Osborne’s National Insurance plans – be sceptical of “efficiency savings” claims
George Osborne’s announcement that he intends to reverse the increase in National Insurance Contributions has rightfully received applause from a number of business leaders, who called the planned rise an additional tax on jobs.
However, instead of saying which expenditure items they want to see cut in order to avert the NIC rise, Osborne and his supporters from the business world put up the old smokescreens of “efficiency savings” or “increasing public sector productivity”.
When politicians talk about “efficiency savings”, what they usually mean is that they need a large sum of money and don’t know where to get it from. Obamacare, too, will allegedly be co-financed through “efficiency savings” in Medicare, though nobody really believes it.
In one of the IEA’s early Hobart papers, Gordon Tullock convincingly explained why “efficiency savings” (he does not call them such) don’t usually happen. Bureaucrats do not want their organisation to shrink, and they can use their superior knowledge about the internal workings of their own bureaux to block cuts. Tullock recalls various anecdotes about public or semi-public officials who saw their budgets cut and who responded by deliberately cutting out their organisation’s tenderloins while leaving the fat reserves untouched. The objective was to impair the organisation’s functionality in order to exert pressure on the government to increase the budget again.
Penalising work is about the last thing the UK economy needs at the moment, but “efficiency savings” are not a credible alternative. Osborne should have picked out a number of selected organisations or programmes of questionable value to the taxpayer, and declared his intent to scrap them altogether.