Two things are a bit odd about all the debate over spending cuts in the last week.
One is that it seems to have been disconnected from the debate about the economy. The cuts are required partly because of the huge banking bail-out, and the abuses that led to that are still going on. Yet that debate seems to be happening in another universe somewhere.
Worse, the BBC seems to have decreed that this is not an issue that might be tackled by encouraging local enterprise – which will require some kind of break-up of the big banks.
Second, and odder, we still seem to be living with the usual Treasury assumption that spending cuts require iron central control. The argument that iron central control is actually incredibly wasteful in practice does not seem yet to have got through.
So here is my contribution to the debate. Not the costs of centralisation – that’s a much longer project – but the costs of the whole edifice of targets, standard, inspections and audits which drive the centralised state. What if we just cut that?
Well, we know, for example, that the total cost of the various standards and auditing agencies was £600 million a year back in 2001, when they had barely begun to create the system which now now so frustrates the effectiveness of public services.
That figure may even have doubled since then. The Audit Commission itself costs just less than £200m, the Commission for Social Care inspection costs £99 million, though that is now being merged with the Healthcare Commission (£67 million) and the Mental Health Act Commission into the new Care Quality Commission (£167m) which began life with an inherited £17.5m IT system with what was described as ‘major malfunctions’. Another £38m is being spent just on transition.
We also know, thanks to accountants Pricewaterhousecoopers, that each local council spends an average of £1.8 million just preparing for an inspection and on showing that they comply with targets – the cost of the effort of collecting figures and reporting back. That is just local authorities.
We don’t know the equivalent costs for health authorities, primary care trusts and police authorities, foundation trusts and other local quangos. But if you add that to the cost of the auditors themselves, and you might get to a figure somewhere between £4-5 billion a year to pay for the basic infrastructure of target compliance.
That is a very conservative estimate, and it is easy to forget what it means in practice inside public service, where we should add in the cost of the time spent on compliance by frontline staff and the extra staff in local authorities or primary care trusts assigned to enforcing each target.
Like the trading standards officers who must subdivide all their visits into 30 different categories which they must report on. Or the police who have – according to systems thinker John Seddon – now passed the point where most of their activity is related to meeting standards and reporting requirements.
Plus their own checks on every action and report to make sure there is no cheating. Or the child protection staff who spend up to 80 per cent of their time in front of computers, doing administration.
The American reform writer, David Osborne, a trenchant critic of command-and-control, estimated in the 1990s that 20 per cent of American government spending is devoted to controlling the other 80 per cent, via armies of auditors and inspectors.
When Vice-President Al Gore led the National Performance Review in 1993, they found that one in three federal employees were there to oversee, control, audit or investigate the other two.
So let’s look at the question another way. About 800,000 new public sector jobs have been added to the payroll in the UK since 1998. If one in five of those are managing, auditing or inspecting at the average cost of a public sector job (£40,000), the cost is £6.4 billion. If it is one in three, then that is £10.6 billion a year, and that is only the new employees.
If you take Professor Michael Power’s estimate that ten per cent of public spending goes on auditing – again that estimate is more than a decade old – it might come to around £50 billion in the UK.
There is some confirmation of this because, if you work it out round the other way, it comes to somewhere around the same figure. The wage bill for one in five of UK public sector staff is around £48 billion.
This is not to suggest that you can magically avoid all this by removing the infrastructure of standards and audit – we need some kind of management, auditing and inspection, after all – but some is definitely going to be avoidable.
So, if we must have major cuts, let’s at least make it revolutionary.