The Horse and the Trough

There is an adage in economics that you can take a horse to the trough but you cannot make it drink. Boy George is engaged in such an enterprise. In his latest Budget he proposes to hold back the growth in government spending (a task equivalent to jumping from an Express train at full speed) while sustaining or even growing capital expenditure; and to shift resources from the public to the private sector. He did not dwell long on the contradictions. Put simply: thirty percent of the demand for private sector resources comes from the public sector and each pound of public investment  creates a multiple of it in government revenue spending somewhere. Imagine the conversation between a government department and a local authority: ‘Good news ,Jack/Jim/John ,we can go ahead with the new school/ Care Centre/ road scheme you have been campaigning for.’ ‘ Sorry John/Jim/Jack, we have no money. Have you forgotten you have frozen the Council Tax and cut our grant?’ Once when I was the Chairman of a London Borough Finance Committee, I carried out an analysis of the revenue effects of capital spending across Departmental headings. It was very revealing. Wherever the labour content of the service  was high (lots of people), captital investment generated big new revenue costs: for example, education and social welfare. Surely, I hear you saying, Boy George and his Treaury advisors know all that stuff. They do, they do. I listened in. ‘Well minister, what do you want to do? ‘Ah, the answer is to shift resources into the private sector: Free Schools and Welfare through charitable organisations which do not pay their staff anything but peanuts. (Who is going to tell Unite about it?). ‘Good wheeze, get Michael Gove on the phone.’  ‘Hold on Minister, where does the money come from to finance an over-expansion of school places and the ongoing revenue costs of them?’ ‘Well, I’m thinking about it. Why don’t you help, isn’t that your role, I’m sure you can think of something?’


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