Conservative Diary

« Fox moves away from Osborne | Main | The Guardian discovers that "right-wing" views on Europe and immigration are quite popular »

Big spending cuts are needed but not salami slicing

By Harry Phibbs
Follow Harry on Twitter

Liam Fox is right to call for much more to be done regarding spending cuts. However his call for a freeze in public spending is the wrong approach. A better way is to consider what the state should be doing, and look at particular areas which could be cut altogether or at least very substantially.

Here are some of my nominations:


The state pension age is being raised to 66 in 2020 and to 67 to 2028. The Government should go further. We should move towards the principle that given the increase in life expectancy those who are able to continue to support themselves until the age of 70 should do so. This should be phased in by 2030.

Saving initially nil, rising to £30 billion a year

Abolish the Department for Culture Media and Sport

The state should not spend money on arts subsidies, sport subsidies, or tourism. The National Lottery already makes a large contribution. If special encouragement for the arts is a policy this could be better achieved by abolishing VAT on theatre and concert tickets, and by tax relief for arts sponsorship.

Saving £2.5 billion annually.

Abolish the Department for Business Innovation and Skills

The state should cease to be involved in providing business subsidies including in areas such as training, and research and development. These investments should be commercial decisions for the private sector. A lower tax burden would encourage such investment.

The department's total budget of £21 billion includes further education spending of £4 billion. This could be cut by £2 billion if the Institute of Economic Affairs recommendations were implemented. There is also £13 billion a year spent subsidising universities.

In the short term, responsibility for further and higher education should be moved to the Department of Education. Some areas should be cut as a matter of priority - I have written previously of the harm done by social work courses, costing taxpayers £70 million a year.

But in the long run, say a phased five year period, universities and FE colleges should be self financing and operate independently of the state. There would be an increase in tuition fees for some courses but others already cost less than the £9,000 charged. It is interesting how small the reduction was in the number of students applying to university despite tuition fees being trebled. 

The main change would be universities being required to raise their own money for research rather than relying on the taxpayer. So far the spending cut have hit the students, it is time for the dons to face economic reality.

Saving £8 billion annually initially rising to £21 billion annually.

Legal Aid and Government legal costs

Spending is £2 billion a year but the true cost to the taxpayer of excessive litigation is much higher. Often the state is the one being sued and thus paying for both sets of lawyers. Judicial Reviews probably cost  £1 billion a year - it is hard to estimate as there is the cost not just of fighting the claims but of trying to avoid them with endless Equality Risk Assessments and so on.

We spend £38 a head on Legal Aid annually, the French spend £3 a head annually. So far the cuts planned are modest. Let's reduce spending in line with the French.

Saving £4 billion.

Asset sales to reduce debt interest

We spend £47 billion a year on debt interest on our £1,186 billion National Debt. Of course the only long term way of reducing this is to run a budget surplus rather than a budget deficit of over £100 billion a year. However in the short term we could avoid increases in the National Debt by asset sales.

The Adam Smith Institute has suggested such candidates as Network Rail (£12 billion it thinks could be raised), Channel 4, Royal Mail, the 49% stake in NATS, the Scottish, Welsh and Northern Ireland Water industry. Then, of course, shares in RBS and Lloyds (another £50 - £100 billion.) We have oddities like the Commonwealth Development Corporation (which means the British taxpayer owns hotels in the Caribbean). At least the Tote (which meant the British taxpayer owned high street bookies) was sold for £265 million in 2011.

Far greater than any of the candidates above is state land. So far the Government has announced plans to sell 7,000 acres for 100,000 new homes, raising £10 billion. Progress hitting this target has apparently been slow. But the Goverment should be going further - not just to reduce debt but to ease the housing shortage.

The Ministry of Defence alone owns 600,000 acres - equivalent to the size of Surrey. The value of the land depends substantially on what use is allowed for it. New housing should be allowed - including in the Green Belt - provided it is of attractive traditional design using local materials. Of course property developers should also be expected to provide ecological enhancement and provision of new free schools and transport improvements. We should be able to achieve £150 billion of land sales over the next three or four years. Combined with the other items this should allow for a reduction in the National Debt of £300 billion from what it would otherwise be, roughly a quarter of its present level.

Saving in debt interest £2.5 billion initially rising to £12 billion.

Abolish the Licence Fee

The state should cease to be in the broadcastiing business. Ending the Licence Fee, the "poll tax" of £145.50p, would particularly help the poor. It would also help the public finances as the Government pay the TV Licences for those aged over 75.

Saving £0.5 billion


I suggested £28 billion of savings in Quangos that could be abolished, in an earlier post. Many have been abolished already and others are included in other sections of these proposals (such as Arts Council whose demise is already envisaged as part of the abolition of the DCMS.)

However, that still leaves plenty of scope for more Quangoes to go. For instance the Homes and Community Agency spends over £2 billion - but the land sales on the scale detailed above would be of far greater value in increasing the housing supply. I have suggested previously abolition of the Health and Safety Executive which duplicates local government and costs taxpayers £175 million as well as imposing all sorts of extortionate charges on businesses and charites. Many other Quangos have smaller budgets which combined, add up to a lot.

Saving £5 billion.

Barnett Formula

This provides an extra £12 billion a year in public spending to Scotland, Wales and Northern Ireland. This should be phased out over ten years.

Saving £1.2 billion initially, rising to £12 billion.

Privatise motorways and trunk roads

Richard Wellings has proposed privately owned toll roads, for the Institute of Economic Affairs (just one of many proposals in their Sharper Axes, Lower Taxes paper). This would mean privatising motorways and trunk roads, and private capital paying for new roads rather than the taxpayer - currently £1 billion a year by the Highways Agency.   It would also reduce the £1.4 billion a year road maintenance budget. He also proposed ending the £600 million spent on counterproductive "traffic calming measures" such as humps. There would also be the benefit of a reduction in debt interest due to the estimated £10-£20 billion proceeds from road sales.

Savings £2.5 billion.

Tax collection costs

A paper by the Institute of Economic Affairs says the cost of tax collection in the UK to the Government is £5 billion. (The cost to the private sector is much higher.) It points out our costs compare unfavourably to other countries. Simplification of the tax system would reduce collection costs. Under Labour, Tolley's Tax Guide more than doubled to 11,000 pages. It is now 11,520 pages. One advantage of providing room for substantial tax cuts is that this would make simplification easier - including abolition of certain taxes.

Savings £2 billion.

Local government

There has already been a sharp cut in funding for local government, despite which satisfaction levels with council services have increased. There is scope for much further savings. I propose a reduction in central government grant for general council spending from the £24 billion currently planned to £19 billion.

The £2.5 billion councils are being given for public health (spending which has been largely wasted in the past) should not be ring fenced.

£1 billion a year is spent on keeping 5,000 children in institutional children's homes - I believe, in the majority of cases, unnecessarily. £3 billion is spent on the total of 65,520 children in care. Most could and should be adopted. There should be a presumption that children in care be placed for adoption and a presumption that if they are to be in care they should be with foster carers rather than in children's homes.

Savings £5 billion.

e-invoicing...etc, etc

There will be other savings that could be achieved across Government. The Government's reform of the gold plated public sector pensions are not tough enough.

There is an astonishing £6 billion of savings that Adam Afriyie MP believes could be achieved through e-invoicing. There are plenty of other Tory MPs, such as John Redwood, whose ideas should be embraced. Often some of the most boring ideas will yield some of the biggest savings.

Savings at least another £10 billion.

That gives a total of £106 billion...

I haven't touched the NHS or education or benefits for the unemployed or Overseas Aid. None of the items above would cut the number of police on our streets or soldiers in the army. I would like to see us withdraw from the European Union which I believe would provide substantial savings - but that is not a saving that George Osborne can budget for at this stage.

I have attempted to offer cuts that are not just economically right but politically acceptable. They hit the rich rather than the poor - the Quangocrat, the academic, the lawyer, the opera goer.

In contrast the low paid would benefit from the licence fee going. Those struggling to get on to the housing ladder would find it easier due to land sales increasing supply. More children would be taken out of the care system and placed in loving homes.

Many of the measures above would boost economic growth - especially if some of the savings were used for tax cuts rather than all going on reducing borrowing. Increased growth would greatly assist in reducing welfare spending but I have made no allocation for this.

We can all make our own lists. The point is that reducing the state to an affordable size is a project which can be achieved with less difficulty than is sometimes claimed.


You must be logged in using Intense Debate, Wordpress, Twitter or Facebook to comment.