Cutting in the right place isn't as easy as it sounds

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Many years ago, when I was working as a Systems Analyst designing computer systems, I ended up talking to an administrator in one department and looking at all the information she collected and collated into reports. One report was particularly complex, and was going to pose problems in ensuring that all the data was available in the right place and format to produce it; as things stood it was taking her a week or so every month to locate and compile the information. I asked what happened to the report when she had produced it and she pointed to the cabinet where it was filed. In response to the follow up question about who looked at it afterwards, the reply I got was along the lines of “No-one. But the Director asked for it once a few years ago and we didn’t have it. So now we make sure we’ve always got it.”

It's a small example of the way in which large organisations can accumulate tasks and activities which serve little purpose, but the people performing them don’t have the authority to stop them, and those who do have the authority usually don’t even know they’re happening. And it’s one of the reasons why there is almost always scope, in any large organisation, to eliminate certain activities (and the people performing them) with zero impact on the overall performance. So when someone – like for example, the Chancellor – claims that there are too many people in the civil service and that the number can be easily reduced, part of my reaction is to think that she’s probably right. In principle. What she does not (and cannot) know, however, is how many are surplus to requirements and which ones they are. One of the consequences of that is that an arbitrarily imposed top-down target almost invariably ends up removing at least some of the ‘wrong’ people, whilst those busily engaged in preparing obscure reports ‘just in case’ carry on regardless.

The ‘savings’ aren’t easy to quantify either, and depend at least partly on the method used to identify those who will get the chop. If the reduction is achieved by removing some of the oldest people, then in a hierarchical organisation like the civil service they may well turn out to be both the most senior and the most highly-paid, for whom a redundancy package and early retirement may look attractive. And since both the redundancy payments and the pensions come out of different pots, the ‘savings’ can appear to be quite high. But whatever the Chancellor may say about targeting ‘back office’ functions rather than front line operations, that isn’t the way arbitrary targets work out in practice, and the total savings at a macro level may well be considerably less than they appear looking at a single budget line.

In essence, her thinking doesn’t seem to be that different from that of Musk, even if not so scattergun an approach or so deep a level of cuts. But both of them start from the assumption that public spending adds no value, and is an ‘overhead’ on the rest of the economy. The US administration is even thinking in terms of redefining GDP itself to exclude government expenditure, which is a somewhat drastic approach. It's neo-liberal economic claptrap, of course. The public sector contributes a great deal to the well-being of citizens. Once upon a time, a Labour government would have seen that as a good thing.

Labour austerity looks inevitable

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It’s impossible to disagree with Labour leader Sir Keir Starmer when he says that Margaret Thatcher was responsible for significant and long term changes in the way that the UK economy works, or that she entered government with some clear ideas about what she wanted to do. Whether the changes were a good thing or not is much more arguable, to say the least; and the idea that those changes released entrepreneurialism in the UK has been succinctly rebutted by Prof. Richard Murphy. Perhaps Starmer merely wished to praise the determination and attitude she showed rather than what she actually did, but it didn’t sound that way when he said it, and not for the first time he seems to be struggling to ‘correct’ his words retrospectively. And whether it was politically wise even to go that far is another question entirely – why on earth raise a comparison to Thatcher when you’re staring at an open goal left by Sunak?

There is a fundamental belief at the core of Conservative ideology that the private sector and the public sector are in competition, and that the private sector creates wealth whilst the public sector consumes it. It’s clear from their statements that better public services depend on private sector economic growth that Starmer and Reeves also believe it. They’re not alone: it’s one of those things that is so ‘obvious’ that many people across the political spectrum believe it. It’s also absolute tosh. It may be based on a confusion between two different meanings of the word ‘wealth’. There is the wealth which all the individuals in a country own, measured by bank balances and assets held, and there is the wealth of the country as a whole, measured by GDP. The ‘growth’ that Starmer is referring to is an increase in GDP, but an increase in spending by the public sector leads to the same amount of GDP growth as the same amount of increased spending in the private sector. Given the way that GDP is calculated, it cannot mathematically be otherwise. Certainly, some people became extremely wealthy under Thatcher, but much of that was a redistribution of wealth from the poor to the rich, and the ever-increasing gap between the richest and poorest in society is the most pernicious long-term effect of Thatcherism. The accumulation of private wealth in an ever-smaller number of hands is not the same as an increase in national wealth.

There are, of course, arguments to be had about whether it is ‘better’ for investment to come from the private sector or the public sector – and the public sector’s record in managing some projects and investments leaves a lot to be desired. Whether that is inevitable or a result of structural or procedural problems is a debate for another time, but the idea that only one of those approaches should count in measuring growth is just ideological bias. When the private sector invests, the money comes from a combination of borrowing and income raised from customers; when the public sector invests, it comes from a combination of borrowing and taxes raised from the population as a whole. In GDP terms, whether we pay for something out of tax or as part of the price of the goods and services we buy is irrelevant – we’re still paying either way. It’s just that tax deducted from salary is more obvious. And in either case, 'borrowing' is a simplistic way of describing a complicated process whereby the government - or the banks operating under government licence - create and destroy money at the press of a few keys, as well as borrowing directly from people who see their loans as investments.

The debate which we should be having – and which a Labour Party worthy of the name would be leading rather than suppressing – is about which things we want to purchase collectively through the state, which we want to leave to the profit-driven market place, and how we decide between the two. It’s a point which ideologically-driven fiscal conservatives like Starmer can’t even begin to understand. And that lack of understanding leads inevitably to Labour austerity.

It's about how wealth is distributed

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One of the old chestnuts trotted out by the PM in his ‘conference’ speech this morning was that it is the private sector which provides the nation’s wealth. It’s one of those ‘truths’ which many believe but which is, in reality, complete nonsense. The problem is that people who argue that are defining ‘wealth’ in a limited way.

If we define ‘wealth’ as the accumulated value owned by individuals, then there is, indeed, no doubt that that ‘wealth’ has been obtained through the profit-making activities of the private sector. But there are two important caveats to that statement. The first is that increasing private profit does not in itself lead to an increase in the total wealth of a society. In many ways, profit simply redistributes existing wealth from the poorer to the richer. An increase in private wealth, if squirreled away or taken offshore can actually have the effect of reducing the total amount of wealth in a given economy. The second is that one of the biggest customers of the private sector is the public sector itself; without public sector spend, the capacity for making ‘profit’ would be greatly reduced.

The alternative definition of ‘wealth’, and the one preferred by economists, is measured by GDP (or more usually these days GVA), which is ultimately simply a measure of how much money is in the economy and how fast it changes hands. It is a measure which is ‘blind’ to the question of whether the economic activity producing the GDP occurs in the private sector or in the public sector; it really doesn’t matter. There are sufficient historical precedents to demonstrate that GDP (and therefore overall wealth) can and does increase, even if all economic activity is carried out by state agencies and nationalised companies, enough in itself to disprove the PM’s point.

Whether the two alternatives increase wealth with equal efficiency in the use of resources is a rather different question. Whilst there is no obvious or necessary reason why state-run enterprises should be less efficient or profitable than private enterprises, we know from experience in the UK and elsewhere that, in practice, it has generally been the case that they are. There are a number of reasons for that (not least of them being the inclination of politicians and civil servants to attempt to micromanage), but that is a question for another time. The point is, though, that Johnson did not argue that case at all; he argued in black-and-white terms that the public sector does not create wealth.

Whether from ignorance or ideology, the PM clearly identifies ‘wealth’ with that which is owned by wealthy people. They would be his cronies and donors – the sort of people who have been getting contracts from the public sector without even having to go through any sort of competitive tender since his government came to power. It is an ideological position which leads directly to the transfer of assets and resources from those held in common by the state to those held by a few private individuals. It may or may not be an approach which increases the total amount of wealth in an economy, but it is definitely an approach which makes some people wealthier, by transferring such wealth as does exist from the many to the few. In that regard, he is more of a traditional Conservative than some are giving him credit for.

Agreeing with the Tories

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Last week, the Tories in the Assembly returned to one of their all-time favourite themes – high salaries in the public sector.  This time, it was the health service which was the subject of their ire, and they seem to have a particular fixation about any salaries which are higher than that of the Prime Minister.  The Labour government responded in the traditional manner of those who support paying high salaries, talking about the need to ‘attract the best’ to fill the top jobs.  In some ways, this is almost the reverse of the position one would expect the two parties to take.  Traditionally, Labour would oppose high salaries, and the Tories would talk about needing to attract the best. 

I can understand that, for someone who genuinely believes that high salaries attract the best candidates rather than simply the greediest, capping those salaries at an arbitrary level (‘the salary of the Prime Minister’) would be a damaging interference in the employment market, and would lead to the people in the top jobs being sub-optimal for the performance of the relevant organisation.  It follows that the Tories cannot believe that the way to attract the best people is to allow market forces to operate (although I accept that that statement does discount the possibility that they might actually not want the best people to run public services anyway – but they couldn’t really want those services to fail, could they?).  And the reaction of the Welsh government suggests that Labour really do believe that paying higher salaries attracts better candidates, and that good talented people cannot be found at a lower price.

The good news in all this is that I’ve finally found an issue of principle on which I can agree with the Tories and disagree with Labour – I really don’t believe that there is a direct relationship between how much someone is paid and how good they are at their job.  When it comes to salaries of top earners, there is a distorted market in operation in which a self-perpetuating group of rent-seekers push salaries ever higher to serve, ultimately, their own best interests.  What I don’t understand, however, is how it’s possible to believe one thing in relation to the public sector whilst believing that the complete opposite rule applies in the private sector.  So perhaps I don’t agree with the Tories very much after all.

And he was doing so well until then...

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In responding to last week’s release of details about high salaries for some BBC staff, Corbyn made some good points.  He started by saying that the issue isn’t just about a few very high-paid performers in one organization, and that the issue of gender inequality goes much further than that.  I agree.  He moved on to talk about the wider issue of pay inequality, and suggested a statutory limit of 20 times the lowest salary in an organization for the pay of the highest paid.  I might quibble a bit about the number 20, but any number quoted in this context is going to be essentially arbitrary and it’s better to start with a high limit than with no limit, so I agreed with him on that as well.

Then he went and spoiled it all by adding the words “in the public sector”.  Why?  Pay inequality between the highest paid and the lowest paid is a much bigger problem in the private sector than it is in the public sector, and insofar as pay inequality is a driver of wealth inequality and inequality of opportunity, the private sector represents a much bigger problem.  It’s as though politicians, of all colours, can’t resist falling into the meme of believing that the public sector is somehow less useful and needs more control than the private sector, despite all the evidence to the contrary.

On frequent justification for that line is that public sector salaries are somehow being paid for out of ‘our money’, whilst private sector salaries are not.  This is demonstrable nonsense.  Taking just the world of broadcasting as an example, there are three different mechanisms by which we all pay the salaries of those involved.  For programs on the BBC we pay a licence fee for possessing and using a television set; for subscription services such as satellite or cable we pay a monthly fee to allow access to them; and for services supported by advertising, we contribute to the salaries of those involved every time that we purchase any product advertised.  And in every case, that is true whether we watch any of the programs or not.  And in the case of programs supported by advertising, we make that contribution even if we have no television.

In all cases, the salaries of broadcasters and managers are paid for out of ‘our money’, it’s only the route by which we pay that is any different.  Broadcasting is but one example, similar statements could be made about any other industry or activity – ultimately, the salaries of those involved are paid for by us, whether as customers or taxpayers, and the argument that we have a more direct interest in the salaries of those paid for by one particular method stems from ideology rather than logic.  It starts from the underlying assumption that the public sector is somehow a ‘burden’ rather than an asset, and it’s disappointing, to say the least, to see Corbyn effectively starting from the same viewpoint.

Who's really overpaid?

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It’s unclear whether the Chancellor actually used the word ‘overpaid’ in relation to the salaries of public sector employees, but there’s a lot less doubt that he and many of his Tory colleagues really do believe it to be true.  (At least, they believe it to be true of some public sector workers – as I understand it, Ministers and MPs are also public sector workers, and I’ve never heard any Tory suggesting that they are overpaid.)  I’m more interested, though, in how they have reached this conclusion.

It seems to be based on a very simplistic comparison of public and private sector average earnings, as though the mere fact of a difference between the two means that one group are ‘overpaid’.  I’m not convinced that it is based on any sort of like-for-like comparison, and it’s worth bearing in mind that decades of Labour-Tory government have seen many low-paid public sector jobs outsourced to the private sector.  In simple mathematical terms, moving low-paid employees from the public sector to the private sector increases the average salary in the former and decreases it in the latter.  That tells us nothing about the relative value of either.

Even supposing that the comparison is properly conducted and compares work of ‘equal value’ (a phrase which itself could be the subject of extensive debate), the mere appearance of a difference in averages is as likely to mean that one group are underpaid as that the other are overpaid.  It all comes down to one’s perspective.  And that question of perspective is key – from the Tory perspective (with the obvious exception of work done by really important public sector workers like Ministers and MPs, i.e. themselves) the value of work in the public sector is inherently lower than the value of work in the private sector.  That’s not about assessing value added, or contribution made to society or the economy, it’s about a simplistic axiomatic belief that work done in the public sector is a bad thing per se.

More generally, some of the other comments made expose a belief that salaries should be determined with no regard to the cost of living or the needs of employees but solely on the basis of any recruitment difficulties.  From that viewpoint, if there are no difficulties recruiting enough people to do the job, then there is no need for any salary increase, regardless of whether the living standards of those recruited, as well as those already doing the job, are falling year on year.  (Again, this rule doesn’t apply to themselves, whose salaries obviously need to be increased regularly – despite the oversupply of willing candidates.)  The best bit of all is that they get to call this ‘an economy which works for all’ without being challenged.

Outraged - but at what?

Tweet Two Tory AMs have taken to the media today to express their outrage at the level of redundancy payments being made by Welsh public bodies.  Given that this follows a report by an Assembly Committee, I can understand why the Committee Chair was given such prominence; what was less obvious to me is why the only other AM quoted was another Tory who isn’t even a member of the committee concerned.  There are eight members of the committee, only two of whom are Tories.  Have the others lost their tongues, or could this just possibly be a bit of deliberate selection by the Western Mail?

What the report left me less than clear about is what exactly the AMs concerned – all of them, not just the Tories – think should change here.  Drawing attention to apparently large figures to attract headlines is easy.  Encouraging others to feel equally outraged is equally easy.  But what is the actual problem, and what solution are they offering?

Presumably, the arrangements for voluntary redundancy were freely negotiated between staff and employees – are the AMs arguing that the Welsh Government, or the Assembly through legislation, should interfere with or in some way constrain the rights of either or both parties to negotiate such a scheme?

The report particularly focuses on the payments being made to higher paid staff, but any scheme which bases the size of redundancy payments on salary and length of service will inevitably favour higher-paid staff.  Are the AMs suggesting that long-serving higher-paid staff should be excluded from the schemes, or made subject to some other, less generous scheme?

Maybe they’re suggesting that there’s nothing wrong with the schemes, or with the selection of the people for redundancy, but that the way in which the schemes have been applied has been over-generous.

Or perhaps they’re suggesting that the staff concerned should not have been made redundant at all.  They might be right on that, in some cases at least, but that would sit strangely with a position where AMs of all parties are also calling for ‘greater efficiency’ and ‘reduced management overheads’.  I’m sure that some of the same people have also criticised public bodies for keeping senior people on the payroll even after their roles had been abolished, although I can’t immediately trace the press reports from the time.

It looks like just another part of a continued overall assault on the public sector and those who work in it.  That wouldn’t be at all unexpected from the Tories; what is rather less expected is that is that all the other parties who’ve signed up to the report are so keen to join in.

Most organisations find from time to time that their requirements have changed and that there is an impact on the numbers and type of staff employed.  The point of redundancy schemes is that they aim to ease the transition and maintain the goodwill of those affected by change.  Under almost any scheme imaginable, those with the highest salary and the longest service are likely to receive the highest pay-outs.  That is a feature, rather than a flaw, in the process.

I’m no fan of the size of the pay differential between the highest and lowest paid staff in organisations, whether in the public or the private sector.  But merely criticising the numbers of pounds attached to the outcome of processes based on that differential looks like simple headline-chasing rather than addressing the underlying unfairness and inequality.

Auditing and re-auditing

Tweet All of those involved in spending public money have a responsibility for ensuring that it is spent cost effectively and in accordance with the organisations' agreed aims and objectives.  That is as it should be, and it means that all public bodies have agreed internal and external audit processes to verify that it actually happens.

Sometimes, however, the fragmented nature of Wales’ governmental structures means that the same activities can, effectively, be audited multiple times at multiple levels.  European funding is one example which leaps to mind.

The EU of course has its own processes for verifying that money has been spent in accordance with the terms of any grants given.  And that includes the money coming to Wales under the Convergence scheme.

As a result of an attempt by the One Wales government to appear to be more strategic in its approach – which seems to have convinced the ministers but I doubt that they convinced anyone else – an extra layer of funding 'bodies' or consortia was effectively introduced; and the Welsh government audits the way the money it allocates to those funding bodies is spent.

Those bodies in turn audit the way in which the money is spent by the bodies to which it is allocated by them.  Many of those are local authorities, who again have their own audit processes.

So some European funding is being audited at least four times as it passes through different levels of public authority.  That inevitably means that less money and effort are spent on the direct activities concerned.  Even if the audit costs come out of “other” funding rather than out of the grant funding itself, it still means that money is being used to check what is being done and how rather than actually doing something.

At each level, the argument is the same – “we’re dealing with public money, and have to demonstrate that the doing it properly” – and each level has to assemble, collate, and file its evidence of what has actually been done and how.

Now if “Public Sector Wales” was a single unified structure, would we still want or need to audit the same things several times at different levels or would a unified body have just a single set of audit processes?  Could we – and would we – be able to divert more resources into doing things instead of checking up on what other people are doing?

I’m not arguing here for creating a unified structure for the Welsh public services (although the idea is not without some merit).  There is, though, an argument for looking at a single unified audit structure and process for the Welsh public sector, which means that any activity is only subject to a single audit, and that other bodies then accept the veracity of what they’re being told rather than re-check.  Excessive trust can certainly bring problems of its own; but excessive distrust is costing us time and money which could be more usefully deployed elsewhere.

Fiddling at the fringes

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According to this story yesterday, job losses in the Welsh public sector could be up to 26,000, and each job loss in the public sector could be matched by a job loss in the private sector, pushing the total cost to the Welsh economy up to around £3.65 billion.  I assume that to be an annual figure, although it wasn’t stated as such, and nor was there much by way of clear justification of any of the other figures.  I’m not sure how confident we can be, as a result, in the precise figures, but there are some key general points that do emerge.

The first is that cutting spending in the public sector is not neutral in its effect on private sector employment.  There is a direct knock-on effect as the public sector places fewer contracts and buys fewer goods and services.  It’s a relationship which should be obvious, really, and I don’t understand why those who are so keen to cut the public sector quickly and deeply don’t understand that relationship. 

The result is that, even if we assume that the private sector is going to create jobs to take up the pool of labour created by public sector cuts, the total number of jobs needed is much higher than simply those cut from the public sector.  And that’s just to stand still, without doing anything about the high levels of unemployment which were there to start with.

The second thing that struck me about the report was the quote from the IoD representative, who claimed that “the private sector was doing its best to create jobs to compensate for public sector cuts”.  I’m not convinced about that.  For how many organisations in the private sector does the question of ‘creating jobs’ feature in the mission statement, strategy, or objectives?  Not many, I suspect. 

Private companies exist to make money for shareholders, not to employ staff, and part of the reason that the economic system is badly broken is that there has been an obsession with ‘efficiency’ as companies try to produce more goods and services more cheaply – generally for less effort using fewer employees.  Whilst it’s true that the expansion of private companies can create jobs, that’s a side-effect – it’s not the aim.  Suggesting otherwise is mere spin.

The third point is the repetition of the canard that the problem with the Welsh economy is that we are “over-reliant on the public sector”.  That’s an ideological belief rather than a statement of fact.  There is no magic number for the percentage of the economy which belongs in one sector or the other, and it really doesn’t matter, in terms of GVA, whether a particular activity is carried out by the private sector, by the public sector, or by the private sector as a contractor to the public sector. 

(I’d accept that there are questions about whether the public sector has historically been as ‘efficient’ as the private sector.  That’s a subject for another day, but the point is that there really is no inherent reason why the public sector should be any less productive or effective than the private sector.  And there have been, in the past, plenty of examples of profitable businesses in the public sector – until they were sold off.) 

Who owns enterprises is irrelevant from a GVA perspective, but we’re stuck in the Thatcherite mode of believing that only private profit can drive an economy, and that the state should only concern itself with the provision of a limited range of services.  It’s a paradigm which patently isn’t working, yet governments and oppositions alike only offer us more of the same.

On the same page as that story was the report about Cameron stating that “getting debt under control is harder than envisaged…”.  The only thing that surprises me is that he or anyone else would be in any way surprised at that.  Increasing the numbers of unemployed people reduces tax revenue and increases benefit expenditure, leading to the government needing to borrow just as much as if they had stuck to Labour’s plans.  They’re effectively just spending a similar amount of money in a different way.

Labour seem to take some satisfaction from that, but they really shouldn’t.  The difference between the two parties' approaches is little more than fiddling at the fringes.  £6billion may sound like a lot of money, but it’s really neither here nor there in the grand scheme of things.  But within the current paradigm, fiddling at the fringes is the best we’re likely to be offered by conventional political parties.  None of them is offering a real alternative.

False economies

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This story in today’s Western Mail neatly highlights one way in which attempts to cut costs in the short term can backfire and lead to cost increases in the long term.  And whilst this may be an extreme example, I’ve seen other similar cases before.  The public sector is particularly prone to this problem, in its striving to achieve – and demonstrate – open competition and value for money.

I’m not sure that I entirely accept the figures quoted in this example, to be honest.  I find it hard to believe that each of 30 different companies would really decide, individually and separately, to spend £3,000 on bidding for a contract worth only £20,000, knowing that price was a key element in winning.  Spending 15% of the maximum total revenue value of a contract on the sales process looks excessive to me.  The only sensible decision for a company faced with that level of cost and competition for such a small contract is to qualify themselves out and decide not to bid.

And that’s the first way in which an excessively costly pre-sales process can actually push prices up – some of the more competitive and cost-conscious companies will simply decide not to bid.

If we take the figures as correct however, then presumably the procurer – in this case an unnamed local authority – might argue that the £90,000 in costs incurred by bidders isn’t their problem.  They’ve secured the best possible deal for their own authority, and that’s the beginning and end of their responsibility.  It’s a short-sighted viewpoint. 

Every company which spent £3,000 on an unsuccessful bid will be looking to recoup that sum on the business it does win; those pre-sales costs are thus effectively factored in to its prices.  And if they are going to lose 29 out of every 30 bids they submit, that’s an awful lot of factoring in.

It’s also the second way in which open tendering for small contracts can push overall prices up rather than down.

Most companies tendering for business should be expecting to win 1 in 3, or at very worst, 1 in 5, of the contracts for which they tender.  Any lower than that, and their pre-sales costs will start to make them uncompetitive.  A wise public sector procurement process which was serious about wanting real, long-term, value for money would recognise that.  If the rules to which public bodies are working are forcing, or even encouraging, the sort of approach highlighted by this article then they need to be changed.

Pension reform is inevitable

Tweet The recommendation to end final salary pension schemes in the public sector can come as a surprise to no-one. If there is any element of surprise, it’s that it didn’t happen sooner; after all it was the previous government which presided over the closure of such schemes in large areas of the private sector. Indeed, it was a decision taken by Gordon Brown early on in his chancellorship which proved to be the final straw for so many schemes, and the public sector is no more immune to that decision than was the private sector.

Removing the tax exemptions from pension funds, and doing so suddenly with no transition period, raised billions of pounds in extra revenue for the then government. It also completely undermined the careful financial planning of pension fund managers. Coupled with diminishing returns, increasing longevity, and the reluctance of both employers and employees to pay more into their pension funds, something had to give.

That is not to say that I disagree fundamentally with Brown’s decision – in principle, he was simply ending a tax break which disproportionately benefited the better off. But it didn’t only benefit the better off, and, as ever, it is not the better off who will lose most in the end. His mistake, I feel, was in not giving notice and phasing the change in so that employers, employees, and pension fund managers had the time to make more gradual changes to ensure that schemes remained viable.

Reform is inevitable. It doesn’t have to be the simple abolition of defined benefit schemes, although I suspect that is the natural tendency of the present government. Higher contributions probably are inevitable, and there is room for debate about how much of that is paid by the employers and how much by the employees – and both sides need to recognise that proper funding of pensions is part of the total remuneration package of staff, and treat it as such. It’s not just some sort of ‘overhead’ which can be arbitrarily cut.

Even worse than the situation with funded pension schemes, of course, is the crazy situation of certain schemes – such as the police and fire service – where pensions are not separately funded, but paid for out of current revenue. This is madness, and the situation can only get worse. Putting it right by moving to a proper funded scheme will be costly, but the longer it’s left, the more costly it will get.

Sharing out the rewards

Tweet I’m not sure that I’m really terribly worried about the fact that there are thousands of people in the public sector paid more than the Prime Minister. Superficially it may seem odd that there should be any, but it’s nothing new; senior civil servants have long been paid more than their political bosses.

It’s very often the people working in our public services, rather than the politicians, who have the real expertise. Although there are politicians who have detailed knowledge and expertise in a range of fields, the only formal ‘qualification’ that they need is the ability to persuade people to vote for them. Or perhaps more accurately, get themselves selected where people are going to vote for their party anyway.

I don’t see anything intrinsically wrong with paying experts more than politicians; so the real question for me isn’t how many people are being paid more than the PM, it’s whether they have the relevant expertise and skill to justify their rewards.

The element of the story which interested me more was the comments by Francis Maude. He said that it should not be necessary to offer "stupendous amounts" of money in the public sector, and went on to add:

"You can square the circle of having really good people not on telephone number salaries and massive built-in bonuses. That public service ethos is very important. People will come and work in a public sector for salaries that aren't competitive in a private sector sense."

Up to a point, I agree with him. People who are committed to the ethos of the organisations for which they work, or the services which they are providing, will not necessarily be forever seeking the highest possible level of personal rewards. But what does that say about the private sector?

Are the high rewards of some therefore correspondingly justified by their lack of commitment to what they are doing? Is it right that the highest rewards go to those who place their own personal acquisitiveness above the wider needs of society?

Maude seems to be saying that the most selfless amongst the most able should reap the lowest rewards, whilst the highest rewards go to the most selfish, even if, in pursuit of their own interests, their actions are directly detrimental to the interests of the majority.

At its heart, it's a statement of an ideological position about the nature of human society, where resources are distributed on the basis of competition, but it doesn’t fit my own view of what attributes ought to attract reward. And it is certainly not an approach based on any evaluation of the contribution people make.

Who generates wealth?

Tweet It's not actually a very easy question to answer. Marx took three very thick volumes (well, two extraordinarily thick and one ordinarily thick) to try and answer it, and having waded through it (turgid, to say the least) when I was still at school, I've never been entirely certain that he succeeded.

The common belief seems to be that the private sector creates wealth whilst the public sector merely uses (or even worse, destroys) that wealth. That's an oversimplistic assertion which needs to be challenged more robustly than usually happens, not least because it's an assertion which is a factor in the round of cuts we're about to suffer.

Firstly, we have a whole host of people in Wales (myself included) who work in the private sector for largely public sector clients. Does that make us wealth creators or not? And if I did exactly the same job for a salary in the public sector, would that change my status?

Secondly, the government recently effectively nationalised some banks. Does that mean that they moved from the private sector into the public sector? Does it change their status as wealth creators?

Two simple examples which show that it's actually a rather more complex question than it can sometimes appear.

The hang-up over the relative size of the public and private sectors is another one of those hidden ideological differences. There are a number of reasons why the private sector may do some things better or more efficiently that the public sector, but it ain't necessarily so. And there's no reason why wealth cannot be created by public sector bodies and enterprises.

We'd be better off discussing that we want to achieve and how than getting hung up on arguments about the relative size of economic sectors.

Inputs and Outputs

Tweet I worked for a boss once who gave me a very simple definition of productivity. It is, he said, output divided by input. The more output you get from a given input, the more productive you are.

Then there was another boss who told me that I made my job look really easy. I took it as a tremendous compliment and thanked him. He probably thought that I was compounding my sins with sarcasm - because with the benefit of hindsight, I came to realise that it was one of the most stinging criticisms he could make.

The company concerned had a strong culture of 'presenteeism'. Turning up after the boss or going home before him was a big no-no. What I was supposed to do, apparently, was work much longer hours, achieve less, and complain loudly about being overworked. Only then could they be certain that they were getting the most out of me. (And I've subsequently discovered in other contexts that doing less and complaining more generally leads to a higher level of recognition.)

I exaggerate – but only a little. There are far too many organisations which think that sweating their assets means getting the maximum input from them, rather than the maximum output. It's a deeply-ingrained culture, which is leading to higher and higher levels of stress-related absences. (It's also part of the rationale for the opposition of some people to things like the working hours directive.)

When the government talk about saving money in the public sector by not filling jobs (or by getting one person to do the same job in more than one council, as the Local Government Minister suggested this week) it can sound, superficially, like an easy answer. But unless the total workload reduces, it simply means that the individual workload goes up, and those left must do more to fill the gap. At a macro (organisational) level, that may well look like better efficiency or productivity; but at a micro (individual) level it's likely to result in the individuals having to work significantly longer hours for no gain in personal productivity.

Is that really the basis on which we want to run our public services?

Let's have proper analysis, not ridicule

Tweet Yesterday's Sunday Times ran another of their fairly regular articles highlighting what they refer to as 'non-jobs' and 'waste' in the public sector. It was a large story – occupying a whole page – but it left me a little cold.

Picking on ridiculous-sounding job titles (and there are certainly some which easily fit that description!) makes for an easy story, but the article made no real effort to go behind the ridicule and seriously discover whether the jobs are wasteful or not.

To pick on just one example of their non-jobs – a "city events and international links officer" - I would have liked to know the answer to questions such as whether the events organised generate additional visits (and therefore spending) in the town or not. Is there, in short a net gain to the local residents? Without asking that sort of question, how can anyone form a balanced judgement?

One of the examples of wasteful expenditure they quote is the refurbishment of offices for the National Audit Office. The cost per head of furnishings certainly looks excessive to me, and the talk of marble flooring and leather sofas makes one wonder about value for money. But for me to make a proper judgement, I'd like to have known how suitable the offices were before the refurbishment - did they, for instance, comply with relevant legislation? Do we expect staff to work in poor conditions, just because they are in the public sector? I'd also have liked to know what the alternatives were, and how much they would have cost.

I would never argue that there isn't waste in the public sector, nor that there are no non-jobs which we could easily do without. It may even be that every single example quoted in the article fits into that category. But there wasn't enough information to reach that conclusion, and it ended up being just another 'bash the public sector' piece. In this case, it's the media leading the charge - but there seem to be plenty of politicans equally happy to seek a quick headline on a simlar basis.

People in Wales working in the public sector are in for a tough time, with jobs likely to go. They deserve to have their situation considered properly and thoughtfully during that process, rather than be subjected to ridicule and abuse purely on the basis of who pays their salaries.

What are we really missing?

Tweet There are a number of basic and very important facts in today's front page story in the Western Mail. There are also a few assertions which are not facts and which need to be challenged. And the headline is a complete non-sequitur.

The headline, like much of the story, seems to be based on the assumption that high earners and wealth creators are almost interchangeable terms. They are not.

Certainly, there are high-earning entrepreneurs who do create wealth, but not all high earners fall into that category. And low-earners can create wealth as well.

There are other high earners who accumulate wealth, mostly by redistributing it from other people into their own bank accounts. Then there were the high earners in the banks and hedge funds who managed to destroy a lot of our wealth by their actions. And finally there are high earners working in the public services. More of any of these might not actually be the answer to anything.

The other myth which needs to be challenged is the idea that becoming wealthy is the same as creating wealth. It is not necessarily thus.

Wales certainly does need to create wealth, in the sense of increasing our overall collective wealth and our levels of GDP per head. That doesn't necessarily involve ever greater levels of inequality, though, and to suggest that it does has more to do with ideology than economics, as does the underlying assumption that 'becoming personally wealthy' is the only driver of economic activity.

The fact that Wales has a comparatively low level of income inequality is actually something which I welcome; the gross levels of inequality which permeate the world in general are a major part of the world's problems, not part of the solution.

If we are to solve Wales' undoubted economic problems, we need to make sure that we understand what they are. A lack of billionaires isn't one of them.

Two legs, four legs

Tweet Around a quarter of the workforce in Wales is directly employed in the public sector. Nobody doubts that cuts in public expenditure will reduce the number employed in the sector, although by how many is still an open question. It would be a mistake to assume that the private sector will somehow 'pick up the slack'. It would also be a mistake to assume that the private sector will be immune to public sector cuts. It's not always straightforward to differentiate between the two sectors.

As an example, I work freelance through a limited company which I use to invoice customers, pay my own suppliers, and pay myself a regular salary out of irregular income. Very private sector. But a lot of my work comes from the public sector.

Sometimes, I get work passed on from other companies which have sold more services than they are able to supply in-house. Those companies are also very much in the private sector – but an awful lot of the end customers are in the public sector.

It's one small illustration, but there are many thousands of employees in Wales who appear to be working in the private sector but who are actually heavily dependent on public expenditure for their livelihood.

My point is two-fold. Firstly, if anyone working for a private company is sitting there thinking that public sector cutbacks will only affect other people's jobs, they may well be deluding themselves. And secondly, we need a better understanding of the complex relationship that exists between sectors in our economy, rather then the Public Bad, Private Good mantra which many seem happy to chant.

Exporting jobs

Tweet It's not often that spam e-mails attract my interest, but one I received yesterday did. It was advertising this event, a conference to help the private sector to 'Prepare Now for the Coalition Government’s Significant Push on Outsourcing'. The e-mail also said that the event "will examine various outsourcing models (including off-shoring)".

I know a little about outsourcing. I found myself 'outsourced' in 1996, and then sat on the other side of the fence when I went on to manage parts of transition projects, as my new employers helped other companies to 'outsource' their IT in our direction.

In theory, the process allows organisations to concentrate on their core business – the bit that they're allegedly best at - and let experts in other fields take over the running of the rest. In theory, it allows the companies to which work is outsourced to gain benefits from economies of scale as they combine operations from a number of different organisations into larger teams, and share expertise. And, again in theory, that allows them to 'share' those savings with the outsourcing organisation.

The practice doesn't always live up to the theory of course. The companies taking on the work and staff, unsurprisingly, have more experience in drawing up the contracts and service level agreements than do their customers. And once the service to be provided is tightly defined, it's not unknown for the customer to find that 'contract variations' are expensive animals.

It's not going too far to suggest that, sometimes, it's the contract variations which make all the profit, after the base contract has been sold as a 'loss leader'. Such variations also make it difficult to know whether the original employer has actually saved money or not - they've often paid less for the defined service, but more by the time the 'extras' are added in. Whether there are real 'savings' often depends on how the numbers are presented – but I suppose that is what bean-counters are for.

There are other ways in which the contractors can squeeze profit out of the situation as well. One is by working the employees harder – more hours for no more pay, for example - and another is by worsening their terms and conditions. The second is supposed to be prevented by TUPE regulations, but staff wastage over time combined with new recruitment can reduce the average staff cost without breaking TUPE rules. And TUPE rules themselves are not as insurmountable as some believe.

The other aspect of all this is 'off-shoring'. It means taking a service currently provided by staff in the UK, and transferring it to another country, where labour costs are lower. There's no doubt that there are direct savings to the customer organisation and increased profits for the contracting organisation - but what about the wider economic questions?

If the staff made redundant are snapped up by other employers at similar rates of pay to those they previously enjoyed, then there can be an overall plus to the UK economy. But if they end up claiming JSA, then the 'savings' made by one government department can quite easily turn into increased expenditure for the DWP.

Clearly, there are those in the private sector who believe that government spending cuts will create new opportunities for off-shoring, and they will rush to seize them. But do we really want government to be saving money by exporting public sector jobs, which is effectively what this would mean? It'll be interesting to see how Conservative and Lib Dem apologists explain why this would be in the national interest.

A public service for Wales

Tweet It's easy to attack the salaries of senior public servants – and the public sector seems at times to have a knack of providing easy targets. It's a lot harder to decide how much they really should be paid.

We certainly need competent people at the top of any organisation - but I've had enough experience in both the public and the private sectors to know that high salaries are absolutely no guarantee of competence - in either sector.

Comparisons with the private sector are pretty meaningless in a lot of cases, given the differing nature of the jobs requiring to be done. Whilst there is some movement between the sectors, I struggle to find any real evidence that people are bleeding from the public to the private sector in search of higher salaries. Not that they're not seeking higher salaries; it's more the case that the private sector wouldn't want a lot of them, for reasons to do with relevant experience or culture.

I don't really believe that there would be large numbers of senior public sector jobs left unfilled due to lack of applicants if the level of salaries hadn’t risen so rapidly in recent years. Finding the indians to fill the low-paid jobs has long been a problem, but I'm not aware that there's ever been that much of a problem finding the chiefs.

Yet, for all that, we've seen an almost relentless rise in the salaries of the chiefs in recent years, and the revelations this week about the growth in the number of high paid officials in the Welsh Government are part of that pattern.

One of the reasons given, i.e. so that "senior civil servants working for the Assembly could communicate on equal terms with their counterparts in Whitehall departments" astounded me at first sight. Then I thought about it, and actually, I can quite believe that some of the mandarins in Whitehall would disdain to talk to people on a lower grade than themselves. It quite fits with my perception of a lot that's wrong with the civil service culture in London.

That doesn't mean that increasing the status and salaries of civil servants in Wales is the right response, though! That amounts to an acceptance of the culture and an attempt to fall in with it, instead of challenging it.

Rather than fitting in with outdated status and privilege conscious Whitehall ways of working, Wales would be better off developing a public service structure of our own, encompassing central government, local government, and other public sector bodies such as the health service, and creating a new and different ethos of public service. And, of course, setting the top salaries in line with Welsh needs, rather than slavishly aping London.

Not efficiency at all

Tweet The coverage of, and reaction to, the report of the Auditor General has inevitably concentrated on its headline message about the need to reduce staff in the public sector. The overall conclusion is that the sector somehow needs to deliver more for less.

How practicable is that, in reality? I was interested in the conclusions of the report on the mass of so-called 'efficiency savings' which the government and local councils have claimed to be making over recent years. The key sentence for me was:

"The report has also highlighted concerns that 'efficiency savings' have all too often resulted in cuts to services rather than any real improvement in efficiency."

I can't say that I'm in the least bit surprised. Indeed, it chimes very much with a point I made some time ago. The phrase 'efficiency savings' is one that politicians - of all parties - seem to like. Just like cutting waste or reducing 'red tape' and 'bureaucracy' (or motherhood and apple pie) it's something that no-one can really argue against.

However, the way it is implemented is usually for a budget to be cut and the relevant budget holder told to manage on less. How that is achieved is up to the budget holder, and more often than not, the savings owe more to reducing (or 'redefining' - another good jargon word) the services being provided, rather then delivering them more efficiently.

The Auditor General has bluntly summarised what a lot of us knew already - that an awful lot of public sector 'efficiency savings' are nothing of the sort; they are cuts to the services being provided, just re-labelled to sound like something rather less unpleasant.

Does it matter?

At one level - no, not really. We all know that there is a need to re-evaluate priorities, and some of the savings being made (cutting the grass less often, for instance) are hardly major threats to the quality of life for most of the population. But at another level, I think it does matter. Politicians who pretend that budgets can be cut purely or largely as a result of being 'more efficient' or 'cutting out waste' are being less than honest with the electorate.

Public bodies which simply list all their budget reductions as 'efficiency savings' make it difficult for the public to identify where there are real cuts being made. And it's hard to have a proper discussion about priorities if politicians continue to give the impression that budget cuts can be somehow painless.

It would be nice to think that the report of the Auditor General, in highlighting the transparency of the politicians' cloaks, might usher in a more honest debate about the effect of budget cuts. I won't hold my breath, though.