Matthew Sinclair is Director of The TaxPayers' Alliance
The largest savings to be found in the public sector tend to be in the biggest budgets: welfare payments and remuneration for staff. However it is also important to look at other, smaller budgets where it is possible to make cuts that don’t affect households in the same way. Any savings there will make the overall fiscal austerity package easier for families to bear. In this article I have looked at six: a further quango to abolish; cutting subsidies to business; freezing the foreign aid budget; cancelling high speed rail; and scrapping the Green Investment Bank.
The Institute for Fiscal Studies described how the “big winners” from the 2010 Spending Review were “the Department for International Development and the investment budget of the Department of Energy and Climate Change”. These proposals would bring them into line with other Departmental budgets. It would lead to a more balanced fiscal adjustment.
1) Abolish the Equality and Human Rights Commission – £48.9 million saving in 2011-12
There are more public sector bodies that could be abolished. Just after the Coalition came to power, we wrote a series of letters to Ministers calling for specific organisations to be axed, focusing in particular on the Carbon Trust, Consumer Focus and the Equality and Human Rights Commission (EHRC). Since then the Government has announced the abolition of Consumers Focus, its powers are being transferred to other bodies, and the removal of the core grant for the Carbon Trust. But the Equality and Human Rights Commission is still there and is receiving total funding in 2011-12 of £48.9 million.
There are two key reasons why we called for the EHRC to be abolished: it has taken on a campaigning role that is inappropriate for a public sector body; and it has shown it cannot be trusted with taxpayers’ money.
The campaigning role should be particularly galling for Conservatives as the quango is setting itself up in opposition to what was party policy in the last manifesto. Their “human rights strategy and programme of action” for 2009-12 set out “no regression in law from the levels of human rights protection and mechanisms for enforcement under the Human Rights Act and other ratified human rights treaties” as something they aim to achieve. As I argued in our original letter calling for that quango’s abolition: that is a political objective, and while the public may want some law to deal with human rights, research suggests a majority think that “too many people take advantage of the Human Rights Act”. It is clearly inappropriate for those people to see their money spent supporting a cause they do not believe in.
There was a new National Audit Office report in June 2011 that again found serious failures at the quango, with millions of pounds spent without proper authorisation. Things may get slightly better and you would expect them to watch the money more carefully now that their budget is being cut. But in the end this still isn’t an organisation that politicians should trust with our money.
The Equality and Human Rights Commission does have a regulatory role but, where there is serious discrimination, that should be a matter for the courts. There is no fundamental need for the quango. Even if legislation does need to change in order for it to be abolished, that would be worth it.
2. Cut business subsidies – £2.2 billion saving in 2011-12
The best way to support business is low taxes for all, not subsidies for a favoured few. That is why it was right that the Regional Development Agencies were abolished and why the Regional Growth Fund looks so dodgy.
The old Department of Trade and Industry (DTI) used to be defended on the grounds that it was important to have someone speaking for business at the Cabinet table. But whether you think his attacks on corporate Britain are right or wrong, Vince Cable isn’t taking that role, at least in public. There are some agencies that might need to be moved elsewhere and universities would need to go back to Education where they belong. But there is no fundamental reason why the Department for Business, Innovation and Skills can’t be abolished.
It was good to see David Ruffley raising this idea again at the IEA and Free Enterprise Group event on growth last week. Of course another role would probably have to be found for Vince Cable. Given that abolishing the DTI was a signature Liberal Democrat policy for years though, they wouldn’t be very credible defending its existence now.
The Department for Business, Innovation and Skills spent £23.5 billion in 2010-11. Much of this money is spent on higher education, and BIS also handles the science budget. The department’s annual report breaks down the total amount spent by objectives, and from this we can work out how much was spent on business. £2.2 billion was spent on Objective 1 – Increasing UK Competitiveness. The rest of the budget was spent on science and universities. This is not a perfect fit for what should be cut but should give a reasonable idea of the saving possible.
3. Freeze the DFID budget at 2010-11 levels – £3.5 billion saving in 2014-15
Tim has mounted a robust and principled defence of foreign aid spending. Some aid spending is clearly doing wonderful things and helping a lot of very vulnerable people. However there have also been many powerful indictments of failures in aid policy that have seen money wasted or worse.
There is substantial budget support going to the Rwandan Government despite a report in the New York Times that the Metropolitan Police had to warn Rwandan dissidents in London that their lives were at risk. India is one of the largest recipients of British aid but as they are a rapidly growing, major economy our funding is roughly 0.2 per cent of the Indian government’s Budget. They could afford to finance any of these programmes if they wanted to and we weren’t doing so instead. And just last weekend the Sun on Sunday reported that despite the United States looking to get tough with the Argentinian Government for once and that government’s threats to the Falkland Islands, we aren’t supporting their votes against fresh loans to Argentina at the World Bank (which we are a major contributor to).
The best middle ground would seem to be giving foreign aid the same kind of treatment that other undeniably important budgets like science have received: a cash freeze. That would save billions and take the heat out of public frustration that international development is getting better treatment than budgets here at home. It would still leave plenty of money in the budget that we can use to take the best opportunities to help people.
4. Cancel high speed rail – Over £750 million saving in this Parliament
There has already been an extensive debate over the merits of proposals for high speed rail. There is plenty of analysis of the business case (with an update here) and alternatives out there. And good reason to think that if the reality is to match up to Ministers’ elevated rhetoric, and not the actual plans that would see many areas getting a worse service, the cost could be even higher. Even if you don’t believe all that, as Professor Stephen Glaister has argued the benefit cost ratio is simply unimpressive. As well as the TaxPayers’ Alliance, a range of other groups within the broader conservative, free market movement have attacked the project as poor value for the well over £1,000 a family it is set to cost, including the Institute of Economic Affairs, the Countryside Alliance and the Adam Smith Institute.
Again at the IEA and Free Enterprise Group event on growth last week it was striking that so many of the speakers from Andrew Tyrie to Allister Heath expressed their scepticism about the project. Proponents of a new line just haven’t convinced free market economists and commentators, people who do appreciate the case for infrastructure investment, that this is the right project.
Besides simple train envy, the principle case for the line seems to be that the business community wants it, or the Midlands and the North want it. But when you actually survey people you find that business leaders are unconvinced by the case for the scheme, and the Midlands and Wales – the only place that will see a new connection to London this side of 2030 – is one of the areas where people are most in favour of cutting the project. In terms of public opinion this isn’t a North versus South issue.
While most of the cost is in the future, a lot of money is at stake within this Parliament. John Redwood has investigated the short term costs.
5. Scrap the Green Investment Bank – £2.7 billion saving in total
Many climate policies are important because they add to living costs and thereby make broader fiscal austerity more painful for families. If you can reduce energy bills with a more affordable energy policy, along with other costs that particularly affect pensioners like council tax, then over time it may be more politically feasible to cut the Winter Fuel Allowance for example. But most of the big bills aren’t going to be paid through taxes and spending.
An exception is the Green Investment Bank, which the Government is planning on capitalising with £3 billion. The principle objective is to address the shortfall in investment to meet draconian targets in the energy sector, which require £200 billion of investment over the decade to 2020. Those targets arbitrarily single out renewable energy as a way of cutting emissions though. And are premised on the successful pursuit of a global deal which has been retreating steadily further away since the failure of the Copenhagen conference. We need to stop asking what our share would be if a global government were allocating cuts in emissions, and instead ask how a country with considerable financial and technical resources, but only responsible for well under two per cent of global emissions, can help in a world where the major emitters aren’t willing to pay a heavy price to emit less.
The answer is to focus smaller amounts of money on research and development to offer new and more affordable alternatives to fossil fuels. The Government is developing the right tools here, with David Willetts introducing new prizes for specific developments, an option I looked at in Let them eat carbon. We can save billions and achieve more by cutting the money spent on the Green Investment Bank and other spending intended to deploy expensive sources of energy now, and instead directly putting British scientists and engineers to work developing new options.
The saving above is based on a 90 per cent cut from the £3 billion capitalisation as a simple metric, though under the present plans the Treasury would obviously hope that money is recouped and used for fresh investments by the Bank over time, and the financing arrangements are in general a little complicated.
6. Scale back Whitehall
In the longer term the Government should look at how further savings can entrench its reform agenda. So long as there are still big Government Departments in Whitehall there will still be a temptation to reassert central control over local councils, schools, police forces and other institutions being set free right now as part of the localism agenda. As those institutions are more and more accountable to either those who use them – i.e. parents in the case for education, or local voters, i.e. local voters in the case of local councils and the police – there should be less and less for the Departments to do.