Daily Archives: October 7, 2009


Torynomics

There are times when I feel a total disconnect from the mainstream media. Political commentators appear almost universally to have concluded that George Osborne’s speech yesterday was a success, that he has “Grown up” or “Come of age”. Am I alone in thinking that Osborne sounded like a petulant public school prefect? I spent the entire speech thinking “arrogant little shit”, and I would be astonished if quite a few other people did not hink so too.

The incessant repetition of “We are all in this together” struck me as amateur in both concept and delivery. It also brought the thought that multi-millionaires like Messrs Cameron and Osborne are rather less “in it” than ordinary people. If that were not true, of course, he would not have needed to insist so hard on the opposite. The fact that the rich may have to wait up to five years for exemption from inheritance tax seemed to me less than a huge sacrifice on their part: in contrast to public sector workers, who are expected to take a pay freeze, and working people who are expected to retire later – both to finance the massive subsidies paid to bankers. The Conservatives are no better than New Labour in seeking to hide their determination to let bankers’ obscene salaries and bonuses continue, hidden behind a smokescreen of hypocritical rhetoric.

You may be surprised to learn that personally I believe that the public sector should be kept to below 40% of GDP, which is to say that it should be cut by over 25%. That makes me more radically anti-state than the Tories. There is a huge amount of waste in public expenditure, especially in local government.

My solutions are more radical. The local government system suffers from a disconnect between provision and finance. It is admministered locally but financed centrally. Your council tax only accounts for a tiny percentage of the council’s expenditure, so the ability to relate performance and provision to cost is lost on the taxpayer/voter. At least 80% (100% in wealthy areas) of all local services, including education, should be funded through wholly variable local income tax. National income tax would be correspondingly reduced and council tax abolished. Up to 20% central government subsidy might be paid to poorer regions.

If voters were paying 15% of their income in tax to the local authority, they would take much more interest in local government, and wonder why they were paying for over-inflated and almost completely useless social services departments, and why the deputy manager of the leisure centre was on £85,000 pa. I can think of no single change which would lead to a more radical reduction of government expenditure.

The other major change would be smaller, leaner public services which simply go on with delivering the service direct, with minimal administration. This is the opposite of what the Tories would do. In particular, we need to cut out the whole complex administration of “internal markets” within the public services, where vast arrays of accountants and managers spend their wasted lives processing paper payments from the government to the government.

Let me tell you a true story which is an analogy for the whole rotten system. As Ambassador in Tashkent, I had staff from a variety of government departments – FCO, MOD, DFID, BTI, Home Office etc. In addition to which, some staff sometimes did some work for other than their own department. This led to complex inter-departmental charging, including this:

I was presented with a floor plan of the Embassy building, with floor area calculated of each office, corridor and meeting room. I then had to calculate what percentage of time each room or corridor was used by each member of staff, and what percentage of time each member of staff worked for which government department. So, for example, after doing all the calculations, I might conclude that my own office was used 42% of the time on FCO business, 13% of the time on BTI business, 11% on DFID, etc etc, whereas my secretary’s office was used ….

I then would have to multiply the percentage for each government department for each room, lobby and corridor by the square footage of that room, lobby or corridor. Then you would add up for every government department the square footages for each room, unitl you had totals of how many square feet of overall Embassy space were attributable to each government department. The running costs of the Embassy could then be calculated – depreciation, lighting, heating, maintenace, equipment, guarding, cleaning, gardening etc – and divided among the different departments. Then numerous interanal payment transfers would be processed and made.

The point being, of course, that all the payments were simply from the British government to the British government, but the taxpayer had the privilege of paying much more to run the Embassy to cover the staff who did the internal accounting. That is just one of the internal market procedures in one small Embassy. Imagine the madnesses of internal accounting in the NHS. The much vaunted increases in NHS spending have gone entirely to finance this kind of bureaucracy. Internal markets take huge resources for extra paperwork, full stop.

The Private Finance Initiative is similarly crazy; a device by which the running costs of public institutions are hamstrung to make massive payments on capital to private investors. What we desperately need to do is get back to the notion that public services should be provided by the State, with the least possible administrative tail. The Tories – and New Labour, in fact – both propose on the contrary to increase internal market procedures and contracting out.

All of George Osborne’s vaunted savings proposals yesterday would not add up to 10% of the saving from simply scrapping Trident. Ending imperial pretentions is a must for any sensible plan to tackle the deficit.

The Tories have adopted one plan I advocated in Norwich – tax breaks for start-up firms. One of the reasons for the failure of British entrepeneurship is our insistence on taxing firms even as they struggle to first establish themselves. George Osborne has only proposed a two year break on employment taxes – I propose a much more radical five year exemption from all taxes – but at least he has noticed the right problem.

All state personal payments should be means tested. It is time to slaughter the sacred cows of the welfare system. Lloyd George’s old age pension saved us from the horrors of the workhouse system and brought a sense of entitlement and dignity to working people, but after precisely a hundred years it is time to move on. Peculiarly, if all state benefits are means tested, it will remove the stigma. Many pensioners, including some close to me, take the basic pension but refuse to apply for income support. If all state payments were made through a single income tax assessment procedure, the stigma problem could be tackled. So would the nonsense of the Duke of Westminster’s entitlement to a state pension and child benefit, and the billions spent in recycling money to and from the middle class via the state.

There would still need to be a cut-off age at which the State no longer expects people to work -though retirment should be voluntary, not compulsory for those still able and wanting to work. Here the Tories are insensitive. It is a national disgrace that the difference in average life expectancy between districts in the affluent South of England, and inner city areas in our older industrial cities, can be as much as twenty years. In parts of Glasgow men struggle to live to retirement. There is also the law of unintended consequences here – any increase in retirement age will bring an immediate and major increase in those claiming incapacity benefit, the Tories’ favourite bugbear. The solution is to make it easier for people to continue to work voluntarily, and means test all payments. But the entitlement to retiire at 65 should remain until the benefits of increasing good health have reached all workers, not just Tory voters.

I hope that offers some food for thought. I also hope that it does something to remove the continuing misimpression that I am left wing….

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