21 Jul 2015

Is George Osborne changing the shape of the state?

The Treasury is considering a radical re-think of how it manages government-owned property to force departments into re-thinking how much land they own and whether they really need it.

The plan, known as “hard-charging”, which has been pondered in the Treasury in the past, is back under serious consideration.

Departments would find that their property assets could be sequestered to a specially constructed entity and they would have to lease them back at plausible market rates.

Some in the Treasury think that seeing their property costs eat into their spending allocation would make the departments re-think what they hold and radically alter senior civil servants’ whole approach to the department’s property empire.

There’s a different example of “hard-charging” discussed in the Treasury’s Spending Review document: charging a market-based fee to those parts of the public sector which use part of the electromagnetic spectrum (presumably including the emergency services and the Ministry of Defence).

The Treasury enjoys the land sales idea being at the centre of media coverage. It is eye-catching, it can play into the narrative about a decadent public sector.

But these sorts of sales deliver only some of the cuts and they bring one-off benefits, briefly flattering the nation’s accounts.

Recurring savings are achieved through re-thinking “the shape of the state”, a phrase used on page 5 of today’s document but not, you might think, much used in the general election campaign. “Ah”, say Treasury aides, the chancellor did say there would be big cuts.

A la carte cuts

So what might re-thinking the state mean?

George Osborne‘s team points to the Ministry of Justice under Michael Gove as an example of a ministry delivering money-saving ideas that range wide and free, taking on regulation and re-thinking core activities as well as flogging property.

But the reforms already announced would not get the department a long way towards 25 per cent, let alone the 40 per cent cuts in budget that the Treasury is demanding departments bring forward.

Treasury officials emphasise this doesn’t mean they want to shave 40 per cent off a department but they want a menu of options: compartmentalised cuts they can choose from in an a la carte consolidation, as happened in the 2010 spending review.

The Treasury document speaks of wanting “options to reform the markets that deliver public services”, “increasing competition” and allowing “more providers to enter the market” for some services.

But it’s not clear where these changes will happen in a major way.

The chancellor appears to have nudged the door shut on road pricing with his vehicle excise duty changes in the last budget.

Hiving off the cost of apprenticeships to employers seems more of a direction of travel he’s wedded to, a bill passed on to others in return for (corporation) tax forgone.

Other areas of cuts announced today are the complete abolition of “progression pay” across the whole of the civil service, more pressure on public sector pensions and basic pay plus a review of overseas development spending.

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