Cable calculates cuts of £14bn in public sector

While Brown and Cameron bicker over politics, Lib Dem Treasury spokesman Vince Cable sets out his stall with a rough guide to potential savings
Vince Cable
Lib Dem Treasury spokesperson Vince Cable has outlined nine areas for cuts

At a time when politicians are finally beginning to talk in more detail about cuts, today's public sector employment figures from the Office for National Statistics make interesting and thought-provoking reading.

In the second quarter of 2009, employment in the private sector fell by a huge 230,000 jobs. But employment in the public sector increased by 13,000, to 6.039m. In the second quarter of 2009, employment in the private sector fell by a huge 230,000 jobs. But employment in the public sector increased by 13,000, to 6.039m.

That's a misleading figure, as Ian Brinkley, associate director of the Work Foundation, pointed out, because the figures now include financial institutions, such as Northern Rock. But it means, says Brinkley, that even more care will need to be taken with public sector job figures than in the past.

Even discounting the effect of adding publicly-owned financial
institutions in the statistics, there are still interesting trends to
be noted.

Jobs in local government actually fell, by 5,000, but there was a big increase in NHS jobs, with 18,000 more people in employment. The civil service also increased, adding 1,000 jobs.

This may give grist to the mill of some media commentators, such as Simon Jenkins in the Guardian, who argues that the public sector has done well over the past decade, "is an expense that the national cannot at present sustain" and says there should be a flat-rate, 5% cut off every budget and every public salary for a year.

Unpleasant as this approach is, it may be nowhere near unpleasant enough to tackle the challenge of the public spending deficit. This week has seen the prime minister Gordon Brown acknowledge, for the first time, that a Labour government would have to cut the public sector budget.

The details will be set out by the chancellor in November's pre-budget report; in the meantime, Brown was attacked by David Cameron, the leader of the Conservative party, for underplaying the necessary level of cutting.

Cameron claimed that leaked documents from the Treasury show cuts of up to 3% in spending by 2013-14, amounting to a real cut of 9.3% - significantly higher than the 7% previous forecast.

Despite the increasingly heated debate, neither Brown nor Cameron have yet outlined their spending plans in anything like as much detail as the Liberal Democrats.

Yesterday's Liberal Democrat pamphlet, Tackling the Fiscal Crisis, identifies cuts of up to £14bn.

Specific areas of potential savings

The proposals, published by thinktank Reform and launched yesterday by the party's Treasury spokesperson Vince Cable, are only "illustrative" and represent a "first, rough attempt" at proposing specific areas of potential savings, but are still more detailed than those of the other parties.

Cable proposes freezing public sector pay, cutting by a quarter the staff bill for those earning more than £100,000 and abandoning civil service bonuses. He also proposed cuts in public sector pensions, with higher employee contributions and later retirement ages.

The pamphlet outlines potential for savings in nine areas, including big cuts in IT programmes. In a move that aligns him with the Conservative party, Cable says there could be large savings from abandoning the national ID card scheme, England's NHS national programme for IT and the ContactPoint children's database.

While Cable devotes considerable attention to privatisation in the form of asset sales, writing that although the family silver has been sold, there are still "potentially enormous" opportunities from realising the value of public sector assets, he does not cover the issue of outsourcing government services.

The nine specific savings areas identified by Cable are:

• Freezing the amount spent on public sector pay, cutting the staff bill for those earning more than £100,000 by 25% and ending civil service bonuses, saving £2.6bn a year

• Tapering the family element of the tax credit, saving £1.3bn

• Cutting public sector pensions

• Scrapping various major IT projects, such as the ID card scheme and the NHS IT scheme

• Curbing industrial policy. Abolishing regional development agencies, cutting export credit guarantee department subsidies and halving the Train to Gain and Skills Councils budgets would save £2.9bn a year, according to Cable

• Reforming the NHS. Cutting the fees paid to hospitals and scrapping strategic health authorities would save £2.2bn a year, says Cable

• Curbing centralisation in education; an estimated saving of £600m a year

• Reducing waste in defence procurement. Cable proposes scrapping the Trident replacement and other MoD projects, saving "at least" £4bn a year

• Selling assets, including land owned by the Highways Agency

Cable estimates that a contract of about 8% of GDP may be required over the next five years - higher than the government's estimate of a cut of 6.5% over eight years.

His pamphlet concludes that there should be a "systematic process" to select the priorities for public spending. He calls for radical decentralisation of decision making to local government and casts doubt on the ability of managers to make high-enough efficiency savings.

Public spending decisions have been made too opaquely and remotely in Whitehall, with fiscal rules adding "spurious precision". But fiscal policy is political and it is time for politicians to explain "in detail" how they will tackle the deficit problem, he says.

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