The Billion Pound Budget Cut

Peter Black was probably right when he urged caution about the Western Mail’s ‘billion pound budget cuts’ in yesterday’s paper, after Alistair Darling announced an intended £15bn cut in public spending.

The devil is in the detail, suggested Peter – no doubt upset that the Lib Dems new narrative of attacking Plaid already looks wooden and clunky.

Fortunately, in the name of open government, the Westminster government has released their ‘Operational Efficiency Programme: final report’ in time for the Budget so that we can analyse in detail those £15bn cuts in public spending.

Darling’s £15bn is best explained as:

• £4bn saved in back office operations
• £3.2bn in IT
• £6.1bn saved in extended collaborative procurement
• £1.5bn on the public sector property estate

The report also investigates asset management and sales, and local incentives and empowerment.

The detail, though, is highly uninformative for what interests Peter and myself – some vaguely wafted figures based upon case studies and examples.

Wales does play a walk-on role in the report, which notes on page 8 that “the devolved administrations...are free to use the findings and recommendations of the Operational Efficiency Programme to inform their progress on efficiency.”

Which is lucky as repeating the whole exercise for Wales or Scotland alone would surely otherwise have gone against ‘extended collaborative procurement’, no?

The most important facet of the report in the short term for Wales is probably the decision to ‘vest’ the Royal Mint into a company, i.e. set it up as a corporate organisation, with the presumable end-game of privatisation.

In that management double-speak that makes no real-world sense, the case study (on p48 of the report) explains how a previous ‘vesting’ in 2004 had been ended in 2006 because of the need to tackle the performance business, but now that the business’ performance had improved significantly, this could go ahead.

So, keep the Royal Mint in public ownership when not performing well, but sell to the private sector when making a profit for the taxpayer?

With that sort of thinking, is it any surprise we’re in the economic mess that we are?

A happier Welsh case study is used in the section on procurement.

Value Wales frameworks are used as an example of how Welsh public sector organisations are delivering better arrangements through economies of scale across the entire Welsh public sector.
Examples noted include savings of 39 per cent on IT equipment and services, 30-35 per cent on stationery and paper and around 26 per cent on computer consumables, including printer cartridges.

But that success brings the whole project back into stark reality.

As a journalist put it quizzically, when discussing the alternative Plaid People’s Budget yesterday morning, doesn’t it all come back to the Barnett Formula?

Well, yes. The Welsh budget will be affected by cuts or savings (call them what you will!) in the budgets for UK departments that have devolved sectors.

The Welsh budget will be affected, irrespective of whether we have already implemented these savings or whether these savings cannot be delivered in Wales because of different structures.

It’s like being told that your salary and living conditions are dependent upon a friend’s well-being. If he (or she) gets a rise then you get a rise, irrespective of whether or not you deserve one. If they have to take a pay cut then you have to make cutbacks, even if you’ve already made them.

He might cut back voluntarily as he has enough food for a nice meal. We still have to make the same cut back, even if we have a bare larder.

The savings suggested in the report are cross-cutting savings with no specific target (like, say, Trident or ID cards which I would scrap at a moment’s notice) which means that there will be no major announcements, but a lot of backroom organisation that will probably go un-noticed by the public at large, and possibly most politicians.

It is likely that many of these savings will come in devolved areas like health and education and that they will affect Wales very strongly – as we already are by the English NHS capital spending changes already announced.

But even if they're not, as these are public service efficiency savings rather than a culling of major projects such as Trident or ID cards, then Wales may find itself in a worse situation - as with the closure of around 50 DWP offices under the Gershon Review and the proposed closure of HMRC offices throughout West Wales and the Valleys.

What’s worrying is that, as with Value Wales, an example in the area where the biggest savings are suggested, if we’ve already taken the chaff out of the system, then where will we cut?

The Lib Dems don’t have to worry about these sort of decisions – Kirsty and Peter took the ‘gutless’ route out of government two years ago.

Pre-Budget Report Reaction

Alistair Darling’s sprinkling of fairy dust from Monday seems to finally be settling and now that we can see the Wizard of Oz’s lips moving, we can get to the nitty-gritty of the Pre-Budget Report small-print, and, specifically, their effects on Wales.

I’ve already explained that I don’t think that a cut in VAT will be enough of a financial stimulus to justify its top billing as part of a recovery package, and also that the introduction of a new higher rate of income tax is more political policy than economic.

Here I examine the various measures that were specifically introduced by the UK Government on Monday.

Public infrastructure works

The second largest part of Labour’s financial stimulus is a public infrastructure works programme, but this isn’t the ‘new’ money that we were hoping to see.

The money being used is being brought forward from that which would have been spent as part of the present three-year spending period.

The idea here is that the financial stimulus would provide jobs now in the hope that the economy will recover by the time that this money would have been spent in 2010-11 so that those employed would be in gainful employment.

It’s a snub in many ways to the devolved administrations as, because much of this spend is in England-only fields already allocated in the spending review, there will be nothing extra available to assist what were in any case tight spending reviews.

Just like the difference between the VAT cut and a genuinely radical proposal, this fails to cut the mustard. If I and my generation are going to be paying for Labour’s failure for most of my life then I’d rather it was going on something that would be useful for generations, perhaps solving many of our coming energy supply problems with, for example, tidal lagoons.

Labour have no vision for how to deal with the problems we’re facing – it’s like they’re reading a textbook, and following it line-by-line, rather than take the opportunity to create something new out of the challenge.


Efficiency savings

Perhaps more worrying, though, are the unintended consequences for Wales of England’s ‘efficiency savings’.

Proof positive of the need for a review of the Barnett Formula is that savings being made in England’s health budget (£3 billion on estates with ongoing savings of £100m per annum) impact on Wales, irrespective of our needs.

That alone could lead to a loss to the block grant of some £200m from Welsh Assembly coffers, or, even if the current grant were to be ring-fenced would slow further growth dependant on funding to the English Health Department.

In coming years, in order to meet new targets set as part of the PBR, further efficiency savings will be made from the Health and Education budgets in England, leaving Wales further short-changed.

Already, in fact, £100m has been lost from Wales in 2009-10 from the figures in the 2007 and 2008 Pre-Budget Reports

In the short term, the UK government tell us that the shortfalls will be closed with money from the End Year Flexibility.

What they failed to explain openly to the Welsh media in their press release was that this ‘end year flexibility’ is, of course, money that already belongs to the Welsh Assembly – but what’s a little bit of spin between friends?

Or did they just think we wouldn’t notice?

Royal Mint

Well buried on page 119 of the Budget report is the news that, amongst a range of government arms-length owned companies, they are considering alternative future business models for the Royal Mint in Llantrisant.

It’s not quite clear what these models might be, but given the still neo-liberal colour of this government, privatisation or out-sourcing will undoubtedly be amongst them.

Llantrisant is a very nice part of Wales, not far from the M4 and the Vale of Glamorgan, but, already dealing with job losses from nearby plants run by Bosch and L’Oreal, anything which endangers the 700-odd jobs at the Royal Mint must be opposed – especially in the current economic climate.

Wales, it seems, whether with a Labour or Conservative government in London, is still in the economic frontline when it comes to jobs under threat.

The Vulnerable Poor

The yah-boo politics of Westminster has reverted back to its tribal nature as Labour reply to any comments from the Conservatives with taunts that they would have done nothing compared to the package announced by Labour.

Yet this PBR is amongst the least re-distributive reports from Labour in recent years, and very probably will have less effect on those most in need that many other budgets in recent history.

A little money has been brought forward for pensioners and children, but nothing life-changing.

Having brought forward child payments that were scheduled for 2010, they announced nothing for the kitty the following year.

The IFS/Barnardos released a report earlier this year suggesting that £3bn pa would rapidly deal with child poverty, supposedly a key government pledge. Yet this was roundly ignored in this PBR.

The same goes for Winter Fuel Payments for the elderly in 2009, after being much touted by the Chancellor and Prime Minister as their solution in 2008.

It’s actually quite shocking that these groups have received so little attention in this Budget – the only positives being the announcement of an End Child Poverty Bill (call me a cynic, but I rather action to legislation and target setting) and announcing an increase in the pension for 2010-11 that will be at least a 2.5% rise.

As these groups represent both our future and our past, they should be treated with a little more dignity and respect.

Conclusions

There’s a lot more that could be said on this Pre-Budget Report, some good, some bad.

The use of green taxes was disappointing, especially the air tax shift back towards per passenger rather than the expected tax per plane, but the help for small and medium businesses was more than some might have been expecting.

Ultimately, though, it was a bit of a dog’s dinner - trying to do lots of things, but failing to do any of them well.

As a financial stimulus budget, it will probably fail to really stimulate the economy, although, whatever happens, Labour will shout and bully to say that it will have achieved the measures they claim it was intended for.

But then, if it really is a Budget for a Spring election, then they would say that, wouldn’t they?