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The 2020 Public Services Trust Blog

Wednesday, June 23, 2010

A budget for cuts but is it a budget for reform?

By Ben Lucas

This is a tough budget. It adds another £40bn to the already stringent consolidation planned by Labour.  We won’t know its full impact for some time to come. The real test will be what happens to the economy and to jobs.  If growth continues and gathers pace next year, then the Government will feel vindicated, if not then people will question whether the scale and timing of deficit reduction was right.

At least now we know the numbers – what we don’t yet know is what will be the impact on public services.  That will be set out in the spending review, which now assumes even greater importance given the challenge of trying to maintain and even improve social outcomes in the context of huge spending cuts.

A large part of the story is about welfare cuts.  Child benefit will be frozen for the next three years and all other benefits, except pensions, will be uprated only in line with the Consumer Price Index, rather than with RPI.  Housing benefit will be capped at £400 a week.. The principles which are being applied to welfare cuts are conditionality and means testing, with the aim being to target expenditure on those who need it the most and to incentivise work.  But this clearly does not explain the decision to uprate the state pension, which is a political decision.

By far the biggest inconsistency in the coalition government’s position on public expenditure is on health.  The government’s argument is that we face a moment of unprecedented fiscal crisis and so everyone will have to share in the pain of cuts.  In so far as there is a glimmer of hope at the end of the tunnel, it lies in the belief that a crisis can be an opportunity to reform public services to get more for less.  Both these considerations ought to apply to health, it bears a huge share of public expenditure and no service area better represents the concentrated power of institutional and vested interest than the NHS.  Either public services need to be reformed or they don’t. It makes no sense to exclude the most expensive service of all from this process.  The exemption risks undermining reform elsewhere as well as forcing other spending areas to shoulder a disproportionate level of cuts.

It is a measure of just how big the other departmental cuts are that what looked a savage reduction in capital spending under Labour now looks likes an infrastructure reprieve under the new government – even though this still corresponds to a 17% cut in building projects.  The previous Budget’s projection of 10% cuts in non-ring fenced department spending now looks like the good old days, when compared with the 25% cuts which these departments will now face.

What the Budget lacked, and the Spending Review will have to provide, is a coherent public service reform narrative and strategy.  This points to a dissonance at the heart of the Coalition Government.  Whilst the Prime Minister has proclaimed the Big Society as the Government’s big idea, this is not mentioned anywhere in the 120 pages of the Budget statement.  Yet, if the Big Society is to have substance then surely it must be relevant to the fiscal challenge, otherwise it is just a nice to have decorative adornment to the age of austerity.

The spending review will need to develop a strategy for public service reform and transformation and not just for expenditure cuts. The challenge is even greater than that faced by countries like Canada, because the scale of potential cuts is greater and the expected level of economic growth is lower.  The question will be how can cuts on this scale be delivered without unsustainable public sector job losses, particularly in the north? And how can communities and neighbourhoods prosper and develop greater autonomy, when the support they will need to enable this will be under pressure as never before.  The spending review will need to put the emphasis on structural and institutional reforms and on building social productivity – focussing on neighbourhoods, service integration at local level,  more for less budgets for local areas and the social finance mechanisms which can enable scarce funding to be reprioritised on prevention and early intervention.  Without this, retrenchment will quickly turn into residualisation.

Tuesday, March 16, 2010

Guest blog by Sir Andrew Foster Chair of the Commission on 2020 Public Services

By Ashish Prashar

“This evening the Commission on 2020 Public Services – of which I am Chair – launches its Interim Report: ‘Beyond Beveridge: principles for 2020 public services’.  The report is the culmination of a long period of discussion, deliberation and, ultimately, agreement.  We are a diverse commission, representing many political, professional and personal backgrounds.  That we have come together with a common voice is surely significant.

This interim agreement at a moment of crisis for public services is what makes the recommendations of our Commission worth considering.  All 20 Commissioners agree that narrow critiques inevitably find their way to narrow solutions.  So our critique is broad; and our vision for the future is positive and coherent.  Short-term solutions to the debt crisis dominate the press.  So our report looks to the longer term – arguing that short-term decision making must be underpinned by deliberate and strategic principle.

Ultimately, the Commission is about finding a way to develop public services that do better by the people who most rely on them.  We believe in public services as things we all benefit from.  But outcomes are failing some citizens.  The structural basis of our system – designed by William Beveridge in his 1942 report – is no longer adequate for the new world we live in.

Today’s report sets out the Commission’s interim findings.  We lay out a positive vision for public services, and some building blocks to get us there.  Our own next steps involve grounding these principles in the real lives of citizens and those who work in public services.  We will present our final recommendations in summer this year.”

Together with its interim report, the 2020 Public Services Trust is publishing an essay by Professor Howard Glennerster entitled Financing the United Kingdom’s Welfare States and a report prepared by Ipsos MORI called What do people want, need and expect from public services. Professor Glennerster’s essay reveals the extent of the hole in our public finances and advocates partnership approaches between the state and citizens to fund public services. The report by Ipsos MORI uses the most up to date quantitative and qualitative research to explore the public’s priorities and anxieties and suggests how the relationship between citizens and their services might change in the future. These papers have enriched the Commission’s understanding of the context in which it operates – from the perspective of citizens, and with the country’s delicate fiscal situation in mind.

Two major new reports follow these publications.  Online or In-Line: The Future of Information Technology in the Public Services is a report exploring both the opportunities technology can create for public service reform as well as the associated risks, coming out this Friday. On March 23rd, check our website for Delivering a Localist Future: a route-map for change which assesses the practical barriers to achieving the frequently debated, often promised and never delivered localism, and suggests ways to overcome those challenges.

Thursday, December 10, 2009

Borrow more, borrow now…

By Ashish Prashar

There was very little change in the borrowing figures in yesterday’s Pre-Budget Report, which is impressive given the turmoil of the last year. The Treasury also estimated that the cost of bailing out the two state-backed banks will now only cost £10bn and £50bn as previously estimated and the Chancellor promised the markets that the deficit would be halved in four years. However, he ducked the decisions on where cuts would need to be made and spending for 2010-11 will surge ahead as planned.

Now although deficits look bad it has been relatively cheap to borrow since the start of the recession and we’re probably now entering the beginning of a period where the rate for government to borrow will normalise as the recession comes to an end, therefore becoming more expensive.

So if government going to go forward with spending as planned and borrow more in the near future, it’s probably a good idea to borrow now and lock it in while rates are low.

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Posted by Ashish Prashar at 11:10 am
Tuesday, September 15, 2009

Vince is right, but we must take courage and be bold!

By Charlotte Alldritt

I’ve just got back from Reform’s launch ‘Tackling the fiscal crisis: A recovery plan for the UK’ by Vince Cable MP. In this well reasoned and balanced pamphlet, the Deputy Leader of the Liberal Democrats argues for a bold approach to cutting the public deficit by 8% within 5 years.

Vince Cable’s ideas are based on the premise that a public deficit of 13% is too high. Moreover, it is a structural deficit – the increase in public spending of 40% since 1997 has been built on the “unstable and impermanent” UK financial sector and housing market. While he accepts that tackling the stock level of debt (as a proportion of GDP) is not a matter of immediate urgency, Cable asserts that the deficit and debt levels need to be reduced as soon as it is timely to do so (i.e. when it will not jeopardise recovery).

Meeting a challenge of such scale must not be rushed, argues Cable. It must be done right. He offers five principles for change:
1.  Zero-based budgeting – nothing is sacrosanct; departments will have to defend every aspect of spending.
2.  Democratic accountability – Parliament should be able to scrutinise public spending plans before they are implemented, not just after via the National Audit Office.
3.  Localism – local government should be free from excessive central government bureaucratic oversight. They should be given revenue raising power, especially over business rates.
4.  Transparency – public spending by the civil service and quangos should be readily scrutinised.
5.  Public sector reform – focus should be on value for money and outcomes, not input targets or meaningless talk of ‘efficiency’.

Whilst all these principles are right and laudable in theory and Vince Cable offers some sensible policy suggestions as a result, they pose considerable problems in practice.

For example, zero-based budgeting has the potential to lead to siloed rather than strategic resource allocation, as each department tries to defend his own (possibly for reasons of salary incentives and empire building rather than the public interest). Decentralisation has proved notoriously been talked of, tried and failed, largely a result of the centralised UK political culture. And what of the implications of cutting back education or NHS spending? As one member of the audience asked this morning, will we be going back 10 years to long waiting lists and people lying untreated in hospital corridors? Or, as Vince Cable himself acknowledges, might the quality of public services fall under the guise of so-called productivity gains (e.g. via doubling of class sizes, or reducing the number of HE tutorials)?

Whilst going further to inject sense and honesty into the debate than has been offered by the other two main parties, the overwhelming critique I have of this paper is its limited reference to the growing demand for health care, social services and education (see my blog yesterday). If we take these into account and – as Vince Cable argues – we have to tackle the national debt and deficit sooner rather than later by cutting public spending, our situation looks even graver still.

Courage will be needed to tackle this head-on, and it must start with a fundamental change in the relationships between the citizen, communities, local and central government. We need to be bold to avoid this otherwise impending black hole for public services.

Monday, September 7, 2009

Now for a real debate on public services

By Ben Lucas

There are signs that the Government is now groping its way to a more credible position on the future of public spending on public services. For the last year Gordon Brown has tried to maintain the Labour investment versus Tory spending cuts dividing line. But whereas New Labour’s successful political positioning always went with the grain of public opinion, Brown’s line on public finances has failed to convince anyone, few in his own government believe it, let alone the general public.

In practice, the dividing line has been Labour denial versus Tory realism. It is hardly surprising, therefore, that the Conservatives have been winning the argument. The tragedy for Gordon Brown is that having won international plaudits for his handling of the banking crisis and its aftermath, this success has been overshadowed by his incredible approach to public service spending. There is a powerful economic argument to be made about maintaining public spending in the recession, and the evidence seems to suggest that this has helped mitigate its social impact, particularly on unemployment, but this also depends on there being a credible strategy for reducing debt once the economy returns to growth.

A combination of interviews and briefings over the past week indicate that the Government is changing its position. The strategy seems to be to accept that there will have to be a significant spending reduction, but only once the economy returns to growth and that this will be across all public services including health and overseas aid (both of which have been ringfenced by David Cameron). Within this spending reduction some key economic and social objectives will be identified such as skills, educations and poverty reduction, where spending will be prioritised. In the other areas of spending, the emphasis will be on a return to public service reform, productivity savings, efficiency, choice, competition and more co-production. This could be allied with state asset sales and a more creative and flexible use of community assets, such as libraries, schools, parks and colleges.

But the question for Brown is can he overcome his innate caution and turn this into an effective strategy based on offering a credible alternative to Conservative realism on public service spending?. To do this, it will not be enough to hint at this new approach and hope that an upturn in the economy at the beginning of 2010 will be enough to transform the political debate. The Government will need to make its position very clear in the next few weeks and will then need at least six months to get this across to voters. The best way of doing this would be to go ahead with the Comprehensive Spending Review, which was suspended earlier this year. It’s no good waiting until there is better economic news, because that will probably not be until after the election. So the Government should be bold and push ahead with a CSR this year..

Establishing a more credible position would not only be good for the Government, it would be good for politics. The Conservatives have had it very easy because of Brown’s insistence on denial. But a debate between realists could be a different matter. The Conservatives would have to think hard about the logic of ringfencing health spending, they would have to be clearer about their own numbers and their own tax and spend priorities, including inheritance tax. So far the Conservatives have not had to explain how they would combine the increased spending necessary to tackle “Broken Britain” with 10% cuts in all public services except health and overseas aid. It is in the public interest that both the Government and the Opposition parties should have a credible strategy on the public finances, so that there can be a proper debate about how to achieve sustainable growth, how to reduce the dependency ratio and how to respond to demographic change, behavioural challenges such as obesity, the growth in chronic health conditions and global warming – all within a very tight budget.

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