Here is how your taxes, when they are not paying for bath plugs on MPs’
expenses, disappear down the great drain hole of public spending.
In 2004, for example, the government decided to create a single IT system for
the prison and probation services, supposedly costing a total of £234m. By
2007 the estimated cost had rocketed to £690m and the project was two years
behind schedule. Last month the National Audit Office (NAO) reported with
mandarin understatement that the project, now scaled back to a mere £513m,
“has not delivered value for money”.
Or take the grandiose plan to create a central NHS computer system. Originally
budgeted at £2.3 billion, it is now expected to cost £12.7 billion. It is
years behind schedule, may never work as promised and is seen by many
doctors as a waste of money.
Or consider the case of Bob Quick, who quit last week as assistant
commissioner of the Metropolitan police after revealing secret details of
imminent raids on terror suspects. At just 49, Quick is in line for a
pension of £110,000 a year. He can look forward, with good health, to a
quarter century of work-free luxury at your expense.
Those sums are just a few eddies in the torrent of public spending unleashed
by Gordon Brown, which has reached £586 billion a year. Amid bank bailouts
and a steep recession it is becoming harder to find the cash to pay for it
all.
Last week the Institute for Fiscal Studies (IFS) forecast that government
borrowing to meet the gap between its income and its spending is rising
fast. It estimates that in the 2008-9 financial year the government will
have to borrow £95 billion, almost £17 billion more than the chancellor
Alistair Darling forecast only a few months ago.
Worse, the IFS says borrowing is likely to rise to £150 billion or more in
2009-10 and to stay high for several years. To bring the government’s
finances back into line, says the IFS, either taxes will have to rise or
spending will have to be cut.
Fancy paying 9p more in income tax? Or £1,250 more per family per year?
Thought not.
But if you are unwilling to countenance that, then spending cuts may be the
only choice if the government is to avoid a crisis of confidence in its
finances that could force interest rates higher.
The IFS reckons that without tax rises, the government will have to save
nearly £40 billion a year. Though Labour has fostered the idea that public
services are sacrosanct, not everybody agrees.
Matthew Elliott, chief executive of the TaxPayers’ Alliance (TPA), a pressure
group, said: “There are huge amounts of public spending that are unnecessary
and ineffective. Not only could this dead wood be cut out to save money, but
the removal of so many complex and unmanageable areas of government activity
would allow ministers to focus on actually delivering the key services which
are currently mismanaged.”
The midst of a deep recession is not the time to impose widespread cuts - but
it is the time to start planning how to implement them later. So where can
the billions be saved?
ONE easy target, say the TPA and John Redwood, the Tory MP and former banker,
are the expensive IT schemes of dubious worth. Redwood said: “I would cancel
the ID card scheme and many of the national centralising computer programs
which often go wrong.”
The ID scheme under construction currently costs about £300m a year and is
expected to consume about £1 billion a year when it is fully rolled out.
Scrap it, says the TPA, and abandon or scale down the NHS IT project as well.
Another obvious option would be to get tough on the Whitehall culture of
hiring expensive outside consultants (who, it should be noted, are often
responsible for the IT fiascos). An NAO report in 2006 revealed that the
government had spent at least £7.2 billion on consultants in three years.
Payments to consultants by the Department for Children, Schools and Families
have tripled in two years. Its pay rates for consultants ranged from £475 to
£1,900 per day last year. Even a child can work out that such sums soon add
up to a lot.
Significant savings may also be possible among quangos, of which there are
more than 1,000 costing taxpayers £65 billion a year – that’s more than
£2,100 for every taxpayer in the country.
Should the government be spending money, for example, on the British
Educational Communications and Technology Agency (Becta), whose mission is
to “utilise the benefits of technology to create a more exciting, rewarding
and successful experience for learners”? If you think schools and colleges,
or even students, could do that for themselves, then scrap Becta and save
£38m a year.
Or what about the Carbon Trust, a government-funded “independent company” that
works with organisations “to reduce carbon emissions and develop commercial
low-carbon technologies”. An admirable aim but one that could be left to
private initiatives? After all, everybody is now aware of the need to reduce
greenhouse gas emissions. Okay, sequestrate the Carbon Trust and save about
£90m a year.
More politically sensitive are the billions wasted on Brown’s horribly
complicated tax credit system. For years it has been criticised by the NAO
for paying out vast sums on unmerited claims. It overpaid £1.7 billion in
2005-6 and £1 billion in 2006-7. By March last year it had cost taxpayers an
unnecessary £4.3 billion because of “high levels of error and fraud”,
according to the NAO. That’s no way to save the world.
Another target could be the regional development agencies, which were created
by Labour in 1999 to “bring fresh vitality to the task of economic
development and social and physical regeneration in the regions”. Whether
they have been vital is a moot point. Scrap them and you would save £2.3
billion a year.
The TPA has calculated that the Barnett Formula, through which Westminster
subsidises Scotland, could be abolished and give a saving of £1-£2 billion a
year even if Holyrood got to keep North Sea oil revenues.
Now turn your sights on the Ministry of Defence. It is spending hundreds of
millions on refurbishing its Whitehall offices so that, while frontline
troops suffer equipment shortages, staff back at HQ will have plasma screens
and a new gym. Cry “halt”.
If you were willing to cut back on military hardware, a further £4 billion
could be saved by cancelling orders for two new aircraft carriers and £20
billion or more by deciding against a new version of the Trident nuclear
missile system.
However, such cuts would only be one-off savings. For longer-term gains, Tom
Clougherty, executive director of the Adam Smith Institute, the Thatcher-ite
think tank, would be bolder. “There’s plenty of government spending that
could be ditched altogether,” he said. “Do we need a business department
that does nothing for business at £3 billion a year? Do we need to spend £3
billion on culture?”
Even if you scrapped the entire Department for Culture, Media and Sport (DCMS)
– and assuming nobody noticed – such savings would still be modest in the
great public spending scheme of things. In total the DCMS costs taxpayers
about £5 billion a year, less than 1% of government spending.
Tessa Jowell’s department is a minnow compared with the two monster
cash-guzzlers, the Department of Health and the Department for Work and
Pensions (DWP). The wage bill alone for the NHS is £30 billion a year, with
a further £14 billion for pensions. The total cost of welfare benefits paid
out by the DWP is £125 billion a year. That’s six times the total spent on
higher education.
This is why the Conservatives – who will most likely be left to clear up the
financial mess after the next election – are not intent on identifying
individual savings but on changing the entire culture within the public
sector.
The Tories want to make civil servants more accountable for spending
taxpayers’ money; to make information on spending more transparent and
accessible; and to provide better incentives for saving money.
They also believe that when times are tough, fat cats in the public sector
cannot expect to carry on as before. “Public sector pay must reflect
prevailing economic circumstances,” said George Osborne, the Tory shadow
chancellor.
More than 1,000 local government executives now earn more than £100,000 a
year, plus gold-plated pensions. The total public sector pay bill has jumped
from £107 billion in 2002-3 to £154 billion now. It’s likely to keep rising:
despite the recession, the latest figures show that public sector employment
increased by 15,000 in the final quarter of 2008 to 5.783m.
Among recently advertised “nonjobs”, as the TPA calls them, was the post of
“personal best adviser” in Tower Hamlets, London. The post is to help people
prepare to work as volunteers at the London 2012 Olympics and carries a
salary of up to £33,000.
Private sector workers facing redundancy or pay cuts and tax rises might
consider this: a 10% cut in the public sector pay bill – either through
reduced pay or job losses – would save £15 billion every year. With an
average pay rise of 1.1% due, a freeze would save about £1.5 billion. It
would also reduce the enormous bill for public sector pensions. A 100% cut
in “nonjobs” might save even more. COULD it be done? In the face of an even
worse financial crisis, the Irish government last week put forward an
emergency budget to increase taxes and cut public spending.
People earning more than €15,028 (£13,522) will pay an extra 2% tax, those
earning more than €75,036 (£67,518) an extra 4% and those earning more than
€174,980 (£157,449) an extra 6%. To lead the way in cutting public spending,
ministers announced reductions in pay and pensions for MPs and senior civil
servants.
So, yes, it can be done and it doesn’t have to be brutal, according to
Redwood. “I would put an immediate freeze on public sector recruitment,
other than frontline people such as teachers, nurses and doctors,” he said.
Retirement and natural wastage would bring numbers down even without
redundancies.
Richard Lambert, director-general of the Confederation of British Industry, is
more cautious. “We are in the teeth of a great recession, so now is not the
time to be hacking back on public spending,” he said. “But we feel pretty
strongly the chancellor needs to be developing a credible plan to get us
back to stability over the medium term.”
The CBI believes the private and voluntary sectors should be allowed to
compete more for public sector work, and that public sector pensions must be
reformed.
Without a credible plan for recovery, the UK will run the risk that financial
markets will demand higher returns for funding the government’s borrowing.
That could mean interest rates rising.
As it is, the CBI calculates that taxpayers will end up forking out nearly £60
billion a year just to pay the interest on government debts. That sum is
more than three times the amount the government spends on transport and
roughly the same as it spends on state pensions. What a waste.
