Reducing the deficit

July 22, 2010 3:41 PM

We’ve discussed reducing spending at length. And we’re not the only ones: a report released on Tuesday by the Adam Smith Institute, Taxpayer Value, looked at central government operations and set out how to deliver better quality services at a lower cost. The new report is a welcome contribution to the debate over how we can reduce the deficit.

It advocates that government should reduce the number of people employed by Whitehall departments and their quangos by nearly 30 per cent.  This follows on from the emergency budget in June that aimed at average cuts in Departmental Expenditure Limits of 25 per cent and a two year public sector pay freeze for workers earning £21,000 and over.  The pamphlet suggests removing bureaucratic red-tape and regulation, which has cost up to £11 billion per annum since 1998 – much of this down to Eurocrats in Brussels, of course. A lot of the material on how to cut spending in the report echoes the sentiments of our report with the Institute of Directors (IoD) – How to Save £50 Billion – released last September and the book How to Cut Public Spending (and still win an election) released this March.

The ASI believes that the burden placed on the wealth-creating private sector needs to be sharply reduced. The paper explains how taxpayer value can be enhanced by reducing central government expenditure by 9 per cent. They suggest returning 265,782 public servants to the private sector where they can help ‘create wealth rather than consume it.’  Furthermore, in 2008-09 the government paid £3.44 billion to support Civil Service pensions, the ASI argues that can be cut by 25 per cent.

Pay and pensions of the public sector workforce must be tackled, as it is the biggest item of expenditure for most Government departments and quangos. We proposed reducing gross annual pay by 15 percent for the top ten percent in the public sector saving £3.7 billion from 2011-12 onwards.  Additionally, cutting the size of the civil service by 10 per cent would save £1.2 billion and halving public sector spending on consultants would save £1.1 billion. 

Quangos are (quite rightly) not spared under the ASI’s proposals either, adding fuel to the ‘bonfire of quangos’.  However, the paper – which uses government figures – is extremely conservative when stating the number and cost of bodies. The TaxPayers’ Alliance survey of semi-autonomous bodies is much more complete than the government’s. Our survey shows that there over 1,100 semi-autonomous public bodies (read quangos) while the ASI only look at 180.  The cost is ultimately higher – ASI’s figure of £38 billion to our total £90 billion cost to government. The TPA believes that in many cases the government should cut out the middle man, stripping out layers of bureaucracy and wasteful spending.  

There are many other areas where savings can be made. In another report, the Institute of Directors found that £25 billion a year can be saved through better public sector procurement, which currently costs £220 billion a year.   This accounts for a third of UK public expenditure, hitting the wallets of taxpayers hard. We showed how many public sector capital projects are late and run wildly over budget.

Many regions of the UK have now become far too dependent on the public sector. Regional Development Agencies (RDAs) have not alleviated the disparities between regions and should be consigned to the scrapheap, too. Our paper on RDA grants showed that lower taxes and simpler regulation would mean a genuinely dynamic private sector could thrive and create jobs and wealth. Scrapping RDAs would allow for a 3.7 percent cut in the rate of small business corporation tax for example. 

As proponents of spending reductions, ASI’s work is a welcome contribution and in truth the government have made a decent start – but there’s still some way to go. Many items in our book How to Cut Public Spending have now been abolished – quangos like Becta, PVE grants and the Child Trust Fund, to name a few. We need to see many more cuts; the scale of the fiscal crisis demands it.

By James Dixon

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