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.