Friday, 30 April 2010

Its Efficiency, Stupid

A trend in modern election campaigns has been for political parties and their leaders to attempt to outbid one another in terms of how much of taxpayers money they can spend on public services. This trend has been clearly seen in the recent Prime Ministerial debates. However, we seem to get very little said about how well taxpayers money has been used and how this public expenditure is to be paid for.

It is very easy to see examples of where public funds have been used very badly. Just two examples:-

• NHS – between 1997-2007 the NHS had record levels of investment which amounted to some £60 billion. However, while improvements in NHS services were clearly made, data from the ONS indicated that NHS productivity declined by around 1% per annum over the same period.
• Schools – statistics produced by the ONS indicated that while investment in education increased from £27 billion in 1996 to £49.9 billion in 2008 (83% growth) the productivity of state schools only increased by an average of 1 per cent. School productivity last year was only marginally above the level in 1996, according to the data.
These two examples (which amount to a very large proportion of public spending) do not seem to suggest wise use of taxpayers funds and suggest the use of the term “investment” is misleading. Investment usually implies a return on money spent and these two examples do not suggest much of a return on taxpayers money.
If we turn to how public expenditure is to be paid for then in the year just ended (2009/10) the reality is that approximately one pound in every four of public spending has been paid for by government borrowing. In fact national debt has been increasing since 2003 even when our economy was growing. This borrowing will have to be repaid and will be an ongoing burden on our children and grandchildren.
The latest figures on the UK economy indicated that economic growth in the first quarter of the year was a miniscule 0.2% which seems to confirm the view of many of us that economic growth in the UK will be sluggish for many years to come and well below government estimates. It is now recognised by all parties that action must be taken to substantially reduce the size of the UK borrowing requirement and so, in the absence of much economic growth, additional funds for public services will be difficult to come by, to say the least, and any improvements in public services will have to come from efficiency improvements in existing services. However, while politicians are happy to talk about additional public spending than say a lot less about how they will improve public sector efficiency other than identifying “headline” figures for public service efficiency savings without saying how these are to be achieved.
President Clinton was said to have pinned on his wall a notice saying “It’s the economy, stupid”. I suggest that for this election we should all have a notice sating “Its efficiency, stupid”. Fundamentally we either have to find means for improving the efficiency of a vast range of public services OR suffer the consequences of large scale cuts in public services as “efficiency savings”. This search for public sector efficiency should be a key election issue and one which our politicians are failing to talk about.

Tuesday, 13 April 2010

Protecting the NHS from cuts: What do the politicians really mean

As part of their election offerings the major political parties are promising to “protect” the NHS” from the inevitable cuts in public spending that will take place over the next 4-5 years. Indeed the Conservatives went as far as to produce a poster with David Cameron promising to “cut the deficit not the NHS”. However, we really need to explore what the parties really mean by the term “protect the NHS” and what exactly this promise will mean for the general public.

For many many years there were constant complaints from the general public and particularly NHS staff that the NHS needed much more funding because it was “underfunded”. To a large extent these demands were met by the Labour Government. In the period 1999-00 to 2007-08 spending on the NHS in England grew on average by 6.4 per cent a year in real terms well in excess of the rate of NHS growth in previous decades and well in excess of the average growth in overall public spending (4%) for the same period. However, a considerable amount of evidence suggests that a significant part of this growth in funding was not used wisely and led to a sustained and substantial reduction in the overall productivity of the NHS. However, much of the growth in funding was used for improving the range of health services and the ease of access to those services.

Unfortunately, life in the NHS does not standstill. Two particular factors mean that the demands for NHS services automatically increase year on year. The first of these is the growing number of elderly people in the population who have larger than average demands for health services and the second is demand for new services which have come about as a consequence of developments in medical science and technology (e.g. new drugs, new equipment etc). It is sometimes suggested that just to meet these increasing demands, the NHS requires annual growth in resources of around 2%. In other words the NHS needs 2% growth in resources per annum just to standstill.


All the main political parties admit that public spending has to be substantially cut in order to reduce the alarming public sector budget deficit even though they may disagree on the pace and scope of those reductions. Thus in promising to “protect the NHS” from such cuts we may rightly ask which of the following interpretations do politicians mean:-

1. High growth - are they going to “protect the NHS” by maintaining spending growth at the high levels achieved in the Blair years. This is clearly not going to happen.
2. Modest growth - financial projections for 2008-09 onwards suggest that growth in NHS funding will be a much more modest 4% per annum. Are they therefore going to “protect the NHS” by maintaining growth at this level which would still mean the NHS would get some growth even after taking account of the impacts of the growing elderly population and medical science developments. This would still be a tall order when overall public spending is falling and other public services may have to suffer yet larger cuts to compensate for this level of protection of NHS funding growth.
3. Standstill - are they going to protect the NHS by giving it a standstill budget (or possibly a very small amount of annual growth) when other public services are having reduced budgets? Given the impact of the elderly population and medical science developments this would imply a substantial real terms cut in NHS funding which could only be compensated for by “efficiency savings” from within the NHS itself. The NHS is already gearing itself up for such efficiency savings but the issue of declining productivity mentioned earlier does not fill one with confidence about this.
4. Reductions - will the NHS be subject to real cuts in funding probably at a lower level than for other public services? Although this might be thought of as protecting the NHS relative to other public services it probably implies an absolute reduction in service levels.

At the end of the day, promising to “protect the NHS” is a silly promise but one which may be swallowed by a gullible voting public. Demands for public services should be treated on merit and the NHS should not be treated as a “special case” or “sacred cow” particularly in the light of the amount of money wasted during the growth period of the Blair years. Thus at the very least we should be asking our politicians to clarify four things:-

• What do you mean by promising to protect the NHS?
• How are your proposed efficiency savings actually going to be realised?
• What would be the impact on other public services of fulfilling your promise to protect the NHS?
• What are you going to do to make sure the NHS uses taxpayer’s money more efficiently?