The government has made much of its ambitions to substantially improve public services this parliament. But, at the Spending Review it set out relatively tight budgets for many departments. To reconcile these two things, the government is also promising large improvements to public sector productivity, so that public services can deliver more and better services without similarly large increases in resources.
In new analysis, we set out just how large these productivity improvements would need to be to square this budgetary circle. By our estimates, government plans imply that productivity in the public sector will grow more than four times faster than the long-run average seen between 1997 and 2019. Promising to do more with less has obvious attractions. But the big question is what happens if these gains fail to materialise. There’s every possibility that public sector productivity growth disappoints, leaving the government with the difficult choice of either topping up budgets to secure the service improvements it promised, or settling for worse services than it had anticipated.
We’ve also dug into where these all-important productivity improvements are planned to come from, based on details published alongside the June Spending Review. Most relevant for the civil service are the cuts to departmental administration spending (which includes policy advice and business support services in Whitehall), planned to save around £2bn by 2028–29. While these savings are much smaller than the efficiencies the government wants to make in the delivery of frontline public services (worth £14bn by 2028–29), these cuts will have a significant impact on the size and shape of the civil service, with potential knock-on consequences for the rest of the public sector.
There are four key things to know about these administration cuts. First, they will take administration budgets to their lowest point in real-terms since comparable measures started in 2011–12. The cuts aren’t as large as those made by the coalition government, but the context this time is very different: administration spending is already a much lower share of total public spending than in 2011–12 . And it's worth noting that delivering these savings isn’t guaranteed – when New Labour governments set out to cut administration budgets, they often failed to deliver them.
Second, the distribution of the planned cuts to administration spending across departments is strikingly – suspiciously – uniform. Almost all departments are facing identical cuts in percentage terms, with only slightly larger cuts for several departments like the Foreign, Commonwealth and Development Office, HM Revenue and Customs and small and independent bodies. But some departments – like the Ministry of Defence – are being asked to deliver much more over the next few years, with a much larger overall budget, while others – like the Department of Culture, Media and Sport and the Department for Environment, Food and Rural Affairs – are facing cuts to their overall budget. There might be symbolic value to asking all departments to deliver the same savings, but it seems unlikely to be the most efficient solution.
Third, staffing costs make up the majority of administration spending (around four-fifths of net spending in 2025–26), and so delivering cuts will almost certainly require headcount reductions. If staffing costs remain a constant share of administration spending, and pay grows in line with Office for Budget Responsibility forecasts, we estimate that administrative headcount would need to fall by 18% in this parliament. It seems unlikely that reductions on this scale could be delivered through the voluntary redundancy programmes the government has set out already; further, and possibly more radical, workforce reforms may well be necessary.
Fourth and finally, it’s worth noting that while the government has billed cutting administration budgets as a way to increase productivity, this link isn’t automatic. Some ways of making savings would genuinely improve productivity, including automating processes, reducing property costs, or eliminating duplication. And there is almost certainly scope for improvements here: office occupancy in some government buildings is still low, for example, and it may be possible for departments to get by with fewer expensive offices in central London. It’s also possible that AI, or other digital improvements, could increase civil service productivity, though there remains considerable uncertainty over the extent of such gains.
But cutting administrative budgets could end up cutting the quantity or quality of what the civil service provides, which would not increase productivity at all. In other words, rather than doing more with less, departments might end up doing less with less – reasonable, perhaps, but not a productivity improvement.
Ultimately, when it comes to the government’s big picture fiscal challenges, the planned cuts to administration budgets are not what matters most. Central administration costs are a small share of what the government spends its money on. What happens to frontline public services – and, in particular, the NHS, which is expected to provide more than half of the overall savings – will be far more important. For those working in government departments, however, they could be very significant indeed, and could shape what the centre of government looks like at the time of the next election.
Max Cooper is a senior research economist at the Institue for Fiscal Studies. Olly Harvey-Rich is a research economist at the IFS