Money for nothing

The public sector is gearing up to battle against the austerity measures but if George Osborne was in anyway tempted to stop them being implemented, we could end up with no money for the public sector and no kicks for free.

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The black hole of the public sector
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Simon Miller
On 12 September 2011 10:51

This weekend saw the anniversary of the devastating attacks on New York and Washington and rightly the focus of attention was on the friends and families of the victims.

I was at the TUC conference in Brighton when delegates were told of the attacks. It is forgotten now but Tony Blair was predicted to be getting a kicking from Congress over his reform plans which he had planned to defend before news of the attacks came through and the conference abandoned. A year later he described the battle as one between reformers and wreckers.

Ten years on, David Cameron faces his own battle with the wreckers and for him the problem is even more ingrained than when Blair tried.

Thanks to Labour government policy, the public sector is larger and more bloated than ever with billions of pounds being absorbed into its black hole. The unions are confident that they can wreck any reform plan and, with the acquiescence of the Lib Dems, have appeared to have completely blocked NHS reform.

Yet, reform is what is needed.

There seems to be a disconnect in the public sector about where the money is coming from.  In comment pieces you hear about how public sector workers are taxpayers too and that’s true. But, all they are doing is handing money back to their employer.

The very essence of the public sector is one of consumption not generation. Wealth generation comes from the private sector and in an ideal world, is fed back into the system for defence, health and education.

Yet we are dropping in literacy levels, we see vast amounts of poor budgeting in the military and huge waste in the NHS.

Reforms are needed. In fact, I would argue that reform should be an on-going process that should aim to introduce the efficiencies and rewards for performance that exist in the private sector.

In this austere time, the government has rightly set itself on a path to remove the deficit. It will be painful but I suspect that for the private sector, public sector bleating over their jobs, and their pensions, will fall on deaf ears.

The private sector has already been down this path of adjustment, many lost their jobs and others are seeing their pensions being cutback.

So why should the public sector be protected?

There appears to be an almost mythical status about the public sector, fed by coverage on the BBC. Yes there are good people in the sector as there are in the private sector but it doesn’t make them special.

And as far as cuts are concerned - if only. What we are seeing is a reduction in the growth in spending, not cuts. Year-on-year the money is increasing and it is down to those that decide where the spending goes to make the right decisions.

Councils warn about cutting essential services, well why not cut inessential services, or perhaps executive pay? Charities warn about cuts, well you’re charities, get out collecting. In fact as charities why are you receiving taxpayers money in the first place, doesn’t that skew your charitable status somewhat?

On the macro-economic front, there are sound reasons why these “cuts” are taking place. By placing an emphasis in reducing the deficit, the markets are reassured and despite our enormous debt issues, our borrowing rates are almost as cheap as Germany’s.

Without these actions we could very well end up like Italy or Greece where the bond price is so high we simply could not afford to borrow money. Where would public sector money come from then?

In addition, if the proverbial does hit the fan in Europe, then we need to have what arsenal we have left at our disposal. If we let go of these plans now, we will only be joining the race to the bottom and will have very little left with which to cope, so again wither the public sector monies?

The idea that we spend our way out of this mess is a misguided view of Keynesian economics. The point of Keynes was that you saved in the good times so that you can spend during the bad. This is not what Gordon Brown did. Gordon Brown spent, then spent again, then borrowed, then spent again.

If there’s no money in the cupboard, then there’s no money. A combination of sensible reforms and a cutting of the bloated public sector is not only necessary but needed if the UK is to find its way out of this deficit hole, or at the least, be able to ride the tempest that could very well be on its way.

Simon Miller is the Editor of Financial Risks Today

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