John Redwood MP: How to make the necessary cuts to public spending without cutting important services

John Redwood has been MP for Wokingham since 1987 and chaired the Conservative Party's Economic Competitiveness Policy Group. He has held a number of ministerial and shadow cabinet roles and as well as writing a regular blog, he has just co-authored, with Carl Thomson, a new Bow Group pamphlet, More for Less: Cutting Public Spending, Protecting Public Services.

The so called debate on public spending in recent years has generated enormous heat but little light. Labour has renamed all spending as "investment". It has claimed that the Tories always want to cut services when there is no shred of evidence to support this, and argued that any cut in spending amounts to a cut in service.

The aim has seemed to be to spend more regardless of cost and efficiency levels. In the heady days of spending growth so much money was hurled at the public sector that much of it went in wage and salary rises, in recruitment of people to jobs of questionable value. In some big services the extra money bought us lower productivity.

Now Labour has admitted we cannot go on like this. It is bizarre that they are proposing a Bill to try to stop themselves spending. The figures underpinning the bill are the most important political statement I have ever seen in my adult lifetime. Labour say that we need to cut public spending (or raise taxes) by almost £100 billion a year, reaching this level of cuts within four years. Even so, the deficit might still be running at the level it reached when a previous Labour government had to go to the IMF, unless economic recovery has by then curbed the cyclical deficit.

The usual debate that will follow will take the form of asking hapless representatives of different parties what they will cut to hit these targets. Interviewers will expect “bleeding stumps” to be paraded, otherwise they will claim it is not a serious cut.

The independent Left and other groups will be happy to oblige. This is the time when strongly held convictions can produce the cuts their owners dream about. The left will say we should stop the Trident replacement and make further cuts in our defence budget. They will recommend taxing what few rich remain here to pay their higher taxes.

The Eurosceptics will say we should renegotiate our budget settlement with the EU, or simply pull out to save the money. Some will favour stopping the payments whilst demanding the EU stops the waste and fraud. The Greens and Lib Dems will favour more taxes on motorists.

The Conservative Party has set out some of the government activities it will abolish. It wants to stop the ID card scheme, remove most of the regional government that has grown in recent years, stop the detailed oversight of Town Hall by Whitehall and reduce quangos and regulations.

A parade of more damaging cuts in front line activities is not how a business would tackle this type of problem. Whilst £100 billion is a huge sum, and is far larger than any previous range of cuts any post war government has put through, it is only 14% of public spending. Many manufacturing businesses have had to cut their costs by 3% a year for four years, which gets you to that kind of figure. They have not done so by cutting out great parts of their activity. They have often done it by smarter working, by doing more for less.

There are big parts of the public sector that have been under no serious pressure to do this for years. The important change is to put in place new aims and new ways of approaching budgets.

The biggest single cost in the public sector is the cost of staff. Any new government is likely to want to protect teaching and medical jobs, and some other front line public servants. Beyond this are 5 million employees. A staff freeze would start to force efficiency improvements and better processes. A well policed staff freeze could reduce the public sector payrolls by several hundred thousand, on a timetable that allowed the efficiency and process improvements to be introduced. It would mean better promotion chances for people currently employed. The range of cost of outside consultancies at the same time has to be brought under control. Some of the public sector clerical activities might be better done in the private sector following competitive tender. Employees would of course enjoy TUPE protection.

The second biggest cost is the cost of benefits or income transfers. Tackling high and rising unemployment will be central to cutting spending. The Conservatives have numerous ideas on how to bring more people back into the workforce through programmes of drug rehabilitation, improved English and maths, and a better package of incentives to encourage work over benefits.

The public sector needs to copy the best practice of the private sector in eliminating error, cutting out waste, and using office space, fuel and other supplies more effectively. Error rates in modern world class manufacturing are around 100 parts per million. Error rates in government clerical factories are often 10,000 parts per million and can rise as high as 100,000 parts per million. A company with such an error rate would not be around too long. It will mean reform, reform to simplify systems, improve processes, and motivate staff. Energy waste is large. Many public buildings light and heat large areas that are left unused for long periods of the day and night. There is an absence of intelligent controls.

Can all this be done? Technically, yes it is easy. It has been done elsewhere. We need a new team of Ministers who will set out to do just that on a large scale. We do not need to cut important services. We can do more with less. We do need to cut out some less desirable activities. There we need to do less with much less. The pamphlet I have written with Carl Thomson sets out some of the big numbers on the costs of running our current government, which shows you just how much scope there is to do more for less.