Spending without reform

The Government’s mantra of “investment tied to reform” is acknowledgement that, without reform of the public sector, higher spending will be wasted.

Real reform should be based on widening choice, introducing competition and separating the role of the state as funder from the role of the state as provider. Since it means challenging existing ways of thinking and challenging vested interests, reform requires political commitment and leadership.

The model of reform is the successful granting of independence to the Bank of England – a policy pioneered in New Zealand. The Government sets the objective of monetary policy in terms of a transparent inflation target. The Monetary Policy Committee has freedom to set interest rates to deliver the inflation target and is accountable for its performance.

The Government is introducing massive spending increases. Its programme will cost an extra £10 per day, or £3,650 per year, for every British household by 2006-7. British public spending is now on course to reach European levels within a decade.

But real reform is absent. Under its new framework for public spending, Ministers, not managers, are accountable for performance, giving managers a ready-made excuse for failure. This explains the extraordinary increase in activity at the centre of government. More than 20 new Whitehall units are no substitute for freeing and encouraging managers. Worse, tangled reporting lines and additional reporting requirements can lead to higher costs.

Departments have many complicated targets and are not penalised for failing to meet them. Crucially, there is no link between each target and spending, so it is impossible to assess value for money. The proliferation of central targets and agreements has been a failure. Centralised task forces and initiatives should be scrapped.

Without radical change, the Government’s colossal increases in public spending are programmed to fail. The economy as a whole will suffer; the credibility of public services will be damaged irreversibly; Britain’s competitiveness in world markets will suffer significantly and real incomes will be reduced ultimately at every level of society.

The Commission’s Final Report will set out its proposals for reform of key public services based on the principles of reform laid out in this Report.