All parties are planning spectacular cuts in public spending, which will doubtless cause a lot of pain. Almost everything I have seen in the financial press considers this to be essential, and perhaps literally unavoidable.

So if Keynes was wrong, there will be a lot of pain, whoever is in power.

If Keynes was right, the economy will be devastated, requiring further cuts, causing vastly more pain and suffering, whoever is in power.

But it was the Labour government which borrowed at the height of the boom, and got the public finances into this mess.

Simple answer: slash social security benefits and build local terminator stations to take care of the chronically sick and demented.

Btw remember that Cameron has committed a Conservative government to protecting the NHS budget in real terms.

Total Government spending in the same year will be £758.3 billion. Welfare and debt interest will be 33.8 per cent of that total.

The welfare bill will also absorb more money than every worker in the country pays the state in income tax (and this is with the 50% top tax rate). In 2009/10, the Treasury is expecting to take in £140.5 billion in gross income tax receipts.

Already the largest single item in the budget, by 2013/14 spending on social security will dwarf every other item of Government expenditure.

Given that the only source of revenue for the government is taxes on private sector businesses and private sector employees, how exactly do you expect the welfare state to be maintained in anything like its current size? Tax all you want but please explain to me why any entrepreneur or business abroad would come here and why those businesses already here will stay?

Presumably, the haste with which public spending is cut and/or taxes increased in order to reduce the fiscal deficit will affect the UK’s GDP growth rate – or is that too keynesian a way of thinking?

As I recall, as a result of the turbulence of the UK economy during the 1980s and 1990s, our standardised unemployment rate didn’t fall below that of France, Germany or Italy until the final quarter of 1995.

“The NHS may need to cut its workforce by about 10 per cent — the equivalent of 137,000 staff — to help to meet planned savings of £20 billion, according to a leaked Department of Health report.”
http://www.timesonline.co.uk/tol/life_and_style/health/article6818817.ece

We know that Labour will cut public spending, too.

From the Economist: http://www.economist.com/world/britain/displaystory.cfm?story_id=14505343

“The Treasury has pencilled in a cut in real departmental spending of 4% in 2011-12, with reductions in the ensuing two years of 1.8% and 3%—a cumulative contraction of 8.6%. These would constitute the biggest cuts since the late 1970s, when the IMF held the whip hand.”

Under the circumstances it seems to me that it would be a good idea to “review of what government does, what it has to do, what it can do better, and what can be done better by other people and by the public”.

I might add the the Labour plan will not allow it to balence the books by 2014 “it defers half the squeeze to the parliament after next: not until 2017-18 is the business done.”

If Labour really does intend to return to Keynes’s idea of running deficits in downturns, and surpluses in good times, it apparently does not expect the good times to return for a decade or so.

(admittedly, if the PO were privatised without serious restrictions on management share schemes, the opportunity for actual phenomenal pay would become significant…)

They agreed to pay the government a huge premium for the right to operate the franchise, briefly managed to pay the government a huge premium for the right to operate the franchise, got hit by the recession, and eventually agreed with the government to forfeit their right to run the franchise. In exchange for forfeiting this right, they also forfeited the £32 million deposit they’d left with the government.

In other words, they paid the government a hell of a lot of money, just not quite as much as they’d originally pledged.

@74, you’re hitting on the real problem here, which isn’t private provision at all – it’s poor management in the public sector.

If a plc were forced to make its monopoly services available to competitors, they would ensure that the price charged fully covered its costs (and BT is an example of a plc that has been extremely good at reducing the impact of competition by ensuring that regulated tariffs allow it to make fairly generous returns).

If the Post Office isn’t charging its private sector competitors appropriately, that’s a sign that the people running the Post Office are inept (or, if wearing a Not Entirely Ridiculous Conspiracy Theory hat, that they’re trying to make it look run-down so they can appear to rapidly turn it around after privatisation and make enormous bonuses), not that the principle of regulated access to monopoly infrastructure is wrong.

On bus/rail services on Sunday, service operators need to take account of demand complementaries. Low service frequency leads (eventually) to fall off in custom as prospective travellers switch to other modes. There’s a professional literature estimating demand functions with service frequencies as well as relative prices and traveller incomes among the explanatory variables.

No problem.

The Costa in hospitals example is an interesting one. I have no huge issue with peripheral bits and pieces possibly being contracted out like this. There should be a certain standard of service though – ie what were the principles of providing a cafe in a hospital previously? Did it used to be really cheap and basic, and was there are good reason for this? Perhaps it now becomes less viable for poor relatives to stay in the hospital to go for a snack and a cup of tea and stay with their loved ones longer, because Costa provide a more expensive service.

The Royal Mail and rail franchise examples, however, are rather different – it is the core service that is being farmed out. In the case of Royal Mail, it’s only the profitable part of the core service that’s being handed over. Are the likes of UK Mail sufficiently contributing to the door-to-door-delivery provided by the Royal Mail workers? It doesn’t look that way, with the “efficiency” cuts being made in Royal Mail operations. Or are the current problems because of the phenomenal salaries received by Royal Mail bosses, or is the price of stamps too low?

Any way you look at it, it’s not a comfortable partnership.

Sure: I even defined it above. That the output has more value than the inputs.

I am willing to pay some tax to provide loss-making buses to villages.

One of the things any undergraduate economics course* should teach you is that while market outcomes might be pareto optimal, if initial allocations are unequal then you need redistribution to maximize welfare. One corollary of this is that “how much people are willing to pay” is not “our measure of value, until that redistribution has taken place (second welfare theorem?). OK, you could do it all in cash, but in-kind (bus services) are reasonable imho – I could go on to list the circumstances in which in-kind transfers are preferable to cash, but let’s not.

* I knew I shouldn’t have mentioned that to you, and rather you didn’t

Only if you’re a raving, roaring lunatic.

I’m sorry Tim, but really! I gave my mum a big hug last time I saw her. I thought that was worth doing, but it’s hardly ‘profitable’ (or even if it might be, that’s not the point).

I might cook spaghetti for dinner tonight. That’d be worth doing, I reckon, but not exactly ‘profitable’ either.

Assuming that you haven’t actually gone mad, you should acknowledge that you’re using words here with technical meanings which are light years from how most people understand them.

What I’ve already stated is that private companies are being allowed to run a poor service, make a loss, and then get the Government to bail them out.

Take the National Express example – made a big noise about how they were going to turn a profit on the old GNER franchise (which no one else has ever managed to do) then made a huge loss. They were bailed out by the Government. Meanwhile they made large profits on other parts of their business, but were allowed to keep all those.

I’m not saying private companies are evil – but they are being allowed to abuse a shit system.

Ahhh….you’re ignoring efficiency. Sometimes (and do understand, I really do mean sometimes: not always and quite possibly not even the majority of the time) a private firm, because they face different incentives, will be sufficiently more efficient so that provision of the service or goods, even including their profit margin, will be cheaper than having the State do it directly. So even though they are indede walking away with shekel style profits we’re not reducing the cross subsidy we’re increasing it.

Now, I think we’ll probably disagree on how often this will be true, but will you accept that it can happen and that those times that it does we want to hive off the direct provision?

Don’t like that term – but I think “corporate welfare” sums it up perfectly.

For example, the founder of the company A4e now lives in a mansion which she bought thanks to government handouts.

“But everyone, all the time, whenever they have to make a decision asks “is this worth doing?” which is exactly the same question as “is this profitable?”.”

You really think that “is this worth doing?” is the same question as “is this profitable?” Always?

Which is what the original article is about; questioning not spending.

Of course that is our measure of value.

In this case, how much extra tax are you willing to pay so that rural dwellers get bus services?

Sum this up over the population (and yes, we do have ways of estimating such things: your post-grad economics course is full of them) and we have our measure of value.

I certainly don’t argue that capitalism is evil and added value has to be ignored in the pursuit of providing public services.

But that’s not (generally) how these things are measured by private enterprise – they don’t have the same motives as Government – they answer to their shareholders, not to the taxpayers.

What they’re being allowed to do is to take over the profitable parts of public service, keep profits on individual parts of the service whilst writing off losses on other parts, and leave the taxpayers to carry all of the risk whilst providing a shitty service.

Even if a good service is provided, if a private company is walking off with the profits that would once have subsidised the loss-making parts of a service, that’s not a good thing.

I don’t presume that private enterprise has no role to play, but the evidence for how it is managed in this country so far is not good. I fail to see how the ever further expansion of this is a good idea until the existing mess is sorted out.

oh come on! if it is the case that private companies are better at doing some things than others, then it would be perfectly sensible to let private companies make some* profit from doing the things they’re better at, while keeping the harder stuff with the taxpayer – calling an arrangement that a sensible government may choose “rape” is a bit silly. The rape might come in if the private companies are profiteering and/or somehow leaving the others bits worse off, but if they’re just getting paid for doing something (the NHS doesn’t manufacturer its own pencils or its own drugs you know … paying private companies to do stuff is an every day thing in the private sector) and the tax payer funded bit is doing a good / better job of doing what’s best left in its hands, what on earth is your beef? If you’re saying the private sector isn’t any good, fine, it shouldn’t be used, but the problem is notthat the private companies are allowed to come in and run the bits they want to run – that’d be true too if the private sector was doing a superb job.

* just enough and no more

Tim Worstall, if you’re true measure of profit logic allows for allocating a very high value to things like allowing the rural poor to get a bus into the nearest town, hence you would advocate subsidized rural bus services because they are “profitable” in your sense, fine. I’m not sure if a similar argument would apply to letting people without cars use trains to get about on Sundays.

But if so, how are you pricing the value which is greater than the cost? Surely you’re not comfortable with letting bureaucrats decide what’s valuable and what isn’t. On the other hand, if you are measuring value by “how much people are willing to pay” i.e. market prices, then you would be shutting down rural bus services, in which case as a former car-less village dweller I’ve a mind to fly to Portugal and kick you in the shins.