Not-so-magic money tree: the chancellor must break the cycle of reactive public spending
The cycle of bailing out struggling services will only be solved with an injection of data
Chancellor Philip Hammond 'has little choice' but to put in more cash into prisons. Photo: Peter Macdiarmid/PA
Government is caught in a cycle of reactive spending on public services: ignoring emergent warning signs, allowing problems to build into crises, and being forced to divert emergency cash to the front line. The failure of successive governments to find enduring ways to control spending while maintaining the scope and quality of key public services has drastically limited chancellor Philip Hammond’s room for manoeuvre in the coming Budget.
That is the message of the second edition of Performance Tracker, a data-driven analysis of the performance of public services from the Institute for Government and the Chartered Institute of Public Finance and Accountancy.
Our analysis suggests that more than £10bn over five years has been spent in this reactive way – spending which cannot be considered investment. In too many cases, the extra money has been used to keep services going in their current state, not to solve the underlying issues which allowed problems to build up in the first place. And the government lacks strategies for what will happen when this money runs out.
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The risk of repeating the reactive spending cycle is greatest in four out of the nine services we analysed: prisons, hospitals, adult social care and schools.
In prisons and hospitals, the cycle is at its peak – and the chancellor has little choice but to put in more cash. Violence in prisons is continuing to climb – assaults on prison officers rose around 32% last year – despite the announcement of an extra £500m at last year’s Autumn Statement to recruit more staff. Hospitals are set to continue running a deficit, but in spite of these overspends there have been no improvements in key waiting times targets. The waiting list for non-urgent treatments is the longest it has been for a decade.
In adult social care and schools, the government has already made emergency cash injections – but it has not set out what will change when these sticking-plaster solutions expire. The social care green paper announced at the last Budget has now become a consultation due “in the new year” – leaving little time to get reforms in place for when the £2bn injected last spring runs out in 2019/20.
In schools, the catalyst for spending was more political than operational. Rather than attempt to win the argument over plans for a new funding formula – which will see some schools lose money – the government has simply postponed it.
In July, £1.3bn was found from elsewhere in the Department for Education’s budget to soften the blow over the next two years. Before those two years are up, the government needs to either win the political argument, and demonstrate how some schools can manage with less, or accept that the budgets will have to be re-thought.
The chancellor’s current problems have their root in over-optimistic assumptions which have a tendency to get baked into spending decisions
In the other services we analysed – police, neighbourhood services and UK Visas and Immigration – there are signs of substantial efficiencies. But more information is needed – either to understand long-term options, or to be clearer on the actual state of public services.
The demands on police are changing, with last year’s 5.2m incidents of cybercrime – nearly equalling the total number of other crimes put together – being of specific concern. But it is by no means clear that reversing the 14% reduction in police officers since 2009 is the best way to tackle this new demand. The government needs to inject more evidence into the public debate about the best ways of dealing with changing crime.
Neighbourhood services – such as waste collection and road maintenance – have absorbed large spending reductions in the last seven years. But in too many areas, there is insufficient data available at a national level for central government to understand how much further efficiencies can go before serious service deterioration sets in. And while UK Visas and Immigration has managed a post-referendum surge in its workload, the challenge ahead is on a different scale – demanding wholescale changes to the way it manages applications.
A set of key decisions must be taken at this Budget to change the trajectory that some services are on. But there are deeper issues at play here, which go beyond a single Budget. The Chancellor’s current problems have their root in over-optimistic assumptions which have a tendency to get baked into spending decisions.
That’s why we’re calling on him to open up the assumptions underpinning his spending decisions to independent scrutiny – potentially through an Office for Budget Responsibility for public spending.
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