After the downturn – managing a significant and sustained adjustment in public sector funding
Published Monday, January 4, 2010 - 20:29
We all know there will be cuts in public services after the election. The key questions, however, are how deep will they be, and for how long will they run?
Will their scale feel familiar – like earlier squeezes on spending in the 1980s and 1990s - or will the public sector be dealing with a challenge that is beyond our previous experience? Whatever their size, it is also crucial to consider how to best manage the cuts and to implement them in an effective way which minimises impact in the most critical service areas and for the most vulnerable service users.
We have sought to answer some of these questions in a paper entitled After the downturn – managing a significant and sustained adjustment in public sector funding, co-authored by CIPFA and SOLACE, and informed by a much wider cross-section of public sector professionals.
In the three year spending round following the election, our paper rehearsed two levels of headline cuts in current public spending: 7.5 per cent and 15 per cent. The former, 7.5 per cent over three years or 2.5 per cent per annum, is based on relatively straightforward interpretation of Government’s own figures. The second, 15 per cent or 5 per cent per annum, factors in more cautious assumptions on a number of downside risks. The recession may be longer and deeper than originally anticipated. Recovery may be slower. Interest rates may rise and because of our high levels of debt, that is a very important exposure. Finally, there are political choices in play here too. Different parties will take different views about the amount of pain that should be taken in the short as opposed to the medium and long term.
These two scenarios are described as headline cuts because they illustrate the position before politicians, nationally and locally, have made interventions to protect specific services. If the Cabinet decides not to cut NHS or schools’ budgets, for example, cuts to ‘unprotected services’ become that much deeper. Similarly, if a local authority decides it cannot cut say, children’s or economic development services, the same amplified challenge hits other services.
We have modelled some of these possible impacts and believe that a 2.5 per cent per annum headline cuts may mean anything between 0 and 7.5 per cent per annum for individual services. Similarly a 5 per cent per annum headline cut may mean anything between 0 and 10 per cent. It is when public services begin to conjure with these sorts of figures, and imagine them operating on a cumulative basis for a number of years, that the scale of this challenge begins to look extremely daunting.
Looking back to earlier periods of restraint - the 1990s: the last recession, the 1980s: the Thatcher reforms, and the 1970s: our engagement with the IMF - in each of those decades public spending grew. There were brief periods within the decades when it held steady or even reduced marginally year to year. But the big picture was one of growing expenditure in real terms. Thus, the challenges we now face really do threaten to be beyond our previous experience.
What are the positive steps which the public sector can take to manage this well and mitigate the damage it may herald for individuals, families and communities. In our paper, we considered three main areas.
The first strategic option is to review and redefine the relationship between the individual and the State. This means moving to a world in which people do more for themselves and each other, and look less frequently to the State as the provider of first resort.
The second strategic option is devolving more decisions to be taken by local bodies with minimal oversight. By reducing the scale of national oversight, inspection and target setting activities, costs can be reduced; while trusting councils and other local bodies to make the right judgements for their local communities will help in turn to rebuild local public accountability.
Finally, the third strategic option is to facilitate better horizontal collaboration across government and the public services. There has been emphasis in recent years on the efficiency of individual organisations and rightly so. However, we now need a focus on whole system efficiency to mitigate duplication and blockages within the system which are so costly and frustrating to citizens.
The three strategic options outlined are not mutually exclusive. On the contrary, we concluded that the best strategies would need to draw on all three approaches. In considering these choices all public sector organisations will also need to consider priorities through a new and more challenging lens. In those discussions the thorny questions are often what is not a priority and what we are going to stop doing? These questions are also relevant to developing new public sector frameworks and structures for the future. If we are going to have a model which is more strongly localist, for example, the public sector and the Government have to be clear about what we are going to stop doing at national level. This is not only about changing functions it is also about changing behaviours. We will have to be clear about who is responsible and who is accountable for the local space and Ministers and central Government must respect that sovereignty.
Finally, it is important to consider issues around leadership. Whatever the scale of the challenges to come the public sector has a voice and can influence thinking. The public sector can make the forthcoming cuts much worse by being in denial, shifting blame, and fudging issues. Alternatively Government and public services can show leadership and awareness, addressing the challenges openly and honestly and engaging citizens, staff and stakeholders in candid exchanges about priorities and, yes, about cuts.
