By Joshua.Chambers

12 Jul 2012

Heywood and Richard Heaton set out the challenges facing the UK economy. Joshua Chambers reports

Last month, the chancellor set out plans to cut spending by £11.5bn during 2015-16 – but cabinet secretary Sir Jeremy Heywood (pictured above left) warned at Civil Service Live that even these cuts may not be sufficient to put the public finances back into shape.

“We’ve got three or four more years, at least, of this period of fiscal retrenchment to go,” Heywood told his audience of civil servants. “The economy as a whole remains about 4% lower than it was in 2008, so five years on from the trough of the recession we still haven’t anywhere near recovered all of the output lost in that terribly deep recession of 2007-2008.”

There have been promising signs of the economy rallying, he noted: GDP figures, surveys of business expectations, private sector employment and the housing market. However, more effort is needed to bring the public finances into balance. “Despite the austerity, despite the relentless focus on value for money and efficiency – which we’re all helping with – there is still an enormous way to go in getting that fiscal deficit down to a balanced level, and to get the debt to GDP ratio falling rather than rising,” he said.

Further, Heywood said the coalition “has been very clear from the outset that it wants to see a rebalanced UK economy; so less reliance on consumption growth fuelled by debt, and more focus on investment and on net exports.” He added that the government wants “a geographical rebalancing as well, away from the South-East and London being the most prosperous parts. Of course, we want prosperity continuing here, but we need to see that rebalanced across the whole of the United Kingdom so that even the most deprived parts see prosperity.” Meanwhile, there needs to be “a sectoral rebalancing away from financial services and professional services more generally, and a revival of manufacturing.”

Heywood found his comments splashed on the front page of the Daily Telegraph last week, but it’s worth noting that in a couple of instances they misinterpreted his words – and in one case misquoted him. The newspaper wrote that Heywood said “there is no alternative,” when in fact he said: “It’s not all bad, of course”. It also claimed he said it would take 20 years to “beef up” the economy, when he wasn’t talking about achieving growth but rebalancing that growth across the country and across different sectors.

What does this rebalancing mean for civil servants? Permanent secretaries now have growth objectives within their broader permanent secretary objectives, and will be appraised on these every year. They also have to make presentations to the cabinet on the work of their department in boosting growth: last week, it was the turn of Ursula Brennan of the Ministry of Justice.

Middle managers, meanwhile, must “stimulate and motivate staff,” said Heywood, praising their efforts to do this so far. Indeed, there has been “a step change in productivity,” the cabinet secretary said. “If anything, productivity in the private sector has been falling, not rising. But we have the most productive civil service we’ve ever had.”

On the next day of Civil Service Live, Heywood’s colleague Richard Heaton – the permanent secretary of the Cabinet Office (pictured above right) – explained that the civil service is bound to be asked to find further efficiencies during the years of cuts ahead. “There is a lot we can still do to drive out the costs of running the government and to protect the frontline. That will always be the focus of government, I suspect, so you will continue to see a really relentless drive on spend,” he said: departments will do more to share services, cut procurement costs through bulk-buying, use digital technology to improve efficiency, and seek out greater property savings.

Finally, “there will be a cut in headcount,” he warned. “We are now the smallest civil service since the Second World War. We will probably continue to get smaller."

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