The IfG’s latest Performance Tracker, produced in partnership with CIPFA, finds that most public services became more efficient during the early years of austerity. The NHS reduced spending on medicines used in general practice by buying cheaper generics; local authorities made deep cuts to spending on libraries, road maintenance and waste collection and saw only a slight decline in citizens’ satisfaction.
But now, after nine years of spending restraint, performance has declined across the board and there are few efficiencies left to be made. There are also growing problems in both recruitment and retention of staff in hospitals, schools, social care, the police, and prisons.
Theresa May’s government moved to address these pressures. In summer 2018, her chancellor, Philip Hammond, abandoned the public sector pay cap imposed by his predecessor George Osborne, and offered above-inflation pay rises to school teachers, NHS staff, prison officers and police officers.
We estimate that the May government, which had initially accepted the spending cuts laid out in the 2015 Spending Review, ultimately spent at least £9.4bn more on nine public services this year (2019/20) than it had originally planned. Most of this extra money went to the NHS and social care.
The Johnson government has since announced plans to increase spending on schools and hire an additional 20,000 police officers. The size of the spending boost for schools is expected to effectively reverse cuts that have been made to per pupil spending since 2010, while the plans for recruiting more police officers would – if successful – take officer numbers back to just below 2010 levels.
A great deal of ink has been spilt on this latest round of spending promises – but the outlook for public services has hardly changed.
Sajid Javid, Johnson’s chancellor, has replaced Hammond’s fiscal rules with a looser approach that allows the government to spend more on investment and on day-to-day spending. However, virtually all this extra money was given away in the September spending round. That means that any further significant promises for spending on public services would need to be funded by tax increases.
Labour is also signed up to run a balanced budget, albeit over a slightly longer time. It has promised that day-to-day spending will be matched by tax revenues in five years’ time, rather than the three years set out in the Conservative plan. So, like the Conservatives, Labour must decide which taxes will rise if it wants to promise more day-to-day spending for public services than the government has already announced.
Both parties have scope within their new fiscal rules to increase investment substantially. This marks a big shift and could allow for greater investment in schools, hospitals, roads and infrastructure. But capital spending makes up a relatively small share of the budget for most major public services: capital spending accounted for just 4.9% of spending on NHS providers and 6.6% of spending on schools last year. Capital spending does not, for example, cover staff salaries – easily the biggest part of spending on public services.
Rising demand for public services poses a complicated challenge for whoever forms the next government. For example, just to maintain the standards of the existing adult social care system will require at least £700m more per year – by 2023/24 – than is currently planned.
While there might be more scope for further efficiencies – such as improving police procurement, or making greater use of telephone and online consultations in general practice – these are unlikely to be enough to meet rising demands for public services. The next government will struggle to incentivise services to make further efficiencies through holding down pay and asking staff to work harder – methods which both the coalition and Conservative governments have relied on over the past nine years
Having ruled out borrowing to finance day-to-day spending, whoever forms the next government will face a tough choice. If standards in public services are to be maintained, the next government must raise taxes, increase charges, or cut spending in other government departments.