Shock, horror – closing Government organisations costs money

You read it here first.  When the first quango closing announcement was made shortly after the UK election, on May 25th, we said this :

"And in the case of Becta  I struggle to see how this will save money in 2010/11; I would be amazed if closure costs (redundancy, leases, contractual exits) do not outweigh the savings in this year".

This hardly seemed like a piece of stunning analysis or investigative journalism; low level common sense really, and I suppose some experience of working in businesses that weren't always doing well.  Anyway, some 5 months later, the media have caught up with this; the Guardian reported last week:

"Exclusive: Private papers reveal multi-billion pound bill to close up to 180 quangos – and savings might not be felt for 10 years"

Apparently the Government papers, obtained by the Guardian explain 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".

And Steve Richards in the Independent yesterday said, referring to Ministers,

To their horror, they find that reforms require additional investment, at least in the short term.

Well, knock me down with a damp copy of Hansard.  There's a surprise.

The pension issue is interesting; many 'quangos' have their own corporate pension schemes rather than being part of the general public sector schemes (funded from current taxes), so they have to be run pretty much as if they were private company schemes. Therefore closing the organisation could I believe, in many cases, crystallise the under-funding issues which many of them suffer from, and could require huge cash injections from the Government.

So did the politicians and their advisers realise this (the lack of year 1 savings) from the start but feel closures were  the right step for longer term reasons?  That is not an unreasonable strategy, by the way.  Or did they really not spot this?  That would be concerning, and would show a worrying commercial naivety.

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