The Election campaign was almost completely dominated by efficiency issues yesterday, as Labour tried to dis the Tories plans to pay for not raising NIC by even more “savings”. As a result, I ended up doing radio, TV, and several newspaper interviews. So what did I say? In short, don’t believe any government or opposition when they claim they’ll make efficiency savings as a painless way of squaring a public spending circle.
First, just to remind ourselves – efficiency savings are about improving the ratio of inputs to outputs (services). Unless you can measure services, the quantity and quality of outputs, you can’t really tell whether they’re efficiency improvements or simply cuts. Which is partly why politicians like them – they can prove they’ve saved money but we can’t prove, easily, that services have been cut.
Second, efficiency improvements are not painless or costless. (This point was partly made in an excellent letter to the FT a couple of days ago by Professors Skidelsky and Blanchflower).
The Tories, for example, say they prefer £12bn of painless efficiency savings to Labour’s “job tax”. But of their £12bn of painless savings, apparently £1-2bn will come from job cuts. As I told the FT that’s roughly 20,000 to 40,000 jobs (if you cost jobs at an average of £50,000pa including on-costs). But that’s just the public sector jobs lost from recruitment freezes.
For every £1bn “saved” by cutting IT contracts, for example, anything up to 20,000 private sector jobs will go. And the Tories want to ‘save’ £6bn of ‘cashable’ savings – that’s the equivalent of 120,000 public and private sector jobs. Would the alternative “jobs tax” really loose anything like that number of jobs? I rather doubt it. But then neither will the ‘efficiency’ savings because…..
Third, governments (and oppositions) never, ever, deliver all the efficiency gains they promise. Back in the heady days of Mrs Thatchers ‘efficiency scrutinies’ (1979-1985) they promised £600m of savings, but only ever realised about £300m. In the ‘Gershon’ efficiency drive (2005-2007) they promised £21.5bn and claimed to have achieved it.
But the NAO’s audit of these claims showed that only 25% were certain. Another 50% probably contained savings, but were uncertain and the final 25% were definitely dodgy. I could go on. A rough rule of thumb is to divide anything they promise by 50% and you might be somewhere near the truth.
So – to yesterday’s row. The Government are already planning £15bn of efficiency savings for 2010/11. The Tories claim they can save another £12bn – taking the total to a staggering £27bn or 9% of spending in services in just one year! Does anyone really believe that? And of course certain areas are protected – health, overseas aid, and defence for next year only. So this 9% will have to come off the rest. The governments original £15bn is almost certainly an exaggeration – piling another £12bn on top is beyond incredible, and as I said to the BBC yesterday, it’s into Harry Potter magic territory. Magic maybe, but more of the Dark Arts variety.