How Big Is The Government?

[NB Anyone not ready for full frontal descriptions of government accounting conventions should look away now]

Just how big is our Big Government?

One of the key measures - the one we quote in our sidebar - is public expenditure as a percentage of GDP. And it is important. Because it shows how much of our national income has been grabbed by politicians to spend as they wish, rather than leaving it with us to spend as we wish.

In the most recent complete year (financial year 2009-10) the Treasury says that percentage was 47.5%, which we have rounded to 48% for the sidebar.

But as several readers have pointed out (most recently Bill D), 48% is significantly lower than some other widely quoted estimates. In particular, the OECD gives a figure around 4-5 percentage points higher, quoting 52.5% for calendar year 2010. Which has the politicos outrageously controlling more of our our income than we do ourselves.

What's more, the OECD's figures show that Britain's politicos have managed to grab a bigger slice of the national pie than the politicos of virtually any other developed country. The average percentage across the OECD is 44.4%, and the only top 10 economy with a higher percentage than us is France (55.9%).

So who's right?

Start with the Treasury. Its figure is calculated by taking what they call Total Managed Expenditure (TME) as a percentage of GDP at market prices. And TME is defined as follows:

"TME is an aggregate drawn from National Accounts. It covers the current and capital expenditure of the public sector, net of some receipts. It therefore includes expenditure of central and local government and also the capital expenditure of public corporations. TME excludes grants and interest payments between parts of the public sector (as it is a consolidated measure) as well as all financial transactions (such as lending). So TME is the expenditure side of the equation that gives public sector net borrowing, a measure of the fiscal stance."

Sounds sensible. In 2009-10, TME was £669.3bn, GDP at market prices was £1408bn, so the public spending ratio was 47.53%.

What about the OECD? Its figure also uses GDP at market prices, but it draws on a different definition of government spending. Instead of TME, it takes the "Total Outlays of General Government", defined as follows:

"The figures for total outlays consist of current outlays plus capital outlays. Current outlays are the sum of current consumption, transfer payments, subsidies and property income paid (including interest payments). Data refer to the general government sector, which is a consolidation of accounts for the central, state and local government plus social security."

So what's the difference between that and the Treasury's measure?

The big difference is clearly that the Treasury's definition of spending is wider. It focuses on the entire public sector, including public corporations (ie nationalised companies), whereas the OECD restricts itself to so called General Government - ie just central and local government, excluding public corporations.

Fine.

Except shouldn't that mean the Treasury's number ends up bigger?

And here we enter the realm of riddles, wrapped in mysteries, inside enigmas. If the Treasury uses a broader definition of spending, you'd expect it to end up with a higher figure for the size of government. So WTF is going on?

Tyler has been scrtching his head about this for some time. He's burrowed into explanatory handbooks, applied his microscope to smallprint footnotes, and even consulted one of Britain's foremost experts on such matters. All to no avail. He's still bemused.

However, a rough explanation is emerging. And it says that the Treasury's version of public spending is seriously understated.

The reason is that the TME measure is not a clean measure of gross spending. It nets off certain receipts to give what is only a net measure of spending. In contrast, the OECD seems to have a much cleaner separation of outlays and receipts. And that probably explains why the OECD gets both a significantly higher figure for spending and a higher figure for receipts.

One example is that TME includes only a relatively small net figure for the annual cost of those notorious unfunded public sector pensions (£3.1bn in 2009-10). But in reality, there is a substantial gross cost, partly offset by the receipt of contributions, and partly offset by non-recognition of the true annual cost accrual. And according to Table D1 in PESA 2010, these two items together reduced the pensions cost included in TME by £37.6bn (net of pensions in payment).

Which is very interesting. Because £37.6bn is equivalent to nearly 3% of GDP - in other words, the bulk of the unexplained gap between the Treasury and OECD estimates for the share of public spending in GDP.

Bottom line?

We are switching our source for the size of government from the Treasury to the OECD. As a result our sidebar number increases from 48% to 52%.

At a stroke our Big Government just got even bigger.

PS Very interested in hearing from anyone who thinks Tyler's got this wrong, especially if they can explain the difference between the Treasury and OECD calculations.

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www.gudanggrosiran.com Categories: big government

Can Big Be Beautiful?

Big - but also competing for customers

As you may possibly have gathered, Tyler isn't terribly keen on Big Government. Yet, in some ways, Big Government ought to have some Big Advantages.

Take procurement spending - something we've blogged many times on BOM. A Big Buyer, buying in Big Size, ought to be able to buy stuff much more cheaply than a load of small buyers.

The Institute of Directors has just published an interesting new report on this. Towards Tesco - improving public sector procurement reminds us that the UK public sector is one of the biggest buyers in the world, spending £220bn pa - 15% of our GDP. And yet, it has never fully exploited that size. It has never managed to emulate Tesco and the other big supermarkets in grinding their suppliers down to rock-bottom pricing for volume.

The IOD blames public sector procurement fragmentation, and the fact that it "still organises itself on the “corner shop” model, with the majority of purchasing organised in small scale silos – e.g. local authorities, NHS trusts, small central Government departments, each doing their own thing".

It argues we need more centralisation of the buying process:

• Centralised buying organisations that handle all key supplier relationships and all national and major contracts on behalf of the whole public sector;
• Where there are regional and local requirements, we need regional procurement hubs to provide expert contracting support to all bodies in the region;
• A single leadership point (e.g. the Office of Government Commerce) for the above structure.
• Mandatory use of the above structures by all public sector bodies.

If we did it right we could save "at least £15bn in the procurement process and £10bn in the outsourcing process" - a chunky £25bn pa, which would go a long way to filling our fiscal black hole.

Now, there's no doubt that public sector procurement is a shambles. For example, the report tells us that Greater Manchester's various local authorities "have over 100 specifications for tarmac, when seven are adequate – a potential saving of 10 per cent. Greater Manchester councils are unable to collaborate on dust cart procurement as they cannot agree on the specification and make – a potential saving on total cost of ownership of 10 per cent."

The question in Tyler's mind is whether more central control would actually deliver the mooted £25bn savings. After all, wasn't that the idea behind the Office for Government Commerce (OGC)?

Because as regular readers will know, the OGC has flopped. Indeed, as we blogged here, and here, the National Audit Office and the Public Accounts Committee discovered that it's actually managed to negotiate supplier prices that are higher than you or I could get (eg its cheapest price for a pack of 12 Post-It notes was £4.41, whereas they were freely available outside for £1.75).

The thing about Tesco - and its Big Difference from the public sector - is that it faces competition. Tesco may be Big, but it's been made beautiful by the constant day-to-day battle it faces to keep its customers. It's forced to wring every last penny of pricing concession out of its suppliers so it can deliver a better deal for its customers on the retail park.

The public sector simply doesn't have that spur. And unfortunately, experience from Stalin to the OGC shows that without the spur, Bigger all too often means Bigger Mistakes. And where the Simple Shopper is involved, much more costly ones.

As we've blogged to the point of miaow-miaow hallucination, the single most important step we have to take is to break up the public sector and find ways of injecting competition. And as far as possible, the ultimate buying power must rest in the hands of customers.

PS BOM correspondent PT has been monitoring the problems with the student grant/loan system. The delays in students receiving their loans have had much publicity over recent years, but PL points out that such delays were much fewer back when local authorities dealt with student funding. A key reason for that is that the new centralised system doesn't work properly. And whereas in the old days colleges and students could always find an individual at the funding authority who could sort things out, the only people you can speak to these days are call centre operatives with limited knowledge and limited discretion. And yet another dysfunctional mega-IT system.

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www.gudanggrosiran.com Categories: big government, simple shopper

Pathways To Hell

Nearly there now

As the Doc has described many times, Labour's NHS is a huge Stalinist meat processing factory through which patients are transported on a series of conveyor belts.

The belts are picturesquely known as Patient Pathways, and alongside five year plans, mandatory organisational protocols, and do-or-die output quotas, they are central to the way the Bureau of State Health Production directs its massive industrial empire. That, and summary execution for managers who fail to deliver their published quotas.

And just so you know, here's what an NHS pathway looks like (click on image to enlarge):

Well, it now turns out that the entire empire has been on a pathway of its own. According to State Health Commissar my Lord Darzi:

“The NHS is continuing a journey of improvements, moving from a service that has rightly focused on increasing the quantity of care to one that focuses on improving the quality of care."

A journey of improvements - aka Marxist-Leninism. The Dictatorship of the Proletariat is a necessary but temporary stage on our journey to a workers' paradise of plenty and fairness for all.

What my Lord was trying to explain away was the latest evidence that organising healthcare as a Stalinist meat packing factory is a shocking idea. Patients get treated as lumps of condemned offal, staff get deskilled and demotivated, managers... but look, don't listen to me, listen to the government's own assessment report - a report they tried to suppress:

“The patient doesn’t seem to be in the picture... We were struck by the virtual absence of mention of patients and families ... whether we were discussing aims and ambition for improvement, measurement of progress or any other topic relevant to quality... Most targets and standards appear to be defined in professional, organisational and political terms, not in terms of patients’ experience of care...

The GP and consultant contracts are de-professionalising, and have had the peculiar effect of simultaneously demoralising and enriching doctors. We’ve lost the volitional work of the doctors and far too many of us are now just working to rule...

The risk of consequences to managers is much greater for not meeting expectations from above than for not meeting expectations of patients and families.” 

And that's the entire problem with Big Government - the needs and preferences of individuals no longer count, and our public services end up serving a bunch of arrogant ill-informed commissars closeted miles away from the action, who in many cases don't even use the services they are inflicting on everyone else.

Yet despite manifest failure right across our public services, the so-called Progressive Consensus still seems to think that Big Government is the best way forward. Just like Stalin, they are prepared to accept as statistics the deaths and broken lives that result from Big Government failure. They are prepared to accept the costs and inefficiency that Big Government always entails.

Why?

Well, because they believe they're on the side of the angels.

Take Michael Foot. Obviously he was a deeply flawed individual, who held fellow travelling views repugnant to most of the British population, and who would certainly have bankrupted us had he ever become PM. But both he and his Prog Con supporters honestly believed he was A Good Man who intended only to do good for the proletariat. And those good intentions somehow absolved him from responsibility for his dangerous and deluded ideas on how to realise them.

And that's the thing about good intentions. They've paved no end of hellish pathways. From the Mid-Staffs NHS Trust all the way to the Gulag Archipelago.

There is only one path to better public services. Which is to break up our top down commissariats, to have providers compete for customers, and to put the spending power into the hands of the individual customers themselves. And as we face a decade of spending cuts and low growth, it is more important than ever for us to get onto that path.

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www.gudanggrosiran.com Categories: big government, nhs, socialism

Big Brother Watch

Mr and Mrs Tyler have just returned from the official launch of Big Brother Watch. As you probably know, this is a new campaign set up by the same people that brought you the TaxPayers' Alliance. It aims to fight intrusions on the privacy and liberties of ordinary Britons, and speaking as someone who has been stopped and searched three times under s44 of the 2000 Terrorism Act (eg see here), Tyler says it's come not a moment too soon.

In truth, Big Brother Watch has been up a running for a few months already, under its energetic Director Alex Deane. But tonight was the official kick-off, featuring speeches from David Davis (yes, that David Davis), and national treasure Tony Benn (still going strong at 85).

Tyler first heard Benn speak back in 1976, at the height of the sterling crisis. He was the senior cabinet minister who wanted us to turn our back on the IMF and become fortress Britain. He held his audience spellbound, even though many of us were deeply hostile to his vision of a self-sufficent socialist workers' paradise.

This evening he showed he could still hold an audience, and he showed something else too: unlike almost every other politico you ever come across, he's apparently genuine interested in what you do, as opposed to reeling off an interminable list his own achievements. Highly disarming.

If you haven't already done so, take a look at the Big Brother Watch website. And do send off for a pack of free Big Brother Watch stickers for deployment against the creeping state intrusion into our lives.

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www.gudanggrosiran.com Categories: big government

Big And Inefficient

We all know our public sector wastes squillions, but just how inefficient is it? How does it look against public sectors elsewhere in the world?

There are a number of studies that have attempted to answer such questions. One of the best known was published by the European Central Bank in 2003 - Public Sector Efficiency: An International Comparison, by Afonso, Schuknecht, and Tanzi.

The ECB study seeks to compare the outputs of government with their costs. The costs comprise the share of government expenditure in GDP, which is straightforward. The outputs are more difficult to measure, but include a wide range of indicators, from economic growth and stability, to health and educational outcomes (see paper for more detail).

These calculations are done for 23 industrialised OECD economies, and comparisons made.

Overall, the study finds that the most efficient government sectors are those in the US, Japan, and Switzerland.

The UK is by no means the worst, but lags way behind the leaders. Indeed, if our government could achieve the same level of efficiency as the three leaders, we could save roughly £140bn pa relative to the current level of UK government spending. Which would go a long way towards digging us out of Brown's hole.

And the study gives a very interesting insight into the relationship between efficiency and size. And guess what - it turns out the most efficient governments are also the smallest.

Here's a chart we've put together comparing each government's efficiency score with its cost as a share of GDP (note: the efficiency scores relate to 2000, and the GDP shares are averages for the previous decade):

As we can see, efficiency tends to decline quite markedly as government gets bigger. On average, for every 10 percentage point increase in government's share of GDP, efficiency declines by 15-20% (the estimated parameter says 16.6%, but let's not get too precise, especially since this is a simple linear regression).

The bottom line is that if you want to have big government, you have to accept a high degree of inefficiency (aka waste). In our chart, the very biggest government belonged to Sweden, and its efficiency levels were correspondingly abysmal (interestingly, over recent years Sweden has been slimming down its bloated public sector, partly through those school reforms we hear so much about).

To put this another way, the only countries that can afford Big Government are rich countries that can bear the costs of its inefficiency. The UK can certainly no longer afford that luxury.

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www.gudanggrosiran.com Categories: big government, waste

Big And Stupid

According to a poll in this morning's Independent, two-thirds of voters now agree that "government has grown too big and needs a major overhaul to make it smaller" (see here for full poll results).

Well, hallelujah. After 12 grim years of rule by Socialist Commissars, British voters have once again shown they're not quite as dumb as the ruling class like to think.

Of course, that's not the way the Commissariat running dogs and lickspittles see it. The Independent itself claims we stupid voters have misunderstood the entire issue:

"The "big government" versus "small government" opposition is, in many respects, a false one. There are areas of British life where the state's activities are distorting and it should pull back. But there are other areas where government ought to be more activist in pursuit of the public good. Our political leaders need to decide where government has a role – and then concentrate on making it as effective and productive as possible in fulfilling that role. The true enemy is not "big government" but "stupid government".

So voters are confused. Instead of demanding a downsizing of government they should really be demanding that government stop being stupid. Apparently that's the real enemy of the people.

The "Independent" adds:

"[The] claim that all of society's ills can be laid at the door of an over-active states is too simplistic. There are also areas of public life where the state has plainly not been active enough. The Government has failed to do enough to stimulate investment in renewable energy technology and infrastructure. The result is that we lag far behind the likes of Germany in the development of solar energy and wind power."

So it doesn't matter that we the people remain deeply unconvinced by warmist theology (see Mr Booker's latest heretical tract here), or that we're aghast at the increasingly bonkers commandments from the warmist priesthood (such as today's injunction from Archbishop Stern to stop eating meat). As far as the Commissariat are concerned, we're being stupid. We must be prepared to sacrifice everything - our livestock, our prosperity, even our hypothermic lives - in order to placate the great God Gaia. Anything else would be... well... stupid.

The Independent also deploys the left's current killer argument against small government:

"One of the reasons we got into this economic mess was the prevalent political ideology that said financial markets were always self-correcting and should be left to their own devices. The banks blew up a destructive credit bubble without facing any meaningful controls from the regulator."

Financial markets are big and stupid, so government has to be big and strong. QED.

Except of course, governments themselves were heavily implicated in the financial bubble and its subsequent collapse: central banks that kept interest rates too low for too long, regulators who couldn't regulate a rice pudding, high spending politicos who luxuriated in the fiscal windfalls generated by the credit boom, etc etc.

Nobody of Tyler's acquaintance thinks government can stay out of financial markets altogether. For example, in a modern economy they have to be the ultimate guarantor of retail bank deposits, they have to ensure their own debt financing operations don't destabilise the currency, and they have to hold the ring against anti-competitive practices (just like in other markets). But that doesn't prove the case for big government more broadly.

The thing about big government is that it is stupid by nature. It truly is the nature of the beast.

And that's not to say that the people who work in government are stupid (Tyler met another very sharp civil servant just last week). And it's not to say that private sector operators are all smart.

No. Fundamentally, big government is stupid because it lacks direction from choice and competition.

Many private sector operations suffer from just as much stupidity. But they have a big advantage over government. Because in their case, if they are too stupid, and if they fail to improve pdq, they go out of business. Their behaviour gets shaped by choice and competition. Which means that unlike government, the private sector largely comprises winners - operations that have dealt with their stupidity (or at least, enough of it to survive out there in the jungle - eg see this blog).

Of course, the commissariat are never going to see it this way. Not only do their jobs depend on Big Government remaining big, many of them actually believe big government knows best. They believe that warmism is the one true faith, that a benevolent superstate headed by Commissar Bliar is A Good Thing, and that markets cannot be trusted.

So who is it that's stupid exactly?

Right now, the pressing issue is how we get Mr Cam to follow through on his fine words at the Tory conference. We completely agree that it was Big Gov wot done it - both to our economy and our society - but in six months time we're going to expect some action. As this poll highlights, we're ready for some serious downsizing.

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www.gudanggrosiran.com Categories: big government