Mark Littlewood: Selling off unnecessarily state-owned assets should be part of a package to drastically cut public spending

Mark Littlewood is Director General of the Institute of Economic Affairs (IEA), which exists to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems.

The current flirtation of the main political parties with cuts cannot hope to solve Britain’s financial problems. We need to take dramatic action and make substantial structural changes over the medium term to pull the country back from the current crisis.

Consider the size of the national debt. Its vastness is demonstrated when measured against some of our state assets. The sheer depth of the fiscal hole is so immense, that you’d have to make an enormous transfer off the state’s assets sheet, to even dent it. Flogging off Royal Mail might bring in £6bn. BBC Worldwide – the corporation’s vociferously carnivorous commercial arm – might bring in £10bn or so.

Flog off Ordnance Survey, the Met office, the Tote, the National Air Traffic Services, the Hydrographic Office, the Queen Elizabeth II conference centre, Channel 4, the British Waterways Authority, the National Nuclear Laboratories, the Forensic Science Service and Bradford and Bingley’s and you’ve brought in about another £5bn. All of that amounts to a little more than a tenth of the deficit the Government is running this year. Meanwhile, the overall £1 trillion debt continues to rise.

If you want to get really radical, you could sell of the entirety of Hyde Park as prime real estate to property developers – that might net you £5bn. Throw in Regents Park, Kensington Gardens and Richmond Park and you have £16bn more. Even by concreting over these national treasures, you’re still less than a quarter of the way to eliminating this year’s deficit.

That’s not to say some of these steps shouldn’t be taken, but just goes to highlight how enormous the hole in our public expenditure truly is.

This is hardly surprising. When around a third of households in Britain rely on state handouts for more than half of their income, you don’t have a safety net, but a suffocating and crushingly expensive blanket that smothers aspiration and entraps the poor. When you insist on perpetuating the absurd idea that virtually all health care can be provided forever free at the point of use through the NHS, you have spiralling and untenable health costs – despite, of course, yielding some of the worst health outcomes in the whole of the developed world.

So where does that leave us? Well, no doubt a public sector pay freeze will reap almost immediate benefits – but the returns from full scale reform of, say, health and education, are what will make the difference in the longer term.

We also need to revisit privatisation of state assets as part of a package of reform. Selling off unnecessarily state-owned enterprises shouldn’t be seen as an alternative to reducing spending, but should be a complement to it.

There is little hope though, that our politicians will take this message seriously enough. The Conservative opposition proudly claimed on their pre-election poster blitz that they will cut the deficit, not the NHS. Such aspirations are not contradictory, of course – but they do pull in opposite directions. And a commitment to ring fence expenditure on the National Health Service along with international aid – amongst the most catastrophically wasteful parts of the public expenditure budget – does not inspire confidence that the Conservatives are firmly committed to seriously slashing the deficit, merely that they hope they can do so. Good intentions simply won’t be enough.

On most estimates, the present cuts envisaged by the Conservatives might save around £7bn a year. Were they to form the next government, the emergency budget they promise within fifty days of taking office, will have to be considerably more radical than this – and to believe that enormous gains can be made from efficiency savings is a triumph of hope over reality. As the head of the National Audit Office pointed out last year:

“Much of the low-hanging fruit has been picked, and if it hasn’t been picked it’s turned into raisins long ago”.

No doubt some money could be saved by sourcing cheaper supplies of paperclips, installing a few more low energy intensive lightbulbs and the like. But not much.

The problem is not so much that the public sector is being run inefficiently, though this may be true in parts, but rather that the public sector is intrinsically inefficient. Whole swathes of activity need to be moved from the public to the private sector, rather than relying on state bureaucrats under the next government showing a level of productivity on a different qualitative level compared to that displayed in the last ten years.

The Liberal Democrats – who may play a role in the next administration if the election outcome is indecisive – claim to be more honest than the other parties in facing up to the fiscal crisis. But their package is also hopelessly unambitious. They advocate no cuts at all in the next financial year – and cuts of just £15bn in 2011/12, a third of which would be recycled into paying for the Lib Dems' favourite public sector projects.

And as for Labour, well last week's Budget makes clear where they stand on things.

Ultimately, the explosion of public spending that we have witnessed since 1997 – a doubling in nominal terms – doesn’t just need to be halted or trimmed a little, it needs to be drastically reduced.

With politicians merely giving a begrudging nod in the general direction of economic reality, it is hard to believe that any of the political parties are actually serious about extricating the country from the parlous mess it finds itself in.

Perhaps our one hope must be that although the upcoming General Election may essentially be a choice between different managerial corporatist approaches, we are surely entering a period where there is a growing public appetite for considering paradigm shifts owing to an emerging, if ill-defined, sense that the way we do things at the moment just isn’t working.