My very low expectations for this election campaign are not being disappointed. Yesterday the newspapers carried a story about how the Conservatives planned to finance their policy of reversing Labour's planned increase in National Insurance contributions - the tax on jobs you will recall. The Conservatives acknowledge that the NI policy - at a cost of £6bn - will need to be funded. Interestingly they have indicated that they have plans to raise £12bn with half paying for NI, the remainder to go back to the public sector.
The source of this funding - discussed in the FT by none other than that public sector efficiency guru Sir Peter Gershon - would be as a result of driving out further efficiency savings in the public sector. All very laudable except that the targets for driving out £12bn in a year seem for the most part very familiar - back office reform, better procurement, freezing IT projects and bearing down on consultants. I would be amazed if this shopping list was not already the focal point for many public sector organisations as they look to deliver on existing efficiency targets. For that reason I believe that most of the £12bn is accounted for in existing targets and plans - in short there is a huge amount of double counting here. Many public sector operations are already struggling to realise bottom line savings as a result of these initiatives (many of which have been worked on since "efficiency" and Vfm resurfaced in 2004) and so to believe that there will be a step change in improved delivery immediately after the election is hard to swallow - hence the leading cartoon. And even if there is a vast swathe of public sector organisations not yet 'doing' efficiency, many of the proposals here cannot be done either quickly or without a cost - and zero cost is implicit in the Conservative Party figures.
However that is not to dismiss the whole exercise as fanciful. The plans to freeze recruitment and allow savings to be generated as a result of not filling vacancies ought to meet the objective of generating savings in 2010/11 and at no cost. So this morning, with my trusty fag packet to hand, I did some quick figure-work.
The assertion I have seen is that turnover rates in the public sector is 8%. Lets assume that the 8% represents a net exodus from the public sector (questionable but still) and lets assume an average salary of £25000 or just over £2000 a month). The ONS statistics on the public sector indicate there are a staggering 6.1m employees. If 8% are leaving annually that is nearly 1/2m a year or more pertinently, 40,000 a month. So each month the public sector could find itself able to save £84m (40,000 leaving multiplied by £2000+ per month) simply by not replacing the people that leave. Now as we go month by month through 2010/11 the accumulation of savings is impressive. For example in the first month of 2010/11 (April) we save £84m; in May we save £168 - the £84m from the people who left in April plus a further £84m from the May departures. By my estimates that is worth £6.6bn by March. Impressive and certainly sufficient to pay for the NI policy.
But: recall that the savings have to be generated in 2010/11 at no cost. We're already into 2010/11 and there will be a flow of appointments already in train which are probably irreversible. So I have written off the first three months. No matter because by my estimates there are still potential savings of £3.8bn to be had even if the policy only starts to bite after three months. If we also assume that the promise to afford a degree of protection to front-line services would mean that only half the departures would not be replaced we could see a saving of £1.9bn being generated - in line with Conservative thinking here.
Just one small snag - the number of post losses to generate this saving in 2010/11 has been quoted as 40000. By my reckoning its rather more than that. Partly because the machinery to ensure an effective freeze could probably only operate for nine months in the year of the election; and partly because, on the assumption that this is being done by natural wastage, savings will be built over the year as people leave and not from Day 1.
By my reckoning the post losses that would need to be found to fund plans in 2010/11 are 182,000. It is only once we have a recruitment freeze running across the whole year that savings will start approaching target levels. My own estimate is that on the basis of an average public sector salary of £25000, one would need to lose 80000 jobs to save £2bn in a full year. That a bit less scary than the 182,000 required for 2010/11 but still more a good deal more than 40,000.
And bear in mind, thats the most do-able bit of the £12bn we have been told can be saved through efficiency. In short the whole thing is fantasy politics. Lets hope the rest of this campaign can be conducted on the basis that the British people are not idiots.
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