Public Spending - They Haven't a Cutting Clue

The "C" Word

Suddenly the 'c' word has become the most popular word in British politics, with Cameron, Brown and even the pointless Nick Clegg vying with each other to see who can use it most convincingly and most often. As Britain sinks rapidly towards bankruptcy, our politicians are rushing round like headless chickens trying to find something to cut. But one thing is obvious, as almost none of them has ever had a proper job, they haven't a clue about what needs to be done.

Having actually had a real job and having worked on over 100 efficiency programmes in the public and private sectors in 15 countries, I'd like to suggest to our current and would-be leaders how they could give us much better public services at a much lower cost.

New Labour's management madness

The first step in effective cost reduction is to understand why our public sector has become so bloated, inefficient and expensive. It's not because we have too many nurses, doctors, carers, police officers, binpersons or teachers. In fact, while public spending has more than doubled under New Labour from £322bn to about £700bn, the number of frontline workers in the NHS, policing, local government and education has only gone up by about 10 per cent.

But in the wonderful world of public-sector management, it's a quite different story. In the NHS, for example, the number of managers has doubled under Chancellor and then Prime Minister Brown at the same time as the number of hospital beds has been slashed. In 1997 we used to have over twelve beds per manager, now it's about four. Even in 2008, the first full year of recession, we got 2% more medical staff and over 10% more managers. The situation is similar in services like education, the probation service and policing - ever less being achieved by ever more managers. In local government, the figures are even more worrying - under Brown, the number of people in councils earning over £50,000 a year has shot up by a factor of eleven from 3,300 to 38,000, while in the economy as a whole it only went up by a factor of three. As for our mostly useless quangos and regulators - the figures are astounding. The bungling Environment Agency now spends more than £1.1bn compared to £590m in 1997; the ineffective Ofcom has more than doubled its budget from £57m to £125m; and the hopeless Financial Services Authority's budget has rocketed up from £21m to almost £400m.

Dealing with the real disease

Once any organisation has built up layer upon layer of unnecessary and wasteful bureaucracy, it's difficult to cut costs without severely reducing vital services. Normally the many levels of management cannot see that it is actually they who are superfluous. So the only way they can think of reducing costs is by cutting away at usually lower-paid, frontline staff - the people who do real work. We're already seeing this in the police where the numbers of frontline officers is being reduced at the same time as middle and senior managers are giving themselves bonuses for political correctness above and beyond the call of duty. Over fifty years ago, Cyril Northcote Parkinson taught us that bureaucracies expand by 5% to 7% a year irrespective of the amount of work (if any) to be done. Under New Labour, our bureaucracies have grown even faster than Parkinson could have foreseen. Unless we attack the real problem with public spending, the relentless rise of self-serving bureaucrats, the politicians' cuts are going to devastate our essential services while preserving all the costly and wasteful bureaucratic empires that have caused the massive and unproductive explosion in public spending in the first place.

Of course, there are many worthless spending progammes like the NHS computer system, ID cards which should be scrapped and others like the 2012 Olympics which should have their budgets slashed. But unless we deal with the underlying cause of overspending - the massive, arrogant, overpaid, self-serving New Labour new bureaucracy - we will never bring public spending under control.

Step 1 - The 4-day week

A few of us might remember Edward Heath's 3-day week, brought in at a time of national emergency - a lack of power. Now we have a new national emergency - a lack of money. The government should immediately implement a 4-day week for all public-sector managerial and administrative staff who are not directly delivering services to the public. This would include all council executives and managers; all executives and managers in the NHS; all executives, managers and most administrative staff in the main government departments like Health, Education, Business Enterprise and Regulatory Reform (or whatever it's called this week), Environment and many others; and almost staff working for regulators and quangos like the Equalities Commission. Administrative staff processing things like driving licences, passports, benefits, pensions and so on should be exempted, but their managers should be put on the 4-day week. Probably the least disruptive solution would be to make them take every Friday off.

Moving to a 4-day week should immediately bring real cash savings of £100m a week, worth about £5bn a year without any redundancy packages or any early retirement payments. We will probably find that frontline workers actually succeed in continuing to deliver the same if not better services with the army of policy advisors, executives, managers, communications professionals, diversity officers, community relations specialists, involvement officers and others of their ilk. After three months, at least half these people should be put on a 3-day week.

Step 2 - Liberate frontline workers to help

The people who know how to deliver much better public services for less money are, of course, frontline workers. But they are prevented from making any changes or from even suggesting any improvements by layer upon layer upon layer of managers all keen to protect their often badly-run empires from prying eyes. We must unblock this logjam.

One option is to split the lumbering, politically-subservient National Audit Office (NAO) into two parts. Responsibility for auditing the accounts of government departments should stay with a greatly slimmed-down NAO. However, a separate group focusing on value for money (VfM) should be formed working directly for the Chancellor. Frontline workers should be encouraged to report opportunities to improve services or save money in confidence to VfM unit. Any frontline workers reporting opportunities should be entitled to taxfree payments of say five per cent of any savings achieved up to a maximum of perhaps £100,000. These payments should not be available to managers, as it is their job to identify and make continuous improvements. An almost trivial 2% saving in direct spending would give another £10bn a year.

Step 3 - Pass a False Claims Act

It is common practice for companies selling to the public sector to push up their prices by ten to twenty per cent because, as one supplier said to guffaws of knowing laughter during a recent conference, public-sector buyers are 'inexperienced and incompetent'. Since the American Civil War the USA has had a law rejuvenated by Congress in 1986 called the False Claims Act. This allows ordinary citizens with evidence of fraud or corruption against government contracts or programmes to sue, on the government's behalf, in order to recover any money taken illegally. As a reward, whistleblowers are given somewhere between fifteen and twenty five per cent of the money recovered or saved. Just one partner in a US consultancy, which works extensively throughout Britain's public sector, stood to gain $10m for revealing how his employer had been cheating various US government departments over travel expenses.

The False Claims Act protects taxpayers' money in two ways. Firstly, it encourages whistleblowers to take action. Secondly, and perhaps much more importantly, it has a strong deterrent effect - it discourages individuals and companies from overcharging or defrauding government departments because they will always know that they run a serious and real risk of being sued by any concerned or even disgruntled employee who knows what they are up to. Just a 2% reduction in purchasing costs from a False Claims Act would net another £3.4bn a year.

It's not a tough decision

As the politicians survey the disastrous state of our public finances, we're beginning to hear the expressions 'tough decisions' and 'difficult choices'. Over the coming months, these will be repeated many times as our leaders try to make us understand how hard it will be to reverse their uncontained, managerially-inept profligacy of the last twelve years or so. Yet most of the actions I'm proposing won't be tough at all. In fact, they will make our lives better by bringing this country back from the brink of insolvency.