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Time to call in the private sector?

The low hanging fruit has been collected - now for the real cuts in public services
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Ripe pickings: Once the low hanging fruit has been culled in the public sector the new government needs to act quickly on core delivery

The speeches by the chancellor of the exchequer and the chief secretary to the Treasury on Monday laid out where the £6.243bn in cuts were coming from in the public sector. These cuts were made to drive out waste - in other words a cull of the low hanging fruit.

The cuts took care of what should have been addressed by the previous administration - but there was no imperative to do so. A fresh pair of eyes has resulted in the obvious being addressed. All the actions identified in these cuts will be recognised as being sensible. The speed of the announcements is to be welcomed as it sends a clear signal of serious intent.

The real challenge is still to come and the upcoming emergency budget will be the real test of resolve. The amount (£6bn) is a drop in the ocean of what this government has to address as a deficit. Tax rises aside, the cost base of the government needs a radical overhaul.

Real cuts have to be made to much of what the public sector currently delivers. The government has already made clear that certain departments will have to undergo reviews before the scale of cuts can be announced. The Ministry of Defence, for example, is awaiting the outcome of a Strategic Defence Review. However, there are many cuts that need to made - and quickly.

The private sector has clearly demonstrated that it can deliver services at a substantially lower cost than the public sector can

The private sector has clearly demonstrated that it can deliver services at a substantially lower cost than the public sector can - the delivery of prison services being a classic example. So having proved that a small number of prisons can be run more efficiently, why have the vast majority of the prison services not been outsourced? The same could be asked of shared services to government departments - particularly in Whitehall - as could the provision of services to local government. The list is endless.

However, what is really behind this problem is that the growth of the public sector has continued unabated whilst the private sector has been badly hit by the recession. The time is now at hand to seriously prune and reshape how public sector services will be delivered.

The government needs to quickly decide what will be core to delivery from the public sector - and it should look to either outsource, sell or partner all other services. Many organisations that are currently in public sector ownership should not be. The rationale for retention of public sector ownership is historical - and not based on business logic.

Many of the trading funds and public corporations are commercial entities in their own right - but restrained by the dogma of government. The solutions here are relatively straight forward - but the real issues of government are not.

The biggest single threat to the public sector deficit is the size of the public sector pensions liability. Raise the retirement age and end the final pension salary scheme for starters. No need for vote winning schemes for the next five years - just time to roll the sleeves up.

Mike Hollin is head of the public sector practice at interim specialist Alium Partners

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