Category: Blog

Today’s Sunday Telegraph story of Health Authorities planning cuts to operations and services for patients makes grim reading. The story should pose this question – Why are the managers even thinking of cutting important services when they have been told spending will rise in real terms?

It’s very old politics for public service managers to trot out unacceptable “cuts” they claim they need to make to live with the increased money they have been given to spend. In the new world we need public sector managers who can improve services and deliver more when they are offered more money. Health is being offered a rightly privileged position in the current spending round. In return I look forward to it avoiding these sensational and worrying stories. The answer to any Health manager who offers such fare should be a polite “No”, and a requirement they start to manage better.

There is one simple answer to US Senators wanting UK and Scottish Ministers to attend Senate hearings to answer for their conduct: “Never”.

UK Ministers are answerable to the UK Parliament. If the US needs clarification of UK policy or actions it should seek it through diplomatic channels. I did not agree with the Scottish decision, but they had every right to make it following their process of law.

The UK Parliament does not demand that the US administration comes to answer here when US citizens or companies behave in ways we dislike.

The last government signed a lop sided extradition treaty with the USA and gave to the EU the extraordinary power of the European arrest warrant.

It is high time the UK defended and reasserted its own judicial and decision making integrity. The US may wish to assert all types of extraterritorial jurisdiciton, but that is no reason for us to give in or to take it seriously.

It is also time the US gave up its vendetta against BP. They should instead have a full enquiry into what went wrong in the Gulf, examining objectively the mistakes made by all the companies concerned with the well, and the actions and inactions of the US safety and oil regulators.

I hear that my blog on Councillors finding freedom difficult is attracting interest around the country. I am being asked to provide some more thoughts on how a good Council could become more efficient and successful, now it can cast off the government controls and bureaucracy.

I would suggest Councillors begin at the top of their organisations. Many Councils are top heavy with officers brought in to respond to labour’s endless circulars, questionnaires, special grants, plans and requirements. Now we see the end of the Comprehensive Area Assessments, regional plans and the pressure to set up Partnerships, much of this needless central bureaucracy can be swept away.

Councils need good management. The management positions should reflect the priorities of the Council, and should have job titles we can all understand so we know who is responsible for what. A new Council might look something like this:

Strategy and Policy: Leader of the Council advised by Majority/coalition Councillors

Chief Officer: Head of management team, adviser to Leader and ruling Group on strategy, responsible for implementation of the strategy. Responsible for smooth running of the Council and for regularity. The post is not comparable to Chief Executive of a company, as it is not revenue and profit responsible, and takes the general strategy from the ruling Group’s manifesto. Pay should be less than the Prime Minister’s.

Chief Finance Officer

Chief Education Officer

Chief Social Services Officer

Chief Environment and Planning Officer

Chief Officer for Regulation and public protection (trading standards,police liaison etc)

This team of five Chief Officers could have the following principal reports:

Education: Head of Schools
Head of libraries and cultural affairs
Head of Special Education

Social services

Head of childrens services
Head of adult services
Head of social housing

Environment and Planning

Head of Highways
Head of public transport
Head of Planning

Finance

Head of Personnel
Head of IT and back office services
Head of property and capital programme

That makes a total of 18 senior officers. It would be possible to reduce this further if Chief Officers would take on one of the named functions reporting to them themselves. The Chief Education Officer, for example could also be Head of Schools. The Environmental Chief could also be the Chief Planner.

This structure would simplify the Chief Officer’s task, with just five direct reports. Chief officers meetings would be smaller and shorter. From time to time when the Chief Officers’ group reviewed specialist areas, they could bring in the next tier of officers in the relevant subject area. Each Chief officer would have fewer than four direct reports.

This is a model for a Unitary or County authority. Districts would need less, as they do not carry out fucntions like Education and Social services. They might even be able to share Chief Officers with neighbouring authorities.

It would have the advantage of letting the public know who did what in a straightforward way.

I once watched a Channel 4 boss goes under cover programme about a private sector company. It was interesting, exposing problems in the company and leading to new thinking by the boss on how he should do his job.

I therefore tuned in with anticipation last night to see them do the same thing in the public sector. THe CEO of Tower Hamlets went under cover, working with Meals on wheels, pest control, enforcement and housing.

In each case they choose a member of staff who behaved well. The film enabled the CEO to present the case that he ran the perfect organisation, that it was very efficient, and that the lessons to be leanred were they needed more money for capital investment and needed to allow their staff to spend more time on their jobs. Each staff member he worked with was given special recognition or promotion.

During the movie the private sector had to be atacked for putting profit before service. Really Channel 4, you need to make more challenging programmes than this. Why has public sector productivity fallen so far behind private sector in the last ten years? Why couldn’t you choose a boss and a case where lessons could be learned to improve things? We need intelligent and informed debate about how we in the public sector can raise our game, not propaganda films.

Some bloggers complain that I want to encourage more debt, to reinflate the bubble. They add that I do not take seriously the need for lower house prices, and want to carry on with the old model of inflationary booms based on rising house prices.

These are serious points, but based on a misunderstanding of the remedy I am proposing. We need to rebalance the economy, not drive it downwards.

Take the issue of debt. The public sector, some individuals and some companies need to borrow less. The process of cutting personal and company indebtedness is well underway. That’s why, for example, RBS has shed £700 billion from its balance sheet already and is planning to shed another £300 billion because it had borrowed too much. Individuals and companies who have still got too much borrowing would be wise to carry on with the necessary adjustment, and are likely to do so.

The public sector has only just begun to cut the rate of increase in its debt, and needs to do much more. That is what most contributors to this site have been agreeing and debating for the last three years.

To create a more successful economy we need more raqpid growth in a range of areas like exports, manufacturing and some private services. This is where we need banks that have the capacity to lend more. To grow an economy or to rebalance an economy you need a ready supply of credit for good investments, to pay for the productive and potentially profitable activities we need to strengthen. All those people and companies who have not overdone the borrowing need access to credit.

The UK needs new power stations, better roads, more exporting manufacturers. It needs to make more of the things we currently import from China. That is where we need more lending. The collapse of business lending by £60 billion in the last 17 months has overdone the repayment of the corporate collective overdraft. The business sector is now on average well financed and generating cash. It could do with a bit more borrowing.

House prices have fallen by around one fifth from their peak levels, but are still high compared to people’s incomes. Some of the quantitative easing seems to have found its way into some recovery of house prices from the low. In recent weeks agents report a surge of property coming back onto the market after a period of little supply. This is probably related to the abolition of Home Information Packs, which deterred people from testing the market with their homes. It is also likely that the CGT changes encouraged some buy to let owners to sell before the new higher rate came in.

Part of the rebalancing would in an ideal world allocate less money to housing and bring house prices back into a better relationship with earnings. This may now happen, with more real estate professionals expecting a period of house prices moving sideways whilst earnings resume some upwards progress. Stricter controls over immigration will take some of the demand pressure out. Tougher bank rules over deposits and the income needed to service a mortgage will also take some of the heat out. Sensible people will work out their family finances with the expectation that interest rates will not stay this low for ever.

Those who want a more abrupt adjustment of house prices to “get it over with” are also wishing for more instability in the banking system which could damage other activities. If the authorities allow too sharp a decline they may lose control, as they discovered in the autumn of 2008.

Most of the economic and spending debates at Westminster are about sums of money that will not make much difference to a £1.5 trillion economy.

I wrote during the election that arguing about £6 billion more or less was debating a rounding error in the National Accounts. The real money was being moved by the banks and the government in tens of billions.

Of course a few million here and a few billion here can be important for a public service or individual groups of people or for a part of the country. We do need to have those debates and try to get the detail right.

We also need sometimes to have a big picture debate. We need to discuss the forthcoming £390 billion of bank refinancing and roll over in 2011, the odd £400 billion of bank refinancing the following year, to talk about the £60 billion withdrawal of business credit, to keep in mind the £200 billion of quantitative easing and to understand the impact of a £150 billion deficit on our credit rating and interest rates.

There are mutterings from near Threadneedle Street that we might need more of the same money printing medicine as we had last year. I don’t think so. The question the Bank should be asking is why didn’t more of that money find its way into the private sector to finance a recovery? The answer is because the banks were under regulatory control to lend less and save more. QE was a device of the last Labour government to keep the costs of government borrowing low. It had some inflationary consequences along with the exchange rate decline. Banks were made to lend it to the government in the name of strengthening their liquidity, with government loans rated highly for their balance sheets.

The refinancing of the banks is large but can be done. The banks are in much better shape now. RBS after all has been on a compulsory slimming diet which will almost halve its balance sheet in a couple of years, cutting the amount of capital it needs.

Instead of worrying about printing more money the Bank should be concentrating on its forthcoming duties to regulate the banking system. It should have a plan now to ensure sufficiently capitalised banks are able to pass on an appropriate amount of the extra money that has been created to private sector uses. The challenge is not to debauch the currency more, but to fire up the private sector Quattro. At the moment the public sector Audi is taking most of the fuel.

In October 2007 the borrowing binge peaked. That month lending to small and medium sized UK companies grew by a heady 33.5%. UK business took out an additional £17.4 billion of loans in just one month. In July of that year banks’ syndicated gross loans less maturities peaked at £23.9 billion in the month.

Labour’s boom bust monetary policy then created the opposite horror. By July 2009 bank lending to small and medium sized companies was contracting at a rate of 14.8%. Over the year to May 2010 bank lending to business fell by £46 billion, whilst syndicated gross loans from banks fell by £51 billion. Between January 2009 and May 2010, loans to UK business contracted by £60 billion.

The result is a private sector cut back substantially, and now much less in debt than before. If we want a decent private sector led recovery – and that seems to be the consensus wish- we need some sensible growth of business credit. In April bank lending to SMEs was still falling. Overall lending to business is still contracting. There is no great banking or market enthusiaism to raise the large sums needed for private infrastructure and the growth projects we need.

The government is going to have to change the banks, by working on the ones it owns, and changing the regulatory message to the rest. More prudence was needed after the excesses of 2007. In today’s climate, when banks have better balance sheets and business is less geared, it’s time for a change of tack to get that recovery we all want.

You might have thought when the government needs to borrow £150 billion National Savings would be after your money. Yet if you go onto their site this morning it tells you they are not currently selling either Index linked or fixed rate 2 or 5 year bonds on their usual tax free basis.

It can’t be they do not want the money. There must be some rethink going on. Apparently Index linked certificates have proved very popular. When bank and other savings deposit rates are so low many have preferred the 1% plus inflation that National Savings was offering, to give them more than 6% a year tax free at the peak of the inflation the monetary authorities have unleashed.

Savers have been getting a rotten deal generally from this era of low official interest rates. Cash on short term deposit has yielded very little, and even medium term savings plans have been on the mean side. Will National Savings come back into the market at lower rates, to give the private sector more chance to compete around a base rate of 0.5%? Or will they come back in with a better offer themselves, recognising that savings rates generally have been too low?

Why didn’t they have the new products ready for the withdrawal of the old ones?

The banks have to think how they are going to respond. They too need deposit money in bigger quantties than they currently enjoy. At a time when it is fashionable to say banks should lend what they can collect by way of deposits, attention shifts to how good they are at attracting them.

Savers are fed up with being mugged. The last couple of years has produced negative returns on many conventional savings products as prices have risen sharply. As always I am not offering investment advice on this site nor recommending particular products.

As someone who has in the past been an enthusiastic Atlanticist, valuing our relationship with the USA, I don’t think Mr Cameron should expect or even seek a “special” relationship with Mr Obama. I want us to maintain our close ties with the USA. but think they are stronger at the moment people to people, business to busienss and with a wider range of US actors than the current beleagured administration.

Mr Obama has intensified the war in Afghanistan, and judges his allies by the extent of their commitment to this endeavour. All are found wanting, as his allies do not share his view of the conflict. They also suspect that he is looking for the exit himself. His decision to intensify the conflict and increase the number of US troops was born of his election campaign when his positioning required this statement on Afghanistan. Today it appears that he will need to show progress in bringing the troops home for a future election.

Mr Obama probably belongs to the US school of thought which wants to ring one number to talk to “Europe”. So let him talk to Baroness Ashton all he likes and see how he gets on. She may be amassing an unwanted army of diplomats at our expense, but I am relieved to say she still down not command our troops.

Mr Obama has declared war on BP, and sought to represent this global company as some kind of British destructive force in the USA. The President is getting a reputation for being anti business, and seems to like having a foreign business whipping boy. His interventions have not helped control the leak or deal with the disaster.

Mr Obama has been critical of the policy of controlling large and growing public sector deficits. Just because the USA has so far got away with a high spend high borrowing strategy does not mean smaller countries are able to do, as Ireland, Greece, the Baltic states and others have discovered to their cost.

Mr Obama has lost much of his star dust in the USA. He is now a much more unpopular President than Mr Bush at a similar stage, and faces a difficult fight in the next Congress elections.

At some point the polls will tell Mr Obama he has to revisit his policies in several key areas. How much longer can he go on increasing spending? How far can he take the socialism in a largely free enterprise country? When will he find a new approach to the Middle East? Is his relationship with China good enough to ensure they carry on buying US debt? Is he going to duck being the climate change warrior he promised in the election?

Mr Cameron should speak up for British interests without fear or favour. He should tell the President privately that all the allies need to leave Afghanistan as soon as possible. They should work on a way of ensuring the Afghan forces can take over more quickly. In wartime the US and UK trained many troops in a matter of weeks or months. The idea that it will take another four years to train enough Afghans to patrol their own country is a strange one.It is also unlikely that the west might be able to handle the politics of that difficult country and make a political breakthrough in the next couple of years, given the experience of trying over the last eight.

The Coalition started well. Their cancellation of ID cards, HIPs, and lots of regional government was just what many wanted to hear. Yesterday’s papers contained a few warnings that the civil service empire may strike back.

Mr. Lansley’s wish to streamline the bureaucracy in health has led to claims that Health Authority and PCT chiefs might be in line for massive pay offs. Mr Maude is busy trying to change the basis for redundancy payments, which is far from popular amongst officials. Mr Pickles’ statement that the stifling and expensive Comprehensive Area Assessment bureaucracy is being swept away has not be greeted with announcements of similar cuts in bureaucracy in Councils who had to provide all the information and comply with the system . Instead Councils seem to favour cutting grants to voluntary bodies, and some officers will probably be looking around for the most politically damaging reductions in services possible to put Councillors off the whole idea of saving money.

Meanwhile some MPs are trying to get the government to carry through some politically popular cuts. How about starting by sending many of the 12,000 foreign prisoners back to their homelands, with a clear statement that they will never be allowed back into UK now that we are planning better policed borders? That might help cut prison costs and cut the numbers of new prison places needed.

Why not follow up by asking Mr Hague to go to Brussels and explain that as the UK is having to cut parts of its domestic budgets, we expect Brussels to do at least as much. Would Brussels like to show us what 25% and 40% off their budget might look like, as that could prove very popular.

Most popular of all would be to follow up the PM’s statement that our troops will be out of Afghanistan within five years, with a faster timetable for training the Afghan army and police so we can pull out earlier.

Messrs Holmes and Lilico have produced a very useful guide to pay and staff numbers in the public sector entitled “Controlling public spending”. That shows, for example, that senior officials in national government rose from 5000 to 9000 between 2002 and 2009, public sector “marketing and sales” rose from 11,000 to 29,000, management consultants, actuaries and statisticians from 5000 to 23000 and public relations officers from 5000 to 10000. That shows there is plenty of scope for natural wastage to bring down the totals markedly over the next five years. Presumably the number of receptionists went up from 18000 to 30000 because there were so many new bodies set up.

This big increase in recruitment helped take total public employment on the ONS survey up from just over 6 million to 7.3 million. (6m on the narrower definition). The median salary in the public sector is now 12% higher than in the private sector, and median hourly earnings 30% higher.