The Message From Margaret

You'll need to speak up Mags

Margaret Hodge is the new chair of the Public Accounts Committee and she has concluded that government departments are incapable of eliminating waste. Her Committee has found that �35bn of efficiency savings ordered by Labour in 2007 were nowhere near achieved:

"Departments were in general unable to make real value-for-money savings of 3% a year following the 2007 Comprehensive Spending Review - and that was at a time of increasing budgets.

Now that much more radical cost-cutting measures are required across government, my committee is gravely concerned about the ability of government to make efficiency improvements on the scale needed."

The PAC report itself gives some chapter and verse.

To start with, none of the departments have come anywhere near their target savings. Halfway through the three year programme, declared savings came to just 31% of the target, with some key departments way short of even that:

Worse, nearly two-thirds of these supposedly achieved savings were not provable in any meaningful sense. As for relating them to departmental budgets:

"Departments were generally unable to reconcile their reported savings to either their financial accounts or to their spending agreements with the Treasury."

Shocking.

We are still in the complete and utter fantasy world of Gershon delusion and the Marx Brothers - the idea that you can make huge efficiency savings without saving any actual money, or making anything any more efficient.

Of course, regular BOM readers will be fully familiar with the lunacies that define this world (see many previous blogs eg here). But for poor Margaret Hodge it's probably come as a bit of a shock.

The question is what should we do about it?

The response from the BBC and the left is that it means the coalition's spending cuts are unachievable without massive damage to our public services. Departments cannot do efficiency and to assume they can will consign schools and hospitals to a new dark age. Stop the cuts. QED.

In fairness to the PAC, their report (as opposed to the headlines based thereon) doesn't say that. Instead, they argue for more transparency on efficiency savings, with more explicit reporting of inputs and outputs so everyone can see whether important services are being cut. They also want the Treasury to take a much larger role in guiding and verifying the savings. Which all sounds kind of sensible in a marginal improvement kind of way.

But the real message from the report - the real message from Margaret - is much more radical.

The real message is that to make real efficiency savings - the kind private business is constantly making - we need radical reform in the way our public services get delivered.

In particular - and I do apologise if you've heard this before - we must break up our big state monoplies in areas like health and education. We must have choice and competition across the public services.

Because the key reason that businesses like Tesco are so good at driving efficiency is not because they are inherently much smarter than public sector managers. It's because they face a completely different set of incentives. They know that they must deliver what their customers want or perish. And a large part of that delivery comprises value for money. If they get fat and inefficient, they can't deliver value and they lose their customers.

Tyler has never believed we can make monopolistic public sector elephants dance. And whether she understands it or not, that is precisely what Margaret Hodge has told us today.

Margaret's message is that we must learn from her party's failure. To make cuts without destroying the delivery of public services, the coalition must tackle the underlying problem. They must break up the public sector and unleash the power of choice and competition.

The Great Efficiency Delusion

Dancing elephant delusion

The... erm... "government" has been mercilessly mocked for its preposterous assertion in yesterday's budget that it will conjure up �11bn through yet more of its Gershon-style public sector efficiency savings.

Although not detailed in the main budget document, it transpired these savings are to include �550m pa from somehow making our heavily unionised NHS staff throw fewer sickies, and around �100m from the highly improbable introduction of "smart management".

And how's the rest of the �11bn made up? In an attempt to find out, James Committee veteran and TPA stalwart William Norton spent several hours yesterday sifting through a huge pack of explanatory notes from individual departments. He unravelled precisely how each of them intends to fulfil their mandated savings, and then laboriously added up the totals for each category of savings. Here's his summary (presented at this morning's TPA budget briefing):

Now, that may be a little too small for you to read, but don't worry - you can easily see that by far the biggest source of savings is the green bit, accounting for over half the �11bn total. And what's the green bit? Ah, that's the bit officially categorised as "unspecified". In other words, nobody has a clue how those savings will be made - they can't even come up with something half-baked.

And there's another important point to note here - not all savings are equal.

Although Darling and the slimey Liam Byrne spent yesterday implying that this �11bn was A Saving - as in "saving" - in truth, it's nothing of the kind. A saving Saving saves money. That's the point of it. But a government efficiency saving usually doesn't save anything - other than ministerial face, that is. It's a pure deckchair rearrangement, and doesn't release any actual cash to help with the deficit.

It was ironic that on the very day of the budget, the Office for National Statistics released updated figures for how public sector efficiency is really going. It says that NHS efficiency has been falling by 0.3% pa since 1995 - ie taxpayers have had worse and worse value out of every extra pound they've spent.

And that 0.3% pa fall is after taking account of various quality improvements the ONS thinks may have taken place. They are always very difficult to define, and so the ONS also publishes a series excluding them. And that's even more concerning. 

In Labour's first 11 years, they increased health spending by an eye-watering 138%. But as we've blogged many times, much of that disappeared in ludicrous pay deals and other cost increases, and the ONS reckons the volume of inputs only actually increased by 67%. Against that, the volume of outputs only increased by 55%. So excluding those mooted quality improvements, productivity (ie outputs divided by inputs) fell by 7%, or 0.7% pa.

Just for the record, here's the ONS summary chart, excluding quality improvements, and breaking down the totals into the separate contributions of GPs (FHS on the chart), hospitals (HCHS), and GPs prescriptions (the volume of which has increased by a jaw-dropping 200%):

Of course, none of this is new: we all know that public sector productivity has been falling for years, and we now have the ONS analysis to show just how much.

But for some reason, politicos of all persuasions still reckon they can save money by making the arthritic public sector elephant dance, releasing gzillions of efficiency savings.

Why?

Well, we know why. Because if they confess that they can't save money by lifting efficiency, then they will be forced to admit that the coming spending cuts will mean cuts in services. Which might prove to be a tad awkward.

So what we get instead is a delusional and dishonest public debate in which the real issues don't get discussed at all.

Issues like breaking up the NHS, and replacing it with the European model of competing social insurers - a model that delivers significantly higher standards of healthcare for similar cost.

Issues like decentralising government, and making local authorities responsible for organising and funding local services - a structure that can deliver much greater levels of public sector efficiency (see this TPA Research Note).

And issues like downsizing government, and leaving people with more of their own cash to make their own arrangements with suppliers who can offer competitive prices based on real efficiency.

Looney Tunes

So after 12 years incinerating mountains of our cash, this high spending low performance "government"  wants to tell us it can be more efficient.

To be frank, I can't be bothered to read Brown's speech. In essence he's after the same headlines the Tories got months ago - a crackdown on public sector fatcat pay, cuts in top civil service jobs, and cuts in the use of consultants (yes, all these items were identified long ago by the TPA - which just goes to show what conviction and persistence can achieve).

On top of that, Brown reckons he can make savings from the "smarter use" of IT - even though none of his previous IT projects (like the now scrapped NHS supercomputer) have ever saved money. And finally he wheels out yet more of those preposterous Gershon "efficiency savings" - even though three-quarters of the previous savings were bogus (see previous posts eg here).

Oh yes, to make sure these savings don't result in worse public services, he's going to combine them with yet more citizen guarantees of good service. Job done.

Does he actually believe this garbage? And does he imagine we'll believe it? Not only is he a proven liar, but he is the very man directly responsible for the bloated public sector which now afflicts us. How can he possibly think we'll believe a word he says on efficiency?

Yes, of course, there is huge waste in the public sector: we have spent the last five years blogging that very subject. But there is absolutely no reason to think fresh orders from the top will change anything. The public sector has had 12 years of Labour's Stalinist management methods, and they are utterly discredited.

What we need is fundamental public sector reform. By which we mean what we've always meant - break up the monolith and introduce choice and competition. The money must be put directly into the hands of the customers, and the producers must compete for the customers' biz.

That is the only way we know that will both free frontline professionals to manage their own affairs, and  incentivise them to meet customer needs. No amount of citizen guarantees, online league tables, and unringfenced grants comes anywhere close to the simple power of the marketplace.

Sure, Brown will never wrap his socialist head around that.

But there's no excuse for Cam.

Meanwhile, with Rome well and truly in flames, and entirely at your expense, Brown's wife has thrown a Tweet party at No 10:

"Guests at the Downing Tweet Christmas Party were able to tweet about the event from a specially created �Tweetzone� whilst they were entertained by singer Beverley Knight and ate mince pies adorned with the iconic Twitter bird."

Let them eat Twitter mince pies.

To Fundamentally Reform

Surely George ought to know better:

"We need to fundamentally reform the way public services are delivered."

To fundamentally reform? What kind of talk is that?

I mean, we understood George had received an expensive education at one of Britain's very toppest schools. Surely a school like that doesn't have the motto Fide et Literis for nothing, does it? What would his old English master have said?

I'm afraid the Major was so appalled he was quite unable to concentrate on the rest of George's speech, and was forced to repair to the 19th hole for immediate medication.

Fortunately, Tyler is made of sterner stuff. And for the sake of understanding what had been billed as a key speech on public sector reform, he was prepared to overlook the odd grammatical infelicity.

So reformwise, what did George actually have to say?

First, he said that the coming spending cuts make fundamental public sector reform all the more important:

"Without fundamentally improving the productivity of public services, the quality of those services will deteriorate as budgets are squeezed."

Spot on - as we've blogged many times.

Second, he said Gershon-style "efficiency savings" will not do the trick:

"... to pretend that efficiency savings alone will suffice when the country is borrowing one pound for every four it is spending, is to take the public for fools. It is deeply dishonest and it condemns those who claim it to the sidelines of the real debate. The truth is that we need to fundamentally reform the way public services are delivered."

Again, spot on - as we've also blogged many times.

Third, he confirmed that Dave's government will "legislate early" to introduce those school vouchers:

"We will, as they have in Sweden, give parents the ability to take the money the education bureaucracy currently spends on their behalf and allow them to take that money to the new school they want.

...we will allow new providers to set up state schools where there is demonstrable demand from parents."

Hurrah for that.

Fourth, on the NHS, the Tories will be... umm...

"... making the case for progressive reform in health, achieving improvements through patient choice and professional autonomy, bringing productivity gains through diversity of provision and an effective roll out of payment by results."

Hmm.

And how exactly does that differ from all the good intentions we've heard over the last decade? In theory we already have patient choice and professional autonomy and diversity and payment by results. In theory.

The problem is that while Whitehall holds all the purse-strings, the theory don't add up to a row of beans.

No, if Dave and George are going to deliver "fundamental" reform in healthcare, they will need to be much more radical.

As we've blogged many times, they need to break up the lumbering dysfunctional NHS and replace it with a range of continental-style social insurers. That's the only practical way to inject meaningful competition and customer choice, which is the only practical way to drive higher productivity.

If we're to stand any chance of preserving service standards in the face of the forthcoming spending cuts, Dave and George will have to raise their sights.

They need to boldly go where no man has gone before.

They need to explore new worlds beyond the NHS platitude zone.

PS I'm sure I've quoted it before, but I just love Raymond Chandler's famous riposte to the proof reader who attempted to unsplit one of his badly busted infinitives: "By the way, would you convey my compliments to the purist who reads your proofs and tell him or her that I write in a sort of broken-down patois which is something like the way a Swiss-waiter talks, and that when I split an infinitive, God damn it, I split it so it will remain split."

Cam, Cuts, And Culture

How it was the last time around

We've been reading Cam's speech on the new Age of Austerity. And we like the sound of it a whole lot more than most of his previous offerings.

Forget sharing the proceeds. He now tells us:

"The money has run out."

Damned straight. And there's more:

"... some people say: let�s get through the recession, let�s get through the election we can keep on spending more, keep on borrowing more, and deal with the debt crisis later.

Wrong - seriously wrong.

The alternative to dealing with the debt crisis now is mounting debt, higher interest rates and a weaker economy.

Unless we deal with this debt crisis, we risk becoming once again the sick man of Europe. Our recovery will be held back, and our children will be weighed down, by a millstone of debt."

This could be Tyler talking.

"Everybody knows that Labour�s Debt Crisis means public spending cuts."

Spot on.

But what? How about a few of BOM's old favourites?

• "scrap the ID cards scheme" - we say Yes, along with all those other grandiose and unworkable government supercomputer projects (see many previous posts eg here);
• "get rid of Regional Assemblies and all that useless regional bureaucracy" - we say Yes, and have blogged it many times (eg see here);
• "government spends nearly �400 million a year on advertising"... slash it - we say Yes (eg see this post)
• replace the NHS supercomputer with "Google Health or Microsoft Health Vault" - we say Yes (see this post)

So yes to all of that.

But as we've said before, it won't be nearly enough. We all need to dig much deeper into the spending mountain.

Which is where another of BOM's long-standing enthusiasms comes in - a Transparency and Accountability Act, modelled on the new US system, and giving public spending a good dose of sunlight disinfectant (eg see this post). Cam now says:

"I can announce our �People�s Right to Know� plan � a democratic check on wasteful spending. Every item of government spending over �25,000, nationally and locally, will have to be published online.

...it can have an especially powerful effect when it comes to salaries. Spending on public sector salaries has soared under Labour... [especially] the wage bill for the swarm of unaccountable quangos that has infested our country.

People have a right to know exactly how much they�re getting. So we�ll publish online all public sector salaries over �150,000. Let�s see which officials have been getting rich at the taxpayer�s expense - and whether they�re worth the money."

Information being power, we say hurrah!

But Cam wants something beyond cuts and taxpayer scrutiny: he wants nothing less than a change of culture in government:

"We need a massive culture change at every level of government, to make the state careful, not casual, with public money...

It�s not government money, as Labour like to say.

It�s your money."

Hallelujah!

Just one small thing - how do we change an entire culture?

Because we've had quite a few attempts to change government culture, and they've never been what you'd describe as a rip-roaring success.

Cam says he'll require all government departments to have a professionally qualified Finance Director who will focus relentlessly on matters money. But since that's supposedly a requirement already (eg see this post), you shouldn't hold your breath for any discernable effect.

He also says he'll "impose a new fiduciary responsibility on senior civil servants � a contractual obligation to save the taxpayer money". But as the Gershon "efficiency programme" illustrated all too well, the question then becomes what's a saving? Will Cam be happy if they cut spending but a thousand pensioners freeze to death?

And then there are his backsliding cabinet "colleagues":

"With a Conservative government, if ministers want to impress the boss, they�ll have to make their budgets smaller, not bigger.

On my watch it will be simple: if you do more for less you get promoted if you do less for more, you get sacked."

Riiiiight.

Cam is far too young to remember how this worked in Thatcher's first cabinet. It too had a mission to cut spending, and one of its strongest advocates was Sir Keith Joseph - the Mad Monk. But Joseph was Secretary of State for Industry, and as Britain tipped into the early 80s recession (much less severe than now), he appalled himself by being forced to ask Thatcher for more money to support the many lame duck industries under his departmental wing.

Government spending departments are not called spending departments for nothing. Spending money is their culture and nothing will change it.

The only way you can hope to grip it, is to do what Thatcher/Howe did.

You have to impose tough top-down cash limits, driven by affordability not departmental pleading.

You have to close your ears to the screams of spending "colleagues".

And you have to be prepared for a life of evil - because that's the way you will be portrayed for ever after by the BBC and the rest of the lib media.

PS There is of course one thing that Cam could do to really change public sector culture. He could follow through on all those promises of decentralisation by breaking up the big spending blocks. And just to remind him, that means school vouchers, social health insurance, fiscal decentralisation, and more directly elected officials (eg the sheriffs). Choice and competition are the only way to drive real culture change.