The news yesterday that the Treasury is asking all departments to draw up a contingent cut of 5% each is an interesting development. It only applies to about half of public spending, but is still a serious sum. The stated purpose is to have cuts available should the need arise to offset other increases in spending.
Readers will know that I advised the government to spend around £30 billion or 5% less in the first year of this Parliament than they decided to spend. Where they put spending up by 5.3% in their first year I suggested keeping to a freeze. Thereafter I accepted their profile of percentage cash increases, though I would have preferred a slower rate of increase in Year 2 and Year 3 and a faster one in Years 4 and 5. That would have saved us at least an additional £150 billion of borrowing over the five years compared to the government’s plan. I thought if we had done this there was a chance of getting through without the need for further cuts, and with a better prospect of a private sector led recovery.
I hope the Treasury’s request will lead to a more informed debate about how much spending has increased by in recent years, and on where it could be reduced without damaging important front line services like hospitals and schools. It should also lead to a proper debate about why public sector inflation has been so high in 2010-11, and whether public sector inflation is now going to collapse given the pay freeze in place.
The government inherited a public sector that did not show good productivity growth, where quality and productivity were falling behind good private sector standards. We need to hear more from DWP about how they are reducing the error rate on benefits, more from each department about how they can manage numbers without incurring large redundancy bills, how they can do more in house without recourse to so many expensive external consultants, and how they can dispose of surplus assets like property.
We have spent two years mainly discussing how to squeeze more money out of the private sector by a wide range of extra taxes and public sector charges. Listening to Mr Cameron yesterday morning it sounds as if the government now wants to do more for all those who pay their own bills and have to pay these extra taxes. To do so he needs to get a better grip on value for money in the public sector. Let’s hope we can now have as much media interest in how every pound of tax is spent, as we have recently had in how it is raised.