The big challenge isn’t funding public services, it’s making them productive

There’s no shortage of special interest groups placing demands on the public purse. But with limited funds available, we must have an honest conversation about whose claims are the most valid.

Waspi women are demanding a staggering £36bn in compensation for having been poorly informed about changes to their pension age. Meanwhile the National Foundation for Educational Research is arguing that teachers should be paid more because most of them could not work from home. The civil service union the PCS has demanded a “shortening of the working week” – in other words a four day week – with no loss of pay, plus a minimum of 35 days paid holiday.

A huge amount of publicity has been given to the soaring cost of benefits. We are invited to believe that no fewer than 2.7m people are unable to work because of long-term sickness, much of this driven by mental ill-health.

The total cost of health and disability benefits is already £65.7bn a year, according to the Office for Budget Responsibility. The OBR projects this to rise to £90bn by 2028/29, effectively by the end of the next parliament.

There are of course counter arguments to all these burdens being loaded onto taxpayers.

The Waspis, for example, maintain that the increase in the female pension age disrupted their carefully crafted retirement plans. But we might reasonably ask why this planning did not extend to discovering the actual age at which they could retire and draw the pension.

If teachers really are entitled to more pay for being unable to work from home, then logically those public sector workers who can ought to have their pay reduced because of the benefit they gain from home working.

Claims for more money and fewer hours by civil servants are undermined by the fact that the Office for National Statistics reckons that the productivity of the public sector is no higher than it was in the late 1990s.

Over the past 25 years, productivity in the economy as a whole has risen by 27 per cent. But there has been zero growth in the public sector. In other words, the public sector is no more efficient than it was in the late 1990s. A private sector company with such a dismal record would have gone out of business years ago. And it does seem rather implausible that there has been a sudden and dramatic deterioration in the mental health of the nation.

But to make any of these arguments is to be branded as heartless, as Mel Stride, the secretary of state for work and pensions, discovered last week when he suggested the “normal anxieties of life” were now being classified as mental illness. He was abused in no uncertain terms by a whole range of charities and NGOs for his alleged cruelty.

Yet all of this is taking place in a fantasy world.

The plain fact is that there is insufficient money to meet any of these claims. The tax burden is already the highest it has been for nearly 70 years. Public sector borrowing is running at over £100bn a year.

The major challenge facing the next government is not, as many argue, raising investment levels in the private sector. This is without doubt important. But even if successful, this would take time to generate more growth and hence more tax revenues.

The main task is to tackle the inefficiencies and restrictive practices in the public sector. And efficiency gains here translate directly and immediately into a better service for the same amount of money.

There are genuine reasons why productivity growth is more difficult in the public than the private sector. But a track record of no growth at all over 25 years is a scandal.

As published in City AM Wednesday 28th March 2024
Paul Ormerod
Image: Freerange

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