Thursday, November 04, 2010

The Message From Margaret

You'll need to speak up Mags

Margaret Hodge is the new chair of the Public Accounts Committee and she has concluded that government departments are incapable of eliminating waste. Her Committee has found that £35bn of efficiency savings ordered by Labour in 2007 were nowhere near achieved:
"Departments were in general unable to make real value-for-money savings of 3% a year following the 2007 Comprehensive Spending Review - and that was at a time of increasing budgets.

Now that much more radical cost-cutting measures are required across government, my committee is gravely concerned about the ability of government to make efficiency improvements on the scale needed."
The PAC report itself gives some chapter and verse.

To start with, none of the departments have come anywhere near their target savings. Halfway through the three year programme, declared savings came to just 31% of the target, with some key departments way short of even that:

Worse, nearly two-thirds of these supposedly achieved savings were not provable in any meaningful sense. As for relating them to departmental budgets:
"Departments were generally unable to reconcile their reported savings to either their financial accounts or to their spending agreements with the Treasury."

We are still in the complete and utter fantasy world of Gershon delusion and the Marx Brothers - the idea that you can make huge efficiency savings without saving any actual money, or making anything any more efficient.

Of course, regular BOM readers will be fully familiar with the lunacies that define this world (see many previous blogs eg here). But for poor Margaret Hodge it's probably come as a bit of a shock.

The question is what should we do about it?

The response from the BBC and the left is that it means the coalition's spending cuts are unachievable without massive damage to our public services. Departments cannot do efficiency and to assume they can will consign schools and hospitals to a new dark age. Stop the cuts. QED.

In fairness to the PAC, their report (as opposed to the headlines based thereon) doesn't say that. Instead, they argue for more transparency on efficiency savings, with more explicit reporting of inputs and outputs so everyone can see whether important services are being cut. They also want the Treasury to take a much larger role in guiding and verifying the savings. Which all sounds kind of sensible in a marginal improvement kind of way.

But the real message from the report - the real message from Margaret - is much more radical.

The real message is that to make real efficiency savings - the kind private business is constantly making - we need radical reform in the way our public services get delivered.

In particular - and I do apologise if you've heard this before - we must break up our big state monoplies in areas like health and education. We must have choice and competition across the public services.

Because the key reason that businesses like Tesco are so good at driving efficiency is not because they are inherently much smarter than public sector managers. It's because they face a completely different set of incentives. They know that they must deliver what their customers want or perish. And a large part of that delivery comprises value for money. If they get fat and inefficient, they can't deliver value and they lose their customers.

Tyler has never believed we can make monopolistic public sector elephants dance. And whether she understands it or not, that is precisely what Margaret Hodge has told us today.

Margaret's message is that we must learn from her party's failure. To make cuts without destroying the delivery of public services, the coalition must tackle the underlying problem. They must break up the public sector and unleash the power of choice and competition.

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