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Pensions, quangos, and Vietnamese rat farming - the law of unintended consequences

Finance | David Davison | 25 Oct 2010

The quango cull could hold unintended financial consequences for the sector, and the saga's only just begun, warns David Davison.

In Hanoi, under French colonial rule, a program paying people a bounty for each rat pelt handed in was intended to exterminate rats. Instead, it led to the farming of rats!

The government has announced a huge cull of quangos in a move it says is aimed at improving accountability as well as meeting deficit reduction objectives. Whilst I don’t expect this particular cull to result in the establishment of quango farms in the home counties, it may well have equally unintended consequences as I doubt what could be very significant pensions implications have been considered, implications which may well threaten the future solvency of many organisations not directly mentioned, and only loosely connected, and dwarf any potential financial savings expected.

The question of proper research and consideration has been widely raised post the announcement. Given the government's inability to provide indicative cost savings at the point of the announcement and their indicative timescale for these being a couple of weeks hence in addition to the relatively short timescale over which the review has been carried out, it does seem unlikely that all the possible issues will have been identified and their implications fully thought through.

The government reviewed 901 bodies (679 quangos and 222 other statutory bodies) and decided to abolish 192 with 118 to be merged, the future of some bodies still under consideration and 380 to be retained. Quangos - 'quasi-autonomous non-governmental organisations' - are arm's length bodies funded by Whitehall departments but not run by them. They are advisory bodies, consumer watchdogs or organisations carrying out public services.

A Public Bodies Bill is to be introduced to give government departments the power to cut or change the functions of bodies set up under statute. The legislation will also mean that the power is in place to abolish quangos in future.

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