With budgets stretched and workforces drained, government must decide what it can – and can't – deliver

As the cost-of-living crisis bites, the public is divided on public spending – but bold reform is needed, not salami-slicing cuts
Photo: PA Images/Alamy Stock Photo


As our third PM in three months settles into Downing Street, his in-tray couldn’t be more challenging. We await the OBR’s fiscal assessment, but the most pessimistic predictions are that savings of the scale of 2010 will be sought. Yet unlike in the wake of the financial crash, departmental budgets are already squeezed, and many public services are under pressure from pandemic-induced backlogs. Bold reform, not salami-slicing cuts, will be needed. The better news is that, while our latest State of the State report finds deep concern about the current situation, public sector leaders are already thinking about how to do things differently.

The State of the State, now in its 11th year, is Deloitte and Reform’s annual snapshot of government and public services. To understand public attitudes, we commissioned Ipsos to survey nearly 6,000 people on their views on tax and spend, their public service priorities and their trust in government. And to understand how those running those services are feeling, we spoke to fifty senior public sector leaders – from ministers to NHS chief execs, top officials to police chiefs.

Unsurprisingly, the current economic crisis is front of mind for both the public and public sector leaders. When asked to pick their top priorities for government, 81% of people surveyed chose “the cost of living”, with “NHS waiting lists” coming in second at 66%.

Public sector leaders told us that the combination of the pandemic fallout, high inflation and the cost of living crisis has left budgets stretched, demand heightened and workforces drained. As one senior civil servant put it: “When it looked like there was light at the end of the tunnel, the cost of living crisis started.” Concern was also expressed about how to resolve the tensions between sufficiently increasing public sector pay and recognising the reality of the public finances post-Covid.

Debates are already raging on how to square the circle of rising public spending demands and a large fiscal black hole. This year, State of the State finds the public divided on their views about tax and spend, but with few believing the status quo is correct. Just 17% of people think Britain should keep current levels of spending, while 33% think we should be aiming for lower taxes and/or borrowing even if that leads to lower spending, and 29% think we should be aiming for higher spending even if that means taxes and/or borrowing goes up.

"The consensus was that government needs to make choices about what it stops doing... That would not mean wholesale privatisation but a continued shift towards collaborating and working in partnership"

For those aged 16-34, almost twice as many favour lower taxes/borrowing than favour higher spending funded by increased taxes/borrowing. The polling was conducted before the Growth Plan, and the then-PM’s tax-cutting mini-budget, but it is perhaps not surprising that in a cost of living crisis, people want to keep more of their earnings.

This economic and fiscal reality is very much recognised by public sector leaders. After decades of debate about the sustainability of public spending and the scope of the state, its leaders want to see big, bold choices and new thinking on how government operates. Almost every civil servant interviewed said government was doing too much. As one put it: “Government is asking a lot more of the civil service than 30 years ago. There’s a way through that but it is quite radical – we’d need to transfer a lot of what the government does.” Or in the words of one agency chief, ask “what is an essential public service?”

The general consensus was that government needs to make choices about what it stops doing and whether communities, civil society and the private sector could be better placed to deliver certain functions. That would not mean wholesale privatisation but a continued shift towards collaborating and working in partnership to optimise value for taxpayers’ money.

Strikingly, there was also recognition that Whitehall’s headcount should fall, and several civil servants suggested there were layers within some departments that could be removed. This isn’t about an arbitrary headcount reduction target, but looking at the whole system with its existing structures and processes and rethinking that model.

Looking ahead to 2030, and after a decade of reacting to events, many public sector leaders are impatient for change. In every interview we asked how they would like their department, council, NHS trust, police force or agency to look by the end of this decade and we heard consensus around five areas: streamlined government, reshaped by bold reforms; a joined-up public sector; empowering communities or delivering with other sectors; data-led and digital to the core; and staffed by inspiring leaders and an engaged, resourced workforce.

Better use of data and tech was seen as particularly important to delivering a more effective and efficient state, but, as one senior civil servant said: “We’re about two spending reviews away from where government could be on data.” Centring digital around citizen interactions, with a greater shift to online self-service and harnessing technologies like AI will be key.

The overall picture is therefore one of deep challenge, but also real opportunity for change. The cost of living crisis is the context and the overriding priority, but long-term, bold reform is the goal. That’s the clear message for the new PM.

Read the State of the State report here

Charlotte Pickles is director at Reform, the leading public services think tank, and Ed Roddis is a senior manager at Delotte, who researches government and the public sector

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