The explanation behind the Nurses’ 1% offer – Austerity returns

The Institute for Fiscal Studies and its Director Paul Johnson make it all very clear.

www.ifs.org.uk

Conclusions

Mr Sunak had three challenges in this Budget – to ensure the right level of support for the economy over the next few months, to set about fixing the longer term public finances, and to deal with the longer term consequences of the pandemic, especially its unequal consequences.

He has done a decent job of the first, arguably erring on the side of generosity.

He has given us a sense of where he wants to go on the second, but he still has a lot of work to do and his spending plans in particular don’t look deliverable, at least not without considerable pain.

On the third he has been silent. No money to deal with post pandemic priorities. No policies to deal with the inequalities that have opened up over the last year between rich and poor, old and young, more and less well educated. This is a big hole in the chancellor’s and the government’s policies, a hole which needs to be filled and soon if we are not to suffer a much worse hangover from this crisis than need be the case.

Extract from Paul Johnson’s opening remarks:

The other assumption is that public service spending plans will be delivered. The big story here remains that the Autumn spending review took some £12 bn a year out of pre pandemic plans in real terms. Yesterday the chancellor chose to trim around £4 billion per year from his cash plans for public service spending after next year. Now these are not firm plans, but they are the basis for the future public finance estimates. They are a very shaky basis.

The Treasury argue that as far as this additional £4 billion cut is concerned this is a purely mechanical change because of a lower inflation forecast. Well up to a point, but it is a particular measure of inflation, depressed by current lockdowns. It does not represent any real reduction in cash needs going forward and it’s pretty clear that, if delivered, this additional £4 billion cut in cash spending will cause additional pain. This isn’t just a mechanical change and presenting it as such means the Chancellor isn’t really levelling with people about the choices the government is making to repair the public finances. 

The actual costs facing departments are unlikely to have fallen. And since the NHS, schools and the Ministry of Defence all have budgets fixed in cash terms until later in the Parliament, this new £4 billion cut will fall entirely on other, unprotected services. Those areas – including perennially squeezed budgets like justice and local government – are now facing real-terms cuts in 2022–23. That’s a recipe for a very tricky Spending Review in the autumn.

But that’s only if you think these plans will actually be stuck to. Are we really going to spend £16 billion less on public services than we were planning pre-pandemic? Is the NHS really going to revert to its pre-Covid spending plans after April 2022?

In reality, there will be pressures from all sorts of directions. The NHS is perhaps the most obvious. Further top-ups seem near-inevitable. Catching up on lost learning in schools, dealing with the backlog in our courts system, supporting public transport providers, and fixing our system for social care funding would all require additional spending. The Chancellor’s medium-term spending plans simply look implausibly low. 

2 thoughts on “The explanation behind the Nurses’ 1% offer – Austerity returns

  1. Let us be clear about the Conservative Party plans for the NHS. And these are facts, not conspiracy theories – well perhaps facts AND conspiracy theories. But definitely facts.

    Margaret Thatcher’s first cabinet proposed selling off the NHS. There were think tank papers, there were proposals. Whilst they decided against doing it, they didn’t decide that because they thought it was wrong – they did it because they felt that public opinion at that time would be against it. (Go research this if you want to find the facts for yourself. The cabinet minutes were released in c. 2009 under the 30 year rule, and several books have been written by academics based on documentation from that time.)

    Despite protestations to the contrary, the reality is that the NHS has been in the process of privatisation for years. The Tories introduced the “market economy” to the NHS on the basis that the NHS being a public service was inefficient. I think it is likely that there was a degree of inefficiency, but the cost of the bureaucracy to administer the market economy is estimated to cost between £3BN and £10BN PER YEAR – no, that is NOT a typo. Imagine what the NHS would be like if we stopped spending that amount of money on pure administration of privatisation , and instead spent it on … well … front line NHS services. It is difficult to imagine that the inefficiencies of a public service NHS would amount to that huge cost of privatisation.

    (And whilst you are at it, you might want to ask why this is only an estimate. Surely, for sums this large, the costs should be consolidated and published? The only real answer appears to be that the Tories don’t want anyone to know.)

    But privatisation also assumes that privately run services are going to be more efficient overall than a public service – but this is a tough thing to achieve in reality because a privatised services has a huge overhead to cover from efficiencies before it even breaks even much less delivers real efficiency savings. The numbers stack up like this…

    1. You take an existing public service and you privatise it. All the staff transfer over on the same salaries, and the buildings have the same costs to rent, maintain etc. So the costs of actually running the service stay the same.

    2. The NHS needs to tender, evaluate and let the contract, and once the contract is running it needs to administer it and check that it is being run properly. This is a significant overhead, of perhaps 10%.

    3. The contractor company needs to tender for the contract, and administer the billing, and prove that it is being run properly. This is a significant overhead, of perhaps 10%.

    4. The contractor company needs to pay a dividend to its shareholders. This is also likely to be of the order of 10%.

    5. The contractor company has more senior management in the hierarchy above the contract management. They will be on huge salaries and benefits that need to be paid. Let’s conservatively estimate these at 5%.

    So before any efficiency savings are achieved, from day 1 of the contract, the costs have gone up by (say) 35%. Which means to keep the overall costs the same, you have to run the original services at only 65% of their original cost i.e. make 35% efficiency savings.

    Do we REALLY believe that as a public service, the NHS can easily make 35% efficiency improvements? Personally I doubt it – there are many pressures on the NHS public services to control costs, including but not limited to financial audits.

    But suppose this was the case. This is a BIG IF – but let’s suppose it anyway in order to compare it with privatisation. If there are such big efficiency savings to be made, then rather than privatise the service, why not make these savings whilst retaining it as a public service. Ok – perhaps it will be difficult to make all of these 35% savings, but by picking the low hanging fruit you can easily see that you might make 20% of these savings. GREAT. So let’s make these easy savings and then see whether it still makes sense to privatise.

    I should also add that before I retired I had extensive experience on managing outsourced and privatised services, working on both sides of the fence – and out of all the different contracts I worked on, I can honestly state that there was not a single contract that delivered benefits on a long-term basis. And one of those was an NHS contract – and what a disaster that turned out to be.

    So, you might ask (and I certainly did) why on earth are the Conservative Party so keen on privatising the NHS?

    Answer: Ideology. The NHS is a product of socialism – it was invented and delivered by a post-WW2 Labour government (at a time when the concept of socialism was understood, and was not confused with communism and not subject to relentless propaganda brainwashing). Indeed, the NHS is perhaps the shining example of the benefits of socialism – and for that matter of egalitarianism and democracy. So, perhaps it is no wonder that the Tories hate it so and want to destroy it.

    Now we go back to Margaret Thatcher’s first cabinet meeting, and the feeling that they couldn’t privatise the NHS because of the strength of public feeling. So, if it were not passible at that point in time, how could they make it possible? Answer: in three ways: 1. Divide and conquer – break the NHS up into many small pieces that are individually managed – yes, this is less efficient, but it does prepare the way for step 2) Privatise it in small chunks, bit by bit, so that by the time people realise what is happening it is too late; and 3) Make the NHS appear to be failing – cut the pay of staff over time (by freezing pay and letting inflation erode the value of what they are paid), make it much more difficult to recruit overseas staff who will accept such poor pay, and load the dice by artificially introducing extra costs that make privatisation look more attractive by e.g. grabbing the land and buildings and then charging artificially high rents.

    And that, my friends, is why the NHS is only getting a 1% pay rise – and since this is below inflation it is effectively yet another pay cut in real terms. The last thing the Tories want to do is to screw up their 40 year strategy to sell off the NHS by paying staff enough to keep them – remember, it is part of their strategy to make the NHS look like it is failing, and paying staff more would screw that up.

    They can afford HS2. They can afford to pay huge sums of money to their chums for unusable PPE. They can fritter away £BNs on a truly incompetent Test & Trace system run by another chum who has zero experience in the field. They can even “level-up” the deprived areas of the UK by allocating funds to the much better off Tory heart-lands. But despite pretending to value the NHS by getting us all to clap, they can’t actually prove that by genuine valuing it with a sensible pay rise. What hypocrisy!!

    MORAL: If you voted for the Conservatives at the last general election, then this is YOUR FAULT. Yes, perhaps you have been brainwashed by the relentless right-wing press into fearing that those communists in the Labour Party are the last people to be put in charge of the economy. But when you look at how the Tories are managing the economy, it is difficult to see how Labour could possibly be even half as bad.

    In the USA, it has become clear that the people have been misled by “the big lie”. Trump and GOP Republicans declared that there was massive election bias by the Democrats. It turns out that they were half right – there was massive election bias, but it was by the GOP Republicans attempting to disenfranchise Democratic voters. But if you sell the “big lie” bigly enough and well enough, people don’t see the truth.

    If you examine the facts, and your hearts, can you genuinely say that this is not happening in the UK, and not happening to you?

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    • P.S. I have an explanation for crazy house prices as well. But this is not the place to post that.

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