The magic extra million is a public sector constant quest

If the state is spending £100 million on providing a service the debate will be about providing an additional £1m to make it better. The possible extra £1m is endowed with magic powers by the service providers and often by the political opposition. The extra one million we are told would make all the difference to the quality and performance. A government that refuses it is mean, is cutting the service. A government which votes it is caring.

The trouble is it is simply not true that the extra million will tip a service from poor to good, or will make all the difference to the quality and quantity delivered. All the energy that goes into debating the extra million diverts the energy that should be going into debating how we spend the £100 million. It would be an odd programme where all £100 million was well spent, an odd service where you could find no ways of being more efficient and delivering higher quality.

Sometimes if you ask how would the extra £1m be spent it becomes obvious that it is not the answer. Of course some services need more people to deliver them well, or higher pay to motivate and retain good people, or more capital equipment to make the task of provision better. Sometimes extra money is part of the answer. The danger is that politicians will see extra money as the sole answer, when if you vote more money you still need to supervise how it is spent, and how the rest of the money is spent which it is topping up.

The private sector concentrates more on outputs than inputs. If I go to a shop they do not tell me how much it costs them to run and staff the shop. Shop A does not claim to be better than Shop B because it spends more on wages, computers and lighting. The shops compete on service and appearance without  saying which is the low cost and which is the high cost store. Those running the shops are always trying to get the costs of running the shop lower, whilst preserving or improving quality. Sensible employers also know you do not have a good quality service if you treat staff badly and pay them too little.

The public sector needs to concentrate more on outputs, service volumes and quality. Some of the services will need more money to make them better, but we need to start with an honest analysis of what needs doing to expand or improve them, which includes working out how well we are spending the large sums already committed.

The public sector has an approach that adds in something called “efficiencies” . Some of these are sensible improvements in purchasing, staff use and service delivery. Some are cuts in service dressed up as efficiency improvements.  What we need is a management process based on continuous improvement, and implemented by using talent well within the organisation. Good public service providers need to be good employers, training and mentoring staff and helping staff to worthwhile careers based on pursuing service excellence.

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44 Comments

  1. Newmania
    Posted February 23, 2017 at 6:52 am | Permalink

    When resources are allocated a to need there will be perma-crisis, because crisis is the state in which additional funds will make most improvement
    This problem, recognised by Marxists as ‘plan competition , was endemic in the planned Soviet Economy and many wise and sensible plans failed to resolve it .
    This is why no publicly funded body has ever supplied information to the affect that all was well and they were, if anything, over funded . It is structurally impossible for them to do so and if on occasion it is true , how would we know?
    As the Conservative Party returns to the socially illiberal Nationalist Butskellism that failed the country before, it may wish to relearn these lessons which lead , to Thatcherism and our entry to the EU.

    This post remkinds me of the long years during which I thought Mr Redwood a senisble person…. no doubt the usual Brexit guff will be resumed soon

  2. Duncan
    Posted February 23, 2017 at 7:02 am | Permalink

    When will the public realise and indeed when will politicians admit that the public sector exists primarily not to provide important services to the public but as an employer of unionised employees. It is little more than a vested interest whose only raison d’etre is the protection of its privileges. All else is of a secondary nature

    Until we have a PM who is absolutely determined to reform the entire public sector and confront the unions then we will continue down the road of financial waste, organisational incompetence and unions (and their Labour party allies in Parliament) threats to extract ever more spending

  3. Cheshire Girl
    Posted February 23, 2017 at 7:05 am | Permalink

    Correct me if I’m wrong, but I heard yesterday that the Government has pledged £100 million for the famine in Sudan and two or three other countries that are involved in constant conflict. Husband said he saw on the TV yesterday an official from one of those countries saying ‘ we will do the fighting, you can feed our people’ ( or words to that effect.) This seems to be the attitude- why should they bother, when countries like ours are still pouring money in!

    We have been constantly told, that there is not enough money to fund services in the UK. Why are we still pouring money into countries that couldn’t care less about their own people. Everytime I hear the words ‘international community’ I cringe – as it always means more money from us!

  4. David Cockburn
    Posted February 23, 2017 at 7:08 am | Permalink

    “All organisations turn to face the source of their money”. A true saying. So while your corner shop focuses on satisfying its customers and so making more profitable sales, the public services look to the treasury.
    I guess the answer to the dilemma you pose is to pay for the output of public services where possible. A voucher system, paying for schools would work well. Perhaps a similar system in the NHS, but such an approach might be more difficult in other parts of the public service.

  5. David Martin
    Posted February 23, 2017 at 7:35 am | Permalink

    A similar principle would apply to our tax law. We should spend more time reviewing what we already have than we spend thinking about new law to add on.

  6. margaret
    Posted February 23, 2017 at 7:39 am | Permalink

    Much time is wasted on training needs which are not required. When employing a professional, that status should be respected. An example of this is as follows. In 2005 I took a prescribing course and have prescribed now for all those years. Doctors/ GP’s have not undertaken such a course . I suggest that those Doctors who have been prescribing all their lives now need to take the course and pass it to continue doing their jobs.( How do they feel ).
    Many courses and updates are taught by Johnny come lately piece workers who are not even qualified but all of a sudden given themselves credit by a one day course and have not got any substantial backgrounds.

    Status kicks and plagiarising knowledge by these superficial new learners who try and teach others who have been doing their job for years , a job which includes daily updates , looking at research , reading articles , ensuring that the responsibility for dealing with clients is part of their whole professional scope should not be abused.

    Status kicks such as a proffered scenario that all pathogens prefer Nurses to Doctors , so Nurses must wear uniforms to protect the public, yet GP’s who literally do the same job are protected by some higher immunity making staphlycocci, streptocci, pyogenes, influenzaei shrink and die in their presence so they can wear suits and any other outdoor wear they like.
    Do you think that professionals are so numb that they cannot see through these people who put themselves on a pedestal and try and teach them their jobs yet only suck up to the ones with money .Respect is what is needed.

  7. Mark B
    Posted February 23, 2017 at 7:46 am | Permalink

    Good morning.

    What I gather from this is similar to that of a child emotionally blackmailing one, or both, of its parents into giving it something.

    “If you really loved me, then you would do this . . . . ?”

    They know, and the politicians know, that the UK government can easily be blackmailed into giving more. This can be done in a number of ways but is usually either directly through the media or, via a ‘charity’.

    The private sector concentrates more on outputs than inputs.

    True horse before the cart thinking. This is because if they get it wrong they go bust !

    I argue that a lot of this extra money goes on more staff, which is not needed, and higher salaries for senior management because, well, they now have more staff to manage.

    Less is more.

  8. Richard1
    Posted February 23, 2017 at 7:49 am | Permalink

    We hear more calls for a non-political debate – a royal commission perhaps – to discuss how to fund healthcare. This sounds like a reasonable idea if and only if there is a free remit to discuss all possible models of funding health, including those used in every other OECD country which make much greater use of the private sector. If it’s only going to be about how do we raise more tax to fund a c. 100% state funded monopoly it will be as if some reforming Soviet leader in the 70s or 80s had initiated a debate as to the underperformance of the Soviet economy, looking at all possible solutions – except allowing a private sector.

  9. Sir Joe Soap
    Posted February 23, 2017 at 7:49 am | Permalink

    Well I think the whole point is that the public sector just doesn’t understand the commercial world. For the sake of people being blinded by politicians and do-gooders into thinking of the commercial world as rapaciously capitalist and ignoring people’s needs, we have a system which is servile towards the producer, not the customer.

  10. Narrow Shoulders
    Posted February 23, 2017 at 8:05 am | Permalink

    Next time a department head asks for additional funding ask what outcomes this will achieve.

    If those outcomes are desirable then ask for a significant list of department and team heads who will be terminated on performance grounds with no compensatory payments if all outcomes are not delivered.

    I suspect the request will be withdrawn.

  11. hefner
    Posted February 23, 2017 at 8:21 am | Permalink

    The budget for 2016/17 is £772 billions distributed between
    240. Social protection.
    145. Health.
    102. Education.
    39. Debt interest.
    46. Defence.
    34. Public order & safety.
    30. Personal social services.
    34. Housing, Environment.
    29. Transport.
    24. Industry, agriculture, employment.
    49. Others (including DfID budget for 12 bn)

    It would be good if the commentators on this blog could consider the order of magnitude of these different contributions when they comment. That would certainly prevent some deep misunderstandings and/or some “screaming” headlines from some in the press from reappearing.

  12. LRB
    Posted February 23, 2017 at 8:24 am | Permalink

    The difference between public and private services is motivation.
    If you get paid anyway, why bother? There really is no answer.
    “We pretend to work and they pretend to pay us.”

  13. alan jutson
    Posted February 23, 2017 at 8:26 am | Permalink

    Sometimes you have to look at the business/service by starting to revue all aspects of its operation from a zero position.

    Certainly not suggesting this should be done on a regular basis, but competition is ever changing, as is demand, customer base, customer expectation, manufacturing methods, storage capacity, movement of goods, computer systems, function of premises, location of stores, warehousing, advertising methods, skills required, skills available, raw materials used etc, etc,

    The motor industry is always a good yardstick to use as an example of a business which has evolved for the better through constant change.

    Problem you have with State/Local Authority run organisations is there is a lack of desire/drive to change, because its income stream does not rely upon results/performance,
    so there is no real need to be cost effective.

  14. Ian Wragg
    Posted February 23, 2017 at 8:38 am | Permalink

    Year on year our council cuts services particularly high profile and popular ones.
    Year on year our council tax increases.
    We must ultimately get to a point where the council receives all our income and provides no services.
    They are busy finding new and expensive ways of not collecting the rubbish and spending millions on clearing fly tipping.
    They see no co relation between the two.

  15. Bert Young
    Posted February 23, 2017 at 8:44 am | Permalink

    Central Services – akin with all forms of bureaucracy , are costly and unwieldy organisations ; they are virtually self-perpetuating . It is in this sector that drastic reform is necessary when reducing costs to the tax payer are concerned . Recently I have learned that the local ” tree ” man has intervened in the planning application of a house ; similarly a local authority has taken months ( over 6 to be more precise ) in giving permission for ground work to commence due to the relocation of some overhead wiring . All sound like petty bureaucracy to me .

    Too many people are employed in Central Services ; obviously they will do what they can to preserve their jobs and pensions . We need a Trump to create change .

  16. ChrisS
    Posted February 23, 2017 at 8:48 am | Permalink

    I would start with two measures :

    1. End all final salary schemes across the entire public sector and introduce a money purchase scheme as provided to almost all private sector employees today.

    2. Introduce local pay negotiations based on the average earnings in the area without any kind of automatic annual increments. Negotiations would then be straightforward in that they would not be complicated by considerations of the value of other benefits such as over-generous Final Salary pensions. It is ridiculous that a public sector employee in deepest rural Wales earns the same as someone in Reading or Surrey when the quality of lifestyle possible on that income is so different.

    In the long run, these two measures would make the biggest savings of any that would otherwise be possible. It would also level the playing field for recruitment between the public and private sector and pay would find its own level across the Country.

    • ChrisS
      Posted February 23, 2017 at 8:50 am | Permalink

      By “entire Public Sector”, I would, of course, include ending the gold plated MPs Final Salary Scheme.

  17. Stephen Robinson
    Posted February 23, 2017 at 8:58 am | Permalink

    Give a copy of this to every Labour and SNP member of parliament with an instruction to read it, learn it and not return to the commons until they can recite it.

  18. JM
    Posted February 23, 2017 at 9:07 am | Permalink

    Until the public sector becomes customer led rather than producer led it will never change. too often it runs in the interests of those it employs not those it serves.

  19. Roy Grainger
    Posted February 23, 2017 at 9:10 am | Permalink

    Similar flawed public sector thinking is behind the targets to spend 2% GDP on defence and 0.7% on foreign aid. A private sector approach would be first to define what defence capability we need in terms or army, equipment etc. and then to spend the minimum amount possible, consistent with required quality, to achieve that. Just saying we’re going to spend 2% come what may provides no incentive to save money at all (quite the reverse when it comes to foreign aid where money is desperately spent on anything at all at the end of the financial year just to meet the target).

  20. turboterrier
    Posted February 23, 2017 at 9:28 am | Permalink

    What we need is a management process based on continuous improvement, and implemented by using talent well within the organisation.

    It is called ISO 9002/3/4 etc

    How many years has it been around? All previous governments have failed miserably in making accreditation to the scheme part of the acceptance of funding.

    If councils operated within the whole ISO process the fur would start to fly especially when all the staff had to face up to their yearly “Performance Review”

    It does sort out the Doers, Filers, Thinkers and Stinkers. especially those swanning along waiting for the golden bowler hat or just waiting to receive their pension package.

  21. fedupsoutherner
    Posted February 23, 2017 at 9:30 am | Permalink

    What a sensible post again John. From personal experience I know what you are saying is right. Take home helps for instance. At the moment many of them are working long hours and having to use their own transport. They don’t get paid for the travelling time between patients and often work from early in the morning until late at night. No wonder many of them are leaving for jobs with stated hours and better pay. We need good working practice in these posts. Most of the home helps that go to my mother enjoy their work but the hours and conditions are intolerable and so they leave. My mother has nothing but praise for the job they do but something has to be done to ensure the service continues and better pay and hours would be a start.

  22. Julien Tabulazero
    Posted February 23, 2017 at 9:46 am | Permalink

    Dear Sir,

    How do you expect to fund and improve public services while cutting corporates taxes to 18%, increasing NHS spending and at the same time as maintaining defence spending ?

    Can you really have your cake and eat it ?

    Best regards

  23. Kenneth
    Posted February 23, 2017 at 10:00 am | Permalink

    Every time the BBC launches a campaign for more public funds for, say, the NHS, I think of the glaring inefficiencies I see when I visit a hospital and wonder why the required money (if it is required at all) is not found by doing things better first.

    Same with councils. I happened to have a meeting at a council and in the lift some of the staff were quite openly working out when they were going to take their sick pay! Later that day the same council sent out a press release as part of a wider campaign lobbying for more central government funds.

    More than anything I blame the messenger: the media provides a platform for those who campaign for more taxpayer money but rarely gives a platform to the taxpayer themselves (whether that’s the Taxpayer’s Alliance or MPs like Mr Redwood.

  24. Denis Cooper
    Posted February 23, 2017 at 10:18 am | Permalink

    Without recklessly following Jack and acorn too far down the primrose path, I would point out that if the government really needed an extra £1 billion to spend on public services then the Bank of England could create that through another of its QE reverse auctions to buy up previously issued gilts, with the Treasury selling £1 billion new gilts in parallel.

    • acorn
      Posted February 25, 2017 at 9:09 am | Permalink

      So, the Treasury spends a £1 billion by increasing the “reserves” at the central bank with a keyboard – it could have posted a Treasury cheque. Simultaneously, it increases the deposit of an account at a private sector bank. the private bank’s balance sheet continues to balance. It has a liability to the account holder that has an extra £1 billion – presumably in payment for some good or service. The private bank has a balancing asset at the central bank – the £1 billion “reserve” payment the Treasury put there.

      The central bank doesn’t do anything with gilts; repos; reverse repos. Doesn’t have to convert gilts back into the “reserves” and associated deposits, that bought them originally. It doesn’t increase the “net fiscal assets” in the economy at all; but, the Treasury did increase the net fiscal assets in the economy by £1 billion; and, it has no operational requirement to issue £1 billion of Gilts. (Short version JR.)

      • Denis Cooper
        Posted February 25, 2017 at 6:15 pm | Permalink

        Notwithstanding all of which:

        http://www.bankofengland.co.uk/markets/Pages/apf/default.aspx

        ​Gilt purchases £429,536 million​

        • acorn
          Posted February 26, 2017 at 8:25 am | Permalink

          The word “purchases” actually means “swapped”. The Gilts were moved from the BoE securities account back to the BoE “reserves” account, simultaneously with an equal “deposit” put back into private bank account(s); from whence the “money” came from originally to buy the Gilt in the first instance.

          Phone Ryland Thomas at the BoE and get him to explain it to you.

  25. Original Richard
    Posted February 23, 2017 at 10:38 am | Permalink

    “The danger is that politicians will see extra money as the sole answer….”

    The BBC is far worse than the politicians, particularly since it pretends to be “impartial, free and fair”. The BBC’s desire for the state (taxpayer) to spend ever increasing amounts of money is relentless.

    The government needs to write into the BBC charter :

    1) Any discussion or opinion or programme must represent both sides. There is no excuse for this now we are in the age of easy communication.

    2) Whenever the BBC interviews or uses data from a think tank, academy, foundation, society, “focus group” etc. it must first inform the viewers how this organisation is funded (right to the final source) and where they can see how the data was collected.

    3) When interviewing an MP the BBC should check the HOC Register of Members’ Financial Interests and inform the viewer if there is a possible conflict of interest such as receiving funding from one side in a dispute.

  26. W Dixon
    Posted February 23, 2017 at 10:43 am | Permalink

    Honestly, does the public sector reward service excellence or see it as a method to introduce further reduction in spending?
    Your logic is fairly soundly flawed where the service is seen as an expense rather than a revenue generating center.
    Take Fair funding for Schools. In your constituency you have a low unemployment status and high achieving schools, both would be regarded commercially as a success however result in lower funding per school (to a shocking level). I have not seen you present this case to the Education Secretary for review.

  27. Tad Davison
    Posted February 23, 2017 at 11:04 am | Permalink

    ‘Shop A does not claim to be better than Shop B because it spends more on wages, computers and lighting. The shops compete on service and appearance without saying which is the low cost and which is the high cost store.’

    Interesting analogy. It is generally regarded in the broadcasting industry, that BBC television employs ten people to cover an assignment, where other broadcasters employ two people to do the same thing. Does that necessarily give us better end product?

    Tad Davison

    Cambridge

  28. Lifelogic
    Posted February 23, 2017 at 11:17 am | Permalink

    You say “the public sector needs to concentrate more on outputs, service volumes and quality.”

    Much of the public service has little output at all of any value, mainly it is all about taxing, rationing and inconveniencing the public. Also when you look at the extra £million you have to remember it has to come from the private sector and this does far more damage to the economy than the £1 million spent by the state sector will ever do.

    But Theresa Milliband foolishly seems to think the government and moronic projects like HS2, Hinkley and the appalling NHS, subsidies for “green” energy and even more taxes and red tape all over are the answer – why did she ever join the Conservatives with view like these? Was it just for career reasons?

  29. acorn
    Posted February 23, 2017 at 11:45 am | Permalink

    I would suggest a read of “heteconomist” before attempting to answer this JR post. Particularly: The Role of Government Spending in Fostering Global Growth Posted on 28 January 2017

    “The government’s role as persistent autonomous spender. The automatic-stabilizing effects of taxation in which tax revenues rise and fall endogenously with income. The government’s role as regulator of wages and working conditions as well as enforcer of the ‘rules of the game.”

  30. sm
    Posted February 23, 2017 at 12:07 pm | Permalink

    It is always fatally easy to spend other people’s money…..

  31. Alan Joyce
    Posted February 23, 2017 at 12:28 pm | Permalink

    In other words if the NHS can make a balls of spending its £120 billion budget it can certainly do the same with another £1.2 billion.

  32. Antisthenes
    Posted February 23, 2017 at 12:31 pm | Permalink

    The public sector does not have a natural customer orientated environment so mechanisms have to be incorporated in an effort to overcome this deficiency. None actually do more than make temporary improvements which are quickly eroded as former work practices reassert themselves. For the simple reason that unlike the private sector their livelihood is not totally dependent on customer satisfaction.

    This situation requires acceptance that the public sector should in most cases not be the sole provider and funder of goods and services. However it is not and instead energy and resources are wasted in the fruitless search to find ways to make the public sector fit for purpose and operate with the productivity and efficiency that is found in the private sector. It is an obvious forlorn hope which most are too blind to accept preferring to waste colossal amounts of money in an attempt to justify a socialist ideology.

  33. Lifelogic
    Posted February 23, 2017 at 1:12 pm | Permalink

    In summary government in the UK is about twice the size it should be, (for the maximum benefit of the economy and the people). It delivers little of any really quality and much of it is dire and kills thousands. Just look at the thousands of excess cancer deaths in the UK that could be saved it we just got up to just the average for a developed nation.

    It is time T May and P Hammond actually did something about it (or at least said they would). Cut taxes (many are even well above the Laffer rate), open up competition, encourage private provision, deregulate all over, go for cheap energy, fire all the people in the state sector that do nothing useful or worse, go for easy hire and fire, cut payment that augment the feckless, get out of the EU and watch the economy grow.

    Somehow I do not think May is up to it. She is just another lefty/wet Heath/Major/Cameron/Miliband type in her genes. She thinks more government is the solution, despite all the abundant evidence to the contrary.

  34. alte fritz
    Posted February 23, 2017 at 1:38 pm | Permalink

    The impression one gets from most encounters with the NHS is that those in it can imagine no other way of doing things. Of course, the patients using the NHS have nowhere else to go unless they are very well off or have medical insurance as part of their employment package.

  35. English Pensioner
    Posted February 23, 2017 at 1:51 pm | Permalink

    Efficiency and Profit seem to be dirty words in the Public Sector. One of the big arguments against privatisation is often that someone might make a profit. I’m all for privately run organisations, whether they are schools, hospitals or anything else provided that they are providing the same or better service than the state run facilities at similar cost, and that they are free to the consumer at the point of use. If they can make a profit as well, they are welcome to it! I believe in competition and there is none as far as the NHS and most of the education system is concerned.

  36. mike fowle
    Posted February 23, 2017 at 2:13 pm | Permalink

    This is all such good sense and indeed even obvious, yet so many do not see it.

  37. Richard Butler
    Posted February 23, 2017 at 2:14 pm | Permalink

    The only guest to get a cheer on last nights Newsnight from Stoke was of course a lefty playing to the gallery, saying spending was the answer to Stokes ills. As ever she fails to mention we owe £1.6 trillion and that if her lot took it to £2.5 trillion, the clarion calls for further spending would persist.

    She also fails to mention that greatly increased spending on house building and infrastructure would attract even more migrants to the area and so solve nothing.

    I wish I were a lefty, banal simplistic promises in return for audience adoration and virtue signalling status points, its all so much easier than the difficult process of making tough judgement calls with finite resources.

  38. Denis Cooper
    Posted February 23, 2017 at 6:21 pm | Permalink

    Off-topic, this seems important:

    https://euobserver.com/uk-referendum/137011

    “EU rules out post-Brexit ‘hard border’ with Northern Ireland”

    I highlight this because it is not just another statement of aspiration from the British and Irish governments but a statement of intent from Juncker.

    Of course he could change his mind, or be over-ruled, but it does seem from this that there is a willingness on the part of the EU to find a legal and practical solution.

    It is also worth noting that if people in Northern Ireland were unhappy after the UK had left the EU they would have the option of voting to join with the Republic back in the EU, in a similar way to the reunification of Germany.

    An option not open to the Scots, unless they could find an EU member state willing to take over Scotland as part of its national territory – which would rather defeat the object of voting to separate from the UK to become an independent sovereign state.

  39. getahead
    Posted February 23, 2017 at 8:00 pm | Permalink

    The public sector employs too many functionaries. Money for nothing,chicks for free.

    And public sector pensions need to be aligned with the private sector. Taxpayers face a £1.5trillion bill for public sector workers’ gold-plated pensions after their cost soared by a third in five years, a report reveals. (Daily Mail 1 July 2016.)

  40. Peter D Gardner
    Posted February 24, 2017 at 12:57 am | Permalink

    Since you mention continuous improvement I would like to add that although it is used in the NHS along with Balanced Scroe Crad, 6 sigma etc etc., it is bastardised for one fundamental reason. It cannot anchor any of these processes in supplier-customer transactions. It fudges them because they do not involve the common denominator of the entire enterprise: money. Neither supplier nor customer in the individual transaction knows in meaningful terms what it costs, nor where the money comes from. instead questionnaires and surveys are conducted that however long and searching can only skirt round the edges of the essential question: why did the customer decide to pay this much for this treatment from this individual supplier? The information is simply and by design not available to credit the transaction with such rationale.

  • 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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