Commentary Magazine


The Economy Drive

The parlous state of Britain’s economy and budget and the necessity of cuts in government spending should be common knowledge. The British public certainly grasps the situation. Its one manifestation is the data by the polling firm Ipsos-MORI. In its latest monthly “Issues Index,” which invites interviewees to name as many issues of concern as they care to, “Economy/Economic Situation” stands at 49%.

By contrast, issues that Labour might be thought to own, such as “Pollution/Environment” (8%), “Poverty/Inequality” (7%), and “Low Pay” (3%) are of distinctly tertiary importance to the public. Given today’s statement by Pimco’s Head of Global Portfolio Management that Britain stands a better than 80% chance of losing its AAA credit rating, on the grounds that the government’s debt reduction plan “is lacking in conviction and . . . is lacking in details,” focusing on the economy makes a good deal of sense.

As Pimco’s criticism of the government implies, the only man not willing to grasp the nettle of reality is Gordon Brown. Mike Smithson, the proprietor of the lively Political Betting blog, points out that in a weekend interview with Andrew Marr, Brown refused to acknowledge even the possibility of cuts in government spending.  As Smithson puts it, “The interviewing trait where Mr. Brown is at his most vulnerable is when he seeks to deny something that is clearly the case. Less charitable people than me might use the word ‘porkie.’ The problem is that he does this when it is so obvious.”

A big part of dealing with the problem of government spending will be reducing the size and cost of the British civil service. This is a problem in the U.S. as well, as publications such as the Economist and columnists like Michael Barone have pointed out recently, but anything the U.S. does in this context, the UK can do worse. The most recent Sunday Times notes that in 2009, 21.1% of all UK labor was employed by the state, and that – measured by hours on the job, rate of wage inflation, or salary – it is almost always better to be paid by the government than by a private employer. Even in the highest paid job, the private sector pays better salaries, but the government offers a much larger pension.

What’s more, some British ministries have become increasingly top heavy: more generals, fewer privates. In the Ministry of Defense, for instance, the number of workers in the lowest two pay grades has fallen by about 19,000 since 1997, while the upper tiers have increased by 2,000. I have my suspicions about just how real the headcount reductions are – you can achieve seeming miracles by contracting out, as the MoD has done extensively under Labour – but even if you take the cuts seriously, they’ve not stopped total civilian pay from rising 13% from 2003/04 to 2008/09, as against a 12% rise for pay to the forces. The cost of the senior grade pay and pensions must be a major part of that increase, which is particularly scandalous given Labour’s general cheapness when it comes to defense spending, and what should have been the effect of a substantial decrease in the size of the MoD.

The pension question is particularly interesting and dangerous. The Institute of Directors estimates that the unfunded cost of public-sector pensions in Britain over the next 50 years is about 335 billion pounds. Given the relative sizes of their economies, that’s even larger than the $2 trillion shortfall the U.S. faces, according to the Financial Times. And every time Brown or Obama hires someone else, that shortfall gets a little bigger, and the size of the productive economy gets a little smaller.

It makes me think, first, of the superb “Yes Minister” episode on “The Economy Drive,” in which Sir Humphrey proves to Jim Hacker that, in order to achieve increased efficiency, you have to hire more people. And, second, of Margaret Thatcher.  The UK National Archives have just released some of her early Prime Ministerial memos. Her first priority: cut the civil service by at least 5%, and preferably by 20%. “What,” she asked, “are we doing with 566,000 that can’t be done with 500,000?” An excellent question, then and now.

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