Three Options - All Bad

THURSDAY, MARCH 18, 2010

Three Options - All Bad

The Brothers have already had their chance

As we all know, somehow, some way, we have to cut public spending. And we have to cut it by more than public spending has ever been cut since the 1920s - ie before even Tyler Senior was a lad (see this blog).

Yesterday Tyler attended another of thinktank Reform's excellent sessions on how this might be achieved through reform rather than a blunt instrument. The principal speaker was a senior private sector consultant who has spent years advising the public sector.

He was very informative, and with the aid of a Powerpoint chart, he explained how there are really only three options:

1. Increase public sector efficiency
2. Contract services out to more efficient private suppliers
3. Cut services.

Which sounds spot on. 

Except when you remember we've already seen how those options pan out in practice:

1. Increase public sector efficiency - precisely what Brown's Gershon efficiency programme was designed to do; it flopped, degenerating into a Marx Bros farce of frantic deckchair rearrangement and party-of-the-first-part-herinafter-known-as-the-party-of-the-first-part sanity clauses (egsee this blog, and all Gershon posts gathered here); when the National Audit Office looked into it, they found only about a quarter of the declared savings were provable, and that was just on the initial tranche, which presumably gathered in all the low-hanging-fruit so beloved of efficiency consultants.
2. Contract services out to more efficient private suppliers - precisely what the Simple Shopper has been doing for decades - buying services in from the private sector under contracts it negotiates to deliver value; except of course, the Simple Shopper is incapable of doing that, and from the NHS Supercomputer, to spy-planes, to GPs contracts, it ends up paying through the nose for services that often don't even deliver what was required; indeed, the Shopper is so hopeless at negotiating and managing commercial contracts, that many private suppliers are now wary of dealing with the public sector in case there's a subsequent political firestorm (eg see this blog).
3. Cut services - yup, that's what you end up with.

In fairness, the consultant was much more optimistic than Tyler about the possibility of making the public sector more efficient, and training the Shopper to do a better job. Well, that's a view. But as far as we can see, we're facing three very unappealing options - two that don't work, and one that we don't want.

Which is why we need to think much more radically. The fundamental reason the public sector is so inefficient is that it is too centralised and lacks the competitive spur. And the only way we can realistically expect to drive higher efficiency is, in one way or another, to introduce competition.

How? Well, to repeat some very familiar themes, we need to break up the public services, decentralise, and introduce choice and competition. which means among other things:

• School vouchers - education buying power put directly into the hands of parents (eg see this blog)
• Social health insurance - the continental model of compulsory insurance with competing providers
• Fiscal decentralisation - devolve much greater tax raising power to local authorities and make them fund themselves, accountable to local tax payers
• Directly elected officials - eg those sheriffs

Of course, that won't be enough on its own, if only because it will take years for such reforms to deliver improved efficiency (BA is still struggling with its residual legacies a full quarter century after privatisation).

So in the short-term, there will need to be cuts of the kind set out in the TPA/IOD paper last autumn (see this blog), and most people at yesterday's meeting agreed on the need for Irish style cuts in public sector pay, pension entitlements, and payroll (see this blog). The £200bn pa welfare bill will also have to be cut.

But if we are to come through this crisis with public services that have a future, fundamental reform is absolutely essential. Decentralisation and competition is the only way.

PS Another very familiar question came up yesterday - is Britain actually ready for cuts? As one attendee put it, out in the real world away from Westminster, there's very little sense of the hole we're in. Unlike the 70s, there's no sense of real world crisis and impending doom. Sure, if you've lost your job, you may think that's a problem, but you're hardly likely to be calling for spending cuts. Until mortgage rates start going through the roof, the crisis just doesn't seem real. It will be a brave politico who cuts ahead of the crisis. We may indeed need another Dunkirk before we accept the horrible truth.