May 21, 2018

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The truth about cutting out waste

Public-sector workers

Public-sector workers

The truth about cutting out waste

continued from previous article > Painful End to Britain Spending Spree

Britain faces the prospect of cuts in the pay of public-sector workers (as already imposed in several European countries), in subsidies to relatively-poor regions such as Scotland, Wales and Northern Ireland, in construction of public buildings such as schools, in tax credits and child benefits and highway maintenance.

Politicians like to claim that a major contribution to deficit reduction can also be made through cutting out waste. This is dishonest, as the evidence of history is that such initiatives yield paltry benefits.

Economist Roger Bootle correctly argues that in the UK: “The inefficiency of the public sector does not mainly consist of waste in the classic sense but rather of misdirected effort and resources.

“A vast bureaucracy of apparatchiks, under-motivated and under-managed, wanders around as if in a daze, presiding over an orgy of form-filling, in thrall to a mind-numbing political correctness.”

The British state has become a bloated giant whose share of national resources has risen from 37 per cent to 52 per cent in just a decade. The Economist noted recently: “In swathes of northern Britain the state now accounts for a bigger share of the economy than it did in communist countries in the old eastern bloc.”

Restoring UK state finances to health cannot be achieved without major restructuring. For example:

► It is absurd that employees in the public sector earn significantly more on average than those working in the private sector, have far better pensions, and are less productive – especially as they enjoy much greater job security. Cutting pay and benefits, and scrapping most of the 700,000 additional jobs created in the public sector under Labour, would produce major permanent savings.

► The huge costs of the welfare state – now accounting for almost two-thirds of total government expenditure — have to be slashed because they are no longer affordable. For example, all the additional benefits introduced by Labour during its 13 years in power, costing some £8 billion a year, could be scrapped. It is absurd that some 6 million Brits of working age depend permanently on state benefits, free social housing and the rest.

► The National Health Service now consumes one-sixth of state resources and faces the rising costs of an ageing population, advancing technology and new drugs. To combat those rising costs it will be necessary to slash bureaucracy, privatize, and introduce disincentives to over-use and abuse – for example, basic charges for certain services such as seeing a doctor, or for hospital treatment of conditions produced by behavioural choices, such as drunkenness.

► It is simply impossible to continue paying for a superpower-level defence structure that includes nuclear missiles, aircraft and naval vessels appropriate for a world war.

► Above all, public administration is weighed down by a burden of regulation and box-ticking bureaucratic management. Every year the lawyer-driven political system creates additional laws to be administered and the bureaucracy expands its regulatory procedures in an orgy of self-interested work creation. That trend needs to be reversed with a bonfire of repealed laws and abandoned regulations.

Doubts about timing

A strong case can be made for delaying tough measures to reduce the fiscal deficit. The UK economy – the worst-hit by the Great Recession of the world’s major economies – remains in a weak state, and it would be premature to remove supportive stimulus at this stage.

Roughly half the nation’s economists believe that this isn’t the time to tackle the deficit when, as Lord Skidelsky has put it: “The problem is a deficit of demand and growth in the economy.”

However the politicians do need to commit themselves to a credible and detailed long-term plan to address the problem. I am not optimistic about that. A weak government, knowing it they may only to be able to hang on to power for a year or two, and will then face another election, is unlikely to be willing to introduce harsh measures certain to be unpopular with most voters.

In fact, as we already know, the coalition partners’ idea of fiscal responsibility is to make political bargains that add hugely to the fiscal deficit!

Of course, policymakers also live in hope that economic recovery will allow the hysteria over fiscal deficits and soaring national debt to evaporate.

It can be argued that much of the UK’s problem can be blamed on economic setbacks, not defective fiscal structure. This year’s deficit is about £163 billion, but tax revenues are expected to be £107 billion lower than the Treasury planned for (due to the recession hitting profits and incomes), and public spending £30 billion higher (largely due to recession-related costs such as unemployment benefits).

The problem with depending on recovery to solve the deficit/debt problem that the Great Recession has destroyed part of the productive power of the British economy, which has been excessively dependent on financial services, a property boom and credit-fuelled over-consumption.

It will take a long time to restore economic growth to comfortable levels based on Britain’s remaining core strengths in many service industries (a slimmed-down financial sector, legal and commercial services, private education, fund management, entertainment and media), and its often-overlooked but nevertheless still-important manufacturing industries.

In the meantime the bloated state is no longer affordable, so must be restructured to provide room for the private sector, the engine of growth, to do its work.

CopyRight – OnTarget by Martin Spring

the final article in series – Some strengths to cope with adversity

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