Skint? Britain's financial crisis is much, much worse than that06 November 2009
Sir Stuart Rose, the head of Marks and Spencer, said it all in six words yesterday: "We are skint as a country." Sir Stuart was talking to the press to announce his company's latest sales figures. But he brought up the terrible state of the Government's books because it is now threatening businesses, jobs and the economy alike.
"Skint" is actually an understatement. We haven't just run out of money as a nation. We are building up debts that, without brave action, will keep us skint for years to come. The scale of government spending is so great that numbers almost lose their meaning. Who can picture £175 billion - the Chancellor's current estimate of what he needs to borrow this year?
But we can get a sense of the gravity of the situation when we think that this amount of borrowing is nearly twice the level that forced the UK to seek the support of the IMF in the 1970s. Britain is the only one of the world's major economies to remain in recession. Our national debt is spiralling to a level at which capital markets are starting to ask questions about Britain's long-term credit rating.
For his April Budget, Alistair Darling rightly decided that honesty was the best policy. He faced down the temptation to fudge the Budget numbers and faced up to the scale of the problem. The shock waves are still reverberating around the City and Whitehall. But in his next major statement, the pre-Budget report expected within weeks, he may well announce that the government deficit is even worse.
Sir Stuart went on to say that he expected taxes to rise to fill the Government's coffers (beyond the existing plan to raise the top rate to 50 per cent on earnings above £150,000 per year). He forecast that VAT could climb above 17.5 per cent.
But if a government chooses to take the route of higher taxes, that would only be the beginning. Even doubling the basic rate of income tax would raise only £80 billion. And extra taxes drive people abroad and feed tax avoidance. Even higher taxes would be needed. This is a nightmare vision, in which our common hopes of a prosperous, enterprising, secure economy would be indefinitely postponed.
The budget crisis is actually a crisis of government. As a country, we used the years of economic growth to redistribute wealth to the public sector without taking steps to improve its efficiency at the same time. It would be wrong in every way to raise taxes now to protect those inefficiencies from change.
The public sector needs fundamental reform in any case, delivering as it does lower productivity and higher pensions and greater job protection than the private sector. But the budget crisis makes such reform essential.
Leading business people rise to the challenge when they are asked to take out, say, a fifth of a company's costs without damaging the service to customers. Many business leaders will be doing that and more in this recession. But while it has been tried in business, it has never been tried in government.
We need the new ministers (of whatever party) taking office next May to challenge their departments on our behalf. They need to ask: "Why does your work need to be done at all? What good does it serve? Why does it need to be done in the public sector? Where only the public sector can do it, is it being delivered as efficiently as possible? How will you reduce your costs by 20 per cent in the next 18 months?"
Any organisation will naturally resist this kind of questioning, if only out of inertia. A chief executive in the private sector would look to independent advice. He would take on a separate team with responsibility to review every cost and with the authority to ignore the argument that: "We do this because we've always done this." I don't think ministers are any different.
The review of government undertaken in the early 1980s (led by Lord Rayner, the head of Marks and Spencer in those days) faltered. It was staffed by civil servants; they were some of the brightest and the best of their day, but they were inevitably light on the understanding of how the best private-sector companies would do it. The next reform of government needs to use people from outside of government with real independence.
A searching reappraisal of this kind won't produce a list of "efficiency savings" of the kind that Whitehall has produced before. Our problem is not that the British ship of state is a perfectly efficient craft which needs only a few barnacles to be scraped off in order to return to full cruising speed.
Instead, the poor performance of government lies in its superstructure - its very fabric. The "front line" of services - doctors, nurses, teachers and police officers - need better leadership in order to change their ways of working. The preparations should start now so that the task of reducing the costs of government can begin on the first day of the new Parliament.
Sir Adrian Montague is chairman of Anglian Water Group and the new chairman of the advisory board of the think tank Reform (www.reform.co.uk)