Fatal flaw in the Letwin plan

By ANTHONY HILTON FOR MAILONLINE
Updated:

 

IT IS amusing to recall that at the time of the last general election Oliver Letwin was ordered into hiding in Dorset so that a baying media could not force him to go into detail on his suggestion that public spending could be cut by £20bn.

Today, in what the Tories have flagged as a very significant speech, the man who is now the Conservative Party's Shadow Chancellor moves the target up to £35bn and has certainly not been hiding. The figure is a lot less significant than it sounds, however, given that annual tax receipts are fast approaching £500 bn - £2500 bn over the five-year life of a Parliament.

There can be very few people in these islands who do not believe that a significant slice of public spending is wasted. The problem is first identifying which slice it is and then doing something about it. Politicians fall at the second hurdle.

Government is not so different from business in that success comes 10% from strategy and 90% from execution. In other words, having the bright ideas is the easy part. It is having the ability and managerial skills to translate ideas into practice that separates the winners from the losers.

There will no doubt be a huge fuss over the Letwin claim and the Government will say such 'brutal' cuts could only come at the expense of services. The trouble is, the way we run the public sector this will almost certainly be true - not because it should be but because the bureaucracy and administrators will make sure services bear the brunt.

They know the quickest way to stir up a public backlash against a costcutting drive that threatens their empires is to cut services the public will notice. They rarely, if ever, see a costcutting drive as the opportunity to de-layer their management or re-engineer their processes the way the private sector is forced to.

Sir Peter Gershon, head of the Government's efficiency review makes this point in today's other big story about getting value for money for the taxpayer.

If the civil service were better organised and more businesslike, up to £15bn a year could be saved, he says. But he wonders whether Government and civil service have the 'change management capacity' to deliver such savings.

Emission risk

IT MIGHT not always feel that way, but institutional investors have a major influence on company attitudes and behaviour and are a major force for change.

That is why the Carbon Trust, the Government-backed organisation whose task is to support those seeking to reduce the levels of emissions and carbon dioxide produced by economic activity in this country, is targeting institutional investors in an advertising campaign being launched tomorrow.

The trust is alarmed that though everyone has heard of the Kyoto protocol and the Government's commitment to cut harmful emissions, many companies do not realise how soon the system kicks in and their unpreparedness could cost them money.

The National Allocation Plan, which outlines how permits will be shared between companies and sectors (and countries in an EU-wide context) is currently out for consultation so that the permits will be distributed this year ready for next.

Though initially free, these permits will squeeze the level of allowed emissions over time, making it ever tougher to stay within the allocation. That is when companies are likely to want to trade permits - with those who have failed to cut their emissions buying other companies' permits and with them the right to produce more than their carbon dioxide allocation.

Even before then, the allocation of permits in the next few months will also create winners and losers between companies and sectors and have an impact on their valuations. Hence the need for institutional investors and analysts to engage with the issue and hence the concern of the Carbon trust that companies have not really been paying attention.

But according to the ad campaign this is also about much more than cost. Such is the level of environmental awareness these days, a company's carbon policy will have an impact on consumer perceptions of the business and its product. The financial effect of this - particularly if it is negative - could do significantly more damage to the company than the financial costs associated with emission control.

Bound up in this policy there are potentially major questions of reputational risk and brand management. So if boards have not thought about it, their institutional shareholders may not be best pleased.

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