The chainsaw approach to the public sector

In the US, Elon Musk has taken to his chainsaw to the public sector, mirroring President Javier Milei of Argentina. He is finding it more difficult than the Argentinian, who has managed to cut the federal budget by 30% as he seeks to wrestle the state away from hyperinflation.

The chainsaw approach to managing the public sector has three main aims. Its proponents wish to reduce the number of public-sector bodies and departments as well as cutting spending and headcount, accepting that this means offering less service and fewer grants. They want to improve the efficiency and reduce the cost of what needs doing. They wish to reduce the amount of regulation the state imposes, supervises and enforces.

There is a greater chance of making significant reductions where there is an economic crisis. If the state runs out of money and needs the International Monetary Fund (IMF) it will be made to cut spending anyway. If hyperinflation is setting in the government will need to rein in its borrowings and stop printing so much money.

The philosophy behind this is to allow people and companies to keep more of their own money and make more of their own decisions, with lower taxes and less state direction. This is sometimes argued on libertarian grounds, that it is right to give people more freedom and is more democratic to leave more free choice.

Sometimes it is argued on economic grounds that lower tax, lower state spending economies tend to grow faster and achieve higher living standards for those working there. Supporters of socialist parties see state investment and action as a preferred way of growth and value a stronger state. Many see the chainsaw as a dangerous instrument that can harm people and disrupt important public services.

Chainsaw or scalpel?

Mr Musk is discovering that hacking at headcount and spending levels runs into substantial opposition. The courts can restrain him, querying his right to make such changes. Civil service staff and their unions will seek to thwart the cuts. There is much to be said for having a plan – and removing from the public estate those activities and bodies that no longer please by legislating for their abolition. It helps to conduct a proper exercise with staff over redundancy or redeployment elsewhere in the public sector.

So far, Mr Musk has made an email offer to two million public-sector staff to leave state employment. We await news of how this has gone as people query its legality and managers consider what might happen if certain staff do decide to go. Mr Musk followed this up by asking many state employees to say what they had done in the past week, with some refusing to co-operate. When he knows their answers, it still will take a lot of work to decide who should be asked to leave because they did little or did not do things the new government wants done. Mr Musk is dealing with many people who have homes to run, mortgages to pay and families to look after who will not accept easily the idea that they are now fired for doing a job the previous administration wanted them to do.

Fewer departments and public bodies

In Argentina, the President halved the number of government departments through mergers, to save on senior management and overheads. In the US, President Trump identified the Department of Education and USAID as suitable targets for abolition, but they are now looking at whether this is feasible. Mr Musk has been particularly firm on blocking spending at USAID.

In the UK, the new government has come to the conclusion that there are too many independent bodies that do not always follow government wishes. The Secretary of State for Health has announced his wish to abolish the UK’s largest quango, NHS England.

The government has disagreed with the Sentencing Council but has not yet overridden them. It has announced the merger of two bodies to create the National Infrastructure and Service Transformation Authority, and two to form National Jobs and Career Service. Meanwhile, contrary to its new direction, the government is setting up a range of other public bodies including GB Energy and Border Security Command, Skill England and the Ethics and Integrity Commission, the Industrial Strategy Council and the Passenger Standards Authority, the School Support Staff Negotiating body, the new Football Regulator and others.

Less regulation

Governments are usually impelled to more regulation. Each time there is a tragedy or crisis the cry goes up to invent new regulations and regulators to ensure it never happens again. As new areas of life develop in the private sector, as with the rise of the big digital corporations, so the cry rises to regulate their activities. Sometimes, big business lobbies for more regulation because they see it as a way of keeping smaller and more agile competitors at bay. Sometimes consumers lobby for it as they find rents and other prices too high or contracts unfair. People with a good view from their home want planning to stop building nearby.

The UK government now thinks slow or no growth in the UK is the result of excessive regulation. So far, it has been talking to regulators about how it can interpret rules in a less restrictive way for business. If it wishes to make any measurable impact on the issues of regulatory costs, it will need to repeal laws and regulations, removing them from compliance activity.

The UK has kept most the European Union (EU) law accumulated during membership of the bloc and has so far been unwilling to roll back much of it, though does now have that option. The main government focus has been on making it easier to get planning permissions, where it is now turning to the need for legislation to reinforce that demand. Meanwhile, it is banning all new oil and gas wells, agreeing the closure of the steel industry’s blast furnaces, and toughening targets and aims to get to net zero more quickly.

The UK prime minister has talked of removing one quarter of the regulatory burden but, so far, has not revealed how this could be achieved.

In the US, President Trump will be unwinding a lot of the environmental laws that his predecessor imposed, as he does not believe in ‘net zero’. The Environmental Protection Agency has announced 31 actions to drive “a dagger straight into the heart of the climate-change religion to drive down the cost of living for American families, unleash American energy, bring auto jobs back to the US and more”.

The White House is likely to reduce banking rules to make it easier for companies to get loans. The president wishes to allow more activity in cryptocurrencies. He has announced that for every new regulation introduced ten will need to be repealed. In his first term as president, he claimed to have removed two for every new one introduced.

President Milei will be an outlier, cutting spending substantially. Elected with 56% of the vote on a clear platform to take a chainsaw to state spending and employment, he feels he has a mandate. He is showing some success at getting the very high rate of inflation down and has balanced the budget, reducing the need for more overseas borrowing with tough strings attached.

President Trump and Prime Minister Starmer will find it more difficult. The US will go further and faster as the administration was elected to do it and wish to do it. The UK is unlikely to reduce the total burden of regulation and unlikely to reduce the number of independent bodies overall. It may make some inroads where a Secretary of State is determined, as in Health.

UK public spending will carry on rising in real terms, though its rate of growth is being slowed by the tight budget and low growth of tax revenues and Goss Domestic Product (GDP). The Office for Budget Responsibility (OBR) will find it difficult to boost its growth forecast as it is unlikely to be impressed by the scope of deregulation that could be put through.