Gordon Brown, Chancellor and then Prime Minister, made much political capital from labelling all his government’s expenditure “investment” (good, no matter how wasteful and transient), and all opposition proposals for savings “Tory cuts” (bad, no matter how sensible or good for the taxpayer). Unfortunately, Boris Johnson is starting to misuse our language in the same way: the £30 billion defence expenditure announced last month was labelled “investment”. Some of it may be; but the 10,000 extra jobs, hopefully in the armed forces rather than the ministry, are definitely not. Investment means money spent today for benefits in future years; accountants put it in the balance sheet. Otherwise, it is current expenditure, like wages and travelling costs; accountants put that in the profit and
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Gordon Brown, Chancellor and then Prime Minister, made much political capital from labelling all his government’s expenditure “investment” (good, no matter how wasteful and transient), and all opposition proposals for savings “Tory cuts” (bad, no matter how sensible or good for the taxpayer).
Unfortunately, Boris Johnson is starting to misuse our language in the same way: the £30 billion defence expenditure announced last month was labelled “investment”. Some of it may be; but the 10,000 extra jobs, hopefully in the armed forces rather than the ministry, are definitely not. Investment means money spent today for benefits in future years; accountants put it in the balance sheet. Otherwise, it is current expenditure, like wages and travelling costs; accountants put that in the profit and loss, or income and expenditure, account.
Politicians would like us to believe that all their investments of our money are good, i.e. will provide a generous return in due course. Yet many such investments, from the ground nuts scheme to HS2, have been dreadful because the costs wildly exceeded those initially announced. The next government (or two) face the criticism when that reality dawns. By then, the projects are too advanced to stop.
The Private Finance Initiative
1992 saw a further muddying of the water with John Major’s creation of PFI, the Private Finance Initiative. This got around Treasury objections to government expenditure on schools, hospitals and such like by using private sector finance to build them on the never-never. Needless to say, these schemes cost a great deal more than if the Treasury had picked up the bill in the first place. The idea was that the private sector would secure so much better deals than unworldly civil servants, and those savings would outweigh the no-risk profits to the investors. If the investors had been undertaking these projects for themselves, maybe they would have found the savings; but they were spending other people’s money. The Norfolk and Norwich University Hospital is one example: “The private finance initiative (PFI) deal used to build the hospital in 2001 costs around £20m a year, which chief executive Mark Davies previously said left the hospital hamstrung.”
For over 20 years, government departments had no choice but to pay for these projects on the never-never because the Treasury claimed it had no money. But as the Covid pandemic has demonstrated, the Treasury has any amount of moolah when it wishes. According to the National Audit Office (NAO), by 2018 PFI projects to date had a capital value of around £60 billion but they cost £199 billion. The NAO ducked the question of value for money on the grounds that “there is still a lack of data available on the benefits of private finance procurement.” (p.5) The “benefits” are clear enough: the same public assets cost the taxpayer £139 billion due to government incompetence. Ex-investment banker Rishi Sunak knows enough to stop that nonsense.
Parliament must take the rap for this. Three percent of MPs are accountants compared with 11% lawyers, albeit down from the 15% in the 1970s. But you do not have to be a qualified accountant to assess the likely costs and benefits from alternative capital expenditures even if they cannot all be quantified financially. Every new regulation is supposed to include them on the impact assessment and that is all taxpayer value is.
It is much easier for current expenditure. The Arts Council England is a mechanism for allocating the expenditure that (mostly) the Treasury and the Lottery provide to subsidise selected English theatres, galleries and other arts centres – about £500m in total. The Arts Council England bureaucracy helps itself to about £38m (2019/20 annual accounts, note 4c) and passes on what is left. Obviously, some administration and audit are needed but perhaps £8m rather than £38m. Oliver Dowden should ensure that the Arts Council England becomes simply a money channel to give maximum value for the taxpayer while retaining the minimum to fund an efficient allocation process.
Four government departments are essentially also money channels: apart from setting policy and monitoring progress, they contribute little to government beyond sharing out the available funding to the units down the line. They are the Department for Culture, Media and Sport (e.g. the arts and sports councils), the Department for Education (local authorities’ schools and child care), the Ministry of Housing, Communities and Local Government (local authorities) and, arguably, the Ministry of Defence (where the present central procurement system is alleged to cost the taxpayer a great deal more than the armed services themselves would pay on the open market).
Other departments are a mix of two roles — money channel and governing e.g. the Department of Health and Social Care, Business, Energy and Industrial Strategy, the Home Office and Foreign Office (overseas aid). At Health, Matt Hancock has, this summer, been looking at the excess bureaucracy problem.
The higher education example
Some of the money channel thinking applies to universities. Strangely, it is not the Department for Education that devises the policy for this but Alok Sharma’s Business Department, except when it actually is under the DfE. University funding goes through several teaching and research channels when one should suffice.
Further education does, however, come under the DfE and also has half a dozen different funding channels. University Technical Colleges, presumably on the grounds that they have nothing to do with business or industrial strategy, come under the DfE. Unsurprisingly, with no focus on taxpayer value, all but two (of the 58 set up since 2010) have ranged from adequate to disaster.
The government’s whole approach to young people needs to be rationalised from a taxpayer value point of view with the channelling of funds streamlined under the Education Secretary, currently Gavin Williamson.
In essence, the front line of public services (doctors, nurses, police, theatres, armed forces) is the source of value for the taxpayer. Administering the front line and taking care of the money is necessary but does not directly benefit the taxpayer. Government itself is not a public service although someone has to pay for it. So, from the taxpayer’s point of view, value is maximised when the front line delivers what the taxpayer wants and the other Whitehall costs are minimised. Let us focus on achieving that.
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