We need real reforms as well as cuts

Allister Heath
IMAGINE a failing, near-bankrupt corporation, saddled with out of control and deeply inefficient subsidiaries. A new management team has just been sent in. The previous incumbents failed miserably; the firm’s divisions are loss-making, following their own insular agenda and producing poor products at too high a cost.

In the private sector, the solution would be clear: the new executives would come in with a clear mission to reengineer all parts of the firm. Costs would be slashed; new systems put in place; weak middle managers cleared out; dozens of new executives brought in, perhaps with the help of headhunters. Pretty quickly, the situation would be stabilised, losses eliminated, costs slashed by a quarter or a third, in some cases by shifting production abroad or by using outside contractors, and productivity of the remaining staff hiked – and all the while better products would be offered to consumers. We have seen such transformations time and again; real leadership and managerial skill can do wonders. A car company that is being nursed back to health would never dream of offering worse cars to its consumers; it is astonishing how much scope there is in failing businesses to boost quality while cutting costs.

In the public sector, however, it doesn’t seem to work that way – at least not under this government. Its approach to cost-cutting is looking increasingly flawed; instead of changing the management and restructuring the way services are offered, it has all too often accepted the nonsensical claim made by its opponents that services are already fully efficient and that the only cuts that can be made are to front-line staff. Sure, some waste is being rooted out; some quangos are being dismantled – but no real reengineering takes place, with the result that tens of thousands of soldiers, nurses, doctors and police officers could lose their jobs. What is depressing, is this is largely unnecessary.

The only people who have changed are the ministers at the top. The actual management of government departments remains unchanged; the same civil servants are still running the show, trying to protect their own empires. The same is almost universally true of public sector bodies such as hospital trusts and of course local government. There has been no revolution. Hardly any special advisers have been appointed by the coalition; a golden opportunity to parachute in hundreds of experienced, determined restructuring experts, cost cutters and turnaround specialists has been squandered. Experienced outsourcers such as Serco, a firm which has shown that it can manage services on the government’s behalf at a lower cost, have not been called in. Instead of trying to achieve as much – or almost as much – with less, the coalition appears to have given up and to be prepared to provide far fewer services in return for a little bit less money. The result is likely to be a huge electoral backlash.

Already, YouGov has the Tories on 40 per cent, Labour on 39 per cent and the LibDems on 12 per cent. Given that Labour still doesn’t have a leader, and that the cuts have barely started, this ultra-narrow gap ought to be keeping David Cameron awake at night. It is vital for Britain’s prosperity that the public finances be nursed back to health as soon as possible, and that our bloated government be downsized. The coalition government must get a grip and show that it can reform as well as cut.