Opinion: Dave Penman, FDA

All the main parties agree on the need to make savings – but simply rearranging the deckchairs won’t be enough

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By Dave Penman

25 Feb 2015

The chancellor’s Autumn Statement is increasingly a set piece of political theatre, rather than a genuine attempt to inform and educate the voting public – none more so than the last one before an election.

But many believe the picture of the next five years painted by George Osborne when he stood up to speak in December would look remarkably similar, regardless of who wins the election. Every government faces choices and has different priorities, but the scale of the fiscal challenge he outlined suggests that room for wriggle is dwarfed by the perception of the economic outlook shared by the main parties.

I’m no economist (unless an ‘o’ grade in maths counts), but like many, I was taken aback by the context used in the Office for Budget Responsibility’s (OBR’s) report. It looked at current spending plans to 2016, and assumptions to 2020. Based on this, over the 10-year period from 2010-2020, spending on public services – what they call Resource Departmental Expenditure Limits (RDEL) – will have fallen from £5,650 per head of population to just £3,880 – a reduction of around 31.3%. This is day-to-day central government spending on public services (including grants to local government) and is largely made up of spending on public sector pay and procurement.

This appears dramatic enough, but two further figures stand out. Roughly 40% of this cut in spending has been achieved in this parliament, with 60% to come in the next. Secondly, that cut in spending is not even across public services. Areas of spend like health, education and overseas aid have been protected, meaning that if those protections remain, spending on other departments could be up to 57% lower in 2020 than in 2009-10. For historical context, this would take day-to-day spending on public services, as a share of GDP, back to levels not seen since the late 1930s.

Now there are a lot of assumptions in all of that, but my point is to paint a broad picture of where public sector spending is going, which is what I think the OBR has tried to do in this analysis. The government of the day is always likely to come under greater scrutiny than spending plans from the opposition, but even taking account of the noises from Labour and the Lib Dems on their approach to spending, cuts in expenditure will in all likelihood look something like this regardless of who wins (or who doesn’t lose, if you believe the polls).

Quite what this means is hard to judge. Logic would suggest that further spending cuts will be more difficult to achieve, as departments have already driven through significant efficiencies. In a recent address to the Institute for Government, civil service chief executive John Manzoni recognised that you can’t simply ask people to work harder and harder. The fact that further reform is needed, and needs to be driven by the service itself, was a key message. He envisaged more – and better – digital services, holding the market more effectively to account and greater exploitation of scale economies through shared services and pooling buying power, including beyond Whitehall.

If the £10bn of further savings as planned are to be achieved by 2017-18, as well as the extra £15bn-£20bn by 2020, Manzoni also recognised that brave decisions will need to be taken administratively and – crucially – politically. Savings of this type will not be delivered by re-arranging the deckchairs (my words, not his). 

Responding to the Autumn Statement, the Institute for Fiscal Studies director Paul Johnson said: “One thing is for sure – if we move in anything like this direction, whilst continuing to protect health and pensions, the role of the state will have changed beyond recognition.”

So those brave decisions Manzoni talked about are required by whoever wins the next election. We cannot continue with a fiction that a series of ‘salami slicing’ of central government budgets will deliver these. I can’t imagine a single reader of this article thinking that a greater budget cut in the next parliament can be achieved without something fundamentally changing.

At this stage, I don’t see the politicians from any party likely to form a government genuinely facing up to this issue. Maybe that’s inevitable in the run-up to an election – no-one wants to stand on a ticket of decimating public services – but the signs are not good. The fictional debate and hysteria every time one party or another suggests spending less on a precious area of public services is not a good context for entering government and facing up to reality. Also, if current polls are to be believed, a coalition or minority government by its very nature is less likely to deliver coherent political leadership.

Manzoni also talked about building the confidence to say “No, Minister” when a policy or project is simply unachievable with the resources available. New governments rarely want to hear those words, but reality will have to bite somewhere and, ultimately, that is precisely the role the civil service has to play, uncomfortable as that may be. 

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