The public sector has a lot to learn

Getting the hell on with it.

Last week the chancellor, George Osborne, trumpeted agreements with seven government departments on their budgets for the next comprehensive spending review (CSR), which is due to be announced next month.

The CSR will lay out spending for the five years after 2015. In keeping with his commitment to “Plan A”, Osborne is looking for a further £11bn of cuts in government budgets. With health, education and overseas development protected, there will be tough decisions to be made elsewhere. Reaching an agreement with seven departments is a promising start, but these were all relatively low-spending departments with smaller budgets. The agreed savings were reported at £2.5bn. So the really tough decisions still lie ahead.

How these discussion are progressing was signalled by an interview given by defence secretary Philip Hammond on the Today programme. He explained that frank discussions (which can be read to mean arguments) between the Treasury and the MoD have had to be mediated by the Cabinet Office, which has launched an independent review of the department’s spending plans.

The MoD is an interesting case in point. It was severely affected by the last round of cuts with all three armed forces still reeling from the strategic defence review that was as much about cutting costs as it was about better military decision-making. What makes the MoD especially interesting is that it is one of the better organised ministries. Hammond has deployed former experience in business to set the department up in a businesslike fashion.

It is one of the few departments with a board that functions in the way a FTSE 100 board might. Indeed, a scan of the departmental pages of the website reveals that of the 24 cabinet departments, only a handful have this kind of properly functioning board. Perhaps strangely, the department for Business Innovation and Skills isn’t one.

A good look at the structure of government in this country, especially compared to other countries, suggests we have too many departments and way too many ministers. The 24 ministries compares to an international average of 15 or 16. The UK’s 120 ministers compares very badly with 78 in India, 66 in Canada and 68 in South Africa.

Even more unusual is the fact that devolution of power to Scotland, Wales and Northern Ireland hasn’t seen a decrease in UK ministers, but rather an increase, so that the actual UK total (including ministers in the devolved regions is closer to 200).

With all these jobs to protect, it’s no surprise that getting all these departments to agree they can afford substantial cuts is a tough job for the Treasury.  

One way to bring all this under control and make the process much simpler is highlighted in a new report published this week by ICAEW. In A CFO at the Cabinet Table? Strengthening UK government finances for the future, Sumita Shah highlights the potential advantages of having someone in the position to take on a “group finance” role across government. While each individual financial team is making a case for their department, the political tug of war between the Treasury and all the other members of cabinet will continue.

As to the tougher question of what long-term impact the focus on public sector cuts is having on the private, new research (also produced by ICAEW) found that 31 per cent of businesses reported their turnover has been negatively affected by UK public sector cuts, this is up from 21 per cent two years ago when the same question was last asked.

Not surprisingly the vast majority of those affected by these cuts have looked elsewhere for business, with 72 per cent of those negatively affected by the public sector cuts looking for new customers outside the public sector. However almost half (49 per cent) have had to cut permanent staff and 41 per cent have reduced their contract or temporary staff.

So the message seems to be clear. The private sector, while fearing the worst, is doing its best to get on with life in the age of austerity. It would help enormously if it was obvious that the public sector (and in particular central government) was doing the same thing by simplifying and rationalising government systems and structures.

Some of the money freed up might be wisely invested by putting in place a strong central government finance function, starting with the appointment of a cabinet CFO.

Treasury. Photograph: Getty Images

Richard Cree is the Editor of Economia.

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Could Labour lose the Oldham by-election?

Sources warn defeat is not unthinkable but the party's ground campaign believe they will hold on. 

As shadow cabinet members argue in public over Labour's position on Syria and John McDonnell defends his Mao moment, it has been easy to forget that the party next week faces its first election test since Jeremy Corbyn became leader. On paper, Oldham West and Royton should be a straightforward win. Michael Meacher, whose death last month triggered the by-election, held the seat with a majority of 14,738 just seven months ago. The party opted for an early pre-Christmas poll, giving second-placed Ukip less time to gain momentum, and selected the respected Oldham council leader Jim McMahon as its candidate. 

But in recent weeks Labour sources have become ever more anxious. Shadow cabinet members returning from campaigning report that Corbyn has gone down "very badly" with voters, with his original comments on shoot-to-kill particularly toxic. Most MPs expect the party's majority to lie within the 1,000-2,000 range. But one insider told me that the party's majority would likely fall into the hundreds ("I'd be thrilled with 2,000") and warned that defeat was far from unthinkable. The fear is that low turnout and defections to Ukip could allow the Farageists to sneak a win. MPs are further troubled by the likelihood that the contest will take place on the same day as the Syria vote (Thursday), which will badly divide Labour. 

The party's ground campaign, however, "aren't in panic mode", I'm told, with data showing them on course to hold the seat with a sharply reduced majority. As Tim noted in his recent report from the seat, unlike Heywood and Middleton, where Ukip finished just 617 votes behind Labour in a 2014 by-election, Oldham has a significant Asian population (accounting for 26.5 per cent of the total), which is largely hostile to Ukip and likely to remain loyal to Labour. 

Expectations are now so low that a win alone will be celebrated. But expect Corbyn's opponents to point out that working class Ukip voters were among the groups the Labour leader was supposed to attract. They are likely to credit McMahon with the victory and argue that the party held the seat in spite of Corbyn, rather than because of him. Ukip have sought to turn the contest into a referendum on the Labour leader's patriotism but McMahon replied: "My grandfather served in the army, my father and my partner’s fathers were in the Territorial Army. I raised money to restore my local cenotaph. On 18 December I will be going with pride to London to collect my OBE from the Queen and bring it back to Oldham as a local boy done good. If they want to pick a fight on patriotism, bring it on."  "If we had any other candidate we'd have been in enormous trouble," one shadow minister concluded. 

Of Corbyn, who cancelled a visit to the seat today, one source said: "I don't think Jeremy himself spends any time thinking about it, he doesn't think that electoral outcomes at this stage touch him somehow."  

George Eaton is political editor of the New Statesman.