Total Balls and the Art of Public Spending
Ed Balls wants growth. He wants us to spend our way out of recession.
I am all for investment. Even in a time of austerity. Maybe even precisely when things are hard. Entrepreneurs know this. Investment leads to long term wealth.
Spending leads to bad debt and long term poverty. “Poverty” (noun, sing.): the state you get in when idiots believe there is a free lunch and other idiots accommodate them. Highly toxic. See also under “Greece.”
Here is a little insight into public spending. I have to be cautious because of professional confidences, and parts of this are taken on a friend of a friend basis, but I have a job, I am not a full time journo or blogger. But here we go.
I have a client who supplies and installs “things”. Let’s call these things…. “computers”, just for the sake of argument.
A few years ago he supplied and fitted out a whole building full of these computers to a Public Body. I can’t say which one, but it is funded by the Government and Local Authorities. That is, you and me.
Gordon and Ed were very good and spending and the funding was lavish and shiny new computers were put in every room. In fact what happened though was that the Public Body actually “purchased” or rather hired the computers from a finance company for a period of 10 years or so, with my client taking a slice off the top. That is actually a much more expensive way of doing things than just buying the damn things outright. It also means the computers had to go back when the leases were over because they were technically rented not owned (a funny investment that) but there we go…
Anyway, so there are all these rented computers.
Now the Public Body knew that it was going to get a shiny new Palace to go with the shiny new computers in a few years (thanks Gordon! thanks Ed!), so it wisely specifically asked for and got a system that could be packed up and moved to the said new venue in due course.
All went well. The computers hummed and whirred and did their jobs. Everyone was happy. Then a new development. Another pot of money became available. Even more money for computers! It is not that the old ones were not fine or capable of being upgraded, it is just there was this great big pot of money waiting to be spent.
There was only one catch. The Public Body still had all these lovely, fully functioning computers on its books. It could not get the new funding whilst that was the case. That would be a waste!
So, by circuitous means it has paid off the finance leases in full. That meant that it did not have any computers, because the leases were over. So now it has applied for and got more funding for even shinier, more expensive computers and moved them into its shiny new Palace.
Not that the old ones weren’t fine, and capable of being moved in. It just wanted new ones.
It has got a bigger budget. Perhaps a bigger budget means higher pay for its officials? Who can say? I couldn’t possibly comment.
What has happened to the old ones remains unclear at time of writing. The finance company does not really want them. It makes it money in financing the deal and charging exorbitant rent for the computers. Perhaps they will all be just given away or scrapped. No one seems to know.
A relative who is a teacher tells me similar tales of schools replacing perfectly good computers every two years because if they do not they are deemed not to need funds at all so they have to get rid of the old ones and buy new ones or lose that part of the budget for the future, so when the computers did break down, they would get no funding.
Is this sensible investment in public services? Or spending for spending’s sake? Will spending like this boost the economy? Or the economy of Japan or China or wherever the computers are made, and the finance houses?
All governments take this sort of approach to spending, because Government thrives on bureaucracy and is obsessed with targets. Figures and numbers that can be spat out in a sound bite. And because it is using someone else’s money.
Spend! Spend! Spend!
That is the madness that got us here in the first place.
Sigillum
Photo is of the musical Spend!Spend!Spend!
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May 23, 2012 at 07:30 -
Well described Sigillum!
Of course, Brown and Balls knew very well, that the people who stared at the screens all day, were the sort who blindly voted for them, so they were very happy for that.
The PCs?
They all finished up in The Bootfair of the Vanities.
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May 23, 2012 at 13:12 -
Bootfair of the Vanities
Yet more proof, if it were needed, that this blog attracts some of the wittiest comments around.
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May 23, 2012 at 07:33 -
I have worked for a local council in one of the tourist traps in sussex, and have seen this in action. Everything from chairs through computers to stainless steel catering equipment all goes into the skip. Its a case of use it or loose it for department heads.
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May 23, 2012 at 08:15 -
I don’t know why the govt and local councils don’t come clean and call the “budgets” what they really are – spending targets.
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May 23, 2012 at 12:13 -
Brilliant.
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May 23, 2012 at 08:49 -
It’s not just the public sector where this goes on. I work for a global multi-national and the same mindset of departmental budget = spending target applies.
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May 23, 2012 at 10:28 -
This is true. Large, centrally-controlled organisation = daft results at local level.
The current gummint talk a lot about ‘localism’. They are dead right. Let us hope that at least some results match the fine words – but they’ll have to defeat a deeply entrenched middle and senior bureacracy first, which won’t be easy.
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May 23, 2012 at 13:35 -
the difference being that the multi-national has a profit to make, and so please it’s shareholders – they are spending money they have earned, not stolen via the tax system. As an aside – the spending decisions are influenced heavily by local tax law…
Ultimately a business that gets these decisions wrong goes out of business.
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May 23, 2012 at 09:10 -
Spending money, or expenditure for Gordon MacBruin came out of the household budget, ie, Parliamentary expenses – you know, stuff like his Sky sports and his new kitchen.
Whereas, ‘investment’ was borrowing on the international markets and using the ill-gotten gains from casino-banking’s ‘incredible financial vehicle bonanza’ an offshoot of Gordon’s insanely lax monetary and fiscal regime [Ed and Gordo’s big plan] and all for the muck spreader to spray on his client state.
Gordon and his side kick cur Balls have never needed [nor wanted to – it’s a Socialist thing] to fully comprehend the value of real money – simply because, they’ve never had a real job – like 4-5 million of his ‘friends’. -
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May 23, 2012 at 09:23 -
It is why Farage keeps droning on about professional politicians who have never had a proper job…
They do not understand the dynamics of investment, they only understand the concept of spending. Much has come out of this misunderstanding, they have encouraged ordinary folk to spend, spend, spend… And they have done the same themselves.
Take as an example this… If one had spent $5400 on an Apple Powermac in 1997, one would have a useless computer now, worth less than $100. If one had invested that $5400 in Apple in the same year, it would now be worth $330,563 (apologies for the foreign currency).
The people that govern us should be the cream of the crop, they should understand the benefits of investment over spending. The vast majority of us do not, but then the vast majority of us do not wish to control the peoples’ every waking moment either.
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May 23, 2012 at 09:33 -
XX If one had invested that $5400 in Apple in the same year,XX They would still be using slate and chalk to do the adding up. And Apple would be broke, beacause every one would be buying shares instead of computers….
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May 23, 2012 at 09:37 -
Perhaps you should re-read my comment…
Particularly…
“The people that govern us should be the cream of the crop, they should understand the benefits of investment over spending. The vast majority of us do not, but then the vast majority of us do not wish to control the peoples’ every waking moment either.”
Which is where I point out that most of us do not understand the difference between investment and spending, but that the people that lead us SHOULD.
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May 23, 2012 at 09:38 -
The kindest judgement that can be made of Gordon B is that he didn’t know the difference between spending and investment- he was only the Chancellor, after all.
There are private businesses that engage in vanity projects and poorly thought through spending. They don’t thrive because the market place and competition are unforgiving,
For the public sector there are simply budgets to be fought for then spent.
No factory will be closed because of some bad decisions, no jobs lost.At the local level, spending of our money seems more driven by habitual support of the usual sacred cows rather than asking ‘how does this community benefit from what we do?’.
Or even- ‘why should we do this at all?’
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May 23, 2012 at 10:37 -
When I worked for a publicly funded organisation, all the computers in our building were replaced and the old ones were chucked in a skip by the back door, and to make sure no-one could ‘rescue’ a perfectly good screen, they were all smashed with a mallet.
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May 23, 2012 at 11:00 -
Now that is what I am talking about. And what does that do for the environment, by the way!
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May 23, 2012 at 19:30 -
Yep, same here, except that I work for a very large American-based engineering corporation. The amount of nearly new stuff that is thrown out is staggering, and yes, all the pcs are smashed with a hammer. Why? Well that ‘s cheaper than taking the hard drives out and giving the rest away to anyone who wants one.
Large American corporations love countries where the heavy hand of state regulation is in control. That’s when they negotiate special agreements with the regulators to create a cosy captive market.
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May 23, 2012 at 10:59 -
Paid for by the serfs amid hysteria of benefit scroungers and spending cuts that will destroy all known life.
It is very simply disgusting.
When will the serfs wake up to the fact that their lives are bossed around and raided by people who simply are disgusting?
How do these con men enjoy such a grip on the psyche of the nation?-
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May 24, 2012 at 09:26 -
Because they promise people something and that something will be paid for by someone else…
Until the money runs out…
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May 23, 2012 at 11:20 -
This spend it or lose it attitude has been a fixture of the public sector for a long time now. I remember decades ago, when I worked at a publically-funded establishment, we underspent on our library budget. The library was well-funded and nobody needed – or even wanted – any additional books. Nonetheless, we were all urged to rack our brains to think of books that would make jsutifiable additions to the collection. These books were duly bought and put on a shelf in the library. They were still sitting there unread when I left two years later. In a sensible world, we would have received brownie points for underspending on our budget, thus saving taxpayers’ money. Instead we squandered the money … erm … sorry, we invested the money in more books.
I’m depressed to hear that this crap is still going on.
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May 23, 2012 at 11:43 -
When I worked for a private consultancy company we had a receptionist who ran the office, we had light bulbs/tubes in the store room, hand towels, soaps for the dispensers. If something needed replacing we would do it ourselves, get one out, plug it in – sorted.
I started working for a NHS office – we have no bulbs/tubes on site – if a light blows we call out a maintenance company that is contracted to us, they drive out, replace the bulb and charge us. If there are no hand towels or soap in the dispenser we call the Cleaning company who sends someone out replace them. Absolute waste of time and money.
The site has NHS branded brollies, mugs, coasters, fridge magnets – why does the NHS have to buy themselves branded things ? Why do they need to advertise ?
That is one small site of 40 staff, there are 11 others in this city, as well as dozens of much larger clinics/sites not counting the hospitals. The costs – well it’s best not to think about it.
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May 23, 2012 at 11:51 -
Spot on. No sensible business in difficult times would do anythingbut mend and make do and act pragmatically. The same rules do not seem to apply to monopolies and the quango sector. Free money on demand!
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May 23, 2012 at 13:47 -
Why does the NHS need fridge magnets?
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May 23, 2012 at 19:45 -
I have no idea, though they seem to be used to adhere the Union flyers asking them to walk out or picket at certain times
or informing them of the savage cuts in their incomes.The is a notice (and 100′s of flyers) on almost every work surface currently telling people they can no longer smoke anywhere (including the grounds outdoor space). Not so bad I guess.
I continued reading, they are offering free clinics to staff to help them give up smoke. Again not bad, but a costs.
Then the flyer states that senior managers will patrol premises to enforce the policy. You would think they had better things to do.
The last paragraphs on the reverse relate to patients, how smoking hinders recovery etc. The thing that really got me was “Patients who insists on smoking must be referred to a senior clinician/nurse for a plan to manage their smoking safely”. There is no hope.
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May 23, 2012 at 14:18 -
In the Bad Old Days before the private sector was infallible, the Civil Service would have staff on the establishment to do those odd jobs that keep an office working efficiently. Then it was decided that it was cheaper to sell the offices off and lease them back from a company headquartered in a a tax haven. The lowly staff were transferred to a facilities company that was able to bring to bear the rigorous cost management of the private sector. This meant that wages were cut and the quality of consumables was reduced on the one hand and charges were increased using accountants and lawyers’ imagination on the other. Thus it transpired that changing a lightbulb cost £200 because the basic contract only included one lightbulb change per year. The private company made profits and the maintenance staff claimed tax credits to boost their income. So public money was “saved” in order to enrich the few.
As for NHS branded umbrellas etc, it stops people nicking them (in theory).
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May 23, 2012 at 16:06 -
OK. So which public sector numbskulls were daft enough to sign the contracts allowing the public purse to be ripped off?
There is such a thing as cost control. Such contract clauses as “Maximum cost of changing one lightbulb shall not exceed £X”, followed by examination of all incoming invoices for work done, and if the contractor don’t like it, he don’t get the gig.
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May 23, 2012 at 17:02 -
Probably the same sort with transferable skills in the private sector, see below:
http://www.fm-world.co.uk/news/business-news/balfour-beatty-workplace-losses-qinetiq-deal/
So they agree to your clause and insert another to make up the lost profit elsewhere (the lowcost airline ruse).
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May 23, 2012 at 18:01 -
Brian – anybody with any common sense would ask the question, “How much does it cost us to this work in-house”, and that would be the maximum contract value for sub-contract work. If the sub-contract value exceeds the in-house cost, then a private sector manager would get either a stiff warning or the order of the boot. Why does that not happen in the public sector?
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May 23, 2012 at 18:19 -
Perhaps it does and the media cherry-pick the cost of a particular service out of context to satisfy the public sector bad meme.
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May 23, 2012 at 20:31 -
Unfortunately, it’s not just the odd isolated incident, is it? PFI, almost every major IT contract, countless examples from NHS, councils, state education…..
The problem is, sadly, structural and endemic. Senior managers are rewarded for the wrong things, and seldom face any sanction for wasting public money.
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May 23, 2012 at 13:29 -
It is with roads that I usually notice this spend-it-or-lose-it behaviour with the best being several years ago when there was a sudden profusion of mini-roundabouts towards the end of the fiscal year across the borough I lived in at the time. Extra crossings, traffic lights and messing around with hitherto unproblematic junctions are also favourites.
Filling in pot holes, let alone resurfacing the roads, doesn’t seem to cross anyone’s mind.
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May 23, 2012 at 20:28 -
Filling in pot holes, let alone resurfacing the roads, doesn’t seem to cross anyone’s mind.
Absolutely Clarissa!
Round here, (Kent), they ‘mend’ potholes, and the repairs last about 6 – 9 months, when they fall into disrepair, and are potholes again.
So the budget of about 80 quid per hole rolls on, year by year.
Disgraceful.
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May 23, 2012 at 16:18 -
The reason this goes on is quite simple, it has been decided that capital spending is bad and current spending is good. The former is ‘jam tomorrow’ while the latter is ‘supporting the front line services’.
So how do you convert capital spend to current spend? Simple, get someone else to provide, raise or borrow the capital and government pays the lease, rent, service charge whatever, all of which counts as current spend. The fact that government could raise the capital cheaper than the service provider doesn’t figure, short-term-ism is king.
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May 23, 2012 at 19:20 -
Nice one, Jim. A very smart insight!
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May 23, 2012 at 20:54 -
Sadly I can’t take the credit. It’s all in a book with one of those heraldic devices on the cover.
Another trick is to give government admin. work to the private sector, ‘bad’ back office government current spend now becomes ‘good’ front line ‘equipment’ current spend plus a profit uplift for good measure!
Accountancy is a wonderful art indeed.
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May 23, 2012 at 21:08 -
Confessing from old days managing IT projects for large corporates, the bean-counters were always quite happy as long as each individual project came in at between -10% and +5%. And that flexibility was part of the trick.
Projects with lots of apparent ‘benefits’ would stand lots more capital spend, so those were over-costed – but, to ensure the bean-counters stayed happy, the excess available capital was then spent on all manner of other ‘needs’, usually to support more marginal projects, but quite often for revenue-spending in other areas where no official budget provision existed – and yes, on occasions, this included staff parties, treats etc. In an annual total of many millions, there was lots of scope for ‘teeming & ladling’ as it was known.
Was it wrong ? By the letter, yes. And the bean-counters will have reported slightly erroneous figures for the overall capital/revenue split. But the end-product was a vastly better service delivery for the corporate’s business users and a happier, less-stressed team making it all happen, concentrating on doing their techie job while the budget-fudging was kept out of their way. Ends justifying means – that’s my excuse. Here endeth the confession.
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May 23, 2012 at 19:42 -
All sadly true… unfortunately.
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May 23, 2012 at 19:46 -
A fine description of how the public secor works. The private sector is oing the same way as more and more companies find the easiest way to make a profit is to get the corporate snout in the public trough.
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May 23, 2012 at 20:02 -
My company (not only private sector, but owned by private equity… so especially frugal) has just bought a batch of new PC’s to replace some that were purchased about 7 years ago, and after a few staged upgrades really have reached the end of their useful life. We did used to replace most IT hardware on a rigid 3 year cycle, but I put a stop to that.. because it was just a case of spending money for the sake of it, not because there was a business need.
So with great will, and cretaive expertise, we managed to stretch the useful life of some kit for 7 years. That was a good effort, and generally I’d assume that stuff will not last more than 5 years. I think that’s a fairly sensible position to take.
Who, in the name of fuck, enters into 10 year HP agreement for a class of equipment which will, with near certainty, not be useful for 10 years.
Not only was the revised plan extremely poor value for money.. the original plan was deeply flawed on both the financial and operational levels.
BUT, I will echo the points of others.. whilst public and private sector do, indeed, get their money from different places.. and can legitimately be held to different standards.. this sort of nonsense is the result of a popular brand of human idiocy that spans both public and private enterprise. People who consider that they are spending someone elses money will, more often than not, spend it badly. It’s all about incentives.. if I spend the money I get a shiny thing on my desk and no downside. If I don’t spend the money then, er, I don’t get a shiny thing and I get no upside accept a sense of heving done the right thing. That sense, for most people, carries remarkably little weight.
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May 23, 2012 at 20:13 -
A fine description of the public “services”. Most employees do NOT need the latest and greatest computer, or even a flat screen monitor to function
or informing them of the savage cuts in their incomes.
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