Tinkering Won't Work

You need a chainsaw

The government is broke and the Chief Secretary to the Treasury Darren Jones has written for the Telegraph that he will leave no stone unturned in rooting out waste. While he is right to ensure that taxpayers’ money is spent wisely, simply tinkering at the margins or trying to learn a few tips from the private sector will ultimately fail.

Let’s take the second point first. It is absolutely true that the private sector tends to be more efficient than the public sector. However, the reason for this is very basic economics in that private firms (usually) have to compete with other businesses in the hope of making a profit. Firms have little choice but to be efficient because if they don’t they will be outcompeted by a rival company providing a better service at a lower price. Consumers vote with their feet and if they are not happy with the goods or services offered by a firm then that business will have to up its game or go bust.

We also see the price mechanism at work which helps to allocate resources more efficiently and helps to match supply up with demand. Other than in the example of cartels or governments meddling in the form of price controls, private businesses tend to do a very good job at responding to shocks and ensuring that consumers can get the goods and services they need.

Contrast this with the public service. The government is often the only provider of some goods and so effectively is granted a monopoly. As such, it has less of an incentive to improve its performance as people who are reliant on their service have no other option. What is more, it can always try and extract more money from taxpayers if it gets into financial difficulties.

As for the first point, tinkering here and there will make no real difference to efficiency and may actually demoralise public sector workers and exacerbate the situation. I have little doubt that HM Treasury will demand that other government departments launch a thorough review of cutting a bit here and a bit there but this will likely result in clamping down on the few public sector ‘perks’ that are already far less generous than in the private sector such as expenses for travel and free refreshments. This will likely make officials feel undervalued and unmotivated and so productivity and efficiency will take even more of a hit

Rather than tinkering at the margins, the government should focus on doing a few things incredibly well and stop doing some things altogether. There are obviously some services which only the State can realistically provide such as Defence whereas there are other services which either the government should look at increasing competition in sectors such as Education and Healthcare by funding voucher and insurance style systems while simply not funding other services at all. This will mean abolishing entire departments and quangos or drastically reducing their functions and responsibilities. Any function which can be scrapped should be and any task which can be automated should be and civil servants released into the private sector to do something more productive with their careers. The UK would do well to engage in a bit of Afuera, Javier Milei style.

At the same time the government should be paying more money in order to attract and retain top talent. I have worked with many brilliant civil servants who were often underpaid and bogged down in bureaucracy and their skills were not utilised and they were not promoted. Meanwhile, attracting the very best people is difficult due to the low salaries, the lack of autonomy, and the need for candidates to demonstrate how they once Saw the Big Picture. We should have a smaller and more agile civil service staffed by some of the smartest and most dedicated people in the country who are supported by the latest technology and paid incredibly well.

Unfortunately, none of this will materialise. Public sector unions will (understandably) kick up a fuss about job losses. Automation does have the potential to bring significant savings as it will mean HM Treasury having to commit to upfront spending in order to fund future potential savings. The Treasury hates doing this and so will simply refuse. Furthermore, politicians like having power so that they have a sense of control and make promises to the electorate that they are finally the ones who can improve things or to their colleagues that they will be rewarded with a ministerial job. Finally, there is sadly no way that the country is going to adopt an insurance style healthcare system anytime soon.

Darren Jones is absolutely right in wanting to deliver savings and value for money to taxpayers. However, bureaucracies are inherently inefficient precisely because they do not have the right incentives. Instead the government should do less and focus on doing some things really well while embracing automation and hiring better people. Most of this will never happen and so public sector efficiency will remain low and taxpayers will be left with the bill.

China

Last week I wrote an article for CapX. It’s on why the real choice facing the UK will not be between the US and the EU but rather between doing a bit more trade with either the US or China. Given the CCP’s appalling human rights record, its unfair trading practices, routinely spies on the UK, and that it threatens and bullies its neighbours the UK should choose the US over China everytime. You can read it here.

Thanks as ever for reading and have a great week!