at £651 Billion is not being CUT yet so many Politicians are banging on constantly about major cuts, draconian cuts etc etc. There seems to be no CUT whatsoever to the total Government spend in cash terms and this should be made clear to Voters.

  21. Posted October 12, 2010 at 4:12 pm | Permalink

    All Public Services, without exception, seem to think that the should have an annual increase in their expenditure, over and above inflation, in order to simply continue to carry out their existing roles.
    I need an increase over and above inflation in my pension, in order to maintain my existing standard of living. Am I likely to get such an increase? — not b—– likely !

    These organisations need to learn to live on their income just like we have had to do.
    By careful shopping, planning journeys to do several things in one trip (to save petrol) and other similar courses of action we are managing; government needs to do the same.

  22. Posted October 12, 2010 at 4:41 pm | Permalink

    The government should also surely stop now all subsidy for electric cars. In most situations they make no sense environmentally or practically. The CO2 is just emitted at the power station and energy losses in electricity production, transmission, battery charging, discharging and battery losses when left standing make them as virtually as CO2 producing as a proper full range & full size car.

    Many do not even have the safely standards needed on proper cars.

    If every one buys one they will clearly have to start taxing them to fill in the hole left by current car taxes so they will make even less sense. They already have no real tax on the fuel unlike the huge petrol/diesel fuel duty as an advantage. The batteries are expensive and have limited life & range and have big environmental issue too.

    Can anyone say what is the point of them other than the very slight advantage that the pollution is produced away from the city.

  23. Posted October 12, 2010 at 6:34 pm | Permalink

    I should think very carefully about trying to help these two public services whose representatives either are ignorant or disingenuous about the amount of money they have to spend. This is yet another glaring example of what is wrong. Get to work implementing Sir Phillip Green's recommendations. We want people in public services who understand and respect the fact that it is the taxpayers' money they are spending (wasting) not their own – but given the record of MPs' expenses it rather looks like "the blind leading the blind".

  24. Posted October 12, 2010 at 9:15 pm | Permalink

    Here we go again, confusing CO2 with poisonous emissions of petrol fumes and diesel particulates. And what about the noise? The muddled thinking of the last administration has been taken up by its opponents.

  25. Posted October 12, 2010 at 9:24 pm | Permalink

    Don’t fall into the trap of sounding like Sir John Harvey Jones did when he was talking to the Admiral on his “trouble-shooter” programme, the poor admiral had to explain that he had no control over the T & C’s and costs of his staff as that was done elsewhere, and that actually he had more important things to do keeping air patrols going over the war zone (was it Bosnia?) than worrying about the financial spreadsheets. In cases like that if the equivalents of the admiral are in charge then fair enough, as long as they have a financial director equivalent elsewhere in the structure.

  26. Posted October 12, 2010 at 9:51 pm | Permalink

    "They hesitated and then said it was a cash increase"

    This just goes to show the quality of management in the public sector.

    Can you imagine a middle/senior manager in a private company not instantly knowing the answer to such a basic question?

    And they think that they deserve the same pay as their "equivalents" in the private sector? they are living in a dream world.

    Mr Redwood

    I seem to remember during the election campaign the Tories floating the idea that public service could have the equivalent of a management buyout as long as the workers formed something like the John Lewis partnership.

    What happened about that? I am sure that their are plenty of people in local government that would jump at the chance to get rid of the bureaucracy if they felt they were in control.

  27. Posted October 13, 2010 at 12:13 am | Permalink

    Interesting that a service provider comes to you to seek help, yet seems to have no real idea what their Budget is. Talk about being unprepared.

    HOW DO THESE PEOPLE GET INTO A POSITION (JOB) WHERE THEY ARE RESPONSIBLE FOR SPENDING MILLIONS, DO NOT KNOW EXACTLY HOW MUCH THEIR BUDGET IS, OR HOW MUCH MORE/LESS THEY CAN SPENT THIS YEAR AGAINST LAST YEAR,

    HOW ARE THESE PEOPLE EVER GOING TO CUT, OR EVEN WORK TO A REVISED BUDGET SENSIBLY.

    With regard to the Police Budget. My Council Tax breakdown shows an increase greater than the percentage of overall percentage rise in Council Tax, hence the Police are taking a larger percentage share from Council Tax each year. Guess its for Funding their Pensions.

  28. Posted October 13, 2010 at 8:42 am | Permalink

    Austerity is certainly biting at the frontline in the NHS, with unfilled job vacancies, and some of our theatre nurses made redundant. Productivity has reduced 25% on my operating lists due to reduced staffing. You are right to ask where the money is going, it certainly is not appearing at the front line.

    CPI was 3.1% on the news yesterday so all benefits go up by that figure. In the public sector we have a pay freeze, as do many in the private sector. Can we not also freeze all benefits for a year or two. If statutory benefits are frozen then it is more realistic to maintain other services.

  29. Posted October 13, 2010 at 1:59 pm | Permalink

    You seem to have taken their figures for their nominal increase in INCOME and compared it to their figures for their nominal increase in SPENDING, found out that they don't match up, and used this to claim they can't get their figures straight.

    But they said the "increase" they were talking about had worsened their financial position – this only makes sense if the figures DON'T match up! You also say you considered the increase "mean", which again implies that the increase you're discussing at the start is one of funding, not spending.

    You're also likely to be comparing different years (you said they told you about "the last two", which would imply they're talking about 2008-2009 and 2009-2010, whereas you looked at the figures for 2009-2010 and the projected figures for 2010-2011)

    In other words, you seem to have completely missed their point and misrepresented them as a result. Correct me if I'm wrong here.

    Reply: Yes, you are wrong. Spending and funding are in this case the same thing.

  30. Posted October 13, 2010 at 2:37 pm | Permalink

    I can concur that a lack of being precise over budget figures is a trait of the public sector and those too close. The reality is that the last governement engaged in a spending surge which was unsustainable and has lead to unrealistic expectations of what is affordable as public services. I suspect that those most worrried by cuts are those who fear they have benefited most from the profligate spending of the last government and are probably indicating they should be candidates for closer scrutiny. That should make the coalition government sjob easier.

  31. Posted October 14, 2010 at 10:23 pm | Permalink

    On the frontpage of our Nottingham council propaganda sheet they stated that our council was wringing value out of every pound. On page 6 they said that every one of 60 councillors was given 10000pounds to spend as they wished– ie, on rubbish, pork barrel schemes. Some savings

  • About John Redwood


    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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