It is no time for Westminster to be squeamish over spending cuts

Dr Madsen Pirie writes on the subject of spending cuts and their link to our future prosperity.

The C-word is out in the open. The Prime Minister previously insisted the debate was between indiscriminate and savage Tory cuts, versus Labour’s investment in public services. The Prime Minister uses the term “investment” as we might talk about “investing” in a Mars Bar, which most people would call spending. Now Lord Mandelson has described Labour policy not as big spending, but as wise spending, to be contrasted with Tory “savage cuts”.

The Government is trying to pitch the debate as one between cuddly and sensible economies from Labour, versus Tories “salivating about wielding the axe”. The debate has changed, however, in that the public now expects cuts and even supports them. Moreover, they trust the Tories to better implement them.

They are correct. Several studies have identified savings to be made without cutting essential services. The James report identified £35bn, the Taxpayers’ Alliance and Institute of Directors report pointed to £50bn, and the European Central Bank has said that Britain could save £96bn if its public services could operate with the efficiency achieved in the US, Australia and Japan – and without reducing actual services.

The notion that the public services were simply under-resourced has been tested to destruction by Gordon Brown. The torrent of public money poured their way has not brought commensurate improvements. What it has done is to leave Britain poorly placed (not “best placed”) to deal with the global financial crisis, and with an overhang of debt that will stifle future development and growth.

National Debt is over £800bn and heading for £1tn, and far more than that if the cost of baling out the banks is factored in. A Britain saddled with the costs of paying the interest on that, never mind repaying the debt itself, would see its business and industry intolerably burdened, with its ability to generate the jobs and wealth of the future severely handicapped. It is like a ball and chain tied to the economy.

That debt burden can be diminished in two ways. One is to let the economy grow by tax incentives and deregulation. The other is to cut public spending. The first targets must be waste, profligacy and inefficiency. But after that we must ask which services currently provided by government could be better done outside it, and which should not be done at all.

The enemy of our future prosperity is not the savagery of any spending cuts, but the hesitancy of those not prepared to do what is necessary. It is no time to be squeamish.

Published on Telegraph.co.uk here.

So that 35 hour week means the French work less does it?

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There is, sadly, a terrible misconception about the world of work. This misconception leads to, as ignorance of the basics so often does, really rather bad policies being enacted. The misconception is that the only form of work we do is outside the home, the labour that we perform in offices and factories for cash and lucre under the lash of The Man.

This of course is not true, we all also work in the home, unpaid. There's always the washing, the cleaning and cooking, the maintenance, the clearing of gutters and painting and so on. Some people enjoy these things, true, but then some also enjoy their paid work as well, and they are both work. Possibly the best description of what is work and what is not is the one used in time use surveys: work is whatever you could pay somone else to do for you*. You cannot pay someone else to sleep for you but you can to make your bed: you cannot pay someone else to eat for you but you can to cook, cannot to wash on your behalf but can for someone to wash you.

So in these time use surveys there are three basic classes of time: personal services, work (both inside and outside the home) and leisure. Those who have more leisure are those who are spending less hours in work, assuming that that personal part remains reasonably constant, as it does.

So what are the numbers for leisure in a country which deliberately restricts the paid for working week? Surely they have more than those who do not, no? Well, actually, no, France has an average of 4.28 hours of leisure a day for each adult while the UK has 5.08. The Americans, who everybody knows keep their noses to the grindstone, have 5.18.

The reason would seem to be that if people are denied the opportunity to work the paid hours they desire (possibly to then buy in parts of that unpaid household labour) then they will try to make up that desired income by unpaid household work. But the world of paid work, with its specialisation, leads to work being done more efficiently. Thus it is necessary to work longer hours inefficiently in order to reach the same desired outcome in material (ie, not just cash but goods and services) income. It is more efficient in the use of labour for the butcher to make the sausages in his factory than for every housewife to do so inexpertly at home, after all.

All of which leads me to a tentative and counter-intuitive conclusion. The laws which deliberately restrict the length of the working week actually increase the amount of hours of work done by those subject to them.

 

*This definition does cause problems when considering sex for you can most certainly pay someone to have sex with your spouse if you should so desire: fortunately in this civilised era the amount of time spent in a week actually having sex is too small for this to cause problems with the figures.

 

NHS: No Health Statism

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No system is perfect. But the furthest you can get from perfection is a government controlled monopoly, such as education or healthcare. So it's no wonder to find the people who are culpable for what passes for healthcare provision defending it to the hilt, as if it was flawless, and claiming that those who criticize it are, "un-patriotic". (To see an un-patriotic Dan Hannan truthfully answer questions on the NHS, click here).

A healthcare system where users don't have to wait, drugs aren't rationed, care is not substandard and you're not more likely to leave with disease rather than a cure is all people request. What we get is the opposite: and to deny that fact (as Cameron et al. have) is to deny us a proper discussion about how our system needs overhauling. The remote political class are trampling over our desire to discuss the problems we face on a daily basis, a fact made even more galling because undoubtedly the majority of them will hold private health insurance.

Having experienced health care on both sides of the Atlantic, and paid for both (please understand that the NHS isn't free!), the NHS is second in a two horse race. That is not to deny the fact that there is a minority within the NHS who do provide excellent health care. But these people are few and far between, and very difficult to find! Politicians live in a land of ignorant bliss, where unprincipled sound bites dispatch them into a fantasyland detached from the pain that we as a whole suffer on daily basis at the hands of the NHS. We need a system that is driven by people and not politicians and their meaningless targets. To get to that stage though we must first hold a debate.

The truth hurts

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It is about time politicians and the public wake up out of their coma. Dan Hannan tells some home truths about the NHS and suddenly politicians across the country are required to swear allegiance to that great behemoth.

The NHS has always caused much controversy. Clearly all sides of the debate are guilty of taking individual cases and extrapolating general truths from them, yet the reality is that in both theory and practice the NHS is an awful system for providing healthcare.

Let us not forget that because we have the NHS:

- it is only the very wealthy who get a truly world-class healthcare as it is only they who can afford to pay twice.

- politicians are interferes in the way we choose to live ours lives – and increasingly so.

- healthcare is rationed – and increasingly so.

- public money is wasted on ineffective pseudo-medicine.

- 250,000 people are still waiting more than 18 weeks for treatment.

Of course, the US healthcare system also needs reform, but instead of looking across the Atlantic, Obama could learn a thing or two from the Cato Institute. And as a matter fact, so could most of our politicians.

Reform certainly, but cuts will still be necesssary

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In that speech to Demos on Tuesday, George Osborne told us that “we face a choice between progressive reform with the Conservatives and front line cuts under Labour." This is how the Tory leadership wants to fight the battle over public services, and this message will be at the heart of their election campaign.

It’s true that reform of the public services is desperately needed: as Osborne pointed out, the United Kingdom currently ranks 76th out of 134 countries in terms of public service efficiency. And it’s true that the Conservatives have some genuinely radical and exciting policies to improve the situation.

But, as Daniel Finkelstein explained in The Times last month, the full rewards of public service reform may not be felt for years, or even decades. The fiscal crisis will not wait: government borrowing is set to total £700bn over the next five years, and there is a real risk of the UK’s credit rating being downgraded. An incoming Conservative government will have no option but to cut spending sharply and severely.

Even when the potential efficiency increases are realised, they will not balance the budget. The Conservatives’ most radical proposals are limited to education, which makes up less than 6% of central government spending. Even substantial improvements in the delivery of bigger budgets like welfare and health would not be enough. There will have to be a reduction in service provision as well.

The Tories are right to be finding ways that public services can “do more and cost less". And if the voter buys it, the message of salvation without sacrifice may be a winner at the election. But in reality cuts will have to come, and frontline services will have to be reduced. As a nation we must face up to fact that every penny spent by the government is a penny that must be found from taxation. We must ask ourselves what level of public provision we want, and where our priorities lie. We cannot pretend that efficiency reforms are the whole answer; we must make the case for a smaller state.

Unions out of control

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After over a week of striking on the National Express East Anglia (NXEA) rail line, we seem to be in worse situation than before. During last weeks strikes, only 100 out of the scheduled 1,800 trains ran, causing huge amounts of travel chaos and wasting many worker hours, as tens of thousands of commuters were late for work. All too often commuters are attacked from both sides, by the government and the unions, when it comes to rail travel.

The RMT’s Bob Crow has blamed National Express for the problems:

This strike has been caused by greedy National Express bosses who have soaked up £2.5bn in taxpayer subsidies in the past 10 years and who have milked every penny out of this franchise while offering their staff peanuts this year,

The average salary for a train driver in the UK is £35,000 – not quite ‘peanuts’ as Bob Crow would like us to think. This is reminiscent of Alan Duncan being ‘forced to live on rations’. However much the unions are given, they always seem to want more without any consideration for the impact for the disruption. With so many in the private sector having faced wage cuts and redundancy in the past year, it is madness for the unions to be demanding wage increases for shorter working weeks.

Currently, disproportional levels of union control in the labour market are artificially forcing prices up for consumers who have no other options but to pay. At the same time, top-down inefficient government intervention is burdening the taxpayer at incredulous rates.It is time for the public, politicians and the private sector to make it clear that enough is enough.

Bonuses, wealth and progress

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John Kampfer’s criticism of the FSA’s decision not to issue binding restrictions on bankers’ bonuses is deeply unpersuasive.

Having reminded the reader that the economy’s doomed, regulation’s brilliant and Fred Goodwin’s greedy, he starts his argument by complaining that:

Britons have long displayed a curious deference to people who are paid far beyond their worth.

Who is Kampfer to decide how much an employee is worth? Is an open labour market, competing for workers on the basis of their productivity, not a better determinant? Britons have indeed displayed an acceptance of the pay arrangements agreed between private firms and their workers, and rightly so. Next is the inexplicable statement that:

The only argument ever used for our largesse is the usually fictitious "brain drain"

Why on earth should the payment that a bank makes to its employee (nationalised banks excluded) be considered “our largesse." It is the largesse of the owners of that bank, and it’s nothing to do with us.

With reference to the brain drain, he then asks:

Would a finance director at, say, Salford or Southampton really up sticks and head for Stuttgart or Stockholm if he or she was told they were overpaid?

Well, simply, yes.

Then follows the most patently untrue statement of the lot, that:

Excessive wealth has not produced an incentive to improve the nation's lot.

Wealth (‘excessive’ or otherwise, whatever that term means) has been the incentive for countless improvements to the nation’s lot throughout our history. From Arkwright to Branson, the entrepreneurs, businessmen and professionals of this country have been driven by the lure of wealth to innovate, produce and employ.

Bonuses are a good way to attract and retain the best talent, and encourage efficient behaviour among employees, generating profit for firms, and wealth for the nation as a whole. More importantly, bonus schemes in the private sector are voluntary arrangements between firms and their employees – the government has no business intervening. There is no reason, beyond envy, to stop them.

Apprenticeship failure

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Figures released show youth (16- 24) unemployment nearing figures of one million and some have already begun to foresee this causing serious social unrest as happened in the 1980s. With such a stark reality for the future of British youth employment it is shocking to see such a poorly misguided and lacklustre input from the government.

In my opinion, one of the most effective and beneficial approaches to youth employment is the apprenticeship scheme. For those who do not wish to enter full-time higher education, it allows a gradual transition period between work and employment, teaching valuable skills and trades as well as life skills such as organisation and time management.

Apprenticeship schemes are not only beneficial to young people, they allow firms access to a labour force that is willing to learn and can be trained specifically for many jobs. If approached properly they can provide a highly trained loyal workforce for years to come. These schemes are beneficial to both parties, meaning that government intervention should be kept to a minimum. This is not the case, as the recession has impacted upon youth employment Labour have jumped on the ‘apprentice bandwagon’ in their usual vote-grabbing fashion.

A government launched website aimed to increase the number of apprenticeship places has failed on an impressive scale. So far just 1,185 out of 18,000 places have been filled on government schemes. There is no need for the government to fiddle with this aspect of the labour market with top-down, unrealistic, quotas and application schemes. Left to the firms and individuals, the most efficient result would be obtained, benefiting all. As the youth labour market currently stands, the government is acting as more of a hindrance than helper.

If it really wanted to give young people the best start in society it would reduce benefits to school leavers, which currently act as a disincentive to find work. Only by allowing firms to offer incentives to young people can this valuable section of society be mobilised to its greatest capacity.