Friday, September 04, 2009

Hack Or Slice?


...but slicing is better


Further to our post on Dave and George's cuts plan, it's worth thinking a bit more about the actual technique of cutting.

There are basically only two ways a central government can go about cutting public spending: it can hack, or it can slice.

Hacking is the simplest.

All that's required for hacking is the head honcho and his finance guy to sit down in a private room with a calculator and a sheet of paper. The head honcho says "we need to cut spending by 50 billion". The finance guy taps the calculator and says "spending is currently 500 billion, so let me see... that means..." tap tap tap "...that means we need to cut spending by 10% across the board... I'll issue the orders immediately".

Job done.

Well, job done for the head honcho and his finance guy, anyway. They've issued the orders - orders that must be obeyed at all times - and now they can sit back.

Of course, further down the command structure things are less simple. Somewhere down there in the trenches someone is going to have to tighten some actual belts. And that's going to hurt.

Hacking is pretty well what the Canadian federal government did during its now famous fiscal retrenchment during the 1990s: they cut spending largely though cutting federal grants to the provinces, thus passing the problem of what to cut down a level (see this blog).

Hacking is also what Gordo's notorious Gershon efficiency programme attempted to do: it set cuts targets for the spending departments, the bulk of which - in theory at least - were supposed to be "cash releasing". Again, the tricky problem of what to cut was passed down the line.

Hacking was also the principle behind the tight cash limits imposed by Thatcher/Howe as they wrestled with the fiscal problems in the early 80s. Once again, the problem of what to cut was passed down.

Now, in some ways, passing the problem down the line sounds like a great idea. After all, those at the sharp end are surely in the best position to know what spending can go, and what is essential.

But in practice it rarely works out so well. Experience shows that frontline spending managers tend to cut the stuff that's easiest to cut - like school and hospital maintenance - rather than the stuff that's least productive.

Worse, frontline public sector managers have a distinct tendency to make cuts that are least disruptive to their own lives, rather than those that are least disruptive to the lives of their public service customers. So school class sizes creep up, hospital waiting lists lengthen, etc etc.

All of which means that hacking can easily come back to bite the head honcho in the bum - right across the front page of the Sun.

So what about slicing?

Straight off the bat, slicing is much harder. Slicing involves the head honcho and his finance guy actually going through the spending programmes one by one and making specific choices - difficult choices about which particular elements of spending are to be cut. And, horror of horrors, it means letting their spending minister "colleagues" in on the discussion.

But difficult though it may be, slicing does offer a huge advantage over hacking: it means the cabinet retains some control over the consequences down in the trenches. The big cuts decisions are not delegated to people who may not have the best interests of the country government at heart.

So what kind of specific items might D&G slice? Here are some obvious candidates (many already suggested by Reform - see this post):
  • Wage freezes for public sector workers - straightforward with central pay bargaining

  • Benefits freezes/cuts/termination - Child Benefit is likely to go

  • Scrapping big investment projects - eg the new aircraft carriers, Trident, Schools for the Future, and the NHS supercomputer (already scrapped by Cam)

  • Public sector pensions - switch from expensive final salary to cheaper money purchase

  • Charge commercial rates on student loans

  • Abolish useless quangos - eg the Audit Commission and the National Patient Safety Agency

As we can see, none of them are get-out-of-jail easy, but they are clearly defined, with little wiggle room for those further down the line charged with implementation.

However, if D&G intend to slice rather than hack, they really do need to get that secret cuts file put together now. It will take months of prep, and next May will be too late.

1 comment:

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