10 Lessons From Government on How Not to Budget

If you want to know how to budget, don't look to government. All three party leaders in their first election debate showed that they are not fit to manage the budget for the village fete, and they want to be let loose on £647 billion of taxpayers money: that is roughly £25,000 per household. In the words of PJ O'Rourke: "Giving money and power to government is like giving whiskey and car keys to teenage boys. "

Be afraid, very afraid.

Here are the ten cardinal sins which they have committed from a manager's point of view:

  1. Allow spending to remain out of control. If you need to borrow £164 billion (one pound in every four which you spend) you have a problem. Any business with a budget like that would find a conversation with their bank manager would be short and unpleasant in equal proportions.
  2. Hide the problem with forecasts made with rose tinted spectacles. If you assume the economy grows fast enough, the deficit melts away of its own accord, relatively painlessly. Provided you hold public spending, then the increased tax base starts to cover the gap. Essentially, they are hoping to get lucky. It will not work: hope is not a method and luck is not a strategy.
  3. Rearrange the deckchairs on the Titanic budget. Each party talked about minor budget changes of a few billion here and there. £150 married persons tax allowance is piffling one way or the other.
  4. Living on your credit card. The PFI (Private Finance Initiative) is classic. Gordon Brown launched his manifesto at a newly built hospital. Cost to build: £546 million. Cost to the taxpayer so far: zero. Cost to the taxpayer over the term of the contract: over £2.6 billion. This is Enron style off-balance-sheet accounting. Hide the cost today and leave someone else (you and me)to pick up the pieces later.
  5. Fail to set expectations. All managers know that success equals performance minus expectations. If you want to look good, set expectations low to start with. Each leader is desperate to promise good things in return for votes. None of them are setting realistic expectations about what needs to happen. They are pretending we can live in happy land for ever.
  6. Make unsustainable commitments. If you promise to protect health, education and pensions you have already committed to spend two thirds of your budget. If you want to cut overall public spending by 10%, then the rest of the government budget must be cut by 30%: not good news for welfare recipients, the police, armed forces, transport, environment and the like.
  7. Pretend that you will find lots of magical cost savings. The last major report (Gershon review) promised over £20 billion of savings, which the government duly announced it had achieved. Meanwhile spending rose in total by another £120 billion. If the government makes any more savings like that, we will be bankrupt. In business savings are saved: in government savings are spent several times over.
  8. Give budget control to people with no budgetary experience and no financial or accounting training. Even worse, give control of the budget to the people who like spending most (politicians): let the poacher be the gamekeeper and watch as chaos ensues.
  9. Have no serious budget accountability. In theory the government is accountable to the people through Parliament. But Parliament has been made largely irrelevant by the executive, and the people only get their say once every five years: and voters vote not just on the budget, but on everything else as well. So accountability is in practice minimal: no business would survive with such lax accountability.
  10. Focus on sound bites and spin. You can spin the public, but not the bond markets. As we go cap in hand to our lenders, they will demand ever more rigorous terms. The Bank for International Settlements estimates that by 2020, UK interest rate payments will rise to about 10% of GDP. That's more than we spend on the NHS, or on education and defence combined. And fifteen years later, our interest rates spiral to 25% of GDP and UK plc is bust.
Of all the parties, the LibDems have attempted to be most honest about what lies ahead. This probably means electoral suicide because modern democracy is effectively an auction between different vested interests: any politician wanting power has to buy off each pressure group with more money (arts, pensions, armed forces, education).

(Pic: yoppy cc2.0)