The Prime Minister this week is showing signs of trying to rebuild bridges with his unhappy Parliamentary party, and with his dwindling band of supporters in the country. We have witnessed an announcement about new rights for temps, ticking a box on the Unions’ agenda.
If he is to govern well (for a change) he will, however, continue to be at variance with his Trade Union base over the whole vexed question of public sector employment and pay.
If he is to have any chance of pulling the UK economy out of its many troubles in time for the General Election in May 2010 he needs to curb public spending. Cutting the benefit bill – the “costs of economic failure†as he used to call it – is going to prove difficult in the sharp deceleration we are now experiencing. Curbing the costs of employment in his rambling public sector is essential, if he is to control the ballooning deficit, give some scope for the interest rate and tax reductions the economy and the voter needs, and to restore some balance to a very unbalanced economy.
We are now entering a phase of significant private sector redundancies in the sectors most exposed to the credit crunch. We can expect more lay-offs in the house-building and construction industry. Last night, at a meeting with the NHBC, some MPs were taken through the bleak figures, with a likely 40% decline in new house-building this year. The retail sector is entering tough times, which will force some stores into cost-cutting redundancies, or worse. Any business handling discretionary spending by consumers will find there are fewer and fewer discretionary pounds left after people have paid the Council Tax, the Income Tax, the petrol and the gas bill. The banking sector too will need to slim down its staff numbers, led by the major redundancies from the government’s very own Northern Rock.
So if the government is serious about controlling inflation, and curbing its own over large deficit, it has to curb the growth in public sector pay costs. The Prime Minister knows this, and for a year has been telling the public sector that we have to accept pay awards below the current rate of inflation. MPs have voted for just such a low increase, accepting we should take less than the Pay Review awarded. Other public sector workers will not be so understanding of the need for restraint.
It is particularly odd that the government should have decided to pick a fight with the police over this very issue, when the Pay Review Body award was perfectly sensible. The police perform a difficult task and do not go on strike. The least a government can do for them is to honour the independent Pay Review conclusions when they come up. The Home Secretary has shown her inexperience by allowing this battle, and the Prime Minister has once again shown a failure of judgement over which battle to fight, and with whom.
So what could the Prime Minister do to curb the public sector pay bill? He should grasp that the problem is a compound of two errors – too much recruitment in recent years to quangoland and the bureaucracy, and some very generous pay awards that cannot now be rescinded. He needs to apply a steady but realistic downwards pressure on settlements, being tougher on the overstaffed bureaucracy than on the hard-pressed front-line public servants in the police and armed forces. Above all, he needs to start reducing the numbers by an across-the-board policy of natural wastage, exempting front-line employees in schools, hospitals, public protection and the armed forces.
In a public sector of five million employees at least 250,000 are likely to leave their jobs this year alone. If half of those leavers are not replaced, that would take a useful 2.5% off the pay bill. Making the bureaucracy an additional 2.5% more efficient would be a doddle. It would save taxpayers £7.5 billion in a full year assuming a total cost of just £30,000 each for their employment.
There are obvious savings a sensible government could make that probably do not appeal to this Prime Minister. Cutting out much of the regional bureaucracy in England by abolishing the Development Agencies, Regional Assemblies, government offices, strategic health authorities, regional housing quangos and the like would get the slimming process off to a good and popular start. Slimming down the 3000 different grant schemes at the Department for Business (rather than re-presenting it as the government is doing), simplifying the tax and benefit system to stop so much of the expensive money go round where people pay tax to pay their own entitlements, and stopping so many quangos pamphleteering against each other at the public expense would help.
Picking a fight with the police is one of the dumber things this government has done. Not controlling public sector employment and pay is one of the main reasons the UK economy is now in such a weak position compared to many of our competitors. It is preventing the lower interest rates and lower taxes the economy needs to compete, and individuals need to balance their budgets. Of course, there has to be a fall in living standards to adjust after too much borrowing. The way the government is doing it, too much of the adjustment is falling on the private sector, which means fewer jobs and greater unhappiness ahead.
May 21, 2008
With regard to MP's pay you should have been voting for a PAY CUT!
May 21, 2008
"Well, if I were going there, I wouldn't start from here. I'd go to Ballymollee and start from there." (Old ethnic joke).
Fine words John but where is our Ballymollee? There is no way we are going to get “there†unless we get back to “Zero Based Budgeting†across the whole of the public sector, this will be a big task for our next government. The only way will be to get a solid grip on the short and curlies of HM Treasury. Fortunately, there is a little band of renegades at the Treasury who are trying to codify who is spending what; gods bless them. They are called the Whole Government Accounts Team.
http://www.hm-treasury.gov.uk/documents/public_sp…
As you introduced the “name that tax†game recently, I would like to suggest another game. This will require Redwood fans to name the top 10 Quangos / NDPBs etc for elimination from the 1300 odd that are available on this spreadsheet. I suggest we give the “British Potato Council†a break, they have been taking some flack lately – yes it is there. Notice there are now four worksheets on this Excel spreadsheet – tabs at bottom of page.
http://www.hm-treasury.gov.uk/media/A/0/wga_20070…
Unfortunately this spreadsheet does not allow us to link to the money pages, but that may be available to you John, perhaps you could arrange access for us?
Who knows, if the Citizen Initiative Bill, or even the Citizen Convention Bill accidentally become law we may be able to shut down a few of these spenders. Meanwhile, I will continue studying PESA 2008; I have made it my mission to understand it by Christmas – sad bugger.
http://www.hm-treasury.gov.uk/economic_data_and_t…
May 21, 2008
Sorry, John, but a bit of natural wastage and a bit of efficiency savings will not do the trick. What is necessary is for whole departments and functions to be abolished (remember the Price Commission). This is win-win: it reduces the financial burden on the productive economy, as well as the regulatory / administrative burden.
Just slimming back the functions of government to where they were in 1997 would be a great start.
Reply:My advice today is to this PM for now – of course a sensible governemnt will want to remove functions and quangos
May 21, 2008
I agree with you about cutting the civil service by not replacing retirees. This would be a relatively painless way of cutting since none of those not getting jobs would already have them, while the money liberated would help in the creation of several times more new non-government jobs. Moreover, under Parkinson's law it is inevitable that the work required & government spending needed to do it will increase, or decrease, in line with the hands available. In the medium term this is a key to cutting expenditure.
You are also correct in noting Brown's need to satisfy the unions. A high & growing proportion of union membership is in government employment & whether the opportunities for school leavers would be better in the private sector of a growing economy or the public sector of a stagnant one the unions NEED to keep up public employment.
This then is a quite unusual situation in British politics where it is almost impossible for one party to steal the policies of the other. Labour cannot deliver a major cut in public employment, or indeed in their benefits such as inflation proof pensions & job security irrespective of competence. If, as I believe, these paying for these benefits is strongly resented by most of the population it is therefore ground on which the Tories can happily fight.
May 21, 2008
I have a number of suggestions to deal with slimming down the public sector wage bill but I won't go into them here. I might do so on my own blog in the next few days (or I might not).
My first suggestion is why not allow private companies to start their own police force and prison? We would then get the efficiency of the private sector into the public sector.
If my local police force is providing an inadequate service why shouldn't I be able to ask their competition to deal with crime that is committed against me? At the moment the police and prisons have a monopoly why shouldn't there be competition in the sector?
May 21, 2008
One of the essentials for pulling the UK economy out of its many troubles is surely to tackle the problems produced by so-called home 'ownership'. Property values are wildly over-inflated, which is not good either for individuals or for business. Reckless lending secured against these inflated values is what has been funding consumer spending in this country for far too long now, at grave danger, as we have now found out, to the country's long-term economic health. The banks (who have been borrowing themselves against the value of their books) and the individual borrowers are like people who have been repeatedly using one credit card to pay off another, and finally the day of reckoning is here.
A competent government would accept that some pain is going to be necessary, and that property prices need to fall. It should allow reckless lenders such as Northern Rock to go to the wall, concentrating its efforts on protecting the interests of savers as far as that is possible.
None of this would be popular with the electorate. Sometimes though governments of any colour need to take deeply unpopular decisions, and it is their willingness to do so that determines their fitness to hold office.
May 22, 2008
John – since you revamped the website, have you, too, noticed how much it has improved? A much better class of contribution!
Anyway, two little points to add:
1. Notice how, at this very moment when the construction industry is laying off workers, when Estate Agents are going out of business (who would have foreseen that!) and when, in my own little area, there are a lot of unsold houses, at this very point in time, the Regional Development Plan has been unveiled with huge eco-towns all over the Region. Out of touch or what? (I suppose it is preparing for all the unwanted, and so often illegal, immigrants. Also, of course, for all those one parent families).
2. The Labour party is now £21,000,000 in debt and Lord Levy has gone. So, let me ask, who do you think is bankrolling the party now? And, of course, the EU is right in there with its disastrous economic recipe for all its workers…..