How would you cut costs?

George Osborne has outlined in detail the ways in which the new government will look to cut costs and reduce the budget deficit in the coming year.

I think it raises an interesting management question.  Is there a best way to cut costs?  Is there any management theory could teach Mr Osborne?

In terms of government the two biggest areas I think are cutting staff costs and reducing welfare payments.  Things like freezing salaries and raising the retirement age are all measures that the private sector has undertaken to cope with the recession.  Reflecting this in the public sector would be a good start.

I'd second reducing welfare payments.  It might seem a bit extreme but I'd like to see the benefits received by those not bothering to get back into work reduced on an incremental basis, the longer they spent out of work, and that the base rate that they received if they were out of work for a long, long time was very meagre indeed.

I'd also like to see less red tape and the spending of councils, etc. to be monitored more closely.

Paul

It's not just a case of dealing with welfare payments - it's the welfare culture that needs tackling.  We've become a nation of 'rights' and expectations, rather than responsibilities. 

In terms of bang for bucks, eliminating the myriad layers of government would free up expenditure for the 'must haves' rather than the 'nice to haves'. 

Both issues combined would create a new, affordable and sustainable model of society, where government facilitates rather than controls.

All of the above are fundamental management principles and can only be attained by adopting a professional, management culture by government.

 

Christopher Maude wrote:

It's not just a case of dealing with welfare payments - it's the welfare culture that needs tackling.  We've become a nation of 'rights' and expectations, rather than responsibilities. 

In terms of bang for bucks, eliminating the myriad layers of government would free up expenditure for the 'must haves' rather than the 'nice to haves'. 

Both issues combined would create a new, affordable and sustainable model of society, where government facilitates rather than controls.

All of the above are fundamental management principles and can only be attained by adopting a professional, management culture by government.

 

You're spot on there Christopher.  It will be interesting to see how far the Tory plans to devolve power go.  That would certainly flatten out government a whole lot and 'should' make it considerably more efficient.  I can't imagine the unions taking it lying down though.

I agree with Christopher about the need to tackle the welfare culture we have in this country, but until it becomes significantly less financially attractive to be on benefits than to work, this will not go away. It seems that hardly a day goes by but we read about large family who don't work and get huge amounts of money in housing and other benefits. More worryingly, the children in such families will grow up thinking this is the norm (because they've never seen anything else), so each succeeding generation exacerbates the problem.

As we all know, changing an organisation's culture is one of the hardest things to do, and it's probably even harder to change the national culture; this and ideas such as slimming down layers of goverment and goverment departments should be pursued, but this will be a longer-term strategy - we need some 'quick wins'.

I think a healthy dose of 'Micawberism' is required - a recognition that we cannot live beyond our means. We have to increase revenue (which comes down to taxation), reduce costs, or both. Three areas seem to me to be prime candidates for cost cutting.:

1. Do we really need to spend huge sums on upgrading Trident? This is not from a moral or political perspective, I just question whether the perceived benefits justify the costs - a basic management approach.

2. It must be  costing vast sums of money for us to keep our army in Iraq and Afghanistan. Again laying aside the moral/political question, and looking at this purely in financial terms, there must a big potential here to save money.

3. Cut right back on foreign aid. It's a good thing to try and support poorer countries, but we can't afford it right now - we should either stop completely or cut right back until our own country is back on its feet.

 

 

Jim Vasey wrote:

I1. Do we really need to spend huge sums on upgrading Trident? This is not from a moral or political perspective, I just question whether the perceived benefits justify the costs - a basic management approach.

2. It must be  costing vast sums of money for us to keep our army in Iraq and Afghanistan. Again laying aside the moral/political question, and looking at this purely in financial terms, there must a big potential here to save money.

3. Cut right back on foreign aid. It's a good thing to try and support poorer countries, but we can't afford it right now - we should either stop completely or cut right back until our own country is back on its feet.

 

Interesting points.  Companies make the same mistakes as governments, when they let their egos run away with them.  (Never believe your own propaganda). 

The UK is no longer a global power.  We need to accept the fact we are the 5th largest economy, and only have Trident 'on approval' from the USA, so it is not even an independent deterrent.  Does anyone really believe boots on the ground in Afghanistan is making us safer?  What about the 7 July London bombings?  Our armed forces are geared to fight the cold war, not modern insurgency and terrorism - we need to adapt.

Why give aid to governments?  I'd contribute to charities who provide local people with the skills and resources to improve their own lot, not to often-corrupt regimes.

The national mindset and budgets need to reflect reality, not illusion.  Again, a basic management issue that politicians need to learn.

 

 

Yes, the culture needs to change.  But don't you think reducing the payments made goes some way towards achieving that?  If people don't receive hand-outs left, right and centre, won't it make them less reliant on them?

Paul

Paul Johnson wrote:

Yes, the culture needs to change.  But don't you think reducing the payments made goes some way towards achieving that?  If people don't receive hand-outs left, right and centre, won't it make them less reliant on them?

Paul

Agreed.  That's part of the equation - a push factor.  We also need pull factors - those that attract people to a different paradigm; e.g. social disdain for a way of being, in the same way that drink/drive is far less acceptable now than 30 years ago.  If there is genuinely no way to pay one's own way, then work should be done for the community in exchange for benefits.  The social initiatives/charities would welcome the help and skills would be accumulated that better enable paid work to be found.  Being given benefits for doing nothing in return is neither just, nor real world.

 

There's an interesting piece in The Economist this week about this.

http://www.economist.com/node/16377180?story_id=16377180&source=hptextfeature

They essentially suggest we should cut the NHS budget (as one of the largest) and also the welfare budget (as the largest).  The welfare would be done by extending the retirement age, as pensions are the biggest chunk of welfare payments.  They also suggest a pay freeze on public sector workers to bring pay more in line with their private sector brethren.

All in all it seemed a sensible series of suggestions.

I agree that the welfare culture should be changed..though it won't be easy to do.  However I'm not sure decreasing payments is the way to go.  Why punish the genuine people who cannot work because of those that choose not to?  Could it not be based on more pragmatic measures; assessing people's ability to work through medical reports and assessments (much like we do at work), monitoring applications made by those on say jobseekers or income support, requiring evidence of applicaitons so people don't make it up.  That sort of thing

I do feel if government departments actually talked to each other and shared information a lot more benefit fraud and the amount of benefits paid out would be tackled ad reduced.

Make it harder for people to qualify for benefits (but not impossible if they are genuine claimants).  What do other countries do?  Should we be learning from them maybe?

I can understand a pay freeze in public sector to bring inline with private sector workers.  However it does concern me that if taxes, VAT etc are going to rise, will companies be able to afford a rise in wages to meet this, otherwise more and more people will struggle to afford to live even at a basic level, increasing the level of debt which surely is what the government should be looking to avoid?  It could see more company closures, more job losses and the impact of that on the UK.

I don't think there is an easy answer to any of this but I do think the government are treading a very fine line.  Time will tell i guess.

Well we will soon see.  Budget started now.

Just been reaidng the budget update on BBC website

http://news.bbc.co.uk/1/hi/politics/10374475.stm

Interesting reading...

I am pleased that the Chancellor recognised the damage done by cutting capital expenditure excessively and has put safeguards in place.  Capital cuts feed straight through to the private sector and therefore doubly damage the economy.  The real challenge is to reduce revenue expenditure which in the public sector means significant job cuts.  Will it really happen and if so how quickly? When will we see on the news headlines the first civil servants walking out of their Westminster offices carrying their cardboard boxes full of personal possessions? (Sorry that should have read gold-plated pensions and redundancy packages which weren't touched surprisingly - suspect they will be by the Autumn spending review....)

As Vice Chair of a housing charity that helps young, homeless people by managing their lives, I am disappointed by the disproportianate attacks on them and the expectation that it is they who are going to have to feel the pain.

Let me explain: tomorrow we have an emergency EGM of the Board to introduce a 20% cut in our budget which will have an impact on those who deliver and receive our expert support.

This is because we (as well as lot of third sector charities) depend on government funding to deliver our specialist services - of which have been decanted by local councils over the past 30 years.

So - you explain to me how it is we have a government that says on the one hand it wants charities and the third sector to do more whilst it takes away the very resource it needs to deliver the services.

I shouldn't have to explain on this web page that once you dismantle and close an organisation or service, it's damn near impossible to re-create it after all the skills, competences and knowledge has gone.

My last point is this: if you also factor in the cuts in building social housing (see Shelter's comments) I really fear that you will see a return of homelessness and the social costs associated with the withdrawal of the support that has been given: not a culture of dependency; more a culture of picking people up and allowing them to stabalise and move on.

Unless (of course) you are going to tell me, colleagues, that you are going to put your hand in your pockets and start donating to charities to plug the gaps that have now been created? Or perhaps I could encourage you to start sitting on the Board of charities as voluntary executives and bring your fund raising skills with you!

Managing vulnerable people in the third sector requires an extraordinary mix of skills and competences and it is not helped by expecting to them to survive when their funding disappears.

From my perspective: the Budget is attacking the vulnerable by using a temporary fiscal problem to create a culture of cuts and confusion as to how the public sector and the third sector deliver services.

Peter Horah wrote:

Unless (of course) you are going to tell me, colleagues, that you are going to put your hand in your pockets and start donating to charities to plug the gaps that have now been created? Or perhaps I could encourage you to start sitting on the Board of charities as voluntary executives and bring your fund raising skills with you!

Managing vulnerable people in the third sector requires an extraordinary mix of skills and competences and it is not helped by expecting to them to survive when their funding disappears.

From my perspective: the Budget is attacking the vulnerable by using a temporary fiscal problem to create a culture of cuts and confusion as to how the public sector and the third sector deliver services.

I agree with some of this:

Putting hands in pockets is something I do a lot, and I also ensure that each organisation I have headed up does so for the community as well.  I also contribute my time.

Disappearing funds is a consequence of virtually unprecedented levels of national debt, which if left unchecked, results in a sovereign debt crisis a la Greece.  Restructuring how society delivers this need is a management task as well as a political one, and I for one would like to see the CMI leading the management charge.

I might have missed something, but I haven't picked up that this thread has picked on homeless people, rather focusing on a broader cultural issue.

I don't see this as a temporary fiscal problem, and also believe there will be no return to the 'good times' that were after all, built on record personal and government debt levels.  Business management is also about managing the books in a sustainable fashion.  When national debt comes down to a sustainable level, it would be insane to let debt soar again.   Also, who is to say that there won't be a collapse in international money markets due to a sovereign debt crisis?

The clear risk that you outline is the transition from one model (50% of the British economy being state funded/driven) to a new, sustainable model and the obvious and very painful difficulties that will create.  All managers have skills they can contribute to the third sector and the CMI should encourage more to do so, plus provide online resources and support.  A task for the branches in each of their communities?

 

Peter,

Was interesting to read your comments on here.

Working for a charity myself, and having seen a summary of the budget, I do wonder how it will affect us and our ability to maintain and improve the services we offer to our clients.

However, we do not receive government funding or other organisational funding.  We are solely reliant on people 'putting their hands in their pockets' and donating to us.  For me the concern now is how we can at least maintain the donations we receive when people are being hit by VAT increases, benefit changes and so on.  Even the poorest of people manage to find a way to donate to us.  Certainly the next few months or so will be telling.

However, another part of me stands by what I said earlier.  Our welfare system should be changed to make it harder to qualify for benefits, to deter those who claim because they 'choose' not to work, rather than because they are genuinely unable to work, from claiming.  Something needs to be done to make working the more appealling option, rather than claiming benefits. 

Personal opinion only, I realise that there will be some who will disagree.

Looks like many of the measures were predicted by the Economist article Wayne posted earlier.  Here is our response to it.

http://www.managers.org.uk/news/business-leaders-welcome-budget-want-more-answers

I'm not really surprised by any of the measures they've implemented.  Sadly a lot of my Labour supporting friends are completely up in arms about it all, with taunts of typical Tories etc.  It's hard to imagine what else they expected given the circumstances.

There's an interesting chart showing how government money is spent here:

http://www.guardian.co.uk/business/interactive/2009/sep/16/public-spending-larry-elliott

...only it's 2-3 years  out of date.  Anyone know if there's an up-to-date version of the something similar?

It strikes me as a good way of being able to visually identify where savings/cuts might be best targeted.

Paul

It's interesting that the government are asking front-line staff to suggest ways to save money.

http://news.bbc.co.uk/1/hi/politics/10398707.stm