Our sprawling permanent state is a disaster for the UK’s public services

Tim Morgan

OF ALL the pejorative terms applied to the banking industry, “vampire squid” is my favourite. It’s uniquely expressive, describing a malign organism that extends its tentacles into all the crevices of its host, while draining it of resources.

Expressive though it is, applying the term to the banks is mistaken. Britain’s real “vampire squid” is its sprawling administrative system of permanent government. This clogs up the workings of the state, undermines public services, hamstrings policy, routinely menaces the liberties of the individual, and drains resources on such a scale that it is a major contributor to Britain’s chronic fiscal imbalance.

It can even be argued that the estab- lishment squid costs lives. We will probably never know how many (within estimates ranging from 400 to 1,200) died unnecessarily as a result of the neglect, ill-treatment and incompetence described in the Francis report into Stafford Hospital. And investigations into a further 14 hospitals suggest that Stafford was by no means an isolated case. Whatever the clinical short-comings may have been, the big failure was one of management. What was happening went unnoticed by every tier of authority, from the hospital right up to the Department of Health.

Such failings do not result from a shortage of resources. Government spending on health increased by 92 per cent, in real terms, between 1999-2000 and 2009-10, and has been flat ever since. Such increases, albeit at slower rates, occurred across public services. Neither does the NHS lack management. The number of managers employed by the NHS in England rose from 27,424 in 2001 to 44,661 in 2009. As of 2011, the number has since fallen back slightly to 38,214.

If previous cases are any guide, no retribution will be handed out over Stafford. No-one of any seniority will be made redundant, stripped of his or her pension, or deprived of the honours that are handed out so lavishly across who are hunted down are the whistle- blowers, the usually junior, courageous people whose actions threaten to expose the squid from within. An NHS that claims to be transparent actually imposes “gagging clauses” on employees in order to prevent whistle-blowing.

The permanent establishment is also hugely expensive. In the US, about 3 per cent of the Medicare budget is spent on administration. In Britain’s NHS, administration absorbs 14p of every £1 of public funding, at a total cost of more than £10bn. This is probably replicated across public services. When the coalition came to power, the number of civil servants employed by the Ministry of Defence exceeded the combined uniform strengths of the Royal Navy and the Royal Air Force. When British forces were deployed in both Iraq and Afghanistan, the feelings of servicemen and their families about the bonuses (reportedly about £45m) paid annually to Ministry of Defence civilians are best left to the imagination.

The costs of feeding the squid are visible in overall statistics. In the NHS, although real terms spending increased by 97 per cent between 1997 and 2007, output rose by only 36 per cent, representing a 31 per cent fall in value-for-money.

Governments, of both persuasions, have hardly helped. In health, the Conservatives fractured the previously- centralised NHS into an archipelago of expensively-managed “trusts” in pursuit of the chimeras of “choice” and “internal markets”. Labour imposed a target system, which required managers to fill in forms for other managers to read. Ritual bonfires of quangos turn into marginal exercises. When shortcomings are exposed, the response is depressingly familiar – a new inspectorate is created, and expensive inquiries are set up (the Francis report, which cost £13m, is the fifth investigation into the Stafford disaster).As we have seen in the Green Budget published by the Institute for Fiscal Studies, the government’s deficit reduction plan is off target, with the deficit set to be £65bn above expectations in 2015. Instead of crossing fingers in the hope of a recovery, which looks implausible in the absence of thorough reform, government needs to tackle the costs of the squid, and the huge handi- caps and inefficiencies that it imposes on the economy.

We need a squid-killer, whose weapons must include real transparency and a system of rigorous sanctions. Can we find a new champion?Dr Tim Morgan is global head of research at Tullett Prebon.