The Mail on Sunday
The efficiency twins and their voodoo savings
MOST of us will agree that the Government wastes money and is inefficient. We can agree, too, that this is a bad thing and that something must be done about it. As we all agree, it is mystifying that the war on waste has become a political battleground, a war of words. But the reason it has become so divisive is because of unbelievable promises to save vast amounts of money by cutting waste and inefficiency to reduce the budget deficit (Mr Darling) or reduce the deficit AND cut taxes (Mr Osborne).
Why should I be so sceptical? Mr Cameron made the case eloquently in a speech in 2008: ‘The Government “efficiency drive’’ is one of the oldest tricks in the book. The trouble is, it’s nearly always just that – a trick.’
He amusingly described an episode of Yes Minister in which an efficiency drive ends up increasing the size of the Civil Service.
Mr Osborne also made the same point in this year’s Budget debate: ‘Efficiency savings are completely bogus as the answer to the question of the spending review’.
Both of them are right. Which leaves me utterly bewildered that they have now called for a Sir Humphrey efficiency drive of their own as the solution to the country’s massive deficit, and to stop increases in National Insurance contributions (NICs).
The War on Waste was declared on Budget Day. When he stood up in Parliament, Mr Darling made no mention of this blitzkrieg against the waste enemy, which the Government has lived with, happily enough, for the past decade. Instead, we had a Budget by Press release whereby £11billion a year of ‘efficiency’ gains were set out later in the afternoon.
The sum to be saved – as much as the Government spends on Child Benefit – is their answer to the enormous black hole in the Budget. To put these numbers in context, the ‘efficiency’ savings together with tax increases – mainly NICs – announced last November, and the existing curb on public-sector pay rises account for roughly £40 billion out of an annual ‘structural’ deficit of £70 billion.
When these ‘efficiency savings’ were examined, however, it became clear that fact had morphed into fiction. I poured ridicule on the largely fictitious numbers. And so did the Tories. We both cited the reports on past claims of government waste-saving carried out by the National Audit Office and the Public Accounts Committee: independent parliamentary bodies.
They concluded that 25 per cent of claimed efficiency savings were real, 25 per cent fictional and the rest unprovable.
Of the £11 billion of newly announced efficiency savings, £5billion have yet to be identified.
Of the remainder, most are expressions of hope, such as the sum to be saved from ‘ more efficient processing of benefits’. Another proposal is to save £555million by reducing sickness rates in the NHS. Averaging 10.7 days a year, it is higher than the public sector as a whole (9.7 days), never mind the private sector (6.4 days). But confidence that the Department of Health can manage this transformation is seriously shaky.
There is nothing wrong, and everything right, with genuinely trying to improve efficiency. But it is wrong just to announce that these improvements will happen and pocket the savings, claiming them to be real.
I prepared my mind for the TV Chancellors’ debate on Monday, envisaging a combined attack on Mr Darling over his fantasy cuts. Then, to my amazement, on the day of the debate, Mr Osborne announced the Government’s ‘efficiency’ savings should be taken as given and doubled! A further £12 billion would be ‘saved’ by – unspecified – further efficiency gains, half of which could be diverted to prevent the NICs increase.
The business lobby groups, like the CBI, which have campaigned against increased NICs, purred with pleasure, to the extent of abandoning any pretence of political neutrality.
They are, of course, right to say that increased NICs are a ‘tax on jobs’. But the top priority for the next government is not to produce sweeteners for business pressure groups but to reduce the massive deficit.
The independent and respected Institute of Fiscal Studies said that using these cuts (sorry, ‘efficiency savings’) for tax reductions ‘ means that they are not available to contribute to the task of reducing government borrowing that the Conservatives have set such store by’.
Lasting damage has been done to the reputation of those captains of British industry who have endorsed this voodoo accounting which, if they used it in their own companies, would lead to bankruptcy or prison.
This battle is but a skirmish in the wider General Election war. But when politicians promise you that they can deliver tax cuts and big reductions in the Budget deficit by ‘cutting waste’, you should beware.
Treat them like those unsolicited letters telling you to ring an overseas number to win a sports car or a holiday in Barbados. It’s called a scam.
Vince Cable is the Liberal Democrat Treasury spokesman