Thursday, July 30, 2009

Canadian Cutting Lessons

Very good... but I'm not sure we've got time for the songs

How is Cam's government-in-waiting actually going to cut public expenditure?

We and many others have been fretting about this for years, but the size of the necessary cuts is now larger than even our worst fears. Somehow, he's going to have to find cuts of at least £50bn pa - and soon.

So what's he actually going to do?

We have no idea. On Sunday's "Andy Marr Show" he once again dodged the question, preferring to mention the things he's not going to cut, like the NHS.

In fact, the only three cuts targets he identified were Labour's regional government infrastructure, ID cards and the NHS Supercomputer. Scrapping the first (as long recommended by the TaxPayers' Alliance) will save some useful money, but as Cam presumably realises, scrapping the others will save next to nothing.

That's because the bulk of the projected £5.3bn cost of the combined Biometric passports/ID cards project is going on the passports - which apparently we must have. Scrapping the ID cards element alone would save at most a few tens of millions pa.

There may be more scope on the Supercomputer, but as the Public Accounts Committee recently discovered, the government's brilliant contracts with its IT suppliers commit us to paying them whether or not all the local health trusts use the system. So at this stage, scrappage savings are likely to be relatively small (gah!).

Cut waste and inefficiency? For as long as Tyler can recall, new governments have come to power pledging to eliminate the waste and inefficiency that built up under their predecessors. And for as long as Tyler can recall, they have failed.

Cam needs some serious input from somewhere. And fast.

Enter the Canadian cutters from the 1990s.

You are probably aware of the story by now, but in brief, over several decades Canada had developed a chronic fiscal deficit (see here for overview). By the early 90s its public sector debt burden had reached nearly 100% of GDP (Federal plus provincial deficits), debt servicing costs were rising, and the situation was becoming unsustainable.

But at that point, a new Federal government was elected, and - miracle of miracles - it actually managed to get a grip. It cut spending, and returned Canada to fiscal surplus for the first time in a generation:

A fantastic job, and an inspiration to us in our current difficulties.

But how did they do it?

Recently, one of those involved - Jocelyne Bourgon, former Clerk of the Privy Council of Canada - explained to a seminar at the Institute of Government. You can watch a video of her talk here (well worth doing), but in essence, her advice to Cam is:

  • Avoid across the board cuts - they often have perverse effects, erode public service quality, and undermine public confidence
  • Don't set departmental cuts targets - you need to encourage clean-sheet-of-paper thinking
  • Don't rely on efficiency programmes - they will never ever deliver enough to dig us out of a fiscal hole as big as ours
  • Do conduct a comprehensive bottom-up programme review, with the spending departments in the driving seat - they are the people with the knowledge of what programmes are essential and what can be scrapped, combined with the understanding of how things can be done better and more cheaply
  • Do operate as a Team - politicians and civil servants all pulling together towards the common goal of tackling the fiscal problem

To which Tyler's response is Wow!

You mean there are government spending departments elsewhere in the world who are prepared to offer up big savings even though their "colleagues" in other departments are not necessarily doing the same? That must be fantastic.

The trouble is, here in blighty, that has never been the case. Here in blighty, public spending has always been decided by the age-old principles summarised in 1983 by Sir Douglas Wass (Joint head of the Civil Service and Permanent Secretary to the Treasury):

"Number one: as things have been, then broadly so shall they remain.

Number two: he who has the muscle gets the money."

Not that Canadian-style fundamental bottom-up programme reviews haven't been tried. Back in 1970, ace managerialist Ted Heath introduced a whole new system of resource management called Programme Analysis and Review. It was going to bring rationality to bear, and sweep away Wass's stone age system. Needless to say, it was a complete flop.

No, to get anywhere, Dave's going to have to impose his own muscle (especially since he can't find big cuts by simply slashing grants to the provinces, thus passing the problem onto them - which is pretty well what the Federal Government was able to do in Canada).

The required cuts are much too big to wait for a rational consensus among spending departments. Much more helpful is the somewhat cruder advice from Ronald Reagan's Budget Director: "starve the beast".

It's brutal, it's bloody, but it has to be done.

PS Mrs T's father learned how to cut down trees - scary Big Trees - as a teenager in Canada. And he was still felling them for friends and relations here in Britain well into his eighties. Cutting is a skill that, once learned, lasts a lifetime.


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