Category: Blog

The press is alive with the discussion of too much spending and too much borrowing by the public sector. There seems to be several sources of the noise.

The PM wants to highlight the issue to stress the contrast between government investment (his way of describing too much spending, and waste, as well as investment) and so-called Tory cuts, the damaging reductions in public services which he invents for the purpose.

The Treasury wants to demonstrate it does understand the dangers of too much spending and borrowing, and is leaving increasingly unsubtle hints that it does not agree with the current spending trajectory. We read today of “secret” plans to cut much more from budgets to head off a public spending and borrowing crisis.

The Oppositon – both Conservatives and Lib Dems – want to get across the message that current spending is not only unsustainable, but contains wasteful and undesirable elements as well as important service provision which should be protected.

Yesterday I did a re run of ideas for immediate spending reductions and more control over the main costs of running governemnt. These met with general approval. For the record, abolition of ID cards and regional governemnt is Official Opposition policy as well. All the other ideas are likely to be taken up in some form or other by whoever governs the country, as they are the least painful ways of starting to make the necessary adjustments.

Today I wish to reinforce two messages.

One, the quango state has increased, is increasing and ought to be diminished. In recent years too many new quangos have been set up. Too many quangos have employed too many expensive people. Too many quangos demand ransom money from government to carry on, and hike their fees and charges well above inflation to swell their revenues more. Many Ministers have failed to review corporate plans, to order cost control or to prevent unreasonable increases in fees and charges. There needs to be a repeal bill to get rid of some of these bodies altogether. Ministers need to go through every corporate plan and agree ways of cutting costs and improving efficiencies. The aboltiion should include the South East Development Agency and the South East regional planning and housing empires.

Two, the public sector rich list needs to be asked to cut its demands on a near bankrupt public sector. Many companies are asking their workforces to accept lower pay, or no pay for a period, to see them through the recession. I suggest that anyone earning over £50,000 a year in the public sector should be asked to accept a pay freeze – including MPs who should also receive an expenses cut when the new system is finalised. Anyone earning over £100,000 should be asked to take a 10% reduction in pay until the deficit is down to say 5% of national income, and anyone earning more than £200,000 should be asked to take a bigger cut to be agreed individually. If higher paid believe in public service, we should want to do it for less than we can earn in the private sector.

The public sector administrative and regulatory pay bill has to be brought under control. That requires fewer quangos, fewer functions for quangos, more efficient quangos, and more realistic pay for people at or near their top.

Let me repeat a few old truths, and add a few new examples. I detect a new mood in the public and the media. Many people know public money is being wasted on undesirable schemes, on inefficiencies, poor quality, and on marginal projects. Unlike their government, most votes know this cannot go on on the current scale.

There are some obvious areas of spending to remove.
1.Begin by abolishing the whole ID cards scheme.
2.Stop the centralising computer contracts that have been so badly managed.
3.Abolish unelected regional government in England.
4.Abolish the targets and circulars bureaucracies that ensnare local goverment.
5.Have a couple of years off from legislating more regulation
6.Put through a repeal act, cutting out less desirable or ineffective regulation, so fewer regulators can concentrate on the things that matter.
7. Sell off parts of the banks to cut risk and raise cash
8. Stop all free newsheets and PR materials from government departments for a year
9. Cut the number of Ministers by 10%, reallocating responsibilities to raise their productivity.
10. Cancel all Ministerial and senior official fact finding and non essential visits abroad.

There are some general spending disciplines that need to be introduced into every government department and quango.

1. Place a freeze on all outside recruitment, save in front line roles like teachers, nurses, doctors and service personnel. Seek to appoint from within, and reduce the number of administrative posts each time someone leaves.
2. Place a freeze on new outside consultancy contracts, requiring a senior Minister to consider the case for such work and to sign off on it in exceptional cases where in house staff cannot manage the task.
3. Review all procurement, with a view to buying better.
4. Run down in house stocks which are often large and badly managed. Go over to something closer to a just in time principle for supply.
5. Close all public sector pension schemes to new staff and set up defined contribution schemes instead.
6. Set cost down targets for every sub department and quango.
7. Review corporate plans of all quangos at Ministerial level with a view to identifying substantial cost savings
8. Raise quality targets. Error rates in government are very high, leading to too many expensive complaints and to the need to do things twice.
9. Rationalise building use, shedding surplus space as the staff reductions from natural wastage kick in.
10. Rationalise transport use, which at the moment is wasteful and often not co-ordinated between users.

Yesterday we were treated to the news that the government is going to investigate how many parents might have made misleading claims when applying for a preferred state school place for their children. No sooner than we learn that Harrow are not going to prosecute a parent who applied for a place at a better school from her parents address where she was staying at the time, than the government decides to take up the cudgels to stop people finding imaginative ways of gaining the place they want.

I have some advice for the government. Instead of declaring war on parents trying to play the system, reform the rotten system. This would not happen if there were enough places at good schools in each County or unitary Council area. Whilst I of course do not condone misrepresentation or fraud, I think the right punishment for anyone found guilty of it should be loss of the favoured place and a place at a poor school, not a term in prison. There needs to be some sense of proportion.

We pay lots of tax to have education departments which serve those with children well. Those departments should be trying to ensure that all parents have a school of their choice, not seeking to enforce complex catchment rules to ration scarce good places in a way which comes down heavily on the disappointed. We need schools departments dedicated to creating more good schools, and more places at good schools.

The very system encourages people to be selective with the truth. You are unlikely to get a place at a good school from outside its catchment by saying you want your child to go to School A because it has better exam marks than School B. Arguments have to be constructed around issues like school transport, single sex education, where other family members go and what the specialism of the school might be. I have met a good few caring and sensible parents in my time, desperate for their child to go to School A. I always support their applications, whilst of course advising them to put the best truthful case forward that they can muster. I want a system which allows more parents to get their first choice, not a system which seeks to criminalise them if they get the application form wrong by mistake, or even if they dress up their answers a bit because it is so important to them.

All of us in the public sector should remember who pays the wages. PUblic servants are here to serve the public, not to create ever more complicated and unsatisfactory systems so they can prosecute more people who fall foul of them.

Beware all the statements from EU leaders that the UK has their support over the Iranian attacks on UK embassy staff. There was yesterday an orchestrated PR attempt to show the EU is on the UK’s side. Of course they are and of course they should be, as the principle of diplomatic immunity is an important one which all sensible countries uphold in their own interests. If a country’s diplomats wrongly interfere in domestic politics in their host country they should be expelled, not locked up.

I suspect the UK and EU governments decided to use this diplomatic spat between the UK and Iran as an opportuntiy to arrange some favourable publicity for concerted EU action. I note that the action does not run to other EU countries breaking off diplomatic relations with Iran or doing more than telling Iran they do not approve. Doubtless the UK governemnt is smarting from the strong showing of anti EU government votes in the recent European elections, and thinks us hearing the President of France talking of solidarity will win us all over to Lisbon and yet more powers for the EU. Dream on. The more we hear of EU politicians seeking to take our right to self government away, the more we will vote against EU government.

We learn today that the Chancellor is warning the City not to go back to the ways and days of big bonuses.

This is the same Chancellor who allowed a near £10 m pay and bonus package for the CEO of RBS, a bank where he represents the controlling shareholders!

This speech is almost as good as his “moral hazard” speech in 2007, saying the government would not bail out bad banks. I remember being very critical of that at the time. This is another corker.

Big falls in share markets yesterday were put down to worse than expected unemployment figures in the USA.

Readers of this site will not be surprised that the real economy is still struggling. In this recession in the US and the UK industrial companies have been much quicker to cut employment costs. Some have done this by agreeing unpaid leave, temporary factory closures and short time weeks. Others are simply firing many people, deciding there is too much capacity and wanting to get rid of the costs before they bring the whole enterprise down. Expect more job losses on the both sides of the Atlantic, as the green shoots do not extend to a significant upturn in industrial orders yet.

We can be sure of one thing. On both sides of the Atlantic the architects of the current failed system of regulation will conclude we need more regulation in the future. They will be interested in what they can add to an edifice which worked badly, not thinking about what they should demolish before rebuilding.

In the UK we should expect two things. They will wish to strengthen the Tripartite system rather than replace it. Instead of transferring FSA powers over banks to the Bank of England, and giving the Bank a unified command over bank supervision and the money markets they use, both the Bank and the FSA will be given bigger roles in regulating banks.

There is unlikely to be a Glass Steagall law requiring the separation of investment banking from clearing bank activities. The authorities rightly understand that some of the weakest banks in the last crisis were either traditional mortgage banks like Northern Rock, or specialist investment banks like Lehmans. The large conglomerate banks got sucked in to the crisis at a later stage.

Instead they think they will increase the capital and cash requirements of both investment banking and traditional banking activities, probably being tougher on the former. This will limit the capacity of any large bank to do more of both and force choices about priorities to use the capital. It will also mean slower growth for the economy, and more difficulty in getting out of the slump, as it constrains bank balance sheet growth and therefore limits the amount of money in circulation. The regulatory policy is currently pushing against the monetary easing policy announced.

They will continue to devote a lot of effort to micro regulation – seeking to regulate each transaction and customer relationship – as well as putting more emphasis on high level or system regulation. Before and during the crisis the authorities had the powers necessary to demand more cash and capital but failed to do so. It was not a lack of power, but a lack of judgement which led them to permit the excessive build up of debt and books of financial instruments which characterised the period 2003-7.

We need to ask will they be any better next time round? The issue is do the regulators have a leader or top officials with both the judgement and the confidence to use that judgement to control bank balance sheets sensibly? It does not require more people or new armies of number crunchers. You can do it by just examining the balance sheets of the top half a dozen UK based large banks. Any annual reading of those between 2000 and 2007 should have told the informed reader that leverage was getting out of control. In say 2005 the regulators should have asked banks to raise more capital, keep more cash, or rein in their lending levels.

Today the regulators should not be raising their demands for cash and capital immediately. They should give the banks time to adjust their balance sheets, sort out their past bad debts and get their costs under control. The central Bank should be prepared to act as lender of last resort to ensure all the main banks have access to cash should they need it. The time to demand more cash and capital will come when we see money growth and bank balance sheet growth spurting ahead again. Instead of hiring a new army of regulators and inventing a new sequence of regulations, we just need one or two people at the top of the system with judgement and confidence. They already have quite enough power to do the job. The worry is the West will hinder its recovery with too much inappropriate regulation, leaving the field more open for eastern competitors. We should also expect continued policy lurches, as the authorities have still not restored normality to interest rates, money markets or banking.

It was not a great start for the soon to be nationalised Eastern mainline company. The media were told early yesterday morning, whilst the Commons only had official confirmation and a Minister to question twelve hours later. The statement wasn’t worth waiting for. The Minister had no figures of how much revenue would fall, how much of the promised premium payments would be lost, how much capital they would need to put in, or how they would improve the performance and lower the cost of the service.

This is the second franchise that has gone wrong, implying the government’s system for letting these contracts is bad. Taxpayers have had to spend a lot of money on contract negotiation and due diligence on the companies taking them out. There won’t be any explanation or rebates on all that wasted money.

According to the Commons Minister (who simply read out his boss’s statement from the Lords, including referring to his audience as lordships) all will be well. He told us the company is profitable, that taxpayers will enjoy a period of the revenues from the franchise before selling it off again to another private sector company. There was no recognition of what a financial body blow this is to his railways budget. Once again we have a government rushing to nationalise something they clearly do not understand, which will turn out to be a worse financial deal than they let on. There was no sign yesterday of any controlling mind amongst Ministers who knows how to make this proposal work.

What should they have done? They should have taken more security and negotiated a tighter deal when they set up the franchise in the first place. They should have spent more time seeing what the relative cost of dealing with the existing franchise holder would be compared with taking it in house. I am not persuaded they did the homework or came up with the best answer for taxpayers. Given that they signed a bad contract originally, they should have spent more time examining all the options to mitigate their losses. Yesterday’s statement looked like a fit of pique allied to playing to the nationalising gallery.

Yesterday Barbara Keeley produced one of the worst Ministerial replies I have heard during the proceedings on the government’s rushed and incompetent Bill to change the arrangements for paying MPs allowances and salaries. It was so bad her boss Jack Straw also gave a wind up speech on the same amendments, to try to calm the House down. Those of us who asked her to clarify her proposals received no answers of any kind. Shortly afterwards the government lost a vote on the much hated Clause 10 of the Bill, so that clause was struck out.

Sadiq Khan was dragged to the House around 8pm to tell us about the nationalisation of the East coast mainline rail franchise, which everyone else had heard about hours before on the media. I asked him how much money the taxpayer would have to put in as share capital and working capital to set up the nationalised company that would run the service. There was of course no answer, as Ministers apparently have gone ahead with their plan to do this without working out the numbers and the money at risk. As always, they only do soundbites.,

Sarah McCarthy Fry, a junior Treasury Minister, completed the trio by being unwilling or unable to answer basic questions about how their new scheme to encourage saving for people on benefit and low income would work.

Yesterday we debated the msierable and foolish Bill the government has brought in to change the way MPs allowances are paid and to regulate MPs financial conduct.

The centre piece of the Bill is the establishment of a new quango to design and administer the expenses and allowances system – the very same system Kelly has been asked to redesign as well. We were told the rushed Bill can always be amended later in the year if Kelly disagrees!

I asked what consultations the government has held with the Fees office staff who currently do this work. No answer.

I asked if staff in the present Fees office will be automatically transferred to the new quango (under TUPE). No answer.

I asked if staff will lose their jobs and have to compete for new jobs at the new quango. No answer.

I asked how much extra the new quango would cost compared with the current arrangements. I was told it would cost the same. I find that difficult to understand, given the costs of set up and the likely high salaries that will be offered to the Heads of the new body.

We need a less generous system of allowances. I suspect we now have one, after the changes made in recent weeks. It just needs summarising and approving.

We need tighter administation of the new system. That can be delivered by clear instructions from Parliament to a suitable senior employee, who should be responsible for systems that ensure proper approval and documentation of claims.

None of this requires an elaborate new structure. A good employer embarking on such an upheaval would consult with the exisiting staff first, hear their views, and would seek to minimise disruption and redundancy cost.

This bull in a china shop approach is likely to produce more problems, not less. This government has been keen to pass lots of labour laws for the private sector. Don’t any of the rules apply to them as employers?