Adam Smith Institute

Everyone seems to be agreed: the bail-outs to financial firms mean we will all have to pay more tax, or our governments will have to borrow more (leaving our children to pay more tax). But why should this be? Once the financial sector picks itself up, the debt that Hank Paulson wants to buy may turn out to be less toxic that everyone supposes. And Uncle Sam will have bought it at a nice knock-down price, thanks to the fact that he's the only one out there with any cash to buy anything at all.

But even if I'm wrong, why does everyone assume that taxation or borrowing are the only ways to pay for increased spending? What happened to the idea of improving the efficiency of how governments spend money and run services? The debate was an active one in the UK four or five or six years ago. After a couple of years restraint, the Blair-Brown government started throwing money at education, health, and other spending programmes. They proved themselves so inept at handling it that Sir Peter Gershon (pictured left) was brought in to explore how the civil service could be made more efficient. He found billions of pounds worth of gains. But now the debate has flagged. It needs to be revived.

The first thing we need to do is tackle public-sector pensions. It's not just that they are a costly liability for the future. It's that they make civil servants much more difficult to remove, since that liability gets crystallized when you make a civil servant redundant. That makes it much, much more costly for the government to downsize than for private firms to.

And maybe some projects should simply be abandoned. When ID cards or the NHS IT system were mooted, nobody had the faintest idea what they would cost. They just lumber on, getting more and more costly. It's time for a hard look at these and other spending programmes. On the other hand, we should be spending more money on efficient managers who can lead government's huge projects. They need the best project leaders in the world, not just the civil servants who happen to have seniority. Most of them, like their ministers, have never actually run anything in their lives.

The rule should be that all government activities should be contestable. Government should be in the commissioning business, not the provision business. Getting other people to do the provision, bringing in new ideas and facing competitive pressure from others, would save taxpayers billions. Easily enough to buy the odd bank or two.

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