Magic money trees and free lunches. When politicians tell us the hard truths that there are no magic money trees and no free lunches many do not want to believe them. In recent years a so called independent Central Bank wrongly created a money tree called Quantitative easing. It allowed government egged on by all…
Magic money trees and free lunches.
When politicians tell us the hard truths that there are no magic money trees and no free lunches many do not want to believe them. In recent years a so called independent Central Bank wrongly created a money tree called Quantitative easing. It allowed government egged on by all the Opposition parties to spend and borrow a fortune to lock down the country for too long and pay people for doing nothing. It led to a predictable high inflation, vindicating those of us who warned against Latin American style government finances paid for by a printing press in the Bank.
It would be more reassuring if more officials from the Bank and Treasury would speak out against a repeat of the Magic Money Tree experiment. Instead when the Bank Committee yesterday met it did not even discuss and comment on its damaging bond sales programme, apparently oblivious to its importance to money policy, fiscal policy and the state of the economy.Getting off dependence on the magic money tree is coming at huge cost to taxpayers which the Bank top people will not even talk about.
Politicians occasionally hit back against disgruntled voters expressing anger at bad government. They complain the public want both lower taxes and better services. They say the public think there is a free lunch.
I think the public are right to want lower taxes and better services. They sense the public sector is awash with money and recruits many extra people year after year. It would not be a free lunch if the public sector spent its money more wisely, employed fewer people, and helped them work smarter. That is what all good private sector businesses try to do. It would be a better value lunch for the hard pressed customers, the taxpayers.
It is bizarre that UK public sector productivity is no higher today than in 1997. That’s despite 28 years of big investments in computing by all parts of government, years of more training and promotions in the civil service and wider administration of the public sector. So why has none of this resulted in efficiency gains to match those of the private sector? Big employing departments like tax collection and benefit spending were obvious beneficiaries of the greater productivity putting more on computer and on line could bring. Productivity fell under Labour 1997-2010 as they spent more and hired more staff. It rose a bit under the Conservatives 2010-19, as they tried to get some better value out of the public sector. It fell disastrously over covid lockdowns and still has not properly recovered despite heavy spending on remote working, on line meetings, better data handling and now AI.
Working away to capture the possible productivity gains in the public sector would give us a trend line of at least 1% gains in productivity a year. Some would say the public sector in catch up mode should be able to achieve 2% a year. At 1% a year after five years the public sector would cost £30bn less to run the current level of services. That would be a handsome free lunch, allowing service improvements and tax cuts without borrowing more.
Surely public sector managers, now well remunerated and plentiful, could achieve this? Why aren’t their bonuses dependent on it? Where are the plans to amalgamate posts and improve jobs as people leave? All this can be done without any compulsory redundancies as staff numbers fall around 7% a year if you do not replace them by external recruitment.
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