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Beaurocracy costs hides inflation

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How public sector inflation is hidden
(Filed: 28/04/2003)

The Government's tax-and-spend policy is doomed to failure because the bureaucracy needed to administer the system destroys value, says George Trefgarne

I went to a school which once specialised in bureaucracy. Haileybury was founded to train the Indian Civil Service and did so until the East India Company was effectively abolished in the middle of the 19th century.

According to the historian Niall Ferguson, the ICS was the most efficient bureaucracy in history, administering a continent of 400 million with just 1,000 staff. Would that modern British bureaucrats were so conscientious.

For bureaucracy is one of the absurd features of 21st-century Britain. We have so many bureaucrats, nobody can count them. Bureaucracy is not so much a growth industry as a virus, stifling initiative and suffocating creativity. It has become the chosen profession of the nosy-parker and the second-rater, elevating timidity, form-filling and bossiness above enterprise and endeavour.

Incredibly, the British state does not know how many people it has on its payroll. The best estimate from National Statistics is more than seven million, or one in four of the workforce if you include those employed in "outsourced" projects. That is up by 150,000 in the past year.

In a little noticed paragraph in his Budget, Gordon Brown admits to employing 5.2 million directly and said the Government would be hiring another 200,000 people in the next three years. Thanks to this bonanza, public sector pay rises are far outstripping those in the private sector, which are now insufficient to cover recent tax rises.

If only the new staff were doctors, teachers and policemen. But just half will go into the front line of public service. The rest will shuffle bits of paper, impose health and safety initiatives, draw up partnerships and charters and hold conferences.

The NHS, for instance, has 210,000 managerial and clerical staff. Even if they were all made to do something useful, like make hospital corners, they would still be underemployed. The NHS has only 199,000 beds.

Bureaucracy is especially prevalent in education. Last week, we reported that one primary school headmaster is so fed up that he has resigned. Nick Butt, who runs St Edmund's in King's Lynn, Norfolk, was asked to cut his budget, despite having to spend 8,000 fixing finger guards to doors.

If he wants to take his pupils to the nearby beach, he has to fill in a risk assessment report for approval by the local authority.

All this, of course, is in stark contrast to the boasts of Charles Clarke, the Education Secretary, who says that the Government is increasing education spending by 11.6 per cent this year. But this measures only inputs, not outputs.

The Government is shovelling money into the system, but much of it is lost by the time it gets to schools - 500 million has disappeared in unspent funds. It seems that some bureaucrats are now so unproductive, they can't even waste money properly. Perhaps they have been on holiday, or paternity leave, or exercising their new right to work "flexitime".

Mr Clarke blames local education authorities. But the truth is he just wants to claw back the money for Whitehall, where his department employs 5,000 people. According to a study by Nick Seaton*, a third of all education spending goes on bureaucracy and centrally imposed initiatives.

As befits a system run for and by bureaucrats, the allocation of funding to schools is complex. First, the Treasury provides the money to the Department for Education, which hands half over to local authorities. It passes on what it can spare to local education authorities, which deduct about a fifth for their own running costs.

The other half is allocated centrally via the department and its quangos. By the time the parcels of money reach schools, what was about 5,000 per pupil has been reduced to about 3,300. In other words, if you put 10 into the state education system, only about 7 of education comes out the other end.

The case of the missing 500 million is a classic example of how the Government's tax-and-spend policy is doomed to failure, because the bureaucracy needed to administer the system destroys value. There is another word for getting less for your money every year: inflation.

But public sector inflation is hard to measure because unlike, say, the price of bread, which we can see in the shops, bureaucracy is a hidden cost. The outputs of state organisations such as the NHS and the state schools are free at the point of use.

We have to rely on the likes of Mr Seaton, burrowing through the Government's accounts, to find the true cost of the invisible disease Labour is spreading.

This year, the hidden inflation of the public sector is even worse because of the increase in employers' National Insurance payments, which go straight back into the system, so the process can start all over again. And extra money must be paid into teachers' pension funds (which have also been degraded by tax rises).

So the education budget may be going up, but it is mostly being absorbed in extra costs. The 11.6 per cent increase in spending is really the education inflation rate. It would be far better if money was allocated to schools on a per capita basis and LEAs abolished.

An Old Haileyburian in a braver age, who devoted his life to running hundreds of square miles of India by himself, would turn in his grave to survey the evil empire modern civil servants preside over. Their profession is being discredited by waste. Many of them should be ashamed at the pointless jobs they do.

* The True Cost of Education, published by the Centre for Policy Studies

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