We have the highest levels of peacetime spending. We have the highest levels of public debt. We have non-existent growth, even negative on the most important measure, GDP per capita growth. And yet, despite all this spending and debt, we have managed the unfortunate trick of having record levels of public dissatisfaction with public services.
On top of all this, we have an uncertain global economy, the sudden withdrawal of the USA from being guarantor of European security and rapidly rising global anxieties. Plus all the other long-term problems which are much discussed but never confronted: our ageing population, uncontrolled immigration, unsustainable pensions, overcrowded prisons, a failing health service, deeply inadequate long-term care and so on.
So all hail the recent announcements from the Prime Minister and his Cabinet signalling a return to fiscal rectitude! Alleluia, alleluia, alleluia! Surely?
Sadly not.
Not when you put the much-trailed cuts into the context of overall government spending, which the OBR estimates will be £1,276 billion this financial year. So Liz Kendall’s £5bn welfare cuts are equivalent to 0.39% of government spending (and the OBR apparently thinks the much-trailed £5bn figure is an overestimate). Rachel Reeves’ proposed £2bn cuts to departmental spending are just 0.16% of the total. Her newly-revealed extra £2.2bn in defence spending, which in her words ‘is not just about increasing our national security but increasing our economic security, too’ will, if true, achieve remarkable value at 0.17%. Transferring £6bn of international aid to defence spending is just a transfer of 0.47% between government departments.
So yes, these announcements – and that is all they are so far – have caused cries of great anguish. But step back and ask yourself whether they are proportionate to the size of the challenges facing us, and do you have any alternative but to sadly shake your head?
It is often said that in these difficult times three broad options face the Chancellor: to cut spending, to raise taxes or to re-write the fiscal rules. Yet there is a fourth way, one whose time is surely coming as it becomes clearer and clearer that we simply cannot keep going on as we have before. Here we come to one word that we have all heard politicians of all parties bang on about, but have never heard what they will do about it: and that word is ‘productivity’. And in particular, public sector productivity.
This is no new analysis. Even the Governor of the Bank of England said last month that falling public sector productivity is holding back the whole economy. And he is right: if public sector productivity growth could match the performance of that of the private sector it would release at least £100bn a year, every year, to spend on whatever the government of the day chose. They can drop all the cuts. They can have more defence spending. And they would still have huge amounts left over to spend on tax cuts, extra spending on whatever they wanted, even starting to pay off some of the record levels of high national debt.
This is not all some clever theory. It is the explanation behind why public services keep getting worse even as we spend more and more on them. Civil servants in Whitehall tend to boost their career prospects when they grow the size of their departments, not when they cut them. One of the key measures of productivity in the NHS is the number of prescriptions that are issued – so the sicker people are, the better the performance of the NHS. And the box ticking and rule-following culture that predominates in the public sector can only be the strongest disincentive to innovation and change. As Charlie Munger, the long-term partner of Warren Buffett at Berkshire Hathaway, once said: ‘Show me the incentive and I’ll show you the outcome.’
So if you can accept that poor public sector productivity is the root problem of our record level of debt, our record level of spending and our record level of public dissatisfaction, the only useful question then becomes what one can do to turn things round.
The answer? To revolutionise our system of managing government so that it has professional management, accountability and authority, with the aim of ensuring that professional management is the norm in both Whitehall and the public services.
What does this mean in practice? Here are a few practical steps. Government should do what any charity, football club or business must do if it is in crisis – bring in new top management who are not imbued with a failing culture, and then decide its core business and decentralise the rest. So it should appoint the best professional managers it can find, from anywhere in the world at whatever performance-related salary is necessary.
As Chief Executives, these leaders must have the authority and power to ensure that their department meets whatever objectives are set by the relevant Minister. They should, as in any other successful private sector organisation, control their staff, methods of working and pay terms and conditions. They should be free to recruit their own team to drive through deep-seated reform. They should be appointed on long-term contracts to reverse the ridiculous current rate of churn of ministers and civil servants, which in itself creates instability, short-termism and loss of institutional knowledge. Each department would soon develop stability of vision, ethos and leadership.
Revolutionary, perhaps. But would Tesco hire a CEO who had little management experience, no knowledge of retailing and who changed jobs every two years? Why is exactly that approach tolerated throughout the public sector?
We can, of course, do nothing. We can limp on as we are, with public services becoming less and less responsive to our needs. We can hear ministers claiming that a 0.2% change in funding (or whatever) will make a difference, that AI will ride to the rescue, that one more push will somehow put things right when they have never done so before. We can resign ourselves to the reality that nothing will ever really change.
Or we can listen out for the first politician, from any political party, who is prepared to make the case for truly addressing the public sector productivity problem. Now that, and the rapid changes which would follow, would be worthy of acclamation.
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