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 gov.uk 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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Former Irish premier John Bruton on Brexit: "Britain should pay for our border checks"

The former Taoiseach says Brexit has been interpreted as "a profoundly unfriendly act"

At Kapıkule, on the Turkish border with Bulgaria, the queue of lorries awaiting clearance to enter European Union territory can extend as long as 17km. Despite Turkey’s customs union for goods with the bloc, hauliers can spend up to 30 hours clearing a series of demanding administrative hoops. This is the nightmare keeping former Irish premier John Bruton up at night. Only this time, it's the post-Brexit border between Northern Ireland and the Republic, and it's much, much worse.   

Bruton (pictured below), Taoiseach between 1994 and 1997, is an ardent pro-European and was historically so sympathetic to Britain that, while in office, he was pilloried as "John Unionist" by his rivals. But he believes, should she continue her push for a hard Brexit, that Theresa May's promise for a “seamless, frictionless border” is unattainable. 

"A good example of the sort of thing that might arise is what’s happening on the Turkish-Bulgarian border," the former leader of Ireland's centre-right Fine Gael party told me. “The situation would be more severe in Ireland, because the UK proposes to leave the customs union as well."

The outlook for Ireland looks grim – and a world away from the dynamism of the Celtic Tiger days Bruton’s coalition government helped usher in. “There will be all sorts of problems," he said. "Separate permits for truck drivers operating across two jurisdictions, people having to pay for the right to use foreign roads, and a whole range of other issues.” 

Last week, an anti-Brexit protest on the border in Killeen, County Louth, saw mock customs checks bring traffic to a near standstill. But, so far, the discussion around what the future looks like for the 260 border crossings has focused predominantly on its potential effects on Ulster’s fragile peace. Last week Bruton’s successor as Taoiseach, Bertie Ahern, warned “any sort of physical border” would be “bad for the peace process”. 

Bruton does not disagree, and is concerned by what the UK’s withdrawal from the European Convention on Human Rights might mean for the Good Friday Agreement. But he believes the preoccupation with the legacy of violence has distracted British policymakers from the potentially devastating economic impact of Brexit. “I don’t believe that any serious thought was given to the wider impact on the economy of the two islands as a whole," he said. 

The collapse in the pound has already hit Irish exporters, for whom British sales are worth £15bn. Businesses that work across the border could yet face the crippling expense of duplicating their operations after the UK leaves the customs union and single market. This, he says, will “radically disturb” Ireland’s agriculture and food-processing industries – 55 per cent of whose products are sold to the UK. A transitional deal will "anaesthetise" people to the real impact, he says, but when it comes, it will be a more seismic change than many in London are expecting. He even believes it would be “logical” for the UK to cover the Irish government’s costs as it builds new infrastructure and employs new customs officials to deal with the new reality.

Despite his past support for Britain, the government's push for a hard Brexit has clearly tested Bruton's patience. “We’re attempting to unravel more than 40 years of joint work, joint rule-making, to create the largest multinational market in the world," he said. It is not just Bruton who is frustrated. The British decision to "tear that up", he said, "is regarded, particularly by people in Ireland, as a profoundly unfriendly act towards neighbours".

Nor does he think Leave campaigners, among them the former Northern Ireland secretary Theresa Villiers, gave due attention to the issue during the campaign. “The assurances that were given were of the nature of: ‘Well, it’ll be alright on the night!’," he said. "As if the Brexit advocates were in a position to give any assurances on that point.” 

Indeed, some of the more blimpish elements of the British right believe Ireland, wedded to its low corporate tax rates and east-west trade, would sooner follow its neighbour out of the EU than endure the disruption. Recent polling shows they are likely mistaken: some 80 per cent of Irish voters say they would vote to remain in an EU referendum.

Irexit remains a fringe cause and Bruton believes, post-Brexit, Dublin will have no choice but to align itself more closely with the EU27. “The UK is walking away,” he said. “This shift has been imposed upon us by our neighbour. Ireland will have to do the best it can: any EU without Britain is a more difficult EU for Ireland.” 

May, he says, has exacerbated those difficulties. Her appointment of her ally James Brokenshire as secretary of state for Northern Ireland was interpreted as a sign she understood the role’s strategic importance. But Bruton doubts Ireland has figured much in her biggest decisions on Brexit: “I don’t think serious thought was given to this before her conference speech, which insisted on immigration controls and on no jurisdiction for the European Court of Justice. Those two decisions essentially removed the possibility for Ireland and Britain to work together as part of the EEA or customs union – and were not even necessitated by the referendum decision.”

There are several avenues for Britain if it wants to avert the “voluntary injury” it looks set to inflict to Ireland’s economy and its own. One, which Bruton concedes is unlikely, is staying in the single market. He dismisses as “fanciful” the suggestions that Northern Ireland alone could negotiate European Economic Area membership, while a poll on Irish reunification is "only marginally" more likely. 

The other is a variation on the Remoaners’ favourite - a second referendum should Britain look set to crash out on World Trade Organisation terms without a satisfactory deal. “I don’t think a second referendum is going to be accepted by anybody at this stage. It is going to take a number of years,” he said. “I would like to see the negotiation proceed and for the European Union to keep the option of UK membership on 2015 terms on the table. It would be the best available alternative to an agreed outcome.” 

As things stand, however, Bruton is unambiguous. Brexit means the Northern Irish border will change for the worse. “That’s just inherent in the decision the UK electorate was invited to take, and took – or rather, the UK government took in interpreting the referendum.”