Government’s ‘bonfire of the quangos’ plan will cost as much as it saves

More real world economics for Osborne…

This article titled “Government’s ‘bonfire of the quangos’ plan will cost as much as it saves” was written by Polly Curtis and Mark King, for The Guardian on Thursday 7th October 2010 18.30 UTC

The government faces a multibillion-pound bill to close up to 180 quangos and in some cases it could be a decade before any savings are felt, according to documents that show the scale of the struggle the Treasury is facing to cut the deficit.

The Cabinet Office is poised to publish a list of the organisations facing closure or merger in its “bonfire of the quangos” next week. But private papers reveal that in several cases the liabilities from pensions, redundancies and rental contracts could outweigh any of the savings being claimed for up to 10 years.

There are concerns within the government that quangos are not producing the immediate savings the coalition had hoped for to help obliterate the £153bn deficit by 2015, adding to the intense pressure on the chancellor, George Osborne, to find every penny to meet the target.

Osborne also came under pressure yesterday to extend the five-year deadline to tackle the deficit. The Scottish parliament, the Welsh assembly and the Northern Ireland assembly issued a statement urging a scaling back of the plans, warning that the economic recovery was becoming endangered by the cuts.

The statement came as more details of the job cuts within Whitehall emerged, with departments told to make up to a third of their employees redundant. The education department is understood to be looking for a 30% reduction in staff. In the Department for Culture, Media and Sport the 50 top civil servants were told last week to reapply for just nine jobs that will remain.

Details of the cost of closing individual quangos, seen by the Guardian, reveal the bill facing the government. The Audit Commission alone, which the communities secretary, Eric Pickles, has axed, is facing nearly £500m in liabilities. A letter from the chief executive, Eugene Sullivan, to the permanent secretary in Pickles’s department and the National Audit Office warns that the costs include £75m in redundancy packages and £15m in contracts for rented properties. There is also an estimated £400m in pensions liabilities. The letter, seen by the Guardian, warns that it could even be under a legal obligation to raise its fees charged to local authorities to conduct audits to cover the costs of closing down.

The annual budget for the commission is £200m, but the letter says that has already been reduced to £46m by 2014. If the winding-up costs are not mitigated, it could be 10 years before the government sees any significant savings from the closing down of the commission.

The Crown Prosecution Service, which is expected to be merged or dramatically scaled down, has submitted a bid to the Treasury for £40m to fund exit schemes, according to a leaked internal document. The annual budget is £82m and the document does not provide details of the cost of its pensions and other liabilities.

The nine regional development agencies, which have a joint budget for this year of £1.4bn to help promote industry around the country but are to be abolished, are understood to have liabilities in the region of £1.5bn. They are also tied into contracts that stretch beyond 2012 for business parks, wind farms and the media city in Salford and are also responsible for dozens of contaminated industrial sites, such as disused coal fields, which cannot be sold unless they are first decommissioned.

Standards for England, the local government watchdog, receives an annual grant of £6m, but the costs of scrapping in terms of its pension liabilities alone could be up to £12m. The Film Council, axed by the culture secretary, Jeremy Hunt, last month, distributed £160m over 10 years with an annual administration budget of around £3m, which Hunt has said would be better spent on directly making films. Its estimated winding-down cost, obtained under the Freedom of Information Act, amounts to £11.3m.

A General Teaching Council for England source said that their liabilities had not yet been formally calculated but that they were braced for them to be “significantly” more than their annual budget.

Chris Banks, head of the Public Chairs Forum, which represents quango bosses, said: “The scale of the potential changes is unprecedented, so it is vital that the reductions in overhead costs achieved by mergers, abolitions and changes to new arrangements are not wiped out by deterioration in the service delivered.”

An aide to the Cabinet Office minister Francis Maude said the costs of closing quangos would depend on how many staff transfer to departments and their success in renegotiating contracts.

In his conference speech this week, Maude said of the quango review: “It’ll help save money for sure. But the main purpose is to increase accountability.”

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