WHEN Alistair Darling steps up to the dispatch box tomorrow, the wisdom of Tees Valley business leaders could well be ringing in his ears.

As he faces off a £175bn budget deficit, their advice to concentrate on reforming civil service pay structures, ditch costly capital projects of questionable effectiveness, tax the poor less and the rich more, looks increasingly likely to feature in a finance policy that must be brave, prudent and politically acceptable to Labour backbenchers as they go into an election year defending their accounting practices.

As he faces off a £175bn budget deficit, their advice to concentrate on reforming civil service pay structures, ditch costly capital projects of questionable effectiveness, tax the poor less and the rich more, looks increasingly likely to feature in a finance policy that must be brave, prudent and politically acceptable to Labour backbenchers as they go into an election year defending their accounting practices.

The one piece of friendly advice he’s unlikely to follow is that of Brewin Dolphin’s Tees Valley divisional director William Baker Baker.

In the second of our Big Issue debates hosted by Teesside University he urges Mr Darling to turn to his neighbour on the Government’s front bench at 12.30pm and tell him to call an election now, avoiding a potentially economically damaging six months of “phoney war“.

Whatever the Chancellor’s plan to rebalance Britain’s books, it will be hard for him to protect the public sector from taking its share of the pain that private business has been suffering for 18 months. Even public sector employees gathered for the Big Issue debate admitted the time had come for root and branch reform.

Pensions in particular were thought to be indefensible.

Tees Valley recruitment specialist Paul Barron, director of Executives Online North, said it was a fallacy that the only way public sector recruiters could fish in the same senior management pool as private enterprise was by dangling golden hellos as bait.

“The argument that the public sector has to pay high salaries with huge benefits in order to attract talent from the private sector does not hold water,” he said. “The motivations are different. People who go into the public sector have a desire to serve rather than being commercially orientated.”

Therein, of course, might lie the problem. As Graham Robb, director of Darlington-based Recognition PR and Tory party activist pointed out, it was precisely this lack of commercial reality that had got the public sector mired in the budget-busting mess it was in.

He pointed out that in a capitalist economy there was only one source of public money. “And that’s private enterprise. Pennies from heaven have to be earned here on earth,” he said as he urged the Chancellor to do everything he could to liberate business from taxes and red tape so it could get on with earning the cash needed to pay down the Treasury debt.

For a start, he suggested the Chancellor takes the opportunity to reverse the National Insurance hike that would take £50m out of the Tees Valley economy next year.

He was not alone in wanting to see an end to the Whitehall mind-set that drove public bodies to engage in an annual scramble to “spend up” in the dying days of their financial year.

“If I had extra money in my business I would pay the shareholders. Well, we are the shareholders of UK plc - so pay it back,” said Mr Robb.

Hartlepool business development specialist Brian Beaumont of Horwath Clark Whitehill accountants said public bodies could learn from the private sector trend to save money by outsourcing core functions.

Although Teesside University revealed that it was about to enter talks with neighbouring institutions in the North-east over pooling some services, Mr Beaumont said outsourcing nevertheless raised the spectre of future skills shortages as staff were shed.

“The fear will be the thaw after the freeze,” said Mr Beaumont. “The damage will be later.”

Any move to curb or even cut public sector budgets that impact on staff numbers will, of course, have a disproportionate effect in the North-east where a higher than average number are on the Government’s payroll at 24% of the workforce. However alternative methods of “streamlining” - Gordon Brown’s new euphemism for efficiency savings - also came in for criticism from IT expert Allyson Cole, MD of IT Accessed which covers the Tees Valley from Richmond, Yorkshire.

She said the Government’s sorry experience of introducing the £12.7bn NHS IT System - running years late and now widely expected to be scaled back after dark hints from Alistair Darling this weekend - illustrated the much bigger challenge in tackling the more fundamental issue of culture change in organisations.

“The amount of people that need to be involved in a decision and the procedures that need to be gone through is the cause of many problems,” she said. “That’s reflected in the results when they change the process. That’s what an IT system does - it changes the way people work.

“But I get the impression the Government thinks you just plug in a piece of equipment instead of changing the culture. The NHS project is a classic example of that.

“People just do not want to be involved with it. They are now trying to persuade them retrospectively.”

Jane Reynolds, general manager of investment brokering service Finance Tree, which relies on large amounts of public money to keep it in business, said the public sector would benefit from a lean manufacturing approach.

Uncomfortable as it was for public servants, the impending squeeze “needed to happen”.

She said: “We might not be happy about it but, in a couple of years, we might be able to address some of the problems that have been allowed to grow.”

The only manufacturer on the panel, Ian Malcolm, MD of automotive suppliers Elring Klinger GB of Redcar, urged the Government to “start working in the real world”.

He singled out health and safety and environmental legislation, the National Insurance increase, and the escalating minimum wage as examples of where the Chancellor could intervene to stimulate the private sector and accelerate recovery from recession.

Citing the minimum wage, which he said had gone up 60% since its introduction 10 years ago, Mr Malcolm said: “There’s no way manufacturing in the UK can compete with that. As a company, we started off being well ahead of the national minimum wage, now we are playing catch-up.

“We have been hamstrung by legislation in the private sector, specifically health and safety and environmental legislation to the extent that if you applied it literally you may as well wrap the machines up in cotton wool, switch the light off and go home.”

Many foreign-owned companies on Teesside have recently done just that, taking valuable tax revenue with them.

But is Mr Darling listening?

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