Spending Review Expert Panel: Mark Littlewood: Osborne is paying the price of getting things wrong in 2010

Mark Littlewood is Director General of the Institute of Economic Affairs. Follow him on Twitter here.

George Osborne paid the price this week for getting things badly wrong in 2010. The initial so-called “Comprehensive” Spending Review when he took office failed to tackle the bloated public sector with sufficient vigour and relied on wildly optimistic growth projections.

The initial ambition of balancing the budget by 2015 has long since been scrapped. The revised target of the middle of the next Parliament looks increasingly optimistic. We may have to wait until this decade is out before the government is able to finally live within its means.

Today, the Chancellor has been reduced to searching for a host of relatively minor savings in order to salvage his deficit reduction strategy. Ominously, £5bn of these savings are to be found through “efficiencies”. Surely, no one doubts that the public sector is littered with gross inefficiencies – but that is not the same as being confident that such inefficiencies can be weeded out through sheer force of will.

If government departments really can make impressive savings on sourcing paperclips more cheaply and using fewer Post It notes, that would be welcome. But for such a drive to essentially account for about half of the announced savings is really rather feeble.

The drive to limit total welfare spending through an overall cap at least shows some imagination – although he has exempted state pensions from this spending envelope, thereby overlooking a huge unfunded liability over the coming decades. Perhaps he should have imposed the cap on overall government expenditure – not merely on certain elements of the welfare budget. That would have marked a more serious move to ensure a prudential approach to spending in years to come.

Most disappointingly of all, the Chancellor has again missed an opportunity to create a climate which encourages and promotes business. Whilst George Osborne’s rhetoric is pro-enterprise and he acknowledges the recovery must be private sector-led, he has once again failed to put forward any concrete policies to make it easier to start or grow a company in Britain.

Indeed, the only real lever he seems to think he has at his disposal to help businesses is for the government to spend money on infrastructure, not to slash red tape and regulation or push harder for lower taxes.

The Chancellor doesn’t seem to either understand or appreciate the need for radical supply side reform and this goes some considerable way to explaining why economic growth figures in recent years have been so crushingly disappointing.

In his defence, George Osborne is having to steer a ship through very choppy waters and he is just about ensuring it doesn’t sink. But he has yet to show he has much idea about how to navigate a route to sunnier climes.

Mark Littlewood: Osborne doesn’t need Plan B, but he does need Plan A+

Mark Littlewood is Director General of the Institute of Economic Affairs.

The Chancellor is right to stick to his guns on deficit reduction. The dividing line in the debate is between those who believe that spending more on the bloated public sector would assist with the economic recovery and those who don’t. George Osborne is on the right side of that dividing line. Stabilising the dire state of the UK’s public finances and providing the markets with unwavering confidence that Britain is determined not to head the way of Greece, Ireland or Portugal is a prerequisite in getting our economy onto a sound footing.

It is worth reiterating though – because the averagely interested observer might not appreciate this from the froth of much of the media coverage – that the overall cuts package proposed by the Coalition is relatively modest. Total spending will only fall by about 3.5% in real terms by the end of the Parliament and the national debt will actually grow by about £400bn. The overall financial burden we are shuffling onto our children is continuing to grow. The price they will pay tomorrow for our largesse today continues to rise. The government is slowly getting the public finances into some semblance of order. But they are not engaged in the sort of serious recalibration of the private and public sector that the Trade Unions would have you believe. And many of us would actually like to see.

Mark Littlewood: If there is to be an immigration cap, the Government should sell that limited number of work permits and visas

Mark Littlewood is Director General of the Institute of Economic Affairs.

Unsurprisingly, the government has been struggling somewhat with how to implement its policy of imposing an immigration cap on non-EU immigrants. Fortunately, in The Challenge of Immigration - a new paper published by the IEA today and available on our website - Nobel prize winning economist Professor Gary Becker comes up with a radical, but simple solution. Once you’ve decided how many “visas” or “permits” you’re going to issue, sell them.

There are all sorts of arguments about whether imposing a cap is the right idea and how problematic (or beneficial) it is that the EU has internally open labour markets. But, for now, cast those arguments aside. If you’ve settled on a policy of imposing a ceiling on immigration, ask yourself how you’re going to decide who gets the green light and who gets blocked.

You have two basic choices. You either go down the bureaucratic route or down the market-orientated route. Sadly, Theresa May has headed down the former path. Government officials will continue to wade through millions of pieces of paper attempting to judge who has the skills and expertise to meet the nation’s overall needs. They will have certain rules to guide them, of course. So, because of special exemptions, if your abilities lie in playing football, you will effectively be treated as more desirable than someone who’s a wizard at engineering.

Mark Littlewood: The Coalition must create a culture of entrepreneurship, rather than entitlement

Mark Littlewood is Director General of the Institute of Economic Affairs. This is an edited version of remarks he gave at yesterday's 'Going for Growth' conference, hosted by ConservativeIntelligence.

Going for growth is the key challenge for the Coalition. In fact, pretty much all their eggs are in the growth basket. If GDP does not show a marked and impressive upward swing over the coming years, then the government’s overall strategy becomes much considerably harder to realise.

You can still start to get the deficit under control in a zero growth world. You can still encourage an upsurge in volunteerism in a Big Society. You can still attempt some structural reforms of our antiquated health and education systems. But these things become a whole lot easier – or at least considerably less difficult – if you’re witnessing 3% growth in the economy, rather than dealing with flatlining GDP figures which may even have been tipped into the negative because of a bad bout of snow.

Frustratingly, the government has turned to the “growth agenda” rather late. Fiscal retrenchment and the Big Society have been the consuming themes of the Coalition’s first nine months.

They’ve talked a big game on deregulation, Nick Clegg’s Freedom Bill was supposedly going to be the most substantial recalibration of the relationship between the individual and the state since the 1832 Reform Act. When it finally emerged last week, despite containing a raft of basically welcome proposals, it is doubtful it will even be considered the most substantial recalibration of the individual and the state to take place this year.

In some areas, they’ve stemmed the flow of anti-enterprise regulation, The “one in, one out” approach has helped, but has hardly led to a rolling back of the vast amount of red tape which hampers business. One can only hope this will follow in due course.

Mark Littlewood: The Government is rightly getting the public finances under control - but the Spending Review could have been far more radical

Mark Littlewood is Director General of the Institute of Economic Affairs.

The Comprehensive Spending Review deserves a cheer and a half, but not much more than that. The Coalition has developed a welcome single mindedness in getting the public finances under control, but they could have been both more radical and more methodical. They seem to have tackled deficit reduction in a tactical, rather than a strategic fashion.  The blue skies thinking, which was promised at the time of the emergency budget, has either not really taken place or has not been overly imaginative.

To consider the upsides first, the review does underscore the determination of George Osborne – and the Government more widely – to depart from the reckless spending largesse of recent years. If we were hurtling towards a Greek-style meltdown, this has most probably been averted.

Both the Conservatives and the Lib Dems have shown some courage in departing from their wildly optimistic manifesto pledges to face up to economic reality. This may raise issues about how – just six months ago – a wide-ranging discussion about public spending was essentially ducked in the General Election campaign, but at least we have a government that seems to be dealing with the world we actually live in, rather than the world as they would like it to be.

But it’s on the question of necessity that the Coalition has been rather disappointing. In this instance, it has not proven to be the mother of very much invention.

Mark Littlewood: The BBC licence fee's time has passed

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.

Mark Thompson’s vigorous defence of the BBC’s role and contribution to broadcasting marks the first skirmish in the build up to re-evaluating the licence fee and the role of the corporation. It’s a fight that comes round every few years and which the BBC usually wins. This time, however, things could be different – and they certainly should be.

The amazing transformation in broadcasting technology and output in recent years makes it increasingly impossible to intellectually defend the BBC’s extraordinarily privileged position. The explicit aim should be to radically reduce the BBC’s broadcasting remit with the intention of abolishing the licence fee altogether in the not too distant future.

The debate about the future role of the BBC closely mirrors that of arts funding more generally and in both cases defenders of the status quo are masterful in conflating two very different arguments. It’s important to decouple these arguments and deconstruct each one individually, rather than allow them to hang together.

The first argument goes that much of the output is wildly popular, critically acclaimed and the sort of thing “we should be proud of”.  A commonly given example is the new run of Doctor Who, which has swept up a plethora of awards and proved a smash hit in the ratings tables since its relaunch in 2005.

But it’s precisely these sorts of programmes that don’t require financial support. Doctor Who is a money spinner. Sales of DVDs, foreign broadcast rights and an impressive merchandising empire obviates the need for any subsidy. In fact, had the BBC been subject to normal commercial pressures, it is highly unlikely that they would have cancelled the original run of the series in 1989. Because Michael Grade and his cohorts on the BBC’s all-powerful “sixth floor” took a dislike to the programme, they chose to cancel it rather than invest in it. This is a strange approach indeed to public service broadcasting – and certainly isn’t the way to give the public the broadcasting they actually want.

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.

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.