TINA or TIA – what are the options?

The current strategy on public spending, borrowing and taxing is  presented by some as a case of  “there is no alternative”. I agree with the government that there is no alternative in the sense that leaving the deficit to grow at Labnour’s pace is not an option. However,   I think there are choices, there is an alternative  (TIA) to consider to get it down at a healthy pace.

I wish to concentrate on the two years starting today. I am always suspicious of five year figures, because so much can change over such a time period and often does. I am worried that the present plans outlined by the government both cut so much in a limited number of sensitive areas, yet entail spending more and borrowing large sums  overall. I am concerned that many of the “real terms” reductions happen in the second half of this Parliament, when there will be obvious political pressures to relax.

I do not think we should spend so much time debating the split of spending between departments and programmes. I would not be spending political capital defending  “cuts” that may or may not happen in 2014 or 2015.  I think we should spend more time discussing the expenditure in  terms of how many people, how much bought in service and goods, and how much overhead do you need for each thing you do need and want to do.

A business does not usually  begin a cost reduction exercise by asking which departments it should close or which parts of its customer service it should worsen. It reviews all its inputs, and asks how it can reduce those whilst lifting the quality of service and the attractiveness of its offer. Looking at the public accounts, the thing we certainly cannot afford is inflation, yet inflation is built into the plans to translate cash rises or standstills  into “real” cuts.

An alternative plan to curb the deficit substantially in the next two years would include:

1. An effective two year pay freeze – the governemnt is proposing this, but it does not seem to be fully reflected in the nuumbers

2. An effective and strong use of natural wastage. If staff turnover is  running at 8% as the Chancellor says, that means almost 500,000 people will leave public service voluntarily over the next twelve months. Let’s recruit  replacement  teachers, nurses, doctors and other important front line staff to replace those lost, but not in other areas. Two years of this could cut the number of  posts by 500,000 with no compulsory or v0luntary redundancy. There is no need to spend money we do not have on pay offs and pension deals to encourage volunteers to leave, given the numbers leaving anyway. I hear there are plans to spend a lot this year on pay offs – there does not appear to be any need to incur such costs given the natural wastage figures.

3. The staff that are not needed because their quango or activity is coming to an end should be offered alternative positions elsewhere in the public sector, to fill some of the gaps as others leave or retire.

4.  Buying goods and services in. The aim should be to achieve zero inflation on external purchses for two years. This could be done easily on average  whilst allowing some higher prices in particular areas where cost pressures are unavoidable. The government has rightly started on a cost reduction  programme in its purchasing, so some of these benefits should be coming through immediately.

5. Keep down the rising interest  bill by accelerating the asset sales programme.

6. The latest figures on both borrowing and spending illustrate that the cuts have been delayed until next year. Spending and borrowing are both well up on a year ago. There has been no concerted attempt across the public sector to stop marginal projects and spending. There are, for example, large numbers of roadworks schemes putting in new kerbs, changing the layout and surface of roads and rearranging junctions. This is not crucial work that has to be done now.

7.Cut out the things you do not need or want to do – as the government is already doing – like Regional government, selected quangos, ID cards etc. That frees some cash for areas where you need something more than a cash freeze.

8. Delay the earnings link on pensions for two years, delay increases in overseas aid for two years and decline increased contributions to the EU. Impose a cash freeze on all programmes, other than health and benefits where they have to respond to demand under the rules.

Level funding or no cash increase or loss for two years for most areas should be achievable. If you succeed in stopping public sector  wage and price inflation for two years then this equates to no real cuts. If you could simply peg spending levels it would also mean a lower deficit in two years time than currently planned.

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23 Comments

  1. lifelogic
    Posted October 25, 2010 at 8:28 am | Permalink

    You are right to highlight junction and road reworking in London nearly all the junctions are reworked for no good reason endlessly. The usual result is more congestion as the work is done and more when it is finished. The schemes usually create bigger islands in the middle of the roads and longer green lights for buses and bikes, longer red lights for the cars (that usually comprises over 90% of the actual traffic). Congestion seems to be the actual aim of the schemes in most cases. That or pointless work creation or profits for traffic light companies perhaps.

  2. NickL
    Posted October 25, 2010 at 8:52 am | Permalink

    TINA.

    OK. Put our money where your mouth is.

    Make it a binding legal requirement that the deficit is halved over the next 4 years, and eliminate over the next 8 years. Then add on a requirement that it is illegal for the government to borrow any more money in 8 years. Make it a criminal offence to overspend.

  3. waramess
    Posted October 25, 2010 at 9:02 am | Permalink

    How about SMAF: stop messing at the fringes.

    This crisis is about as bad as it gets and the government is doing no more than pussyfooting around almost scared of their own shadow. Your suggestions would be laudable in other times however the economy is in such a mess a bit of fiddling here and there is not good enough.

    Civil Servants are well versed in how to avoid the impact of such cuts and they will certainly do their best to defuse the suggestions you have made.

    There will be turbulence whatever is done as you can clearly see from the howls of anguish produced by Osborne's non cuts so far. so the government might just as well accept it will be so and get on with the job at hand.

    There are two ways in which you short termers (as seen by the Civil Service) might make things happen: one is to shut down entire departments whilst imposing a short term hiring freeze on other departments and the second is through privatisations.

  4. waramess
    Posted October 25, 2010 at 9:03 am | Permalink

    cont,

    Camerons pledge not to cut the budget of the NHS would be fulfilled if he were to agree to it's privatisation whilst the privatisation of education would avoid the need to worry about some of the crazier ideas doing the rounds at the moment.

    Tears there would be but not worse than the tears being shed now and for little reason.

    Boldness is the only way to get out of this socialist engineered wreck and courage is the clear attribute presently lacking in all the proposal.

    Growth can only be achieved through cutting the size of government and in selling these two iconic sacred cows you will have secured three pre-requisites for a strong economy all at once: generate income for the public purse, cutting costs otherwise provided by the public purse and reducing the overall size of the state.

    From thereon it should all be downhill.

  5. Javelin
    Posted October 25, 2010 at 9:11 am | Permalink

    A few observations

    First I think talk of possible QE2 is being done to talk the FX rate down. It will help our exports. We are at the point in our economic cycle (e.g 1991/2) when consumer spending has faltered. We need to encourage an investment driven recovery thru exports and small businesses.

    Second point. Growth will be lower than predicted by the Government. So far I’ve been spot on with low growth figures. I guessed 0.5-0.75 you this quarter which turns out to be right.

    Third point the Conservatives are handling the press, especially the BBC badly. The Conservatives need to stop them using the politically charged term of ‘cuts’. I would make a complaint and force them to use words like budget “rebalancing” – which is a far more accurate term.

    Fourth point. It looks like the conservatives have opted for a long term political economic strategy. That is they will make sufficient cuts to be able to claim to reduce the debt, but borrowing levels will still be very high. The budget rebalancing will be at a point where Labour would find it hard to have borrowed more – because we would be even further in debt.

  6. intergalacticsuperhero
    Posted October 25, 2010 at 9:45 am | Permalink

    It all looks like good common sense.

    Which party should we be supporting if we are in favour of it?

    When did the Conservatives become avowed Socialists?

    Will the Conservative party really agree to financial penalties for parents who have saved their money and help their children pay off student loans?

    When did penalising thrift, trashing family values, and redistribution of wealth become Conservative policies?

    It isn't the Liberal Democrats who need to split off the rot; it's the Conservatives.

  7. Tony_Blair
    Posted October 25, 2010 at 10:12 am | Permalink

    John,
    A lucid and convincing argument, as usual. But I still have difficulty with the Government's "Growth Strategy", or lack of it to be precise. Perhaps you could provide an outline of your views on this? I'm sure you can provide more substance that we've seen to date!
    Regards,
    Tony

    • lifelogic
      Posted October 25, 2010 at 2:27 pm | Permalink

      "Growth Strategy" the only thing I have seen positive for growth is the abolition of HIP packs. High taxes, no bank lending, new pointless regulations and an over priced so call "green" energy policy does not seem likely to do much for growth other than in emigration and the flight of capital.

  8. TheESSEXGIRLS
    Posted October 25, 2010 at 11:04 am | Permalink

    For some reason there was no Comments box at the bottom of yesterday’s article and today it looks like a new registartion system.
    Anyway here goes with yesterday's comment…

    Alan Jutson often talks a lot of sense here as he does here:

    “Simple statement is needed.
    NO MORE MONEY UNTIL ALL ACCOUNTS ARE VERIFIED.
    Then renegotiate our Terms.”

    We’ve said for years that the EU’s Achilles heel is the lack of financial control and agree this is attack time if only we could summon up the nerve. JR backed a manifesto pre-promise of a referendum at the start of a 2nd Conservative and we now see how valuable that weapon would be for our negotiations.

  9. TheESSEXGIRLS
    Posted October 25, 2010 at 11:06 am | Permalink

    And the other…

    We’re surprised if our overseas aid contributions are still paid in cash.
    Surely anything given should be in the form of goods or services.
    We could keep the wheels of British industry turning and use our expertise as a demonstration to the world rather than risk lining the pockets of corrupt governments and using hard-earned foreign currency.

    On the EU’s ridiculous demands we agree that this is the time for our PM and Foreign Sec to show spirit and to play hardball.
    Your own comments are spot on and we hope that you, Carswell, Cash & co will lead a strong attack. You have the electorate on your side on this one!

  10. TheESSEXGIRLS
    Posted October 25, 2010 at 11:49 am | Permalink

    So much common sense here – but is it too late to unravel the naive approach so far?
    Your own 4% natural wastage figure may be nearer the mark as everybody becomes more reluctant to quit a job but the point is valid and the numbers still work.
    We’ve commented before on unnecessary redundancies and payouts. We advocated generally offering an alternative job and asked here about the contractual implications of a lower salary to go with it if necessary. STOP THE BIG PAYOUTS!
    We’ve also regularly advocated freezing the total £s spent at the 2010/11 level for 2 years – easy to understand and measure – and then re-jig departmental spends within that overall total.
    So much ‘doing’ time is being spent on this debate and the minutia is clouding the bigger picture. A shame when the public is broadly onside with economising.
    Have you costed your proposals John?

  11. intergalacticsuperhero
    Posted October 25, 2010 at 2:19 pm | Permalink

    One of the problems with natural wastage and recruitment freezes is that people with talent and ability see the writing on the wall and leave the public sector to go to better jobs, those with no talent, no ambition and no drive, who want to do as little work as possible for as much money and as few hours as they can; they will stay.

    What remains at the end of the process is the work-force from hell.

  12. alan jutson
    Posted October 25, 2010 at 5:37 pm | Permalink

    John
    I see the ESSEX GIRLS had some problems this morning with access to your site, as indeed did I. Re-registration did not work at all for me this morning, but trying again.

    You speak much commonsense, typical of someone who has run their own business. But will the Government adopt your sensible alternatives with regard to natural wastage. Not on your life, because few of the Ministers, indeed politicians in general from all Party’s have never got near to a profit centre, know little about overheads, competition and cost effective working.

    Result: We will have massive payouts, massive paid up Pension Liabilities, then they will re-employ the same people on new Contracts somewhere else in the system, Guaranteed.

  13. alan jutson
    Posted October 25, 2010 at 5:47 pm | Permalink

    John
    Trying to get my head around the latest “proposals” on a flat rate Pension for all.

    From the limited amount of information so far, it would seem that the proposal is that everyone of retirement age will get a simple flat rate of £140. per week, no matter how many (lots of years or next to nil) contributions they have made, the simple qualification outlined by Sir Vince is that you must be a resident within the UK.

    So would a recent immigrant to this Country say of 1 year qualify for a full pension, whilst somone with 40 years contributions who retires to Spain get nothing ?

    I am all for supporting women getting Pension Stamp credits for stay at home Mums who have worked in the past, I am all for a good flat rate Pension for all to avoid means testing when you are below the poverty threshold. But we have already reduced the contribution years needed by more than 25% down to 30 years.

    How can we afford anything that reduces contributions further?

    Reply: I think this was a speculative story from Mr Webb the Pensions Minister. We need to see how the numbers would work.

  14. Alex Sabine
    Posted October 25, 2010 at 8:29 pm | Permalink

    Some sensible suggestions here regarding the need to focus on getting public sector cost inflation down, through running a tighter ship on things like procurement and the wage bill.

    However, the real-terms calculations the government makes are extrapolated from the independent OBR’s projection for *economy-wide* inflation, which is estimated to be roughly 2.4% per year on the GDP deflator index. Rightly, they do not assume and take as a given the idea that public sector inflation must necessarily outstrip that of the economy as a whole.

    The key reasons some assumed inflation is built in to the system are that:

    (a) all experience suggests that zero inflation is not going to happen, and indeed the Bank of England’s specific remit is to target 2% CPI inflation (which it finds hard enough to hit)

    (b) we are not just talking about departmental overheads but the benefits/pensions etc that people receive – so looking at those in purely cash terms will not change the fact that their purchasing power is what matters, and therefore the existence of economy-wide inflation is relevant to analysis of the figures

    To illustrate point (b), if you look at the Spending Review figures, total departmental spending IS set to fall in cash terms. The reason for the overall cash increase in total expenditure is that the AME component rises. This is partly because things like the basic state pension are to rise at least in line with economy-wide inflation.

  15. Brian Tomkinson
    Posted October 25, 2010 at 8:58 pm | Permalink

    Is anyone in government really determined to take any real action or is it all just talk and spin?

  16. Lindsay McDougall
    Posted October 25, 2010 at 9:28 pm | Permalink

    Re buying goods and services in: Does the NHS have control over its own drugs bill or do judges still think that what the NHS MUST buy is THEIR decision? Perhaps it is time we passed a short statute to set the record straight.

  17. forthurst
    Posted October 26, 2010 at 12:44 am | Permalink

    Not so fast with Regional government. The Regional tier will come into its own when England is abolished by the EUSSR. What I’m not clear on is whether it will become an offence to proclaim one’s Englishness after this modernisation has taken place. Of course, one is already aware of the voices of those, mainly of maximal vibrancy, denying that England ever had a native population in the first place; well it worked with the Palestinians…

  18. Mike Stallard
    Posted October 26, 2010 at 7:05 am | Permalink

    This raises the basic question “What is the State for?” How about Defence, safety at home (Police) and financial stability?
    How about universal literacy and numeracy and training in how to behave in public? Employability by the age of 15?
    (Almost total failure so far at the moment).
    Oh and I almost forgot – libraries, films, propaganda about stuff, free school meals, propping up pregnant schoolgirls, teaching all about climate change to Primary Schools……
    So that is why I am with waramess……

  19. Tim Haire
    Posted October 26, 2010 at 1:33 pm | Permalink

    John

    This is exactly my position and should be the position of Conservatives everywhere. But as ever you have articulated it more clearly than most of us could ever hope to.

    Thank you.

  20. simon
    Posted October 26, 2010 at 5:41 pm | Permalink

    Alan Jutson ,

    At first sight it looks like the country could not afford a basic state pension of say £250/wk per person for everyone non-means tested .

    However without a decently high state pension it will end up paying just as much in means testing benefits and administrating them .

    Even though the better off would loose some of their contributions due to redistribution to the less well off , they will very likely still be ahead of where they would be if they had their money actively invested in the majority of fund managers with associated high charges and crummy commercial annuity rates .

    If we could stop pumping so much money into the financial services industry with mortgage interest and pensions charges we would be able to keep a lot more of what we earn .

    Access to a decent primary pension for all would go some way to breaking down the ugly private sector – public sector division which is splitting this country .

    The situation is hopeless now for the majority of people in this country . A proper pension would at least give them some hope and incentive to try .

  21. alan jutson
    Posted October 26, 2010 at 9:37 pm | Permalink

    Simon

    I have absolutely no problem with raising the State Pension to a much higher amount, and cutting out all the overheads of means testing, confusion, and availability and payments of other Benefits by simplifying the System, as it should make massive savings, and make the whole thing more understandable.

    My point was, that we have already reduced the contribution requirement from 39 and 44 years to 30 for women and men, when Pensions will be paid out for longer due to increasing life expectancy.

    So now you pay in for 30 years, to get on average, 25 years Pension.

    New scheme get 25 years Pension, pay in for how many years?????

    Sir Vince says you only have to be resident in the UK, no time limit.

    So it could be only 1-2 years, which is more than 15 times the present cost !!!!!!

    DOES THIS MAKE ANY SENSE AT ALL TO ANYONE, GIVEN OUR FINANCIAL SITUATION.

    Simple solution. Still keep it full Pension payment for 30 years contribution, and lose 1/30 for every year less than that.

  22. simon
    Posted October 27, 2010 at 11:42 am | Permalink

    Alan Jutson ,

    Agree that entitlement should depend on number of years of contribution .

    Other countries manage to provide better value pensions for their populace . There is no shame in copying the best elements of their schemes .

    The less politicians have to do with it’s setting up and ongoing administration the better . That should be the domain of actuaries and fund managers working for the benefit of the policyholders , not the financial services industry . I’d imagine gilts and corporate bonds would be the main investments .

    It would pretty soon attain sacred cow status so politicians would not dare touching it .

    The assurance of a proper pension after contributing to the system would go a long long way to stopping the masses giving up .

    Obviously housing cost issues have to correct themselves so that people can afford to pay the higher contributions associated with a longer life in retirement .

    I’m at a loss to work out what world Sir Vince is living in . The mass immigration so beloved of politicians and big business scotches all long term plans .

  • 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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