Bruce Anderson: You can cut waste and save services

August: Augustus, who found Rome brick and left it marble. The British Augustans, who achieved something similar in London, Bath and Edinburgh: whose architects created a harmony of elegance and grandeur, until you went round the back to Gin Lane. August, the month when nothing ever happens, except the Frist World War and the final preparations for the second one. At least this year, it was only Mandy's prostate. August: although London is not like Paris or Moscow, where no-one important stays in town, the official mind slips into a lower gear.

That is not necessarily a bad thing. Too often, the higher gears simply mean freneticism: all action and no thought. Apart from being the last chance to relax before the General Election, this August is also the final opportunity for calm deliberation. Any wise politician will have taken it, for there is plenty to think about, and the most obvious crises – the economy, Afghanistan - are not the gravest threats.

Afghanistan is winnable, if we have the will to do so. It may take two or three years, but the economy will return to steady growth. Not only that: there is going to be a high degree of continuity between the pre-crisis banking system and the post-recovery one. If only we could be sure that the same will be true of the pre-expenses Commons and the status of future Parliaments.

There is only one way to rehabilitate our MPs: a sustained period of successful government. That is urgently needed: more so than at any period in our peace-time history. Apart from the economy, the next government will face five great domestic challenges, each worthy to rank with Beveridge's five giants, and most of them closely related. They are waste, idleness, the underclass, urban lawlessness and bad schools.

All recent governments have promised to tackle waste. None has succeeded. This one commissioned a report from Sir Peter Gershon. He identified over £70 billion's worth of government waste. What Happened? Nothing. The cost of the discarded Gershon Report merely added to the waste bill.

But there has now been a change. With the national deficit about to reach £200 billion, there is no alternative. Either we learn to control public spending, protecting vital services but squeezing out the waste and eliminating unnecessary expenditure – or there will be a sterling crisis, a gilt strike and enforced cuts on the orders of the IMF. The threat is brutal. It could also have its uses. It may be that public service reform could only take place at gunpoint.

In government, waste does not just cost money. It breeds inefficiency. Tightly-run programmes will not only cost less. They will deliver more. In recent years, both the Swedes and the Canadians had to economise their way out of public spending crises. Both did so without savaging front-line services. David Cameron faces a similar problem. Although it will not be easy, it should bring forward the day when public service becomes a tautology rather than an oxymoron.

Under our current system, there is a further and pernicious form of waste: the waste of people. Six million people of working age now subsist on benefits. In many families, this is now regarded as an hereditary entitlement, so that we are dealing with a third generation of welfare junkies: young men who are as keen to find a job, as an aristocrat of the 1850s would have been to work in a shop. If these noblemen of the dole queue should seek to alleviate their condition, they are much more likely to try crime than work.

This would not have surprised Beveridge, who regarded welfare for the able-bodied as a casualty-clearing station, not a way of life. To him, it would have seemed the merest common-sense to conclude that subsidised idleness would create an underclass. He would have been brought up to believe that Satan finds work for idle hands. He would have been appalled at the way in which much of modern Britain is run as a job-creation scheme for the devil.

The members of the underclass are entitled to more sympathy than they receive. Admittedly, many of them are a thorough nuisance, responsible for levels of crime which gravely impair our civilisation, and the guilty must be punished. But if an intended welfare-state becomes an ill-fare state which traps its clients in moral poverty, the society which puts up with the nonsense cannot escape the blame. No country should tolerate an ill-fare state. A country facing a fiscal crunch cannot afford to do so. Yet again, the crisis could bring benefits.

The ill-fare state, the underclass and high levels of crime are all related. Bad schools exacerbate matters. Large numbers of children who are by no means members of the underclass are leaving primary school insufficiently literate and numerate even to cope with the intellectual rigour of media studies. They will have to earn their living in competition with kids from India and China who have a desperate hunger for learning, media studies excepted. Six million on benefit, forty percent of eleven year-olds ill-equipped for secondary schools: if there is not a dramatic improvement in those figures, we will not be able to compete in the global economy. Our national survival will be imperilled.

Anyone who has climbed mountains knows the feeling. You grunt and sweat up some interminable incline and only gradually realise that it is not the peak, which finally comes into view, distant and mocking. Afghanistan is the lower slopes; the major threat is Pakistan. Everyone seems worried about energy, yet there is plenty of oil and gas, plus nuclear power for a greenhouse-neutral burn. The real shortage, bound to become increasingly apparent this century and which could well cause wars, is water.

The mountaineering analogy works in domestic politics. Given the scale of the deficit, the Opposition would be justified in using Churchillian language. To deal with that evil giant, we will need some equivalent of blood, sweat, toil and tears. Yet the PSBR is not the hardest problem facing the country. It is bad enough that the government has spent too much money. It is still worse that so much of it has been used to nurture social evils. As I finished this piece, I beheld a miracle. England won the Ashes.