The bonus culture that we all pay for

Town & Country Planning, March 2009

The bonus culture in banking has fuelled the present economic disaster. Everyone seems to agree that these days. It is certainly what the guilty bankers told the Treasury Select Committee, and I am sure they were right. Short-term decisions and disastrous deals and loans were undoubtedly encouraged by bonuses dependent on short-term apparent success.

But what the commentators miss is just how widespread this method of centralised human resources has become in so many of areas of modern life, just how insidious it is, and just how much it wastes money in the public sector as much as in the private.

I realised this talking to a friend of mine who works for a large Primary Care Trust (PCT) and whose job it is to distribute the NHS largesse in return for meeting whatever national targets happen to be in vogue at the Department of Health.

I had always suspected that the amount of money wasted by our culture of centralisation is not marginal, but, I must admit, apart from a few anecdotes I have never seen any research on the subject. I suppose asking one of the research quangos for money to look at the costs of centralisation is a bit like asking the Department of

Health for money to investigate whether the MMR inoculations might harm children in other ways: you will be quietly shown the door.

But talking about PCTs on the very day that Sir Fred Goodwin, erstwhile CEO of the basket case we know as RBS Group, was giving evidence to MPs made me realise how wasteful the whole idea is.

Of course, the public sector only doles out bonuses to people at the very top, but it also doles out the equivalent of bonuses to local public sector institutions every day, and it has much the same effect as it does in with the bankers: staff act in a way to maximise their bonus, rather than in ways that meet local need most effectively.

We already know how centralised targets distort spending priorities at local level. We know how targets to reduce waiting times or speed up decision-making on planning applications tend to lead to a distorting focus on those marginal simple cases which could improve the figures, rather than the cases that require real effort.

What I have only recently realised is just how much money is wasted in this way. Every target that shifts resources away from something more useful to meet that target gets a reward. That in itself is massively wasteful of public spending.

Of course it is useful to persuade somebody to stop smoking, but what if their smoking is actually a symptom of mental difficulties. Then the money which could have been used for counselling has just been frittered away on symptoms – and cajoling posters and Nicorette patches.

But if you add in all the members of staff at PCT level, or at local government level, whose task is to cover and monitor one particular target and, in the case of the PCT, to shower the local surgeries with questionnaires for patients, most of which never get any further than the receptionist’s desk, then we are talking about anything from a fifth of the PCT office budget upwards.

Ten years ago, it was estimated that the target culture added 10 per cent onto spending budgets to pay for all the accountants, regulators and compliance officers. I am beginning to suspect that the sheer inefficiency of public sector targets might actually be costing billions rather than millions, just as the bonus culture of the banks is – and for the same reason.