Tim Knox: How can we afford to increase defence spending? Reverse Whitehall failure

Tim Knox is editor of the Effective Governance Forum and former Director of the Centre for Policy Studies.

Kemi Badenoch has pledged to increase defence spending to three per cent of GDP by the end of this Parliament, a rise of around £20bn a year.

All well and good we might say – but surely it is also incumbent on her to explain how best to pay for it? Not least as she has excluded higher tax and borrowing? For she has also said: “We must have a clear, fully-funded plan for the Government, and that can’t be more tax and more borrowing.”

But such honesty and clarity on tax and spending plans are so welcome. As is the Government’s recognition of the importance of fiscal rectitude. Hence their initial decision to cut the international aid budget to help finance their proposed increase in defence spending.

Even better, the Prime Minister is now talking about how the current welfare system is “the worst of all worlds”, discouraging people from working while producing a “spiralling bill” and stressing the moral importance of getting people back to work.

All this against the backdrop of failing public services: overcrowded hospitals and prisons, crumbling schools, police failing to police. These have lead to record levels of public disillusion with over three quarters of us now feeling that serious reform of public services is necessary.

We all must know that yet more money, yet higher taxes can not be the answer. We have surely reached the limits of what is possible there.

The depth of the problem remains: the head of the National Audit Office declared recently that “we’ve managed to pull off the trick of a vast increase in the cost of the system, but no sign of improved outcomes”; the Governor of the Bank of England said last month that falling public sector productivity is holding back the whole economy; and the Public Accounts Committee has warned that HS2, with costs likely to end up at £80bn, is the “model case of how not to manage a national infrastructure project”.

So what can be done? And here we soon come across a single phrase which is often used as an explanation for failure but whose implications are never properly considered: falling public sector productivity. But first let’s look at the numbers, for they are staggering.

Labour is going to try to cut international aid by £6bn or so. Its welfare cuts might be another £5bn. Yet the Chancellor’s inherited black hole was alleged to be £22bn, whilst Badenoch wants £20bn for defence.

But just getting public sector productivity to match the performance of that of the private sector would release at least £100bn a year, every year, to spend on whatever the government of the day chose. They could drop all the cuts, have more defence spending, and still have huge amounts left over to spend on tax cuts, spending on whatever they wanted, or even – whisper it – starting to pay off some of the grotesquely high national debt.

So the big question which needs to be asked is how on earth can you get public sector productivity to match that of the private sector? The answer is simple, if difficult to achieve: ensuring that professional management is the norm  both in Whitehall and the public services.

Government should do what any charity, football club or business must do if it is in crisis: bring in new top management who are not imbued with a failing culture, and then decide its core business and decentralise the rest. Ministers should appoint the best professional managers they can find (let us call them the chief executive of a department) and give them the authority and power to make sure that their department meets whatever objectives are set by the government.

This would require a vast change: to be able to achieve results, these chief executives should control staff’s time in post, pay and conditions, and be free to recruit their own team to drive through deep-seated reform. They should be appointed on long-term contracts to reverse the ridiculous current rate of churn of ministers and civil servants, which in itself creates instability, short-termism, and loss of institutional knowledge.

To be effective, departments should become independent units with complete control over their staff, methods of working, and pay terms and conditions. This will ensure that every level – including, crucially, that of the chief executive – can be held accountable. Each department would develop stability of vision, ethos, and leadership.

Revolutionary, perhaps. But would Tesco hire a CEO who had little management experience, no knowledge of retailing and who changed jobs every two years? Why is that tolerated throughout the public sector?

This would require great political will; just see how the public sector unions are resisting the good but limited reforms to incentivise senior civil servants proposed by Pat McFadden this week. But is this not also a wonderful opportunity for Badenoch to explain the reason behind our national decline – and how she has specific and realistic plans to put things right?