Duncan’s Economic Blog

Tory Cuts?

Posted in Uncategorized by duncanseconomicblog on April 30, 2009

David Davis has an interesting opinion piece in the FT today. He is writing with his ‘former Chair of the Public Accounts Committee’ hat on rather than in his role as ‘Captain Liberty’ and makes an argument as to what could be cut from public spending.

There are some rather silly attacks on the government and some fairly ‘gimmicky’ suggested cuts, but nonetheless I welcome the article and would recommend reading it.

Here, at least, is a senior Tory prepared to be straightforward about proposed cuts. Some of his suggestions are even sensible. Many are not. But this is the debate we need to have. I do though think he is overstating exactly how much these proposed cuts would save. I’ll try and tot up the figures myself when I get a chance.

To summarise:

(i) ‘Pay and recruit freeze’ on ‘the entire public sector’. I am unclear if he means an actual recruitment freeze (i.e. not replacing people as they retire), which would surely be a disaster as the numbers of doctors, nurses, police constables, soldiers, teachers, etc fell. He admits this will be ‘controversial and uncomfortable’.

(ii) Public pension schemes should be closed to new entrants.

(iii) ‘Where salaries have really got out of line, as with doctors’ pay, lower starting rates should be introduced’. Cutting junior doctors pay? Really? Junior doctors are the ‘public sector fat cats’ David Davies has chosen to target?

(iv) Cancel Senior Civil Service bonus payments. As he says it would only save £25mn but the ‘symbolism’ is important. So he advocates cutting bonus payments as symbolism? From a party which attacked the 50% rate as ‘political’?

(v) Cut back in MPs’ expenses and Cabinet ministers’ pay.

(vi) Cancel ID cards and ‘government databases’. That’s be Captain Liberty speaking. In particular Contact Point and ‘internet scrutiny schemes’.

(vii) Renegotiate ever PFI contract now. This probably makes sense.

(viii) Big savers from the departments, ‘particularly the burgeoning welfare budget’. He notes this is heading towards £180bn within two years much of this because ‘ of Gordon Brown’s badly designed, fraud – and error-prone tax credit system’. Really? I assumed most the increased welfare spending was due to rising unemployment and that while recession thing.

(ix) He moves onto the issue of ‘welfare for the well off’. Noting ‘gimmicks’ such as ‘winter fuel payment and free tv licenses for the over-75s’. He wants these measures (and child benefit) targeted towards an ill defined ‘worst off’. He reckons this saves £8-10bn.

(x) Abolish regional government and devolve remaining functions ‘back to the counties’ or back to the centre. I’d be interested to hear what the Local Government Officer thinks about this, both in terms of effectiveness and cost saving.

(xi) Finally, he finishes off by questioning the need for ‘a wholesale upgrade of Trident’. Which did surprise me.

I’m not actually sure how much the above saves. I wouldn’t (at a first estimate) have thought much more than about £30bn of one off spending and about £20bn of annual spending. Not a huge amount againsta prjected deficit of £175bn this year. But if the Tories are intent to rebuild the public finances through spending cuts rather than tax rises then it will only be the start.


16 Responses

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  1. thelocalgovernmentofficer said, on April 30, 2009 at 12:37 pm

    (x) Local Government Officer’s initial lunch-break based thoughts are that there are very few things which are best done at a regional level, but that’s because it’s a fairly stupid and arbitrary level, rather than because it is necessarily more expensive. Of the small number of things which probably should be regional if you were starting from scratch, most aren’t anyway.

    There’s also sufficient variation in local government in the UK that “back to the counties” is a tricky one. There are functions which could easily be handled by Kent, Essex, or Hampshire (or indeed Croydon or Birmingham) for example, which would not necessarily be feasible for Rutland, Doncaster, or Kingston-upon-Thames. How do the Tories feel about the ‘city region’ solution to this? They abolished it when it was called ‘metropolitan counties’.

    To be absolutely fair to the Conservatives, they (now) have a consistent policy line on most of this – for example on the Local Democracy, Economic Development and Construction Bill which has just cleared the Lords, they – and the Lib Dems in a different way – argued for more power at a county-ish level over strategic economic, spatial and environmental planning, and less at a regional level. That should save money – pennies in the big picture, but still some money – since it would mean fewer regional meetings for Leaders, less on petrol and hotels, and a strategy drawn up on the basis of the Local Economic Assessment which authorities will draw up anyway, rather than paying a further office in the region to draft something, engage in a further round of consultation, and monitor delivery.

    But many Conservatives at the grassroots still talk as if it’s about “scrapping regional assemblies”. That’s happening anyway, they’re either gone or going – the key is how much we can get rid of the functions of bodies such as Goverment Offices of the Regions (which the last Tory Government set up anyway – half their work is liaising around strategies and inspections which are also on the list of Tory cuts, so to include them here would smack of Brownite double-counting in reverse), and Regional Development Agencies (which have all sorts of flaws but often assist the business lobby against others, so may be appealing to Conservatives in government).

    Strategic Health authorities can go if you want, and do it as part of closer integration between coterminous NHS structures and local government, but while I can see a case for better structures, the NHS has reorganisation fatigue and really needs a period of focusing on finances and healthcare, not rearranging the deckchairs yet again.

    There’s also the vexed question of whether the EU will be prepared to deal with counties. It likes regions, partly because there are a smaller number of them. Counties are a NUTS classification though, so technically part of the administrative schema of Europe.

    Happy to go into more detail on specifics later if anyone’s really interested!

    (ii) This is stupid and is tempting me to use a bad word. Reform the pension scheme, absolutely, but splitting it into existing members who still get all the goodies, and new entrants who get nothing is unfair – they are doing the same job – and will create a perverse incentive on employers to take on new staff rather than experiences employees. In the short term it would also worsen the funding gap, depriving the scheme of new income, but not saving any significant cashflow costs until decades in the future.

    • Brian Hughes said, on April 30, 2009 at 1:08 pm

      (ii) may be unfair but it’s what is happening to a lot of private sector final salary pension schemes. Even more unfair are the ones being closed to existing employees (who may have accepted their jobs partly because of the pension provisions).

      And is it “fair” that only public sector employees should have an absolute guarantee that their pension schemes won’t fold and/or be unable to keep increases in line with inflation?

      • thelocalgovernmentofficer said, on April 30, 2009 at 4:50 pm

        Yes that may be happening in the private sector, but the private sector signs tighter contracts with its employees, and doesn’t have the option of altering them by act of Parliament. I’m very keen to avoid a system where two people doing the same work in the same authority are rewarded by wildly different amounts, simply because one started a year earlier than the other.

        Reforming the whole thing is the only fair solution.

  2. Tom P said, on April 30, 2009 at 1:20 pm

    Ahhh… pensions, one on my fave topics.

    Closing the schemes to new entrants might, as suggested above, actually increase costs in the short to medium term, given that the schemes will have to keep on paying out until the last pensioner dies whereas the number of contributors will steadily fall.

    I agree with Brian that there is a fairness issue here, but the principal problem is the crap state of private sector pensions, not the supposed generosity of public sector ones. What the public sector has was commonplace in the private sector until relatively recently – so are we saying that the private sector was unreasonably generous in the past?

    Whilst I agree that we ought to look at reforming public sector schemes (myabe by upping employee conts, retirement age or whatever) the collapse of private sector provision is the real pension scandal. Everyone with any basic knowledge of pensions knows this, so it’s a real shame that the ‘solution’ many propose to this problem is levelling down – bringing the public sector down to the crap level of the private.

    I have a slight vested interest as I’m in the private sector and have a DC scheme 😉

  3. tim f said, on April 30, 2009 at 1:26 pm

    Presumably by “recruit” freeze he MUST mean trying to keep the overall numbers of doctors and nurses stable, rather than an actual recruit freeze. Otherwise you’d have lots of doctors and nurses finishing their qualifications with no jobs on offer, or/and no-one taking medicine for a few years, with the result that when we’d lose a generation of doctors and have no senior staff in the NHS at a future point.

    He tries to have his cake and eat it when he calls tax credits badly designed, but want to introduce means-testing for child benefit & pensioner support.

    Finally, does anyone else detect from the final paragraph a desire to still be the next Tory leader?

    • VinoS said, on April 30, 2009 at 10:21 pm

      Indeed – a recruitment freeze is a nonsense, since it will actually mean that newly-qualified teachers, doctors, nurses etc won’t be employed – thus making people less keen to study for those professions. Additionally, of course, if he wants to close the public pension schemes to new entrants, he will need to encourage existing workers to go and new ones to join to replace them! Sounds quite inconsistent to me.

  4. donpaskini said, on April 30, 2009 at 4:07 pm

    Good article.

    One thing which is interesting is that means-testing child benefit has the same net effect on the budget of a middle class family as putting up their taxes by £20/week (that’s very roughly equivalent to a 2-3% rise in basic rate income tax?), but means-testing is much more bureaucratic and inefficient, and, of course, hits middle earners more than higher earners.

    • VinoS said, on April 30, 2009 at 10:22 pm

      Exactly, Don, good point. The bureaucratic problems with tax credits are due to means-testing. Extending means-testing to child benefit, pensioner winter fuel payments etc will just make the problem worse…….

  5. CharliemcMenamin said, on April 30, 2009 at 4:42 pm

    “…this is the debate we need to have…”

    it’s a part of the debate,sure. & it is facile to pretend that cuts aren’t coming. But if we start from what do we need to cut, rather than how do we start re-arranging our economy and ‘national business strategy’ to avoid replicating our current woes further down the line, then I think we’re just always going to be on the back foot in these arguments and the Tories will win. We have to have a vision of how we’re going to live in the future, not just an argument about what we stop doing.

    P.S. There are two main problems with our regional infrastructure – it is undemocratic, because Labour contrived to lose the vote in the NE which should have started the ball rolling for a proper ‘British lander’ type system; and, as local government officer so sensibly implies, most of them aren’t even real regions anyway in the sense that city regions around Merseyside, Manchester, Birmingham or Bristol/Bath (Avon?) might be. So let’s not cry too much if it goes – it is irrelevant in cost terms in the main anyway.

    • duncanseconomicblog said, on April 30, 2009 at 4:52 pm

      I agree we need a vision of what our economic model will be post-recession. Less reliance on finance and property, more green industry, etc. And government need sot consider how best to mange this transition.

      But I also Labour needs to set out a serious vision of how to re balance the budget over the medium term. And be prepared to fight against a Tory vision of how it should be done.

      The next election should be about Labour saying ‘ok, we’re being honest, this is what we will cut and this is how high taxes are going to be and these are the groups that will pay those taxes. We believe this vision is better than the Tory one’. I fear though the next election will actually be us saying ‘we saved the economy, the Tories opposed our measures’ whilst they say ‘Labour created a huge national debt’. That’s a silly debate to have as it ignores the pressing issue of the next decade.

      But I do welcome the article from Davis. At least it gets the debate going.

  6. […] 30, 2009 · No Comments Media darling and economic blogger Duncan has been looking at the list of possible public spending cuts put forward by David Davis MP in […]

  7. newmania said, on April 30, 2009 at 7:40 pm

    Ha ha ….you think Labour are going to be honest about tax rises , where have you been for the last ten years Duncan , in a drug crazed orgy I like to think . OK that’s unlikely I expect you are just too high on complying with state regulations to need it ..

    What I like about your blog is that you do seem to be able to count and you do recognise the realities of the position . What frustrates me is that you will not admit that New Labour `s project to increase the size of its tax take and its borrowing were a dreadful wrong turn which is equally obvious . In the process we have entrenched a 2,0000,000 sick note drag , destroyed pensions ( except for your Union friends )…well I could go on and on and frequently do.
    You are also unwilling to look at deregulating small business aiming for a lower tax economy so as to encourage growth , in fact in your economic model ( not that I have one at all) supply does not make any appearance at all . The solutions , the real solutions , mean admission that we have endured a catastrophic ten years of misrule and so Labour cannot suggest them. This why the public instinct that we need a change is right , it often is
    Local Government workers are only one of the self serving parasitical empires that will need to be taken on .. It was they ( as you will not know ) who caused the Winter of Discontent which put Labour out of power for 18 years . On the way forward for the economy ., no-onme care about the economy people care about their money which is why Labour are going to lie ( cue comical Ali with his irrelevant rate and fairy story growth) . You quite misread what is going on if you think there is a debate about” The economy” going on.
    Incidentally as you are good on the debt position ( if a bit religious about its short term necessity ) you have perhaps noticed that as this plays out there is a possibility this could be the end of Labour .
    I have always said New Labour was a liuie and it was hanging from sky hooks and that will become a lot more obvious . Labour can say what they like about who will pay and I have no doub they will try to ferment class war .They will not be believed

  8. charliemarks said, on May 1, 2009 at 6:06 am

    Top spending cuts: Trident, PFI, Afghan war, ID cards, all privatisation programmes (always costly in the long-run)

    Small businesses are especially dependent upon government subsidy through the public provision of infrastructure, healthcare, education, etc. Spending cuts would harm small businesses – which is why the Federation of Small Businesses were opposed to post office closures.

    To raise funds, allow councils to issue bonds – like transport for london did to raise money to invest in infrastructure, and also welsh water – this would create a municipal bond market and so provide an area for pension funds investment.

    My own favoured model for the future of the economy is radical endogenous development – from within, that is to say – through the expansion of forms of cooperative, municipal and public ownership. This would aim at reducing our dependency upon imported goods, which are becoming more expensive because of the lower pound, and in the process “localising” our economy and making it more resilient to future crises.

  9. newmania said, on May 1, 2009 at 10:45 am

    Small businesses are especially dependent upon government subsidy through the public provision of infrastructure, healthcare, education, etc. Spending cuts would harm small businesses – which is why the Federation of Small Businesses were opposed to post office closures.

    The only relevant item is infra structure which has been neglected ( especially in the South of course) , the rest of it is just the sort of thing teachers say in the pub , rubbish. As for mutuals if anyone can explain why someone would risk their money on a project for the purposes of sharing the rewards with employees then it might start to make sense. We have partnerships which but they have employees and there is no way we can afford this sort of sixth form pipe dream.
    However I think the cost of regulation is more important than tax which is not an issue for the running business so much as the incentive to start at all.
    What would New Labour know about it anyway. None them do anything in the real world

  10. charliemarks said, on May 3, 2009 at 10:09 pm

    Well, what regulations are standing in your way newmania?

  11. tory boys never grow up said, on May 9, 2009 at 9:35 am

    Renegotiate every PFI contract now.

    This would be extremely stupid – many of the early contracts were negotiated on terms which were very favourable to the private sector and if possible they should be renegotiated – but I suspect that a lot of effort would be spent in going absolutely no where unless the Tories were take the very unTory step of using statute to retrospectively undo existing contracts (notice their howls if Labour were ever to suggest the same – perhaps we could undo the railway stock leasing contracts – that would probably raise a few billion).

    As for the more recent contracts I think that they would find quite a lot of the private sector would only be too willing to renegotiate the contracts – the problem going forward will actually be one of trying to get them to stick to the existing contracts so as to keep costs down.

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