Here Mr Haldenby makes a good case but oversimplifies it. He is absolutely right to stress that the cuts cannot be purely administrative but must involve changes in goverrnment policy at a high level.
But the urgency is not sufficiently appreciated. We are running out of time to keep our economy going before foreign investors decline to lend us more. If they were to do that the economy would collapse. Also he fails to address the poisoned legacy an incoming government would face. Brown’s dysfunctional administration has laid a minefields for future government.* A great many favoured candidates for the ‘chop’ are based on outside contractors who have medium to long-term contracts. These cannot be instantly scrapped. Thus there will be fiscal drag.
This is the reason why in the early months, tax rises will be inevitable merely to fill a black hole. These rises can be billed as ‘temporary’ and can be enacted with a ‘sunset clause’ to make this clear. This very policy is being ‘trailed’ as likely to apply to Labour’s 50p top rate of tax (which turns out to be 63p for some!) .
Having made that caveat I wholeheartedly endorse his plea for wage cuts for those public servants who have prospered mightily while others have suffered. I applaud his attack on the sacred cows ogf welfare spending, the NHS and suggest that policies and aims must be re-examined across the whole of our national life. Nothing should be ring-fenced.
Christina
* One example of the poisoned legacy. Yesterday two announcements were made. Firstly and the highlighted one - we are apparently to see the electrification of the London Swindon, Bristol, Cardiff Swansea mainline railway,. No funding was identified for this. Secondly - and allegedly related - contracts for new rolling stock would be cancelled as therefore not needed. So we have a definite cancellation and a pie-in-the-sky improvement. My bet is that we’ll get neither!
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24.7.09
We don't need tax rises, but we do need some honesty about cuts
The public will support tough measures, as long as they feel part of the process, says Andrew Haldenby.
Three months ago today, the Chancellor announced the most nightmarish Budget in the nation's history. Once they saw the projections for the public finances, the voters immediately understood that government spending had to be brought down, and waited for their leaders to set out a plan. The wait goes on. The politicians are leaving for the long summer break having offered up some rhetoric about the need for spending constraint, but little more.
In fact, as the political season closed, the talk was of tax rises to fill the fiscal hole. One Conservative MP told a friend the other day that of course taxes would rise under a Cameron government, because tackling public spending is just too difficult. On these pages, Benedict Brogan said that the inevitability of tax rises in the next Parliament was David Cameron's and Gordon Brown's "inconvenient truth".
Little could be more damaging to the recovery. On the evening of the Budget, our think tank held a dinner for business leaders; two of the attendees had been called that very afternoon by the Swiss and Irish governments and by a leading Swiss bank, offering help with their relocation costs in the light of the Chancellor's increase in the top rate of income tax. Governments compete just as businesses do, and higher taxes in the UK will help us lose the economic game.
There is also an argument about fairness. Supporters of tax rises generally claim to target the "super-rich". But these people are will-o'-the-wisps, flitting to whatever jurisdiction is most attractive. Tax rises inevitably fall on middle-income and lower-income people – the very people, as Edmund Conway wrote yesterday, who are bearing the brunt of the recession.
The truth is that Britain does not have a problem with low taxes. It has a problem with high and ineffective spending. The way out of this crisis must involve a reduction in public spending, to make the state affordable, and to make it work better. The good news is that there is a wealth of experience, from this country and around the world, as to how to do it – and how not to.
The wrong course of action would be the kind of panicky, unplanned cuts that we have seen in Britain many times before. This is exactly what people in the public sector are expecting: a crude reduction in their overall budget, in the form of an order from on high to cut spending by a certain arbitrary percentage.
The politicians will inevitably sugar the pill by talking about a reduction in "management" and "administration". In the past two days, David Cameron and Gordon Brown have promised to "protect front-line services", implying that it is managers, accountants, secretaries and so on who face the axe. Those in the public sector expect capital budgets to be cut, while jobs and salaries are kept safe.
Yet however appealing it sounds, this would be the wrong approach. Faced with an overall cut in their budget, public-sector leaders will tend to reduce their wage bill by cutting back on higher salaries – getting rid of the most experienced and capable staff. They will also reduce the number of administrators – firing secretaries, for example – but that just forces other staff to waste time on administration. In fact, this kind of approach would make public services less efficient – which is why it hasn't worked in the past.
The waste in the public services lies, very largely, in that "front line". The NHS will become more efficient only when doctors and nurses are employed in different ways and its buildings used in different ways. A pledge to protect the "front line" will just compound the current problems. Similarly, the right kind of spending on capital projects and infrastructure can support long-term economic growth, particularly in Britain, which has underinvested in transport and energy for years.
So the first step of the recovery plan is not to panic, and to resist the temptation to impose crisis cuts that prove self-defeating. Instead, politicians need to help the public understand that if services are going to cost less and work better, every part of them is going to look and feel very different.
The second step is to tackle the areas in which the most is spent. Britain's leaders have talked about "protecting" these big-spending areas, such as health, benefits and defence.
But other countries have recognised that these big areas are most in need of change. One example is "middle-class welfare". Much of the welfare state takes from the poor and gives to the rich – for example through paying child benefit to any mother, no matter her economic situation.
By contrast, Australia, New Zealand and Ireland have limited child benefit to families on lower incomes. In Britain, such a move would save £7 billion a year, or more than half of the annual cost of the police service.
At the same time, we also have to tackle the largest single individual cost in the public sector – the pay and pensions of public servants. In its latest budget, the Irish government proposed a reduction across the board. In fact, the best approach would be to target pay cuts at areas where there have been recent pay increases that were clearly over the top: doctors' pay should certainly come under the microscope.
The third step is to be honest with the people, and get their ideas. This is the main lesson from the Canadian experience of shrinking government. Facing a fiscal crisis, ministers launched a four-month consultation process before the 1995 budget. Interest groups, the media and voters put forward their own proposals, and even presented entire mock budgets. The process generated a wealth of ideas and cemented public support for radical change.
The final step is that parties will have to spend some political capital to get a real mandate. Going into the 1994 election in Sweden, the Social Democratic opposition had the support of around 50 per cent of the electorate. Then, they announced their programme for eliminating the deficit within four years, largely through spending cuts. They won with a vote of 45 per cent: in other words, they accepted a five point loss in their share of the vote in exchange for a mandate to make the necessary changes.
In Britain, support for the right course of action is higher than it ever was in Sweden. Polls consistently show that a massive majority – around four in five people – think spending should be significantly reduced. Even if a party loses some votes through its honesty about the need for such measures, it will still be able to count on overwhelming support. It should also remember that those Swedish reformers were re-elected – twice.
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Andrew Haldenby is director of the independent think tank Reform (www.reform.co.uk)
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