Fixing public services: Summary

Over the last 14 years, Conservative-led governments oversaw the hollowing out of public services. The effects of this, in particular the deep budget cuts to some services in the first half of the last decade, have been felt across the nation – and will continue to be felt for some time to come.

Reductions to already low capital budgets have left staff working in cramped, poorly maintained buildings, with outdated IT and without access to the modern equipment available to their counterparts in other countries. Pay freezes, below-inflation pay rises and declining working conditions have resulted in endemic problems with recruitment and retention, with staff leaving in their droves. It should not be surprising, then, that 2022 and 2023 saw the most widespread public sector strikes in a generation.

Serial crises have forced governments into repeated cycles of emergency cash injections and policy interventions that have secured poor value for money and made it extremely hard for those on the front line to plan beyond the next year.

The pandemic was naturally hugely disruptive but exacerbated rather than started the problems public services currently face, and almost across the board – the sole exception being schools – the services on which the public relies are performing worse in 2024 than they were in 2010. For some, like prisons, immediate action is required to prevent a full-scale collapse.

This report sets out the most pressing problems facing the new government, in four key areas – health and social care, local government, criminal justice and schools – and the cross-cutting issues that compound them.

It also offers a warning to the new administration. Labour is right to point out how dire its inheritance on public services is. At the same time, the spending plans laid out in its manifesto are the tightest since 2015 and imply real-terms cuts to some of the already worst-performing services. The hard truth for Labour is that sticking to the status quo means most services are likely to be performing worse at the next election in 2028/29 than at the last election in 2019.

Headline findings

The NHS

1. Hospital productivity is poor. Since 2019, funding has increased by 12% and the number of doctors and nurses by more than 20%, but the number of completed elective cases has increased by only 2% and outpatient appointments by 8%.
2. The NHS Long Term Workforce Plan, launched in 2023, will be expensive and extremely difficult to deliver. Spending will need to rise by 3.6% a year, more than double the average annual increase between 2009/10 and 2019/20.
3. Health services are too concentrated in hospitals – as is spending. In 2022/23, £89.5 billion was spent on hospitals, 63% more than on adult social care, mental health trusts, GP services, community trusts and public health combined.
4. The NHS needs more GPs – but since 2015 the number of fully qualified full-time equivalent GPs has declined by 5%, while the number of GP partners fell by 26%.

Local government

1. Local government finances are unsustainable. Since 2018, eight councils have issued section 114 notices, effectively declaring ‘bankruptcy’, some more than once. This happened just twice in the preceding 30 years.
2. Rising acute pressures – particularly in adult and children’s social care, homelessness services and special educational needs and disabilities (SEND) provision – has forced spending cuts on other services. Total local authority spending on neighbourhood services like libraries and youth clubs fell by almost a third (-31.9%) between 2009/10 and 2022/23.
3. The children’s social care market is broken. Private providers, which account for three quarters of residential care places, are making consistent profit margins of more than 20%, while children are increasingly being placed in homes outside their local area.
4. Adult social care is much harder to access than it used to be, but fewer people who request care are receiving it than previously: between 2015/16 and 2022/23, the number of people receiving long-term care fell by 4%, despite requests going up by 10%.

Schools

1. Since the pandemic, primary school attainment has fallen and disadvantage gaps at KS2 and KS4 have grown to levels not seen in over a decade.
2. Many children with SEND are not receiving the support they should (despite ballooning costs for local authorities). Two thirds of local authorities have cumulative schools budget deficits, largely due to the cost of meeting their statutory duties to those with SEND.
3. Secondary schools are in a teacher recruitment crisis. The total number of postgraduate entrants into training fell below 22,000 in 2023–24, compared with 29,000 in 2019–20, the last pre-pandemic year, and is just 62% of the annual overall target.
4. School buildings are in poor condition due to years of underfunding. Repairs and improvements of £11.4bn would be needed to return all elements of the school estate to a good condition.
    

Criminal justice

1. The police are not resolving most crimes and have lost the confidence of the public. Less than 10% of victim-based offences in 2023 resulted in either a charge, out-of-court disposal or a diversionary resolution.
2. Criminal courts cannot keep pace with demand and are becoming increasingly inefficient. As a result, the case backlogs in magistrates’ and crown courts are growing, with the latter at its highest level ever at 67,573 cases, more than three quarters higher (78%) than on the eve of the pandemic.
3. Prisons are facing a major capacity crisis and the situation is set to get worse. Some 4,400 additional prison places are due to be built by December 2025, but the population is projected to increase by 12,000 by then.
4. The probation service is overstretched and cannot adequately manage caseloads or risk. The workforce is increasingly short of the required staff level, with a 25% vacancy rate in Q4 2023, compared to 10% in Q4 2020.
    

Cross-cutting challenges

1. Policy and funding are short term and inconsistent. For example, since 2018, government policing ‘priorities’ have included serious violence, rape, acquisitive crime, knife crime, violence against women and girls, anti-social behaviour and shoplifting.
2. Staff retention is poor, there are key skills gaps and many staff are inexperienced. In 2022/23, around a third (36%) of police officers and over half (51%) of prison officers had less than five years’ experience, compared to 14% and 15% respectively in 2015/16.
3. There is consistent under-investment in capital. Between 1970 and 2020 there were only two years (2007 and 2009) in which the UK exceeded the OECD average for capital investment in health.
4. Acute demand is rising as preventative work has been cut. Drivers of acute demand include cuts to the welfare system, the cost of living crisis, and insecure and increasingly expensive housing.
    

The inheritance means sticking with current spending plans is likely to be untenable

That inheritance is a poisoned chalice. The public is tired of poorly performing services and want a government that can deliver improvement. But that will be difficult to achieve if Labour sticks to the spending plans laid out in its manifesto, which would see day-to-day departmental spending increasing by 1.2% per year in real terms between 2025/26 and 2028/29. Taking account of commitments on the NHS, schools, defence, aid and childcare, other services – including police, criminal courts, prisons, probation, adult and children’s social care – will face average annual real-terms funding cuts of 2.4% over that period. These spending plans would be less generous than any of the five spending reviews undertaken by the Blair and Brown governments between 1998 and 2007, and the tightest since 2015.

Capital spending plans are equally tight, implying cuts of 1.7% per year. Without sufficient capital investment all services will struggle with productivity issues over this parliament.

Even in the services whose budgets are assumed to be protected (general practice, hospitals and schools) there are serious challenges, which mean that additional spending may, absent reform, not deliver meaningful performance improvements. As a result, our analysis suggests that most services are likely to be performing worse at the next election in 2028/29 than at the last election in 2019. Service quality and access in local government and particularly the criminal justice system would continue on a downward trajectory between now and then.

The new government is likely to find it impossible to weather the political storm of the worse performance that current spending plans imply. 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.

The above assumes that performance is directly correlated with spending. The reality is more complex. Performance can improve even if spending does not grow faster than demand, as was the case in schools during the 2010s. Equally, performance can stagnate, even as funding grows substantially, as has happened in hospitals since 2019. The missing ingredient is productivity. The new government needs a strategy for improving this, whether or not it sticks to existing spending plans. In the absence of this, existing trends are likely to continue, with tight spending leading to unacceptably poor performance.

Meaningful improvements can be made to public service performance

The new government should implement a bold programme of public service reform, with the objective of improving the long-term productivity of services. At the heart of this should be a greater focus on outcomes, rather than inputs; on prevention, rather than acute provision; on capital, rather than day-to-day spending; on front-line innovation, rather than top-down command and control; and on the contribution of staff to performance, rather than their cost to the exchequer.

Key parts of this reform programme can be delivered without spending more and, over the long term, would deliver substantially improved public service performance at existing levels of spending. But if the government wishes to see better access to higher quality services more quickly then, at least in the short term, it will need to spend more.

The government must spend money more effectively

Focus on a small set of priorities

The government should set out its priorities at the beginning of the parliament. These priorities should be incorporated into the government’s budgeting and performance framework, with oversight by the prime minister and senior ministers. Within departments, ministers’ time should be focused on priority areas. Ministers should also reflect priorities in the performance measures that front-line services have to report against, scrapping existing targets that are no longer a priority.

Adjust the spending framework

Focus more on prevention. How, and where, spending is allocated influences public service performance. The government should embed its priorities into the spending framework. For example, given its various commitments to shift spending towards preventative interventions, it should identify and protect preventative spending, publish a prevention strategy and properly fund evaluations of spending as part of its first multi-year spending review.

Improve capital spending. The government should also aim to improve investments in public service buildings and equipment by, for example, setting longer term capital budgets and rebalancing accounting officer responsibilities so that they are also scrutinised for underspends and how well they maintain their assets, not just overspends.

Set longer term budgets. Greater certainty is crucial for services. The government should allocate longer term settlements to arm’s length bodies and delivery bodies, with fewer ring-fences around small pots of money. The government should also redesign financial incentives in public services so they align with its priorities. For example, it will be hard to shift NHS funding towards prevention while such a high proportion of it is allocated based on a ‘payment by results’ formula that encourages more acute activity in hospitals.

Make changes to regulations, tax or other policies to reduce demand

The government can influence the demand for public services, and spending, through changes to tax, regulation and other policy. It could, for example, more heavily regulate advertising or increase taxation for tobacco products or food and drink that contribute to obesity – both factors that worsen population health and ultimately require more spending on acute health care. Likewise, it could make changes to sentencing policy to reduce the number of people who are sent to already overcrowded prisons. Not all of these examples will be in line with the political positioning of the government. But whatever the political views of ministers, there will be some options that are aligned with the wider priorities of the government.

Such decisions may come at political cost, though these concerns are often overstated, but political capital is more abundant than money immediately after this election.

Improve the relationship with public sector staff

Pay is the primary driver of staff dissatisfaction, but there are other causes of poor retention that the government could address for relatively low cost. It should take a more collaborative approach to pay disputes; seek to reduce high workloads by more carefully considering the impact of reporting, training and other requirements on staff capacity; improve the quality of service leadership; and support flexible working arrangements where possible.

Where should the government prioritise additional investment? 

Improving services quickly is likely to require additional spending, at least in the short term, but this will involve trade-offs. Government can either spend less on other areas, increase taxes or borrow more. Any additional funding for public services will be hard earned and must be used as effectively as possible. We therefore make recommendations on where extra money is likely to lead to meaningful performance improvements.

Investment in prevention and capital would be the best way to improve long-term performance

When budgets have been tight, governments since 2010 have tended to cut preventative and capital spending in favour of day-to-day spending. That decision has contributed to poor service performance and reversing it should be a priority for additional funding.

Investing in a wide portfolio of preventative interventions – for example, raising benefits, targeting public health, and youth services – would likely reduce the amount and intensity of acute demand over the coming years. Similarly, public services will be more productive if staff are able to work in modern buildings with access to suitable equipment. Within capital budgets, the next spending review must ensure sufficient funding is devoted to maintaining existing equipment and buildings to an adequate standard, rather than neglecting this in favour of more glamorous new buildings.

Resolve pay disputes and prioritise spending on back-office staff

Pay has fallen in real terms since 2010, due to a combination of governments’ decisions to hold down wages and the unexpected surge in inflation in 2022: public service pay is now at a record low relative to the private sector. Industrial action is the most obvious way that staff express dissatisfaction with pay. But arguably just as impactful – though less visible – is the slow attrition of staff from services as they seek higher pay elsewhere.

To ensure that the services covered in this report work well, the government should prioritise pay and conditions for GPs, social and care workers and criminal barristers. In all four cases, poor rates of pay make it very difficult to retain experienced staff and to recruit new staff from the UK. The shortage of these staff often increases demand in other, more acute and expensive parts of the system.

The government should also prioritise additional spending on recruitment and retention of management and support staff in hospital trusts, integrated care boards, local authorities and the police. While these staff have often been treated as an unnecessary overhead and a waste of limited funds, their work is vital to enabling those on the front line to do their jobs well.

The problems facing public services, built up over the past decade and a half, are well known. Addressing them, while also getting the public finances back on to a sustainable path, will be hard. But there are various ways the new government can start to make progress. With a substantial parliamentary majority and a fresh mandate, Labour has an opportunity do what governments of the last 14 years have repeatedly failed to do: make sensible decisions that may not be immediately popular but that benefit services and citizens over the long term and which will allow them to credibly claim they have left public services in a better state than they found them.

This will not be easy – but will not get any easier as the parliament progresses. With political bravery, vision and a will to lead, these changes could make a real difference to the lives of millions.