Public services in blockchains II: disrupting bureaucracy

18 August 2016

Bureaucracy, Ludwig von Mises explained in 1944, is “always applied with an opprobrious connotation”. Such connotations – that it is time-consuming, frustrating and costly – have stood the test of time. If you wanted to ask a question about a self-assessment tax return in October, you’d have been waiting 47 minutes to do it. In 2014-15, the public-sector wage bill was £150 billion.

New thinking can change this, however. Blockchain – a public ledger capable of recording transactions securely (explained here) – is a key means. Businesses are proselytising the technology as able to remove back-office functions that eat into profit margins. Banks believe they can cut $20 billion from running costs. Government must likewise see it as a way to dramatically improve efficiency.

The UK Government has been making positive noises this year. In January, the Government’s chief scientific adviser published Distributed Ledger Technology: beyond block chain, setting out a number of possible applications of the software. In April, then Cabinet Office Minister Matthew Hancock, explained that blockchain is being explored as a way to streamline the distribution of government grants and track aid spending to ensure it is spent correctly. The last Government wanted “blockchain brainstorming” to explore further options.

One overlooked application is in replacing administrative work in the civil service. This alone accounted for 170,000 staff at a cost of £3.25 billion in 2014-15 (see graph).

Number of civil servants in each level

Blockchain can replace some of these functions by recording transactions. Governments across the globe have begun experimenting with using the software to record property ownership. This is administratively light as it is automatically documented by the chain and it skips the current need for people to use central registers to access information. The Government could use this approach to more efficiently spend Land Registry’s £13 million annual staffing bill. Sweden believes this can be done while cutting the time taken to complete real-estate deals.

The real win, however, comes from streamlining the running of the biggest departments, which are most heavily weighted towards administration (see graph).

HMRC, HMRC 2, MoJ, MoJ2, DWP, DWP2

This can be done through the use of ‘smart contracts’ on blockchain. These contracts automatically carry out certain functions if pre-defined conditions have been met. Businesses could, for example, set-up real-time tax payments when they receive income – and automatically receive rebates where appropriate. Similarly individuals could set up automatic self-assessment returns, skipping the need to interact with HMRC officials. Elsewhere, DWP could automatically pay and update social security in reaction to working status – a clear compliment to Universal Credit, which pays benefits dynamically, based, in part, on working hours.

Moving responsibility for paying taxes and distributing benefits onto the blockchain can allow these departments to reduce human administration. HMRC has an aim to become “diamond-shaped”, which entails the cutting of over 14,000 jobs, assuming numbers of staff at other levels remain constant. This alone would reduce staff costs by £275 million. In 2015, DWP officials mooted reducing employee numbers by 30,000 – or 36 per cent. Replacing 36 per cent of officials would save £290 million in staff costs – although in all likelihood the axe would fall more heavily on administrative jobs because of their potential automation.

These are ambitious aims. The history of labour-force change in the private sector reveals that for every lower-skilled job that is automated, as many as four are created. Today’s frugal public sector may stop such expansion. But to understand blockchain’s effects, government should follow the advice of its chief scientific adviser in Distributed Ledger Technology and begin piloting its use. Only then might bureaucracy finally be consigned to the scrapheap of history.

Alexander Hitchcock, Researcher, Reform

Comments

Comments

Steve Novetsky

23 August, 2016

Sounds very promising. A very clear and easy to understand article(s), too.