Poisonous public-spending panacea

25 October 2010
It is always dangerous to make predictions, “especially about the future”, as the great US baseball coach Yogi Berra once pointed out. And as you read these words you have an advantage (of sorts) over me. You now know exactly how severe the government cuts set out in the Comprehensive Spending Review are going to be. At the time of writing I remain in not exactly blissful ignorance about them. But this is, as I say, only an advantage of sorts. Fear of pain is bad. Then again, pain is pretty bad, too.Purchasers could be forgiven for looking on at some of the fuss over reduced budgets with a degree of wry amusement. So, finally, everybody in the public sector is going to have to learn how to do more with less. Some of the apparently extravagant procurement decisions of recent years are going to have to come to an end. But forgive me if I don’t join in with the enthusiasm of some of the cutters who predict an uncomfortable but necessary transition to a leaner and healthier economy. I fear that the government will pursue an excessive course of action, and that the measures designed to bring health may make the patient worse. No-one disputes that the UK’s large budget deficit is unsustainable. Reductions in public spending are needed. But, as any good buyer knows, there are always unavoidable consequences to the decision to start spending a lot less. This is perhaps where the biggest delusion at the heart of government policy lies. The suggestion seems to be that simply by cutting off the supply of public spending, private sector activity will be stimulated to pick up. But this supposed neat separation between public and private sectors is highly misleading. The truth is that each depends on the other, rather more than ministers seem to realise. If councils and NHS managers and education authorities are suddenly constrained in their spending plans, it is private sector service providers who will suffer. If benefits are cut then people – consumers – will have less money to spend at private sector businesses. But was there any alternative to this menu of deep cuts? We have been told that we faced a Greek-style meltdown, a complete loss of faith in the UK economy and sterling, and a calamitous economic collapse. Frankly, that seems implausible. The gilts markets – where the government borrows long term to finance the short-term deficit – showed no such signs of panic. Considering the size and scope of the bank bail-out, the deficit was not that unreasonable. That, at least, was the markets’ verdict. So how could all this be managed better? Here the wisdom of smart purchasers could have been used. Procurement is where those tough trade‑offs between price, quality and value have to be made every day. Good purchasers know that you can always spend less. You just have to understand what the implications of that reduced spend are. Did the axe really have to go so deep, so soon? Surely the direction of government policy was more important in this situation than the speed. Michael Portillo told the CIPS annual conference that there was lots of waste to cut, and that this could be done without causing too much damage. Well, we are about to find out if he was right.
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