Tim Worstall
Prices are information - critical minerals ...
Prices are information - critical minerals edition
Tim Worstall
It worries that people get their economics from ...
It worries that people get their economics from The Guardian
Tim Worstall
What austerity?
What austerity?
Tim Worstall
Renewables aren't so cheap then
Renewables aren't so cheap then
Tim Worstall
Well, yes, obviously, quite so
Well, yes, obviously, quite so

Public expenditure – Cutting to the chase

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The horrific public borrowing forecast for this year of £175 billion – and the consequential £220 billion of projected gilts issuance – are certainly concentrating minds, especially those of credit rating agencies. The reality is that, irrespective of whichever party wins the next General Election, major public expenditure cuts will be obligatory; various percentages are currently being bandied about.

The key figure is the projected £671 billion of Total Managed Expenditure (TME) for 2009/10 - prior to interest payments. Future public finance policies should be based on implementing real cuts to that number. This £671 billion total is the sum of two key elements – Departmental Expenditure Limits (DEL) of £387 billion and Annually Managed Expenditure (AME) of £284 billion. Hence, any credible public expenditure cost-cutting strategy has to address how these two components can be sensibly reduced.

Imposing a top-down figure of projected cuts, say 2% in real terms per year for the next five years, would make sizeable inroads into public borrowing levels. In applying this top-down approach, it is clear that few exceptions should be permitted; otherwise, the cuts have to be higher elsewhere. Obvious targets for above-average cuts are parts of the massive social security budget - projected to cost £165 billion in 2009/10 - and local government expenditure, where efficiency levels are low and financial discipline is weak.

Given the grave state of the UK’s public finances, capital expenditure budgets will also need to be addressed, especially at the MOD, where cost over-runs - inevitably - continue. But experience shows that cutting public expenditure needs real political drive and determination. Since 1990, TME has risen from £360 billion to £583 billion in 2007/08 (based on constant 2007/08 prices). After all, even during the fierce assault on public expenditure during the 11-year Thatcher era, TME actually rose by just over 10%.

Building Britain's Future?

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As Philip mentioned yesterday, the government's latest re-launch – titled Building Britain's Future – is extremely underwhelming. It exhibits no new thinking or ideas whatsoever, and is indicative of a ruling party that has run out of steam. Nowhere is this clearer than in Gordon Brown's 'new' approach to public services.

Rather than attempting to undertake any kind of serious reform, as Tony Blair at least tried to do, the prime minister has decided to simply create lots of new 'rights' or 'entitlements', enshrine them in legislation, and hope that does the trick.

Plainly the government still believes, despite more than a decade of experience which should have taught them the contrary, that all they have to do is pass a new law and everything changes. The lack of intelligence this suggests is truly astounding.

The way to ensure that all patients are treated within 18 weeks of referral is not to pass a law to that effect, but rather to reform the health system so that supply reacts to demand. That means ditching the NHS's soviet-style central planning and letting markets (whether internal, or otherwise) allocate resources.

The government's new 'entitlements' will be no more effective than their 'targets' were. GPs met the 'appointment within 48 hours' target by only allowing people to book appointments 2 days in advance. Similarly, the 'A & E treatment within 4 hours' target was often met by keeping people waiting in ambulance bays or not registering them on arrival.

Moreover, giving legal priority to some areas of healthcare – like cancer treatment, where patients will have to right to see a specialist within 2 weeks – will invariably mean that other areas of care suffer in order to meet the requirements of the legislation. Maybe that's the right call to make when resources are limited, maybe not. Either way, it shouldn't be up to a headline-chasing government to set medical priorities. The preferences of healthcare consumers who are free to take their custom elsewhere should really be the key factor.

One last point: the government is now trying to avoid criticism for spending cuts by talking about planned 'underspends' in health, education and transport. It's just laughable.

Burdening Britain’s future

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There are many bad Bills set to be brought before the House of Commons in Building Britain’s Future, Labour’s platform upon which they will be fighting the election. For example:

  • As part of the Digital Britain Bill the government has decided to switch off FM radio. I for one still use it and find it entirely adequate for my needs and am not keen on being forced to buy a new radio because the government wants to direct technology. There is also a plan to introduce a legal right to broadband, which is preposterous in the extreme.
  • The Child Poverty Bill will put into law the desire to abolish child poverty by 2020. This is something the Conservative government should immediately overturn if they come into power. In this instance a child is judged as being in poverty if they are part of a household earning less than 60 percent of median earnings. It is therefore not a goal to reduce actual poverty (which should be measured in absolute terms), but a goal for household equality.
  • In forcing companies to publish the difference in salaries between men and women, the government has hit upon a terrible policy. Flexible working arrangements that offer fewer hours for less pay are being undermined. This legislation will discourage companies from employing women in junior positions in case they skew the results (undermining their ability to attract women for more senior positions). The unintended consequences will prove this to be counter-productive.

There are two even greater concerns that transcend the problems with any individual Bill. Firstly, how on earth does the government expect to pay for this? £4.2 billion on the Child overtly Bill; £655 million on the Improving Schools and Safeguarding Children Bill; £117 million on the Equality Bill; the list goes on. Accepting that the government is already trimming the edges of government in cognito, the fiddling needed to also cover these policies would put Madoff to shame. What will be cut?

The other concern is the fact that so much of these Bills are filled with trite nonsense. As Simon Jenkins points out in The Guardian:

What is "a mandatory job for every school-leaver unemployed for a year" or "a guarantee to local people of more power to keep their neighbourhood safe" or a "guarantee of a personal tutor for every parent" or an "enforceable entitlement to see a consultant"?

To sum up, Building Britain’s Future is full of bad, expensive polices that have no chance of working.

ID cards downgraded

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We should celebrate but unfortunately the government has already wasted our money on investigating whether a national ID card would be viable and there's nothing left in our pockets to contribute to the party. The national ID card scheme has been downgraded from potentially compulsory to voluntary. Still it was a tidy earner for the goverment and a few high tech industries closely associated with the project. For example over the past 5 years the government had spent £20m on one segment of the project, the Critical Workers Identity Card and of course it is behind schedule and being badly run. As with anything IT related that the government's hands fall upon.

But (and there's always a but when a government announcement is made) the voluntary roll out is to be speeded up and the over-75s will become the guinea pig group that is handed the cards for free. They will hold them alongside the thousands of foreign nationals in the UK who will still be forced to carry one. The government will get you sooner rather than later.

The whole ID card fiasco has been one that has mirrored the government's pathological ineptitude towards governance and dealing with security. They have failed to grasp that their primary role is to protect our liberty and impinge upon our daily lives as little as possible. ID cards are a statement about how they have failed to address the threat of terrorism and how it is far easier to assume we are all terrorists. More in the hope that eventually by dragging us all up in one net they will still be able to find those they are looking for via careful sifting.

Still, by the time the current government believes that this programme can be rolled out they will hopefully have been handed a sound thrashing. But of course, the hope is that the other politicians aren't actually lying...

Education reform in the US

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Cato's Andrew J. Coulson blogged yesterday about spending on education in Washington DC. His figures certainly seem to put paid to the idea that private schools only perform better because they have more money to spend.

Coulson found that:

  • DC's K-12 school spending was $1,291,815,886 in the 2008-09 school year.
  • At the same time, 44,681 students were enrolled in those schools.
  • If that number excludes the 2,400 special needs students that have been placed in private schools, then DC's total per pupil spending is $27,400.
  • If those 2,400 students are actually included in the figures (it's not clear), then DC’s correct total per pupil spending is $28,900.
  • Meanwhile, the average tuition figure at the private schools serving DC voucher students was just $6,600 (according to the US Department of Education).
  • After three years, voucher-receiving kids are reading two grade levels ahead of their public school peers (also according to the Department of Education).

These figures are remarkable, albeit not that surprising: the ability of the private sector to provide more for less is well known and well established, even in education. The key factors driving this difference are greater accountability, the freedom to innovate, the absence of heavy-handed bureaucracy, and the weakening of the teachers' unions.

That last one is crucial in the US context and is, I would suggest, the answer to Coulson's question: why did President Obama kill the DC voucher programme? To put it simply, Obama just cares more about his friends (and donors) in the Unions than he does about disadvantaged school children.

P.S. I wrote an extended blog about "Why the private sector succeeds where the state fails" here a few weeks ago.