Alex Morton: How Sunak can save £30 billion a year

21 Oct

Alex Morton Head of Policy at the CPS and a former Number Ten Policy Unit Member.

Today, the Office for National Statistics will announce the provisional figures of Government borrowing for the first six months for 2020/21. They will be truly dire. We know because borrowing in the first five months alone were bigger than the previous annual total, and by August this year the national debt was larger than the UK economy, rising by over 10 per cent from 2019/20’s total.

Putting aside the ongoing – and crucial – debate about the nature of lockdown restrictions, it is clear even on the most optimistic forecasts, and with the best decisions, the UK will end the pandemic with a serious debt and deficit problem. Even assuming higher borrowing for years, something must give.

For that reason, the Centre for Policy Studies today publishes the paper Saving £30 billion: Nine Simple Steps, which discusses, on rough but plausible estimates, nine savings to cut £30 billion a year from the Government’s spending without jeopardising frontline services, or asking the politically impossible.

The Government is in the middle of a Spending Review, and we believe that now is the time for proposals to stop the threat of tax rises which will both hit growth and hard-pressed workers, companies and families. None of the savings would impact frontline delivery and none of them ask for MPs to vote through what would be political suicide.

Government efficiency

Despite the arguments made that austerity means no further reduction in spend is possible, we find significant potential savings across a wide range of areas, none of which impact frontline delivery. The first group of savings are thus about making the state more efficient.

  • We analyse the number of Government administrative staff versus the private sector and find initial convergence but significant disparities in reductions in recent years, with the private sector slimming down this group more effectively. We therefore propose benchmarking Government administrative staff totals to the private sector and reducing these in the public sector once a post-Covid recovery gets underway.

We also propose –

  • To abolish some quangos and to bring all quangos under the control of a relevant department. Each department should create a single body to manage HR, marketing, and other administrative functions for all quangos it oversees. This should also make bureaucracies more accountable and improve public sector productivity.
  • Pushing toward greater use of back office function sharing in local government, as occurs between Westminster and Kensington & Chelsea. There is no need for 350 councils to have distinct IT or press or procurement teams. The Housing and Local Government Department should publish data on the administrative costs for each council to push forward action. This should enable many of the savings around unitarisation without the massive political rows.
  • Improving e-procurement and data sharing, noting that other countries such as South Korea or Estonia have significantly improved productivity and reduced costs through this route, and agreeing with critics of the existing Government procurement systems.
  • Since the state owns land and property worth a staggering £1 trillion, we call for an inventory of all non-operational land followed by a sale and leaseback model across all this non-operational land, rather than past Spending Review’s top down land targets for each department. Just selling off the Network Rail arches gained £1.4 billion while boosting growth, and Covid-19 has changed office work patterns, so this should raise serious sums.

Ensuring a fair state

The second group of savings are about ensuring that the state does not give excessively to one or other group, and create a state focused on the core tasks of government. We propose:

  • Replacing the triple lock with a dual lock, which still gives pensioners the best of inflation or wage growth, and removing the tax anomaly of the Winter Fuel Payment and just treating as taxable income like other benefits.
  • Sell and replace high-value council properties when they fall vacant with a less expensive nearby equivalent. It is deeply unfair there are million-pound council properties in many parts of London and this is not what making sure people have a roof over their heads is about. This doesn’t even mean anyone has to move – just no more new expensive tenancies.
  • Roll child benefit into the child tax credit system with a further taper that reduces the top 10 per cent or so of households (essentially capturing those with two fairly high earners to bring them into line with a single high earner household).
  • Cut overseas aid to 0.5 per cent, still placing the UK in the top 10 donor countries and moving on from 2005 when this target was set at 0.7 per cent at a time when India and even China were legitimate UK aid recipients, not emerging economic superpowers. It would be both immoral and politically toxic to make the other savings while protecting a budget overseas that has nearly doubled in recent years.

Taken together, these savings would help bring down the deficit to an acceptable level. They involve some hard decisions and confrontation of vested interests, but not impossible ones, and all should pass through the Commons, even in its new rebellious state. The alternative, ever higher borrowing, or even worse, ever higher taxes, is unthinkable if we are to achieve what the CPS believes the number one priority post-pandemic must be – restoring sustained economic growth. We call on the Government to investigate and takes forward these ideas as part of the Spending Review process.

Alex Morton: How Sunak can save £30 billion a year

21 Oct

Alex Morton Head of Policy at the CPS and a former Number Ten Policy Unit Member.

Today, the Office for National Statistics will announce the provisional figures of Government borrowing for the first six months for 2020/21. They will be truly dire. We know because borrowing in the first five months alone were bigger than the previous annual total, and by August this year the national debt was larger than the UK economy, rising by over 10 per cent from 2019/20’s total.

Putting aside the ongoing – and crucial – debate about the nature of lockdown restrictions, it is clear even on the most optimistic forecasts, and with the best decisions, the UK will end the pandemic with a serious debt and deficit problem. Even assuming higher borrowing for years, something must give.

For that reason, the Centre for Policy Studies today publishes the paper Saving £30 billion: Nine Simple Steps, which discusses, on rough but plausible estimates, nine savings to cut £30 billion a year from the Government’s spending without jeopardising frontline services, or asking the politically impossible.

The Government is in the middle of a Spending Review, and we believe that now is the time for proposals to stop the threat of tax rises which will both hit growth and hard-pressed workers, companies and families. None of the savings would impact frontline delivery and none of them ask for MPs to vote through what would be political suicide.

Government efficiency

Despite the arguments made that austerity means no further reduction in spend is possible, we find significant potential savings across a wide range of areas, none of which impact frontline delivery. The first group of savings are thus about making the state more efficient.

  • We analyse the number of Government administrative staff versus the private sector and find initial convergence but significant disparities in reductions in recent years, with the private sector slimming down this group more effectively. We therefore propose benchmarking Government administrative staff totals to the private sector and reducing these in the public sector once a post-Covid recovery gets underway.

We also propose –

  • To abolish some quangos and to bring all quangos under the control of a relevant department. Each department should create a single body to manage HR, marketing, and other administrative functions for all quangos it oversees. This should also make bureaucracies more accountable and improve public sector productivity.
  • Pushing toward greater use of back office function sharing in local government, as occurs between Westminster and Kensington & Chelsea. There is no need for 350 councils to have distinct IT or press or procurement teams. The Housing and Local Government Department should publish data on the administrative costs for each council to push forward action. This should enable many of the savings around unitarisation without the massive political rows.
  • Improving e-procurement and data sharing, noting that other countries such as South Korea or Estonia have significantly improved productivity and reduced costs through this route, and agreeing with critics of the existing Government procurement systems.
  • Since the state owns land and property worth a staggering £1 trillion, we call for an inventory of all non-operational land followed by a sale and leaseback model across all this non-operational land, rather than past Spending Review’s top down land targets for each department. Just selling off the Network Rail arches gained £1.4 billion while boosting growth, and Covid-19 has changed office work patterns, so this should raise serious sums.

Ensuring a fair state

The second group of savings are about ensuring that the state does not give excessively to one or other group, and create a state focused on the core tasks of government. We propose:

  • Replacing the triple lock with a dual lock, which still gives pensioners the best of inflation or wage growth, and removing the tax anomaly of the Winter Fuel Payment and just treating as taxable income like other benefits.
  • Sell and replace high-value council properties when they fall vacant with a less expensive nearby equivalent. It is deeply unfair there are million-pound council properties in many parts of London and this is not what making sure people have a roof over their heads is about. This doesn’t even mean anyone has to move – just no more new expensive tenancies.
  • Roll child benefit into the child tax credit system with a further taper that reduces the top 10 per cent or so of households (essentially capturing those with two fairly high earners to bring them into line with a single high earner household).
  • Cut overseas aid to 0.5 per cent, still placing the UK in the top 10 donor countries and moving on from 2005 when this target was set at 0.7 per cent at a time when India and even China were legitimate UK aid recipients, not emerging economic superpowers. It would be both immoral and politically toxic to make the other savings while protecting a budget overseas that has nearly doubled in recent years.

Taken together, these savings would help bring down the deficit to an acceptable level. They involve some hard decisions and confrontation of vested interests, but not impossible ones, and all should pass through the Commons, even in its new rebellious state. The alternative, ever higher borrowing, or even worse, ever higher taxes, is unthinkable if we are to achieve what the CPS believes the number one priority post-pandemic must be – restoring sustained economic growth. We call on the Government to investigate and takes forward these ideas as part of the Spending Review process.

Gareth Davies: A new British Development Bank could drive our national recovery

2 Oct

Gareth Davies is the Conservative MP for Grantham and Stamford.

Much has rightly been said about the perilous economic situation facing our country as a result of this dreadful Coronavirus. But talk to people in our towns and cities across the regions and they will tell you the pandemic has merely amplified economic problems that were there already. For decades our regions have been hampered by systematic underinvestment in businesses, infrastructure and transport links that have held back opportunity for large parts of the electorate. Last December, those voters demanded change.

They are right to do so. The UK faces an infrastructure gap of £8 billion a year, according to McKinsey, and a lack of infrastructure investment is one of the reasons we suffer poor productivity relative to our global competitors. Productivity issues are even worse internally – regional disparities in investment have led to disparities in productivity with average gross value added per hour worked in the UK 35 per cent below that of London and the South East.

We need a long-term strategy to boost infrastructure investment, stimulate regional development and leverage much greater levels of private capital in the process. Today I have published a plan to restructure our investments to target the regions and help mobilise billions of new private savings and investment to reduce the burden on the Treasury and the taxpayer at a time of great challenge.

Together with the think tank Onward, I am proposing the creation of a new British Development Bank with a specific mandate to invest billions in the regions. The UK has never had such an independent institution despite the model being a tremendous success in other countries around the world.

Germany pioneered the use of development banks with their own organisation called KFW. After the Cold War it was critical for “levelling up” the previously occupied East Germany. Since 1991 one out of every ten euros invested in East Germany has come from KFW and the inequality gap between East and West reduced significantly – this is in contrast to the widening inequality between England’s North and South.

We have long needed to rethink how and what we build in this country. We all know the history of PFI schemes which failed to demonstrate value for money for the taxpayer. Now is our opportunity to put in place a dedicated institution of genuine finance experts to drive and mobilise funding.

Infrastructure helps an economy to grow. The investment and construction of new assets creates additional jobs and supports supply chains. The eventual infrastructure supports productivity by connecting people whether it is a new train line, better broadband or more energy. Infrastructure makes our country a more attractive place to live and do business, and by reducing transaction costs makes Britain a more competitive player in the global economy.

Therefore, our pervasively poor quality, low stock infrastructure is a serious issue if we are going to level up and boost economic growth.

However, I entirely sympathise with the dilemma our Treasury faces, infrastructure is the one thing we need to grow our way out of the crisis and truly level up and yet it becomes more and more difficult to pay for as every day passes. This is why we must mobilise private capital to supplement public spending.

A British Development Bank will do three critical things. First, it will provide long-term targeted financing by project, business or region to ensure that investment is ring-fenced to where it is most needed. Second, it will mobilise private savings and investments by a multiple of four, meaning that for every £1 of government spend, £4 of private capital spend will be unlocked. Thirdly, it will provide “counter-cyclical” investment so that in times of economic downturn when mainstream banks’ risk appetite dries up, required funding flows will be maintained.

This new institution would be modelled on Germany’s KFW. To do this, we would move the existing British Business Bank (BBB) and the Commonwealth Development Corporation (CDC) under the one umbrella organisation of the British Development Bank to bring about huge efficiencies, but critically, the combined assets of these two organisations (which is several billion pounds) would enable the Development Bank to issue its own targeted infrastructure bonds. The domestic work of BBB financing SMEs would be bolstered by an increase in assets, as would the reach of our overseas schemes under CDC.

Backed by the Treasury, a Development Bank could borrow at very low rates to fund and encourage infrastructure investment the private sector would not otherwise build. The bank could also issue “guarantees” or could buy shares in infrastructure projects, taking the risks of infrastructure construction the private sector is unwilling to take.

This Government has an opportunity to not only set out a long term plan for levelling up in the upcoming National Infrastructure Strategy, it has the chance to put in place a financial institution that will serve the needs of our regions for decades to come regardless of who holds the keys to Number 10.

Gareth Davies: A new British Development Bank could drive our national recovery

2 Oct

Gareth Davies is the Conservative MP for Grantham and Stamford.

Much has rightly been said about the perilous economic situation facing our country as a result of this dreadful Coronavirus. But talk to people in our towns and cities across the regions and they will tell you the pandemic has merely amplified economic problems that were there already. For decades our regions have been hampered by systematic underinvestment in businesses, infrastructure and transport links that have held back opportunity for large parts of the electorate. Last December, those voters demanded change.

They are right to do so. The UK faces an infrastructure gap of £8 billion a year, according to McKinsey, and a lack of infrastructure investment is one of the reasons we suffer poor productivity relative to our global competitors. Productivity issues are even worse internally – regional disparities in investment have led to disparities in productivity with average gross value added per hour worked in the UK 35 per cent below that of London and the South East.

We need a long-term strategy to boost infrastructure investment, stimulate regional development and leverage much greater levels of private capital in the process. Today I have published a plan to restructure our investments to target the regions and help mobilise billions of new private savings and investment to reduce the burden on the Treasury and the taxpayer at a time of great challenge.

Together with the think tank Onward, I am proposing the creation of a new British Development Bank with a specific mandate to invest billions in the regions. The UK has never had such an independent institution despite the model being a tremendous success in other countries around the world.

Germany pioneered the use of development banks with their own organisation called KFW. After the Cold War it was critical for “levelling up” the previously occupied East Germany. Since 1991 one out of every ten euros invested in East Germany has come from KFW and the inequality gap between East and West reduced significantly – this is in contrast to the widening inequality between England’s North and South.

We have long needed to rethink how and what we build in this country. We all know the history of PFI schemes which failed to demonstrate value for money for the taxpayer. Now is our opportunity to put in place a dedicated institution of genuine finance experts to drive and mobilise funding.

Infrastructure helps an economy to grow. The investment and construction of new assets creates additional jobs and supports supply chains. The eventual infrastructure supports productivity by connecting people whether it is a new train line, better broadband or more energy. Infrastructure makes our country a more attractive place to live and do business, and by reducing transaction costs makes Britain a more competitive player in the global economy.

Therefore, our pervasively poor quality, low stock infrastructure is a serious issue if we are going to level up and boost economic growth.

However, I entirely sympathise with the dilemma our Treasury faces, infrastructure is the one thing we need to grow our way out of the crisis and truly level up and yet it becomes more and more difficult to pay for as every day passes. This is why we must mobilise private capital to supplement public spending.

A British Development Bank will do three critical things. First, it will provide long-term targeted financing by project, business or region to ensure that investment is ring-fenced to where it is most needed. Second, it will mobilise private savings and investments by a multiple of four, meaning that for every £1 of government spend, £4 of private capital spend will be unlocked. Thirdly, it will provide “counter-cyclical” investment so that in times of economic downturn when mainstream banks’ risk appetite dries up, required funding flows will be maintained.

This new institution would be modelled on Germany’s KFW. To do this, we would move the existing British Business Bank (BBB) and the Commonwealth Development Corporation (CDC) under the one umbrella organisation of the British Development Bank to bring about huge efficiencies, but critically, the combined assets of these two organisations (which is several billion pounds) would enable the Development Bank to issue its own targeted infrastructure bonds. The domestic work of BBB financing SMEs would be bolstered by an increase in assets, as would the reach of our overseas schemes under CDC.

Backed by the Treasury, a Development Bank could borrow at very low rates to fund and encourage infrastructure investment the private sector would not otherwise build. The bank could also issue “guarantees” or could buy shares in infrastructure projects, taking the risks of infrastructure construction the private sector is unwilling to take.

This Government has an opportunity to not only set out a long term plan for levelling up in the upcoming National Infrastructure Strategy, it has the chance to put in place a financial institution that will serve the needs of our regions for decades to come regardless of who holds the keys to Number 10.