The big chill, by Mike Thatcher

9 Jul 09
MIKE THATCHER | For some months now, politicians of all hues have been avoiding the trillion-pound question: what would you cut in order to get debt levels down and the public finances back on track?

For some months now, politicians of all hues have been avoiding the trillion-pound question: what would you cut in order to get debt levels down and the public finances back on track?

None has been prepared to answer in a believable or frank way, resorting to the usual demands for greater efficiency and innovation. But, somewhat surprisingly, the political class has been given a lesson in honesty this week from the quangocracy.

Writing in the Observer, the chief executive of the Audit Commission claimed that cuts were inevitable and should be across the board, with no exception for health and education. Steve Bundred then went further by suggesting that freezing public sector pay would be a ‘pain-free way’ of cutting spending.

It was a remarkable contribution to the discussion. One can argue whether a pay freeze would be pain-free – inevitably the public sector unions disagreed – or if it would actually save very much money. But at least Bundred is recognising the severity of the situation and offering radical solutions.

Government and opposition leaders have been less straightforward. The debate in recent days has focused on trimming the power and even culling quangos – Bundred should take note – which is another regular standby for politicians looking for an easy answer to a difficult question.

As former New Labour adviser and education expert Conor Ryan points out on our website (publicfinance.co.uk/pf-blog), wielding the quango axe ‘is a lot harder – and less palatable – than it looks’.

Meanwhile, ministers have been focusing on preventing another financial collapse with the launch of the banking white paper.

However, as Ian Mulheirn suggests opposite, this does not provide much confidence that the regulatory system has been modernised and will not malfunction again.

The tripartite system of oversight – comprising the Bank of England, Financial Services Authority and the Treasury – has been retained, despite clear failings in the run-up to last year’s banking crisis.

A new body, the Council for Financial Stability, will be created, but this too will involve representatives from the same three watchdogs that were found wanting.

Much like the political argy-bargy over cuts and quangos, it falls far short of a root-and-branch rethink. Tinkering around with the old models is unlikely to get us out of the mess that we are currently in.

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