Fixing public services: Sticking with the status quo – implications of current spending plans

Spending from April 2025 is planned to grow more slowly than under Johnson, Brown or Blair

Current spending plans – those set out by the Sunak government plus additional spending commitments included in the Labour manifesto – indicate that day-to-day departmental spending is set to increase by 1.2% per year in real terms between 2025/26 and 2028/29. However, Labour has also said it would stick to other spending commitments inherited from the previous government – namely, implementing the NHS Long Term Workforce Plan, increasing aid and defence spending in line with GDP and expanding childcare provision.* Taking those into account, this implies annual real- terms spending cuts of 2.4% to unprotected areas of day-to-day public spending.

Under existing spending plans, capital budgets will be flat in cash terms. This implies real-terms cuts of 1.7% per year, although it is unclear how this will translate to public service capital budgets, which account for only 20–25% of total capital spending.

And this limited capital pot will be in much demand – not least from the wealth fund, R&D and net zero transition. If the 1.7% real-terms cut is applied to public services, capital budgets in the Department of Health and Social Care and the Ministry of Justice will still be higher than at any point during the 2010s. However, both departments still have an effective ‘backlog’ in capital spending that is required to make up for the under-investment in that decade. In the Home Office, DLUHC and DfE, there would be a continuation of the low levels of investment seen in the 2010s. Without sufficient capital investment all services will struggle with productivity issues over this parliament (discussed in more detail below). 

^{*We also assume it will keep per-pupil schools spending flat in real terms, but spend extra on commitments made in the 2024 Labour manifesto.} 

If the government sticks to these spending plans at the next spending review, then it will be the tightest for day-to-day spending since 2015. It would also be tighter than any of the five spending reviews undertaken by the Blair and Brown governments between 1998 and 2007 – including the 1998 spending review in which Labour pointedly stuck to the tight spending plans inherited from the Major government, at least for the first year.

Given the various commitments Labour has made to improve public services, it is highly unlikely that the new government will be able to stick to these plans. The 2015 spending review proved undeliverable, with the May government repeatedly providing emergency funding top-ups over the following years in response to poor performance. Even in 2023/24, when budgets were relatively generous, the Sunak government found it necessary to provide extra funding to key public services such as the NHS and local authorities. ²² Tetlow G, Pope T, Bartrum O and others, ‘Five things we learned from the spring budget 2024’, Institute for Government, 6 March 2024, www.instituteforgovernment.org.uk/comment/five-things-we-learned-spring-budget-2024

Under current spending plans most services are likely to be performing worse by the time of the next election than in 2019

Implementing current spending plans would mean most services are likely still be performing worse in 2028/29, at the end of the new parliament, than before the pandemic and 2019 general election. Service quality and access in local government and the criminal justice system, in particular, are expected to be on a continued downward trajectory between now and then. 

Increasing spending in line with the NHS Long Term Workforce Plan would likely lead to a small improvement in performance

It has been calculated that delivering the NHS Long Term Workforce Plan will require spending growth of 3.6% per year. This would see NHS funding grow more quickly than demand is projected to. However, The Health Foundation has calculated that the NHS would need annual funding increases of 4.5% between 2024/25 and 2029/30 to see “sustained improvement”, while 3.1% increases will be needed just “to keep the NHS going with minimal change”. ³² Rocks S, Issa Z, Thorlby R and others, ‘How much funding does the NHS need over the next decade? ‘, The Health Foundation, 20 June 2024, www.health.org.uk/publications/long-reads/how-much-funding-does-the-nhs-need-over-the-next-decade  As such, increasing spending by 3.6% would be likely to lead to a notable but small improvement in NHS performance.

Delivering all NHS targets in this parliament will be difficult

Under current spending plans, Labour will struggle to deliver its commitment to return to meeting the elective, A&E, cancer and ambulance waiting time targets. ³³ Illman J, ‘Streeting commits to hit four-hour target in first term’, HSJ, 19 June 2024, www.hsj.co.uk/policy-and-regulation/streeting-commits-to-hit-four-hour-target-in-first-term/7037339.article  The last time any government met the first three of these was in February 2016, July 2015, and December 2015 respectively.

In elective care, the target that 92% of people should wait no longer than 18 weeks from referral to treatment was last met when the waiting list was around 3.5 million, ³⁴ Marszalek K, ‘What does Labour’s plan mean for the NHS waiting list? ‘, The Health Foundation, 31 May 2024, www.health.org.uk/news-and-comment/blogs/what-does-labour-s-plan-mean-for-the-nhs-waiting-list  compared to 7.6 million in April 2024 and 4.6 million in February 2020. However, modelling work undertaken by the IFS suggests that, even in its optimistic scenario, the elective waiting list could still be higher at the next election than it was on the eve of the pandemic. In its pessimistic scenario, the waiting list would still be over 7.5 million in December 2027. ³⁵ Warner M and Zaranko B, The past and future of NHS waiting lists in England, Institute for Fiscal Studies, February 2024, https://ifs.org.uk/publications/past-and-future-nhs-waiting-lists-england  It will be challenging to meet the 18-week waiting time target while waiting lists are so long, though not impossible.

Some analysts do believe it is possible for Labour to return to the elective target by the end of the parliament. ³⁶ Findlay R, ‘Testing Labour’s waiting list pledge’, HSJ, 28 May 2024, www.hsj.co.uk/quality-and-performance/testing-labours-waiting-list-pledge/7037223.article  The difficulty for the government is that hospital targets are often interdependent; elective and emergency care can compete for the same bed space, meaning that improving performance in elective care may come at the expense of A&E and ambulance performance. Recommitting to hitting these targets also implies continuing with health policies that prioritise hospital care. However, the government has also committed to shifting more care out of hospitals and improving prevention. These moves are welcome, but will be harder to do if ICBs are focused primarily on hospital targets.

Current plans will not lead to a step change in general practice performance 

In general practice, the Long Term Workforce Plan assumes no growth in the number of fully qualified GPs during this parliament, with the GP workforce instead largely boosted by higher numbers of trainees. ³⁷ Comptroller and Auditor General, NHS England’s modelling for the Long Term Workforce Plan, Session 2023–24, HC 636, National Audit Office, March 2024, pp. 42–44, www.nao.org.uk/wp-content/uploads/2024/03/NHSEnglands-modelling-for-the-Long-Term-Workforce-Plan.pdf  While this may help to marginally improve performance, it is unlikely to deliver a step change in patient access and satisfaction. And performance could decline without efforts to reduce GP workloads, improve the estate and make better use of the expanded direct patient care workforce. 

It is unclear what impact maintaining per-pupil funding at current levels in real terms would have on performance

School costs are expected to grow more quickly than inflation, ³⁸ Sibieta L, School spending in England: a guide to the debate during the 2024 general election, Institute for Fiscal Studies, 4 June 2024, https://ifs.org.uk/publications/school-spending-england-guide-debate-during-2024-general-election  so a flat settlement may make it difficult to maintain the current level of service – though there were meaningful improvements in attainment relative both to previous years and other countries during the 2010s despite per-pupil funding cuts. Complicating the picture further, the impact of pandemic-era disruption on primary school performance is likely to reduce over the course of this parliament as pupils move through the school system. However, for secondary schools, pupil attainment is at risk from teacher recruitment problems.

Councils would have little choice but to further cut preventative services and ration acute services

For local government, the current spending plans imply a continuation of the key trends since 2010. Reduced funding from central government will be offset, at least partially, by increases to council tax. Local authorities will also need to manage increasing demand for acute services like homelessness and adult social care, and above-inflation cost pressures in some areas such as children’s residential care and National Living Wage in adult social care. As a result, most will be forced to further cut universal services like libraries and youth clubs, and increase rationing of acute services.

It may also require increased intervention from central government in the form of capitalisation directions – that is, to allow local authorities to use their capital resources to cover shortfalls in day-to-day spending. The challenges are likely to be greatest in more deprived areas, which have greater underlying demand for public services and less ability to raise funds locally.

Performance in courts and prisons would decline dramatically

The situation, if left unchanged, would be most dramatic in the criminal justice system.

While the Labour manifesto pledged to increase the number of neighbourhood police officers by 13,000, under current spending plans it would in fact probably be necessary to cut some of the additional officers recruited since 2019. Either way, the implied cuts to spending in courts and prisons would likely prove untenable.

The growth in magistrates’ and crown court case backlogs, the latter of which is already at a record level, is likely to accelerate, lengthening the already long waits for victims and defendants. Lives would be put on hold for years, with even more cases collapsing as memories fade or victims withdraw. In prisons, it would be impossible to accommodate, never mind to rehabilitate, additional prisoners. The government would have no choice but to release large numbers of them or allow an increasing number of those sentenced to avoid incarceration. As a result, public confidence in the system is likely to fall and reoffending is likely to increase. 

Pay dissatisfaction, and disputes, would be hard to resolve

Across all these services, under current spending plans it would be very difficult to address the real-terms reduction in the value of staff pay since 2010. Even in the NHS, the best funded of these services, 3.6% per-year real-terms funding increases would only be enough to ensure that wages grow in-line with economy-wide wages. ³⁹ Warner M and Zaranko B, ‘Implications of the NHS workforce plan’, in IFS Green Budget 2023, Institute for Fiscal Studies, August 2023, p. 13, https://ifs.org.uk/sites/default/files/2023-08/R272-Implications-of-the-workforce-plan-IFS%20%282%29.pdf  The NHS would not become more attractive, in relative terms, compared to jobs in the private sector, meaning that problems with recruitment, retention and industrial disputes are likely to persist. In most other services, the situation would probably get worse.

Performance and productivity

The above analysis assumes that performance is directly correlated with spending. But, of course, the reality is more complex than that. There is huge variation in performance between different service providers within any given public service, even once different levels of spending and demand are accounted for. And it is perfectly possible for performance to improve even if spending does not grow faster than demand. For example, Wigan Council has increased healthy life expectancy and improved the quality of social care services, while also making savings. ⁴⁰ Naylor T and Wellings D, A citizen-led approach to health and care: Lessons from the Wigan Deal, The King’s Fund, June 2019, www.kingsfund.org.uk/insight-and-analysis/reports/wigan-deal  Equally, performance can stagnate, even as funding grows substantially – as has happened in hospitals since 2019.

The missing ingredient is productivity. Whether or not the new government sticks to existing spending plans, what it will need is a strategy for improving productivity.