Public expenditure – identifying the mechanism


In recent weeks, much political debate has focussed on public expenditure, which – given the unprecedented levels of government borrowing – needs to be cut sharply. However, most solutions being put forward focus on scrapping or cutting spending on individual programmes. Whilst there are compelling financial cases for abandoning the Crossrail project, for substantially reducing the costs of the replacement Trident programme and for means-testing child benefit, this pick n’ mix approach is not analytical.

Instead, the next Government should implement a top-down approach by focussing on the 2009/10 public expenditure projection – before interest – of £671 billion: any Government forecasts beyond the current year carry little credibility. To regain control of public expenditure, ongoing real cuts of c3% per year should be applied to this figure. Hence, for 2010/11, the next Government should aim for a £650 billion out-turn. Subsequently, departmental budgets should be specified by the Treasury to enable such a figure - before any unforeseen contingency items - to be reached. Consequently, major spending departments, such as Social Security, Health, Education and Defence, should be required to operate within these figures.

It should also be made perfectly clear that - like the Chief Executive of any major plc - the Secretary of State is primarily responsible, with his ministerial team, for deciding how the allocated departmental budget is met. Top civil servants, including the departmental Permanent Secretary, should be obliged to play a leading role in ensuring that the best possible services are provided within the budgeted amount.

Any unreasonable failure to deliver should be punished in the same way as applicable to FTSE-100 Chief Executives, whose turnover ratio is high – though still well below that of Premier League football managers.

Of course, there would be political flak but is anything more important at present than regaining control of the UK’s parlous public finances?