In 2010 the coalition government started with the objective of eliminating the structural current deficit by 2014-15. It introduced a package of savings, a public sector pay freeze, welfare reforms and significant reductions to every department’s administration budget. There was still a desire to protect the most growth-enhancing capital spending.
The target originally set by George Osborne when he imposed austerity on public services was only achieved this year. Paul Johnson, director of the Institute for Fiscal Studies, said the deficit reduction was still ‘quite an achievement given how poor economic growth has been’.
What are the lessons of the last eight years?
As the Chancellor gives his ‘no frills’ Spring Statement this week, and prepares more far reaching plans for tax and spending through his Budget in the Autumn, it is worth drawing some conclusions on how the government eliminated the deficit and what aspects of the austerity agenda should remain:
- The government maintained a clear and measurable fiscal target (the Chancellor has made a ‘pledge of fiscal responsibility, to borrow no more than two per cent of national income by 2020-21) and the Office for Budget Responsibility (OBR) should continue to assess publicly whether this is likely to be achieved.
- The departmental spending review prioritised areas with benefits to a broad sweep of society – next year’s review should promote growth (like transport and education) and fairness and social mobility (providing routes out of poverty for the poorest, improving incentives for work and tackling ‘wicked problems’ such as the increasing public health hazards of air pollution).
- Eliminating a sizeable deficit was not a normal budget exercise and a more open and inclusive approach is required – government should consult widely, beyond departments, asking public sector workers and the public to suggest ideas, convening expert advisory groups and holding regional events to listen to people’s views.
Of course, external conditions are now favourable and the reforms introduced in 2010 (including spending controls, back office shared services and commercial reforms) have been sustainable. But the United Kingdom cannot rely on external conditions to remain as favourable as they are now. Particularly as uncertainty lingers about the UK’s future relationship with the European Union and the economic costs of divergence with the EU become clear.
What needs to change? Meeting the UK’s future challenges
The squeeze on public services is showing up in higher waiting times in hospitals for emergency treatment, low satisfaction for GP services and a staggering decline in prison safety. The National Audit Office (NAO) warned that local councils are at financial breaking point. If they keep draining their reserves at the current rate, one in ten will have exhausted them in just three years’ time.
The improvement in the public finances gives the Chancellor some leeway to spend in his Spring Statement. But the expected £5bn to £10bn windfall is not going to transform the delivery of public services. It is not enough to solve the UK’s long-term fiscal challenges. For example, demographic change will demand either a significant increase in taxation or a radical change to the funding of health and pensions. There is an immediate need to put the funding of social care on a sustainable footing
Achieving better internal efficiency is a necessary but not sufficient part of public service reform. At the same time public services must come up with innovative, less resource-intensive and more effective ways of achieving the government’s aims. In the Spring Statement, the Chancellor should provide funding and direction:
- To move away from the traditional tools of legislation, regulation and taxation – which can be expensive to design and implement – and develop and apply lessons from behavioural science (designing policy that reflects how people really behave).
- To renew the transparency agenda, as a way of achieving ‘better for less’ – by consistently releasing data into the public domain, individuals are able to draw their own conclusions on the way public services operate, incentivising efficiency through accountability, and stimulating innovation through ‘information marketplaces’.
- And, where appropriate, for public services being open to a range of providers competing to offer a better public service, with a greater emphasis on outcome-based contracts, and joint work with the private sector to access private capital and expertise to make fuller use of core public assets in an enterprising way.
A final thought – accountability and public services
I appreciate that the third suggestion is not shared by everybody. Over the past five or six years problems have emerged in the UK public service market, particularly in the commissioning of complex services. This came to a head with the liquidation of Carillion.
The reality is that the public are more pragmatic than the politicians. For example, sixty-four per cent of people do not think it matters who runs hospitals or GP surgeries ’as long as everyone has access to care (Populus poll, January 2018).
But we still need to recognise that one of the most important differences between a private and public service is the different and often enhanced levels of accountability for the delivery of that service to a broader range of stakeholders. Private sector organisations that want to deliver public services have to be aware of, and work within those boundaries.
There is an urgent need for a more transparent and robust way of measuring the quality of services provided by the public and private sector. The Chancellor should ensure the rapid implementation of Sir Michael Barber’s report into improving value in public spending.