A question I've been intending to answer for a while is "What is the true cost of a superfluous civil servant?". As Lola said in the comments:
... did you hear the priceless doublethink remark from the lefty talking head on R4 westminster show this a.m? When told that it will be necessary to lay off lots of civil servants his response was to say that this would cause an increase in state spending as they would all require UB40 payments!! And a reduction in income tax payments!! Not one of the other panellists or the chair-nerk thought to ask him how he came up with this pearl since these laid off people were already being supported by taxpayers.
There are similar arguments that say we can't just sack two or three million meddlers and pen-pushers, because:
a) It will lead to unemployment (so what, the salaried unemployed cost more than the sitting around at home unemployed),
b) Civil servants spend their net salaries on stuff produced by the private sector, so sacking them reduces demand in the private sector.
Although I am quite certain that the overall effect on the taxpaying private sector would be enormously beneficial, it is incredibly difficult to quantify the overall benefit in £-s-d. So it is easier to do a bit of non-financial economics, and imagine a society with only a bare minimum of public employees. Everybody else specialises as a fisherman, an olive grower, a shepherd, carpenter, stonemason, money-lender or prostitute etc, a bit like in the New Testament*.
If the state had then decided that a tenth of these have to be employed in totally unproductive** pen pushing and meddling, then what happens to total output/wealth? It must go down by about a tenth, because a tenth of people are no longer doing anything productive. You can add to that the 'deadweight costs' of collecting one-ninth of the output from the fishermen, olive growers etc, which would be paid to the 'public servants' as salaries (nobody would become a public servant unless their income was at least as much as what they could earn themselves).
Fast forward to today, let us assume that public sector salaries are approximately the same as what they could earn in the private/productive economy, the obvious answer is in fact the correct one - if you sack a public sector worker earning £25,000 gross (ignore the tax they pay because that nets off with the value of the final salary pension promise) then the overall increase in output/GDP will be whatever he can earn in the private sector, which we'll take to be £25,000. Of course this doesn't apply to higher paid civil servants, who'd only find much lower paid work, but hey.
So on the back of the magic fag packet, if current public spending is £600 billion footed by twenty million productive workers*** in the private sector****, that's a current or future tax burden of £30,000 each. If public spending were reduced by the £100 billion savings that e.g. The TaxPayers Alliance have identified, that'd be spending of £500 billion divided by (say) 23 million productive workers, or £21,700 each, a reduction in the tax burden, per worker, of nearly thirty per cent. Or indeed an increase in net incomes of workers of around fifty per cent.
Sweet!
* They didn't have taxes as such because all land belonged to society, or the king, or the tribes in general, so enough rent was collected to fund the basic apparatus of the state and maybe a bit of welfare on top.
** I'm excluding teachers and NHS doctors, nurses, cleaners from 'totally unproductive', as they are productive and their output does have some value - the fact that their output is probably worth less than it costs is a different topic.
*** 'Workers' for these purposes includes self-employed, entrepreneurs, investors etc. Most shares belong to people who are working (or who have worked in the past, i.e. via pension funds and so on), so that nets off.
**** Yes I know there are more than twenty million, but a couple of million are just engaged in form filling, box ticking and so on to keep the regulators happy.
Saturday, 18 April 2009
The true cost of a superfluous civil servant
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12 comments:
The income tax to pay the unproductive set also decreases the amount available to employ others as well as increasing the cost of employing others.
It has a massive effect of increasing unemployment.
In a discussion on Iain Dale's it emerged that the 409 members of the Race Relations Commission, who are pretty well the definition of useless civil servants, cost £71 million. That comes out at £175,000 per head. It also means that with the money spent we could have had 2/3rds of an aircraft carrier or 3 nuclear power stations if builaccording to engineering rather than political rules. http://iaindale.blogspot.com/2009/03/trevor-phillips-presides-over-unhappy.html
To be fair I suspect, being based in London & being particularly useless they may cost more than the average & I don't think aircraft carriers are much use either
These numbers are awfully biased.
I think the 'magic fag packet' approach has perhaps had its day.
I'm all for making estimates, and that this site does them is why it is one of the better ones, but when (such as with teacher pensions) the estimates the more excitable readers take away with them are more than 3 times too high, it perhaps is more misleading than illuminating?
PS If you want historical daily gold prices (earlier comment) let me know and I can send them to you.
Matthew, I did state that the higher cost of a teacher's pension was based on somebody gaming the system and retiring early, which is why later figures were based on lower estimate.
Re the topic in hand, please submit your own calculations and we can then compare and contrast outcomes and hopefully agree a best estimate.
"I'm excluding teachers and NHS doctors, nurses, cleaners from 'totally unproductive', as they are productive and their output does have some value"
You shouldn't exclude them. They are not economically productive -- they are a cost to society. A cost that, at some level, we are willing to pay to be sure; but they do not create the wealth that pays them.
Craig, I agree that with NHS and State Education the value of output is less than the cost to the taxpayer, but this is far from saying that the output has no value at all!!
If we scrapped them and had private provision, then these services would be privately provided instead, in which case, value would probably EXCEED the cost, which is all good stuff. But it would be broadly the same people providing and the same people paying - the difference being that they get more value for less cost.
Another way of looking at things is to say that the civil servants are not themselves useless- they are doing useless jobs because thats the best deal available to them. Most would eventually find work at only a little less than their current income- and society would then benefit from them doing something productive.
The problem is that the adaptation would take time. Phase it in gradually to minimise disruption and the project will run out of steam after a few years; implement it suddenly and expect riots.
Implementation is tricky, but I can hardly see Trevor Phillips and his ilk marching on Parliament shouting "What do we want? Quango jobs! When do we want them? NOW!".
The speed at which economies can adjust is often quite staggering (e.g. Polish wages have gone from a quarter to one half of UK levels in about five years).
"please submit your own calculations"
Well I'd start by saying are you sure it is right to base your calculations on The Times, and (drum roll) the Taxpayer's Alliance?
The £100bn of potential cuts you identify from the Times report because it is government spending that is 'completely unproductive' seems to me potentially misleading. To take just a selection, it includes the boundary commission, the British Museum, funding for universities and colleges, and defence techology research. All of which might be better off in the private sector, but I can't see the funding not existing at all.
So your estimates of how better off workers would be if they were scrapped seem similarly out, even perhaps again three times too high.
My own figure of £100 bn is based on there having been 6 million taxpayer funded jobs and 8 million now, there were probably 1 million too many back in 1997, so that makes 3 million too many as at today. Times that by typical salary plus pension plus office rent, telephone etc, that's your £100 million.
The bulk of your list should be privatised. People will still pay to go into good museums, but out of their own money.
Sure some can - should - be privatised, but that kind of makes my point - you can't privatise something that has zero output (but positive costs). It's just plain wrong to assume zero output.
Bit late, I know, but Plato considered the increasing demand for medical doctors (and lawyers) to be a sign of a decaying society, through lack of self-control and poor education. The Mail ran an article on how city vets,perhaps unwittingly, often ony help themselves, not the animals in their care, either through unnecessary treatments, or prolonging suffering. In the reader comments of said article there are many cases of animals recovering naturally all by themselves. Insurance helped no-one bar the vets do more trade. I don't see why the logic would be any different for the medical profession. The NHS is a big black hole. Doctors fiddle with you, infect you, then give you multiple drugs that interact in unknown ways and make you feel more ill. We don't need more doctors; we need to be weaned off them.
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