Public sector profligacy


If the finance director of any private company issued a set of half-year figures like Alastair Darling’s pre-budget report, angry shareholders would be calling special general meetings to have the entire board sacked.

Since 1997 the government has spent, and borrowed, wildly. Its debts are about as large as they were after Waterloo and the Second World War. At least then we could see where the money went – saving ourselves and Europe from tyranny and fascism. Today we have no victories to show for it. All that it has bought us is bloated government and a collection of decrepit banks. Yet the borrowing continues to rise – by an amount equal to £3,000 for every man, woman and child in the UK this year, and about the same the next.

If that were a company, it would not be just the board getting fired. There would be massive cost-cutting all round. Over the last five years, public spending has grown nearly 7% a year. The Centre for Economic and Business Research figure that if our debt is ever to stop growing, we have to shrink that spending by at least 1% a year. With inflation at 2%, that means real cuts of at least 3%.

Of course, politicians hate cuts, particularly before an election. But private companies have to take a hit when times are bad. They already have. Ask all those people who are out of work – which I reckon could peak at 3.8 million – and the millions more who have had to take real pay cuts. The CBI says that half the UK’s companies plan to freeze pay this year. Two-thirds of them have already imposed recruitment freezes.

Yet the finance director of UK plc, in worse debt than any private company and any comparable country, is not proposing cuts or freezes at all. Indeed, he aims to pay his workers another 1% this year! If their productivity had grown by a quarter in the last decade, as private-sector productivity did, that might seem sensible. But in fact, public-sector productivity declined 3.4% in the same period.

Would you invest in a company like that? Many foreign investors are having doubts too, and three rating agencies are hinting that UK plc is a bad risk. Of course they know that there is an election coming up. The first budget after that will be crucial. But really, we should be taking action now. We do not need to lose front line services. But we need to cut back office costs, and reduce those gold-plated public-sector pensions, and bloated staff numbers and pay. The public are ready for it. After all, they have been tightening their own belts for a while. Is it not about time, for once, that our government sector did the same?

Dr Eamonn Butler is Director of the Adam Smith Institute and author of The Rotten State of Britain.