How to cut £70bn out of the UK’s public spending bill

I’ve covered research from Tullett Prebon here before but, their Tim Morgan has now produced all three parts of what he calls the ‘Reform Trilogy’.

It is impressive stuff – so much so, that when I was interviewed for Panorama last week almost everything I said could be traced in one way or another back to their work.

The first part of the trilogy explained why it is that our economy as it stands is not capable of delivering growth. It suggested that the way to go might be with a core strategy of cutting spending and handing cash back to working people and businesses via tax cuts.

The second went into considerable detail on how “reversing a large part of the last decade’s vast increase in public spending need not harm the public services, front line public sector workers, or those in genuine need.”

It asked how much government the UK can really afford. It asked where – given the recent 50% real rise in public spending in the UK – all the money has gone and whether it really needed to go there.

The Brown Bonanza showered money all over the place. In real terms, healthcare spending rose 89%, transport rose 87%, education went up 60% while welfare spending rose 45%.

Some of that money is surely well spent, but does it really make sense for the number of managers in the NHS to have risen by 77% when the number of nurses is only up by 23%? And should real term procurement costs in the NHS really have risen by 80% over 10 years?

Probably not. The last ten years have been a story of rising spending, but also of rising costs and falling productivity. You can read the full report on this here, but the key point Dr Morgan makes is that much of the rise in costs has been down to the nonsense of attempting to introduce private sector competition into organisations in which there is no place for it.

It made sense to privatise BA in the Thatcher years, but not to attempt to introduce “pseudo competition and spurious choice” into the NHS. It worked better as a command structure than as a series of hospital and primary care trusts. Instead of increasing efficiency it has simply produced layers of expensive administration.

Undoing it all could save billions (£10bn from dumping the managers and £30bn-40bn from savings in procurement).

Add that to means testing for currently universal benefits; some tightening of eligibility for benefits; a cap on the total amount of benefit any one claimant can get to around £20,000; and the savings here, says Dr Morgan, could be another £12bn.

His total saving? £70bn. Any other ideas to add to the total below please.

The final part of the trilogy focuses on how to hand these huge savings back to ordinary and increasingly impoverished working people – the ones that all our parties say they so want to help. It is here and, like the other parts, worth reading.

42 Responses

  1. 08/12/2011, Mark wrote

    There can be no BBC show without the editorial ‘hook’ that the Public Sector is best and cannot be touched or improved.
    Presenters always have to buy this line otherwise they do not easily get to make BBC programmes.
    The biggest state enterprise except for the Chinese Red Army… the NHS is a massive socialist elephant that will continue to suck money like a black hole. Doctors are paid 6 figure salaries for doing less and Nurses have national bargaining to continue to get very well paid with limited worry about performance or service levels, as you would in the provate sector. Shame on your Merryn.

  2. 08/12/2011, Caveman wrote

    Take away free bus passes for pensioners, universal winter fuel allowance and free TV licences for the over 75′s is about £3 billion (this may be included above). End all overseas aid is about £10 billion. Pull our troops out of Afghanistan is about £6 billion. Net contributions to the EU budget around £8 billion rising to £10 billion by 2014 (OBR). I’m sure others can find a lot more savings on top of this.

    I agree with you Merryn. Some good housekeeping based on common sense could solve a lot of our financial problems. There’s too many lobbyists and career politicians getting in the way.

  3. 08/12/2011, DavePage wrote

    1. Get rid of Buy-To-let interest mortgage exemption;
    2. Limit unemployment benefit to six-months (like US);
    3. Get rid of child benefit;
    4. Stop all council grass-cutting and leaf-blowing activities;
    5. Remove all free bus passes for those of pensionable age who own cars (even better, fund the remaining bus passes by a tax on private transport);
    6. Abolish all public sector non-jobs;

    Could MW cost this? I’m willing to bet that it would wipe out our deficit outright and give us an extra £50 billion spending power every year whilst hurting no-one other than those on the teat, the lam, and the public-sector expectant.

  4. 08/12/2011, Alex D wrote

    I am afraid even if all this imaginary cost cutting came to pass it is still only treating the symptoms and not curing the disease. The disease being, “short termism” and greed, facilitated by a morally bankrupt and fraudulent financial system mutually supported by a corrupt pseudo democratic political system and ruling class. The power to milk us all like cattle will not be given up while the rich and powerful still draw breath, the only way to end this is to stop them!
    I realise that it sounds extreme and idealistic, but large steps forward usually require revolution.

  5. 08/12/2011, alex wrote

    @4. The middle income earners of this country are beld by the welfare class. Not by the ruling class or the rich. Although of course that makes for less attractive political rhetoric to voters from the welfare class to hear.

  6. 08/12/2011, Critic Al Rick wrote

    @ 5. alex

    Are you saying:

    1) the rich are not getting richer at the expense of Middle Britain?

    2) the rich and the ruling class are not to be blamed for the growing welfare class?

  7. 08/12/2011, Alex D wrote

    Thanks for saving me the bother Critic Al Rick

  8. 08/12/2011, DFK wrote

    At a recent meeting with HM Revenue and Customs at their offices, 5 people from the tax inspectors office attended. A porter brought in coffee but only enough cups for us and our advisors. In the awkward uncertainty over who should get the coffee, one of the civil servants admitted that the cups were for us.

    It was now policy to only offer coffee to external guests, so the HMRC employees had to watch us drink coffeee. If the Government believes that the problem is the amount of coffee their employees consume rather than the fact that they sent five people to one meeting, how can they hope to bring public spending under control?

  9. 08/12/2011, Romford Dave wrote

    All valid points that would easily be argued against with plausible and valid reasons not to do any of them.

    Reasoned argument has missed the boat, it will be anarchy and revolution that brings about a change, the outcome of which nowhere near the instigators aims.

    Navel gazing will give way to self preservation – self preservation will lead to herd following – herd following will lead to the following orders defence.

    History is wasted on people who never learn.

  10. 09/12/2011, Mike V wrote

    Privatise more.

    Bloated local and central government spends money far less efficiently than the private sector.

    I like the example of Suffolk County Council, which decided to outsource everything, with competitive tendering. The council basically becomes a management agency only.

    Some good ideas on the “Cuts” site too. http://www.cutthedebt.co.uk/discussion-forums/

  11. 09/12/2011, Peedid wrote

    You’ve opened the floodgates for the slash and burn right wingers and the anti leafblower crowd.
    My uncosted 2 pen’uth:
    Remove charitable status for private sector schools
    Give education vouchers that can be used at any, public or private,school and allow market forces to close failing schools.

  12. 09/12/2011, Nick wrote

    Boy, reading some of these responses, it seems that Che Guevara is alive and well and living in Chipping Norton….

    Merryn – some good points in your article. I have seen first hand how HS Trust’s grew into such monsters. Managers recruiting assistants, who became assistant managers, needing assistants….ad nauseum.

    There should indeed be root and branch reform of NHS – a rolling back if you will of the last 10 years of bureaucratic ‘bloat’. Once complete a simple pay structure would ensure that it didn’t revert back in the future. I am all for a phased introduction of private medicine over, say, a decade or two, which would protect the old and vulnerable whilst limiting the £300kpa GP’s as they would be unsustainable in the real world.

    My £0.02 worth…

  13. 09/12/2011, JAW wrote

    Observation of the typical spendthrift’s behaviour often reveals that if they cut down in one area of expenditure they compensate by increasing it in another area. Cutting down on booze can lead to extra spending on chocolates or cigarettes. C’est la vie!

    Government cuts in one area often lead to more expenditure in other areas. Observe Osborne’s autumn statement… some cuts but quite a lot of extra expenditure!

    Here is a completely different approach that may be more effective in reducing the size of the State? Incorporate in the Constitution two laws:

    1. The maximum proportion of Government income to be 40% of GDP. (33% better, 20% even better but unrealistic today).

    2. As long as there is a National Debt the salary of all MPs is frozen, and additionally for every 1% of Budget Deficit the salary of all MPs who voted to approve such a deficit is automatically reduced by 10% pa… potentially declining to zero unless and until a balanced budget is restored.

  14. 09/12/2011, 6X wrote

    Tim Morgan’s ideas make a lot of good sense. The difficulty would be putting them into practice. Our government is behaving like a bankrupt millionaire – can’t stop spending even though they’re broke. They can get away with this all the time they’ve got a line of credit, but sooner or later that runs out and they have to live within their means. Better to adapt to changing circumstances now rather than wait until it is forced upon them with all the misery and suffering that will bring. But I don’t think our political leaders have the cojones for it. They can only lurch from crisis to crisis. And it’s time we realised that we’re not a world power anymore and can’t afford foreign wars.

  15. 09/12/2011, Colin Selig-Smith wrote

    The German universal public health system is almost entirely private.

    The public part of it are the Krankenkasse medical insurance providers, and they are quasi public.

  16. 09/12/2011, Roberto Birquet wrote

    @4. The middle income earners of this country are beld by the welfare class. Not by the ruling class or the rich. Although of course that makes for less attractive political rhetoric to voters from the welfare class to hear.
    ————–
    and vice versa for the rich.

    One question is what size state can the country afford?

    another is how large a banking system it can afford?

    and yet another is how many super wealthy parasites it can afford?

    A lot less of each, i’d say.

  17. 09/12/2011, Roberto Birquet wrote

    I won’t try to pretend I know how much of the state is good, and how much waste. But some of the observations in the article seem rational, such as the overuse of managers, and ~Heavens, IT. And it’s not just public sector, the amount the company i wok for has ploughed into frankly awful IT systems does not bear thinking about.
    And even in communist countries, which almost all started off as backward countries rather than the post-capitalist that Marx imagined, planned systems worked well for health and education. So, why tamper?
    One thing that does not make sense is to limit taxes on wealth creation: ie on work. And up them on wealth-taking, ie idle land.
    I’d cut income tax, VAT and employer NI contributions. I like the idea of ending the last for employing under 24s, and for employers who pay everyone over the “living wage”. And then tax the value of land. You get the same money, or if required to plug deficit, more, and encourage growth simultaneously.

  18. 09/12/2011, Roberto Birquet wrote

    I meant: One thing that does make sense is to limit taxes on wealth creation: ie on work. And up them on wealth-taking, ie idle land.

  19. 09/12/2011, John Allen wrote

    1. Make wealthy foreigners pay their fair share of taxation
    2. crack down on multi-national tax evasion
    3. Milk the financial institutions and make it clear if they fail again they will not get a bail out

  20. 09/12/2011, bucket wrote

    For the NHS:

    1) Bin the National Program for IT

    2) NHS trusts should not have to cut services to reach cost-releasing efficiency savings and disinvestment targets before costly PFI schemes are renegotiated.

    3) Reduce middle management: e.g, work-life balance officers etc etc etc

    4) Reduce targets that have no real impact on quality
    and the supporting staff who are required to
    collect and analyse the data

    5) Opt out of the european working time directive.

    6) Stop complaining about consultant and senior nurse pay. Frankly these are the people you want to be seen by if you are ill. Their salaries are between £50-85K pa after about 15 years of training (the first 3-5 of which we pay for). Reduce the number of middle grade staff in all specialities instead and provide cheaper support staff in their place

    Dont know how much that would save but it would be a good start

  21. 10/12/2011, Critic Al Rick wrote

    Enormous damage has been done; turkeys don’t vote for Xmas and so the damage continues; so, we’re all stuffed, even the ones who aren’t turkeys.

    Amongst others, we’ve got the greed and selfishness of the rich, the so-called ‘excellence’ of academics, the misplaced worship of celebrities, the demoralisation and disincentivisation of the poor (now extending to the diminshing middle classes), and a general commonsense ‘illiteracy’ to blame.

    ‘Man’ is now so far removed from nature he’s lost the plot.

    By an ever increasing dependancy on an ever increasing unsustainable lifestyle (in pursuit of Growth) the human race is on a course of self-perpetuating self-destruction.

    There will be no more Growth, but the self-perpetuating self-destruction is most likely to continue unabated. Not only has ‘man’ lost the plot, he’s stark staring mad.

  22. 10/12/2011, kaleidoscope wrote

    The holy grail of free NHS everything has to be openly challenged and certain parts made fee paying in order that genuine need can remain world class. It is bad process. A small example. In Belgium, women go for a mammography and wait to be given their X-rays on the spot. The radiologist advises if he thinks its OK and if not tells patient to go and review with doctor. Basically, result known within 30mins. For some reason in the UK, a lot of post and 3 weeks elapses. Most bloodtests are tested within 24hours max but results take ages instead of being e-mailed to the GP . Most NHS Trusts use 2nd class post and seem incapable of routinely using phone and e-mail . Why?

    Accidents from convicted reckless driving should havel the costs recovered from insurance company of the culpable driver. Why are prescriptions FREE in Wales and Scotland? At the same time, hospices rely on charities and many hospitals have charity appeals for MRI & CT scanners. How upside down is that?

  23. 10/12/2011, JimP wrote

    @DFK – great example!

    Having worked for both public and private industry I can report that there is little difference in ‘efficiency’ between them. What really seems to matter is the size of the organisation. Large groups of people whether public or private tend to spawn mini empires with plenty of space for the non-productive to hide. We need to find ways to downsize.

  24. 10/12/2011, LERENARD wrote

    Today’s democracy is nothing more that pseudo-authoritarian rule by an elite few, executed by legions of self-deluding freeloaders who have convinced themselves that their current bureaucratic roles are both necessary and honourable… as well as a stepping stone into the next job which will be even more necessary and honourable.

    - Simon Black

  25. 10/12/2011, Nil By Mouth wrote

    Honestly, Merryn, I’m embarrassed for you. Public-sector procurement is horribly hampered by tendering rules but it is ultimately procurement OF SERVICES. Most, maybe not all, of those services have to be supplied – you might save a couple of billion tops but services still have to be supplied. Your mendacious handwringing about the NHS is galling. There are undoubtedly too many managers in the NHS but a £10 billion saving? What, have NO managers in the NHS? I know you are a jobbing journalist but do you have no inkling of the complexity of running a doctor’s surgery (legislation, insurance, IT, website services, staffing and HR, etc, etc) let alone a large hospital – or a university – with a £100m income? These figures mean nothing. Sorry, only someone that has never actually had to run a large organisation, public or private, can be impressed by them.

  26. 11/12/2011, Dr Andy Skyrme wrote

    Mark (Comment 1)

    How conflagatory?! Next time you are in Accident and Embergency suffering in pain I dare you to look into the eyes of the staff treating you and then repeat your comments – very few Doctors receive this kind of remuneration and nurses are vastly underpai: Why not rant on instead about the disproportionate salaries of FTSE 100 company directors who often deliver little or no value to shareholders??

    I double dare you to do this should you be unfortunate enough to be in this position on a Saturday evening when such staff have to endure verbal abuse and threats of physical violence while they do their best to care for their patients.

    You sound like nothing more than a poorly educated, ill informed (don’t worry too much on this there are millions of you in Britain), target obessed middle manager from the private sector

    Shame on you

  27. 11/12/2011, Philof1949 wrote

    Very interesting work from Tullett Prebon, even though I disagree with some of it. Thoughts on savings from elimination of over-management and procurement seem spot-on, although the inevitable cut in profits of that part of the private sector which has benefited from outsourcing could be painful.

    As far as benefits are concerned, however, they are on wrong track. Means-testing is the problem, not the solution. It’s very expensive administratively and encourages fraud. It benefits those who don’t work and penalises those who do. The better approach would be to concentrate on the 1.4 million of working age permanently on benefits, by bringing in a time limit.

    Tullett P. absolutely right that tax cuts should be aimed at low paid. If raising tax threshold to £12K too expensive, bring back 10p band across first £60-70 a week of taxable income.

  28. 11/12/2011, Mark wrote

    @26 Dr Andrew Skyrme

    FYI…I have actually worked in both the Public and Private sector as well as having worked and lived abroad (have you ?). I know that there are many good people in the NHS as well as other organisations (both Private and Public) but your belief that the everything in the NHS is working well, particularly when compared to other countries cannot be accepted. Keeping services in the Public sector does not mean that you care more, in fact its outrageous that anyone from the Unions or the political ‘left’ or ‘right’ should daremake such a slur.

    Not all Doctors are well paid, especially young doctors and I accept your comment, but Doctors have VERY good pay potential (the GP average in 2006 was £106,000 !)….please compare that to European or other 1st world or 3rd world countries.

  29. 12/12/2011, bucket wrote

    Mark,

    The private sector is already entrenched in the UK healthcare sector and what great value we seem to get from it! Current successes of the private sector include (for example): a) PFI contracts; b) catering – have you tried hospital food; c) cleaning – mmm; d) national program for IT….; e) Locum agencies etc

    Second, we live in the UK not Cuba (which by the way has a very good healthcare system) and since house price inflation has been an uncontrolled disaster over the last 15 years it is difficult to control wage inflation. If I’m not wrong tube drivers start on £50k pa these days. Nurses take probably fifteen years to get up to that sort of salary. I don’t know any GP’s on £106k and for hospital consultants you’re looking at 15 years to train and 15 years as a consultant before you get that much. If you want to go believing the tabloids go ahead but it’s just not true.

  30. 13/12/2011, Alex wrote

    @29, I do, know a GP on 0ver £100k a year, he works in a small rural town in a deprived area of the country where his income is I would estimate about 8 times the town average. Very nice indeed if you can get it.

    As for PFI beloved of new Labour, being the private sector, yes the providers are often private secto but the scandalously wasteful contracts entered into on the tax payers behalf were well and truly Public sector in origin. As were the various grandiose IT failures launched under New Labour.

  31. 14/12/2011, Postman Pat wrote

    STOP HEALTH TOURISM

    All NHS treatments free only to those entitled to receive it… Otherwise off to the private clininc, just like it is everywhere else.

    Make all visitors to the UK prove they have private health care before allowing entry and deny free access to the NHS to anyone without proof of PHC if they cannot provide a British passport and / or proof of NIC payments for a period of 5 years.

    how about that for a start?

  32. 14/12/2011, alex wrote

    @31 I’d go further than that, and apply the same rule to all welfare and housing benefits, open immigration I am in favour of, but welfare entitlements should only apply once a minimum of 5 years NIC have been paid by new entrants to the UK. And for that matter I would apply the American system where entitlement to welfare benefits is also time limited, in too many areas of the country people are born into families where there is an expectation that you can spend your entire life living off benefits as an alternative to working.

  33. 14/12/2011, Idea Floater wrote

    We could sell off assets to private businesses who can potentially make money from them.

    Eg, if Heathrow and Gatwick can generate revenue, then railway stations can be sold off.

    If Madam Tussauds can make money, then British museums can be privatised and encouraged to provide a commercial element. It might not be the whole musuem, maybe one or two sections which is commercial which makes the private business earn money and part pays for the other costs centres.

  34. 14/12/2011, Idea Floater wrote

    We could sell off assets to private businesses who can potentially make money from them.

    Eg, if Heathrow and Gatwick can generate revenue, then railway stations can be sold off.

    If Madam Tussauds can make money, then British museums can be privatised and encouraged to provide a commercial element. It might not be the whole musuem, maybe one or two sections which is commercial which makes the private business earn money and part pays for the other costs centres.

  35. 14/12/2011, Idea Floater wrote

    Rather than universities have departments named after businesses or people, allow businesses to create educational departments such as Dyson a science degree with work experience, or PWC have an accounting or maths degree programme, and so on.

    For those on benefits we could have a programme for those able to use the pcs at the local library (or at the town hall et ceteral) and clock in to provide admin work. Great for young people desperate for work experience.

    Whatever we come up with, no idea is perfect, but maybe better than not doing something to improve the way things are.

    There are plenty of ways for us to reduce the need for collecting tax and to help expand ways for people on benefits in search of work to do something that gives them a better chance.

  36. 15/12/2011, Living in Germany wrote

    @Colin Selig Smith
    The NHS may have flaws, but don’t wish the German system on yourself. Unless you earn over €49500 p.a. you have to pay 15.5% of your salary to be part of the public scheme. The govt collects the money then doles it back out to the Krankenkassen (public insurers) based on the age & sex of the insurers’ clients (not actual medical needs), which means that ones with patients who cost more than statistically expected go broke (one already has, more are expected to follow). In addition, you have to pay €10 for each quarter in which you visit a doctor. Some public insurers also charge an extra c. €10 per month because they can’t get enough money back from govt to cover their expenses. And there’s no pre-pay certificate to help with prescription charges.
    I’ve been signed off sick for the last month (paid for by my public insurer) because the system has failed to get to grips with a back problem which caused no time off in the last 5 years under my NHS GP.

  37. 18/12/2011, NeutronWarp9 wrote

    The world is a dangerous place. One classic solution to liquidity problems is war to grab booty; perhaps once again on an imperial scale. Poor economic times creates division and feelings of paranoia and resentment. Instinctively, someone must be to blame.
    An alternative is economic protectionism. Do we really need imports from the Far East (with the exception of Japan, perhaps) and no doubt in future from the likes of India? Without these producers how would the pound shops in our town centres flourish, I hear?
    Cutting off billions of potential customers limits the size of the market, but does that matter? Why not return to making our own goods (albeit at a different cost base) and thereby provide employment and a purpose to the disaffected in the West’s lower stratas. Why be so parochial as to cut £70 billion when the alternative is to invest at home?

  38. 18/12/2011, Jay wrote

    All very good comments.
    However the NHS is in fact BUST all trusts are carrying a debt and if you add the pension sosts and the principle That AQP and the closing of District General Hospitals and the reduction of A/E depts.
    What we can see is the NHS going to private companies and the old hospital sites are worth ££££££ millions in land alone.
    We have all read about Circle taking over hospitals yet they have zero experience in big hospitals and have made a mega loss for the last 6 years!! Also the DOH is in contact with USA Private Health companies why ?? The NHS will just commission services and thus no hospitals and the land sold and no NHS staff just agency staff. Open for comments.

  39. 19/12/2011, Alan Moody wrote

    The legacy from the last labour government has left a bloated public sector.

    The deal that Alan Milburn struck with doctors , has proven to be costly indeed and unaffordable

    Previous Governments have failed to address public sector pensions that are neither funded nor affordable.

    There are still a number of public sector “Non Jobs” being advertised.

    Regrettably, any cuts from public or private sector will result in more Welfare costs

    I feel that there is just no easy solution to this

    BigAlMoody@twitter

  40. 21/12/2011, Barkingmad wrote

    “Remove charitable status for private sector schools”

    … so the cost of private schooling goes up and people who could afford it can no longer and send their kids to public schools. Imagine the cost and problems is every child in private schools moved to public schools.

  41. 21/12/2011, Barkingmad wrote

    Maybe more money would be saved if private healthcare and schooling were made tax allowable instead as suddenly more people could afford it?

  42. 28/02/2012, rob wrote

    Ban all new infrastructure spending (too late for the Olympics, sadly…)
    Divert 25% of the saving to maintaining existing infra. Save 75%.
    Is it just me, or do pointless mini-roundabouts and “traffic calming” (ie “making the road more dangerous”) schemes seem to have bred at a crazy rate in the last 10-15 years?
    The UK has far too much infrastructure already, but much in poor condition. Stop building new, but maintain the old. That’s my tuppence (lots of other good ideas from other people, not worth repeating).

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