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Advice to the next Chancellor

Call in the grim old Hungarian

30 September 2009

12:00 AM

30 September 2009

12:00 AM

The best moment in a chancellor’s life comes early. ‘Mr Deputy Speaker,’ he says, ‘we have examined the books. The position is grave. My first duty is to put the public finances in order.’ He then sends for the Hungarian middle-distance runner, Savij Kutz.

This bogeyman, first identified by Alan Watkins, has been off the track for years but is making a comeback. Nick Clegg for the Lib Dems gave him a friendly wave. Gordon Brown mutters his surname through gritted teeth. David Cameron lets it be known that he wouldn’t want Kutz to be confrontational. He may not have the choice.

Public profligacy has seen to that. Public spending in this decade has outpaced every other major economy, public borrowing has struggled to keep up, and until the other day, the Cameronians seemed content to let this go unchallenged. They murmured instead about sharing the proceeds of growth. What growth, they must now wonder? What proceeds?

Today’s Chancellor has budgeted to borrow £175 billion this year and, in the next five years, another £700 billion — if his creditors will let him. The next Chancellor, when he looks at the books, would be wise to expect to find something even nastier. Then, unless he is prepared to test his credit to destruction, he must send for Savij Kutz. The old brute knows what will work and what won’t. He knows, for example, that rubbing out lines on a map is a spurious economy. Denis Healey tried that one, purporting to save money by not building an airport in the Thames estuary or a Channel tunnel. His credit ran out two years later.

Real economies have to be found not in one-off capital projects but in the public sector’s current and recurrent shopping-list — in the bills for what we do already. Corin Taylor at the Institute of Directors has helpfully drawn up a counter-shopping list of things we don’t need, things that don’t work, and things that we could buy more cheaply. Go right through the list and we could save £50 billion a year.

Regional development agencies, for example, are paid £1.7 billion to do what local businesses could do for themselves if they thought it worthwhile. London has one with a nice new head office and an income of £417 million. That money would pay the interest on a bond sufficient to finance half the cost of Crossrail, which would be a more practical way to help London.

All the same, as his Hungarian adviser could tell the next Chancellor, making a list is one thing and making it stick is another. Spending departments will see to that. After all these years of imperial expansion, they will fight to keep their territory. Old departmental hands will resort to the Beggar’s Sore Technique. Familiar on the streets of Calcutta, this requires the parading of deformities so hideous that passers-by will shudder, feel a sense of guilt, and pay. It works best for the National Health Service budget, but can be applied across the board.

The spenders know, too, how to create a grievance from getting more money. A department with a budget of £10 billion may plan to spend an extra billion next year. When it finds that next year’s budget has been limited to £10,800 million — well then, Savij Kutz must be at his foul work. Blaming him is the first line of every spender’s defence.

Most of all, the next Chancellor must recall his own department to its sense of purpose. Under Gordon Brown the Treasury became a great power-base, always micro-managing, setting targets, minding everybody else’s business at the expense of its own. Companies make the same mistake when their ambitious treasurers run their offices as profit centres — a sure way to lose control and, then, fortunes. There are examples all around us and Brown’s Treasury is one. To the next man in line, it should be a sufficient warning.

On the day when he presents his first budget, he will be all-powerful, because he can blame the bad news on other people. This asset will never recur and he must not squander it. His colleagues’ promises, he can explain, are really aspirations, to be met when the money is there. This would help him undermine the ring-fences now being conjured up around pet departments. He could compare notes with Geoffrey Howe, who found himself committed to huge increases in public sector pay. Calling them aspirations would have saved him and the economy much time and trouble.

Kenneth Clarke is another former chancellor who must find today’s landscape familiar. He came in when the national debt was in the process of doubling and the economy was on its knees. Urged on all sides not to do anything that might abort the recovery — no taxes, no cuts, please — he told me in so many words that the public finances would have to come first. Nothing else would go right until they were in order. He was vindicated, and it took most of this decade to undo his work. Now baneful old Savij Kutz must come round again.

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