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The government has abdicated responsibility for public services

Jeremy Hunt’s tax cuts have been funded by further tightening public service budgets.

A prison ward
Wednesday's autumn statement did little for public services, with many including prisons facing real-term cuts after 2024/25.

In the context of higher than expected inflation the decision not to top up public service budgets in Wednesday’s autumn statement leaves many key services stranded. Whoever forms the next government will be left with a large bill to repair the damage, warns Stuart Hoddinott

The government did not provide public services with any meaningful additional funding in this year’s autumn statement; at the same time, the Office for Budget Responsibility (OBR) increased its inflation forecast. The result is that settlements are now less generous, in real terms, than they were at the spring budget.

When the government first announced spending envelopes at the October 2021 spending review, total day to day spending (known as RDEL) was forecast to rise by 3.6% per year in real terms. That has now fallen to 2.1%. That has provided the government with approximately £19bn of ‘fiscal headroom’ in 2027/28 7 , p.11  – but, likely with an eye on the upcoming general election (expected next year) the chancellor chose to spend much of this on tax cuts.

For public services, this means that the money allocated to them will now go less far than originally planned. This is most visible in the NHS – where integrated care systems (ICSs) are struggling to balance their budgets in 2023/24 8  – and in a local government landscape in which record number of authorities have issued section 114 notices

In response, the NHS has already downgraded its target for elective activity for this year, putting Rishi Sunak’s election pledge to reduce the backlog in jeopardy. Other public services will similarly be adjusting their plans. 

Our recently published Performance Tracker 2023 – produced in partnership with CIPFA – shows that no services are performing better now than before the pandemic, and in 2019 only schools were performing better than in 2010. These spending plans mean that is unlikely to change before the next election. As the year progresses, Sunak might start to worry that any bump from Wednesday's tax cuts could be offset by public concern about public service performance.

The next spending review implies worsening performance for most services

The plans pencilled in beyond the end of this spending review period are tighter still. Hunt confirmed that RDEL will rise by 0.9% per year in real terms between 2024/25 and 2027/28 – a plan Labour has committed to. The government has already committed some of that spending to the NHS long term workforce plan, to increasing defence spending, and on foreign aid. 

Once those commitments are taken out, spending on other services is due to decline by 1.4% in real terms per year between 2024/25 and 2027/28. 

The picture is worse when forecasted demand is factored in. Demand is due to rise particularly fast in the criminal justice system, in part due to the large expansion in the police workforce. When accounting for demand, only hospitals and general practice (assuming the government fully funds the NHS long-term workforce plan) stand a chance of improving performance before 2027/28. 

These plans are a fantasy which no government will be able to stick to as performance levels drop. They also show that this government has effectively pushed the problem of funding public services into the next parliament (‘laying a trap for Labour’, in Westminster speak). This is because whoever forms the next government will almost certainly find themselves relying on short-term, emergency funding pots to top up budgets when performance deteriorates to politically unacceptable levels. 

That kind of spending is terrible value for money: it prevents services from planning effectively or enacting productivity enhancing reforms. A responsible government, wherever it may be in the electoral cycle, should make realistic spending plans that seek to avoid not create the need for topping up. 

Hunt targeted productivity but investment in this – in the public sector – was wholly absent

Hunt did set a target to improve public service productivity by 0.5% per year: a worthy goal. The IfG has long argued that lower productivity is harming service performance. And the government made correct diagnoses about some of the causes of poor productivity, such as high admin burdens on staff, but its solutions so far fall short. For example, there was some talk about using AI to reduce administrative burdens. Maybe, but talking about increasing investment in AI will seem like a cruel joke to frontline staff using computers that barely turn on. Similarly, the nod to shifting funding towards preventative services is sensible, but its efficacy is questionable in the context of 13 years of central government consistently prioritising acute spending.

What was conspicuously absent in the statement was capital investment. Hunt rightly highlighted importance of investment to productivity – but only in reference to the private sector. When it comes to the public sector, he instead confirmed capital budgets would be kept flat in cash terms beyond 2024/25. That means that budgets will fall in real terms, which will in turn make it much harder to meaningfully improve address issues of crumbling buildings and antiquated IT systems that act as such a drag on productivity.

The danger is that a blunt productivity target will incentivise short-termism – as in the 2010s, when public service productivity appeared to increase  but only as a result of reducing managerial and admin staff headcount, holding down the pay of frontline staff and shifting capital into day to day spending. Those policies directly contributed to the poor productivity across public services today. Productivity improvements are possible but require upfront investment. Any government that does not take that seriously is not serious about improving productivity.

Public services are struggling under the weight of more than a decade of underinvestment, pandemic backlogs, and inflation. Rather than putting services on course to recovery, the government has simply abdicated responsibility, leaving it to the next government to pick up the pieces.

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