How public sector inflation is hidden

By George Trefgarne
(Filed: 28/04/2003)

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 the Office for 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

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