15 June 2022

The one public spending cut everyone should agree on

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There has been much debate recently about when it would be prudent to cut tax. But it’s depressing how often commentators assume that public spending must rise in real terms each year. Even those who demand that the axe should fall tend to concede how difficult and unpopular it would be.

Yet not everyone is so defeatist. None other than Jacob Rees-Mogg, serving in the Cabinet Office as Minister of State for Brexit Opportunities and Government Efficiency, is working away at finding some very substantial savings that would do nothing to harm the delivery of public services.

One of the more significant items is procurement. At £300bn a year, nearly a third of public spending, goes on procurement. Legislation is going through Parliament that will cut red tape on buyers and suppliers alike, simplify the rulebook and create a digital platform so companies can see all available opportunities in one place and only have to register once to bid. Leading the Second Reading of the Procurement Bill in the House of Lords, Lord True promised a new regime ‘making it quicker, simpler, more transparent and better able to meet the UK’s needs, while remaining compliant with our international obligations’. 

Labour expressed support for the bill, though it would have been awkward for them to do otherwise since the Labour government in Wales has agreed to apply the same changes. But they will not apply in Scotland – which will instead continue with the very cumbersome inheritance from the EU, which has just been copied and pasted into their statute book. I suppose the Scottish Nationalists regard it as a point of principle to align with the EU as much as possible. But it will be difficult to claim that approach offers value for money. 

The pandemic highlighted how large sums can be wasted through poor procurement decisions. According to the Department of Health and Social Care’s own accounts, £9bn spent on PPE was written off, with £2.6bn spent on items that were ‘not suitable’ for the NHS. Of course, the emergency meant the circumstances were exceptional. But even under normal conditions, substantial wasteful spending is routine.

Commissioning new political sector IT systems is one area where costs have tended to balloon. The Emergency Services Network’s original budget was £6.2bn and is scheduled for completion in 2019. It has been delayed until early 2024 with an estimated final cost of £9.3bn. An NHS patient record system was started 20 years ago. The specifications kept changing and after ten years and spending of £10bn it was abandoned.

During the Second Reading debate peers gave examples of their own. Delay as well as cost was a concern. Lord Coaker said that ’29 Ajax tanks have been delivered to the Government at a cost of £3.5bn so far. There are more on the way. We are supposed to have 569, which were supposed to have been delivered four or five years ago.’ Lord Berkeley mentioned ‘HS2 spending £15bn on consultants’. 

Lord Maude gave a well informed speech reflecting his own ministerial experience. He said that when the Coalition government was formed in 2010 they found ‘a horrendous legacy of dreadful contracts’. Over the next five years, he explained, the Tory and Lib Dem ‘efficiency drive’ saved around £52bn from the running costs of government.

Maude stressed that it was not just about the law but how the processes were applied. When he came in, for instance, ‘the time taken for formal tender processes to be completed was double what it was in Germany’. Changes were made to cut the time for British procurements to half of Germany’s average time. The cost of bidding was another issue, with suppliers telling the minister ‘it cost them four times as much to bid for public sector contracts as it did for private sector contracts’.

The burdensome tendering procedure prevents small and medium-sized firms competing for contracts. Maude said that he discovered that 87% of the Government’s spend on IT was with seven vendors, all multinationals. A failure to carry out proper ‘pre-tender market engagement’ meant innovative ways to deliver a service were missed. Process trumped results. 

Another issue, outlined by Lord Moylan, was local government officials getting round procedures to award contracts to particular clients. He pointed to one project where the tender allocated 40% of point to ‘project compatibility’, which turned out to mean simply that a company was deemed ‘compatible’ with the council in question.

If you talk to anyone who has been a senior manager in local government, the NHS or the Ministry of Defence they will have plenty of similar anecdotes. All most amusing – except that we are the ones who pick up the bills and have to put up with the delays and poor service.

How much could be saved by the upcoming changes in procurement? I haven’t seen any estimates from the Government. It will depend if there is a change of culture as well as the change in the law. But it seems to me the potential would not just be billions but tens of billions. Perhaps then there might be room for those tax cuts after all.

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Harry Phibbs is a freelance journalist.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.