After just writing an article on the United States I am now turning my attention to the UK which has a lot going on as we have news on public spending cuts and also a fair bit of news from our Monetary Policy Committee in terms of votes and speeches. In terms of the spending breakdown review due today I would like everyone to draw breath for a moment and think back to June 21st when we had an emergency budget.
Let us first remind ourselves of the scale of what is planned today from my update on the 22nd of June.
It was at the austere end of the spectrum. Net reductions in the deficit of £40 billion by 2014/15 which represents some 2.2% of Gross Domestic Product and predictions of a fiscal surplus in 2016 were at the upper end of expectations. Another way of putting the £40 billion is 89 Thiams.
Actually the quote as an aside reminds me that for now Mr.Thiam has got away with the expenses of his failed bid as the news about him has dec;lined to zero and has not included his sacking. However on the 21st of June I expressed concern about how equipped our new government would be to make its planned cuts.
However I expect spending cuts to be much harder to achieve than to suggest or to plan…….. We have a new inexperienced government which is going to try to make cuts of a size not attempted for a generation so I think caution should be the watchword.
I also pointed out the possibility of Sir Humphrey Appleby style ruses being used, where you increase staff now to cut it later.
This is more the governments problem and I expect it to prove very difficult for them. There is a public facility that I use which I feel is over-manned and yet recently it has taken on more staff! So I would suspect Local Authorities will be difficult to deal with.#
And I had some thoughts on the difficulties of defence cuts.
Some subjects are simple for example the Royal Navy has more admirals than warships these days and I understand the army could field a whole battalion of under-used colonels (although to do quite what….), but these have persisted for years so I do not expect this process to be easy or painless.
Errors already made in the process
So when the breakdown figures are published today I feel that they should be read through a filter incorporating these issues as the job is by no means easy.However there are two clear errors in the process and one goes back to the election debate in the spring of this year.
One curiosity is that all of our three main political parties are committed to increasing overseas aid by £4 billion a year by 2013.
If we have an area where we spend money most inefficiently then this area is a candidate, indeed there are arguments against aid per se. I do not mean say helping the victims of natural disasters I mean aid to help nations economically some of which goes to nations who are doing quite well such as Singapore.
A much bigger issue is excluding the National Health Service from the review. As we spend a vast amount on it there are likely to be many inefficiencies in its structure and perhaps it is too a candidate for most inefficient area. To my mind one cannot exclude an area which was 24% of central government spending last year or some £120 billion. This is a political points-scoring initiative which is poor economics to my mind.
The Strategic Defence Review.
My thoughts in this area are influenced by a book on this subject which I read a few years ago by Lewis Page. I do not agree with everything that he writes but there are some excellent ideas in it. These influence what I am about to write now and I would also point out that such a review was not easy and was not helped by the fact that the previous government had not had one since 1998 in spite of our involvement in two wars. Thinking of that again it does look somewhat shocking and shameful.
1. The Royal Air Force has had a victory in that its force of Tornado GR4 bombers to survive. Whilst they can do battlefield support they were designed for deep-strike duties against the Russians in what the first Gulf War proved would have been a suicidal plan. However we are scrapping our far more flexible Harrier force. Indeed our GR9 Harriers, operated by Navy and RAF squadrons, are primarily ground-attack planes which is exactly what is required in Afghanistan right now and in fact in virtually every war we have ever been in.
2. If that mistake was not already rather obvious it has been combined with the fact that our 2 new aircraft carriers will lack any fighter jets for some ten years. Whilst the Harriers are not pure fighter jets a previous version did rather well in the Falklands conflict if you recall….
3. We seem to be forever buying equipment and then ending up scrapping it on the grounds that we cannot afford it. Is there are more ridiculous way of operating? This is not the present governments fault (yet) but both types of previous government and indeed the Commons Select Committee has serious questions to answer here.
So just some thoughts and I have a further piece of news for you which I got from Mr.Page on the fourth of this month.
The Royal Navy’s new £1bn+ Type 45 destroyers, which have been in service for several years (the first is already on her second captain), have finally achieved a successful firing of their primary armament.
So to add to carriers without plans we have also had billion pound destroyers with no missiles for the past couple of years. Truly life is sometimes even stranger than fiction…More seriously it highlights the extremely serious problems at the Ministry of Defence and how fundamental change is required.