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Austerity postponed? The impact of Labour’s first budget on public services

Rachel Reeves’ budget will see spending increase faster than demand for every public service bar police until 2025/26.

Rachel Reeves
Rachel Reeves delivered the first Labour budget in 14 years in October.

This report is part of the Public Services Performance Tracker project funded by the Nuffield Foundation, but the views expressed are those of the authors and not necessarily those of the foundation.

Summary

The outgoing Conservative government left public services in a precarious state. Waiting lists in the NHS are stubbornly high, councils are on the verge of bankruptcy, backlogs in the criminal courts are at record levels and prisons are at bursting point. The spending plans inherited by Labour would likely have left most services performing worse at the next election in 2028/29 than they were at the 2019 election – and substantially worse than in 2010. 

In July, shortly after Labour entered government, we described these spending plans, at the time implicitly adhered to by the party, as “untenable”. Our report highlighted the major crises that the new government would need to get a grip on and set out the longer term reforms that would be necessary. 147 Hoddinott S, Rowland C, Davies N, Kim D and Nye P, Fixing public services, Institute for Government, 22 July 2024, www.instituteforgovernment.org.uk/publication/fixing-public-services-labour-government  

This paper picks up where we left off now that the chancellor, Rachel Reeves, has delivered her first budget – the first from a Labour government in a decade and a half. It offers a cross-service analysis of the budget’s impact on public services, before looking in detail at four key areas: the NHS, local government, schools and the criminal justice system.

The budget starts to address poor performance but a lot is riding on next year’s spending review

Given the poor state of many services, growing demand and the cost of meeting higher wage bills (including hikes to national insurance contributions and the national living wage), this budget was never going to return public services to full health. But the largely deliverable spending plans it set out should start to address the most serious wounds – for example, with the extra money for prisons and schools’ special educational needs funding. 

The government has also made a start on its long-term objectives with a meaningful boost to capital budgets – another area of weakness long identified by the Institute for Government – while other measures will provide some breathing room for ministers to think more radically in the spending review next spring. 

There is a lot of potential in the government’s plan to take a mission-led approach to that spending review and in its nascent reform agenda of creating more local and preventative services. While the budget could have done more to make a start on these changes, it is reasonable to save the bulk of this work till the spring. But the pressure to get these reforms right is high: on current plans, spending is due to grow much more slowly beyond 2025/26 and in fact implies substantial cuts to unprotected areas such as local government and criminal justice.

Managing this was challenging even before the result of last week’s election in the US, but the return of Donald Trump to the presidency, with the support of a Republican-controlled congress, will put further pressure on the government to substantially raise defence spending. His plans to implement a wide-ranging set of tariffs could also cut UK GDP growth substantially, 148 Elliot L, ‘Trump tariffs would halve UK growth and push up prices, says thinktank’, The Guardian, 6 November 2024, retrieved 7 November 2024, www.theguardian.com/us-news/2024/nov/06/donald-trump-tariffswould- cut-uk-growth-by-half-and-push-up-inflation-thinktank-warns  in turn reducing the government’s tax receipts. Both changes have the potential to reduce the money available for public services over the rest of this parliament.

This means the government will need to make sure that it uses the time between now and the spending review well if it is to deliver on its public services vision. The performance of public services – and with this, its chances of re-election – depend on it.

Key findings

  • The government substantially increased spending on public services: the growth in day-to-day spending between 2023/24 and 2025/26 is more generous than any recent fiscal event, and of any of Blair and Brown’s spending reviews except 2002. 
  • The government avoided making cuts to unprotected departments by increasing the overall spending envelope, with justice and local government being the largest winners relative to previous plans. 
  • Capital spending is growing more quickly than day-to-day spending – a marked change in approach that should improve productivity over the long term. 
  • Given deep-seated issues in many services, growing demand and the effects of NIC and national living wage rises, it is unlikely that there will be a notable improvement in performance in 2025/26. But service quality and access should not decline substantially, with the possible exception of criminal courts, where case backlogs are likely to grow further. 
  • Spending is heavily front-loaded. Current plans beyond 2025/26 once again imply cuts to unprotected departments, which will make it difficult for some services – local government and the criminal justice system in particular – to improve before the next election.

A two-page PDF 'briefing sheet' summarises the report findings and can be found at the foot of this page.

Rachel Reeves and Keir Starmer speaking to NHS staff.

Cross-service analysis

The budget announced the largest average increase in planned day-to-day spending in 20 years 

This government inherited spending plans that were undeliverable while maintaining public service performance at their existing level, let alone delivering the improvements the Labour manifesto promised. Before the election, it was well documented (including by the Institute for Government) that the planned increase in day-to-day spending of 1% per year in real terms from April 2025 onwards would mean cuts in unprotected services like local government and criminal justice that are already struggling badly. 

On taking office the chancellor, Rachel Reeves, revealed that spending plans this year were also not sufficient to meet demands on budgets, most notably increased asylum costs and higher public sector pay. On top of this, the last government’s plans baked in large cuts to capital spending, despite the importance of this for public service productivity. 153 Pope T, Tetlow G and Pattison J, Capital spending in public services: Fixing how the government invests in the NHS, schools and prisons, 26 June 2024, www.instituteforgovernment.org.uk/publication/capital-spending-public-services  

This budget marked a clear change in course from those plans. Reeves increased day-to-day spending this year, 2024/25, by £23 billion 154 Office for Budget Responsibility, ‘Economic and fiscal outlook – October 2024’, 30 October 2024, retrieved 7 November 2024, p.118, https://obr.uk/docs/dlm_uploads/OBR_Economic_and_fiscal_outlook_Oct_2024.pdf , p.118  – more than addressing the pressures she identified in July – and increased day-to-day spending in 2025/26 by £39bn relative to previous plans. 155 Office for Budget Responsibility, ‘Economic and fiscal outlook – October 2024’, 30 October 2024, retrieved 7 November 2024, p.118, https://obr.uk/docs/dlm_uploads/OBR_Economic_and_fiscal_outlook_Oct_2024.pdf , p.118  Day-to-day departmental spending will now increase by 3.5% and 4.3% in real terms in 2024/25 and 2025/26 respectively. 156 Office for Budget Responsibility, ‘Economic and fiscal outlook – October 2024’, 30 October 2024, retrieved 7 November 2024, p.116, https://obr.uk/docs/dlm_uploads/OBR_Economic_and_fiscal_outlook_Oct_2024.pdf , p.116  

These are genuinely large increases. The average annual increase planned at this budget is larger than every spending review since 1998 except for 2002.

By increasing spending so substantially and quickly, the chancellor has spared herself most of the difficult choices she would otherwise have faced. Sticking to previous plans would have required cuts to departments, like local government and justice, that were already struggling to deliver acceptable services. The uplift means most departments will see real-terms increases this year and next. 

The settlements also reveal the chancellor’s, and this government’s, priorities – or at least the areas where they saw most urgent need. As is almost always the case, the Department of Health and Social Care (DHSC) was a relative winner. Even over the past 15 years, when its budget increases have been much lower than it has been accustomed to historically, DHSC has still been protected from the cuts that have befallen other services. The Department for Education (DfE) has also fared well, after smaller cuts than most departments since 2010. 

The other winners are not the usual suspects, however. The Department for Work and Pensions (DWP), the Ministry of Housing, Communities and Local Government (MHCLG) and the Ministry of Justice (MoJ) have experienced some of the biggest budget cuts since 2010. The consequences in local government and criminal justice services are clear, with councils warning of the risk of ‘bankruptcy’, criminal court case backlogs at record levels and drastic emergency measures being drawn on to ease pressure on prisons. 

The government has responded by awarding each of these departments some of the biggest increases in this budget, which should help to deal with immediate problems. The Home Office, which funds police, fares less well, but this largely reflects anticipated falls to the asylum budget rather than police.

Over this year and next, our analysis suggests every service we monitor bar police should see spending increase faster than demand. However, councils and several departments, including MoJ, the Department for Culture, Media and Sport (DCMS), the MHCLG communities budget and DWP will still have budgets in 2025/26 that are lower than they were in 2010/11 accounting for inflation. Given population increases, and other growing demands on services, this means most services will still be in a weaker financial position in 2025/26 than they were 15 years earlier.

Spending will only increase slowly from 2025/26 

Beyond 2025/26, the budget presented a new path for overall day-to-day spending, but not budgets for specific departments. Departmental plans for (at least) 2026/27 and 2027/28 will be laid out at the multi-year spending review in the spring. Overall spending will continue to increase beyond 2025/26, but more slowly: by 1.4% per year on average in real terms. This is only slightly higher than the spending increases planned for those years under the previous government’s plans, albeit with a much higher baseline from 2025/26.

After factoring in government commitments to health, education, defence, aid and childcare, this implies that unprotected spending outside these areas will fall in real terms by 1.3% per year. This means that, on current plans, the big increase in spending in 2024/25 and 2025/26 is a targeted boost rather than representing a new normal.

In her budget speech, Reeves focused on the role that extra capital spending will play in catalysing growth and achieving net zero ambitions. However, for 2025/26 at least she also increased capital spending in public services, and more quickly than day-to-day spending, which will start to address decades of underinvestment in key public services like the NHS, schools and prisons. 158 Pope T, Tetlow G and Pattison J, Capital spending in public services: Fixing how the government invests in the NHS, schools and prisons, 26 June 2024, www.instituteforgovernment.org.uk/publication/capital-spending-public-services  We should expect this funding to deliver better maintenance of existing assets, new buildings and equipment. However, we will need to wait until the government’s 10-year infrastructure strategy and the multi-year spending review before we learn how transformative a new programme of investment might be.

Even among public services, there were relative winners on capital. In both DHSC and MoJ, investment will remain at a much higher level than in the late 2000s, and will continue to increase quickly next year. Increases are much more modest for MHCLG and DfE, however. For DfE, 2024/25 is expected to be the department’s equal lowest capital spend since 2004/05 in real terms, while its budget for 2025/26 is still only roughly in line with budgets through the 2010s (capital spending also has a tendency to come in below budgeted spend).

The rest of this reports looks in detail at four key public services: the NHS, schools, local government and criminal justice.

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NHS staff on a hospital ward.
A busy NHS ward.

The NHS

The new government wasted no time setting out its stall on the NHS. The health and social care secretary, Wes Streeting, proclaimed that the service was “broken” the day after Labour won the general election. 166 Department for Health and Social Care and Streeting W, ‘The NHS is broken: Health and Social Care Secretary statement’, 5 July 2024, retrieved 7 November 2024, www.gov.uk/government/speeches/statement-from-the-secretary-of-state-for-health-and-social-care  Less than a week later, he commissioned Lord Ara Darzi to conduct “a full and independent investigation into the state of the NHS”. 167 Department for Health and Social Care, ‘Independent investigation ordered into state of NHS’, press release, 11 July 2024, retrieved 7 November 2024, www.gov.uk/government/news/independent-investigation-ordered-into-state-of-nhs  

The verdict of the Darzi report, published two months later, was damning. 168 Department for Health and Social Care, ‘Independent investigation of the NHS in England’ (authored by Lord Ara Darzi), 12 September 2024, www.gov.uk/government/publications/independent-investigation-of-the-nhs-in-england  It argued that the NHS is in “serious trouble” and that previous governments had mismanaged the service, and called the Health and Social Care Act 2012 – reforms overseen by the then health secretary Andrew Lansley – a “calamity without international precedent”. 169 Department for Health and Social Care, ‘Independent investigation of the NHS in England’ (authored by Lord Ara Darzi), 12 September 2024, p.10, https://assets.publishing.service.gov.uk/media/66f42ae630536cb92748271f/Lord-Darzi-Independent-Investigation-of-the-National-Health-Service-in-Englan… , p.10  In October the government launched its public consultation on the NHS 10-Year Health Plan, 170 NHS England, ‘Long term plan’, ENGLAND.NHS.UK, [no date], www.england.nhs.uk/long-term-plan/  with plans to publish the final document in spring 2025. Its message on the NHS is clear: a change in approach is needed. 

As forecast, the government provided a large increase for the service

Reeves saved her announcements about the NHS, dubbed “our most cherished public service”, 171 HM Treasury and Reeves R, ’The Autumn Budget 2024 speech’, 30 October 2024, retrieved 7 November 2024, www.gov.uk/government/speeches/autumn-budget-2024-speech  until the end of her speech. The numbers she went on to announce were large, most notably £22.6bn of additional day-to-day funding for the service across two years. The result is that day-to-day spending on the NHS is due to rise by 4% per year in real terms between 2023/24 and 2025/26. 172 HM Treasury, Autumn Budget 2024, HC 295, The Stationery Office, October 2024, p. 37, https://assets.publishing.service.gov.uk/media/672232d010b0d582ee8c4905/Autumn_Budget_2024__web_accessible_.pdf , p.37

That left the NHS as one of the relative winners of the budget. Of the departments that we consider in this report, only MHCLG and MoJ received larger real-terms increases in their day-to-day budgets between 2023/24 and 2025/26. But the value of both of those increases is an order of magnitude smaller (£4.7bn and £1.4bn respectively) than for the NHS.

An Institute for Government line chart that shows that funding for general practice and hospitals is forecast to outpace increases in demand between 2023/24 and 2029/30

Despite its relative generosity, the envelope laid out by the chancellor is arguably no surprise. While in opposition, Labour promised to deliver the Long-Term Workforce Plan (LTWP), a commitment the Institute for Fiscal Studies estimated would require spending increases of 3.6% per year in real terms. 176 Warner M and Zaranko B, Implications of the NHS workforce plan, Institute for Fiscal Studies, August 2023, https://ifs.org.uk/publications/implications-nhs-workforce-plan  A 4% annual increase in spending is also broadly in line with the historical average increase for the service: between 1949/50 and 2009/10 spending grew by 4.1% per year in real terms. 177 Hoddinott S, Davies N, Fright M and others, Performance Tracker 2023, Institute for Government, 30 October 2023, www.instituteforgovernment.org.uk/publication/performance-tracker-2023/hospitals  Spending increases of that size will outstrip forecast demand growth for both general practice and hospitals.

But poor hospital productivity means performance is unlikely to improve in 2025/26

This large increase in spending does not guarantee that NHS performance will improve. The amount that the government spends on the service has increased substantially since 2019, primarily driven by a large expansion in staff numbers. The government spent 11.9% more on hospitals in real terms in 2022/23 compared to 2019/20. Despite that, there has been little improvement in hospital performance. 178 Freedman S and Wolf R, The NHS productivity puzzle: Why has hospital activity not increased in line with funding and staffing?, Institute for Government, June 2023, www.instituteforgovernment.org.uk/publication/nhs-productivity

That is primarily due to faltering hospital productivity. The causes of that poor productivity are multifaceted but include underinvestment in capital, high bed occupancy, insufficient management and admin support in the right places in the system, and a lack of capacity in social care and community services. 181 Freedman S and Wolf R, The NHS productivity puzzle: Why has hospital activity not increased in line with funding and staffing?, Institute for Government, June 2023, www.instituteforgovernment.org.uk/publication/nhs-productivity  All this means hospitals run less smoothly, and can treat fewer patients, than they could if better systems were in place.

The increase in capital spending could be more significant in the long run

In the context of a productivity crisis driven in good part by underinvestment in capital, the government’s decision to provide the DHSC with a capital budget of £13.6bn in 2025/26 – a real-terms increase of 12.8% from 2024/25 – is arguably a more meaningful step towards improving performance than the large increase in day- to-day spending. That gives DHSC a larger capital budget than in any non-Covid year since at least 2004/05.

The service will need every pound of that investment. Underinvestment in capital is at the heart of many of the NHS’s most damning statistics: a chronic lack of beds, its low number of CT scanners (half as many per head of population as compared to the OECD average), 182 Hoddinott S, Davies N, Fright M and others, Performance Tracker 2023, Institute for Government, 30 October 2023, www.instituteforgovernment.org.uk/publication/performance-tracker-2023/hospitals  slow and outdated IT hardware, and a maintenance backlog that grew by a striking 114.1% in real terms between 2015/16 and 2023/24.

Reeves made clear that the additional capital investment was due to be spent on exactly these problems: more beds, scanners and elective surgery hubs, “making inroads” into the maintenance backlog, and completing the rollout of electronic patient records. 187 HM Treasury, Autumn Budget 2024, HC 295, The Stationery Office, October 2024, p. 82, https://assets.publishing.service.gov.uk/media/672232d010b0d582ee8c4905/Autumn_Budget_2024__web_accessible_.pdf p.82  Though even with this high level of investment, progress may be slow. For comparison, the maintenance backlog in 2023/24 is larger than the entire DHSC capital budget for 2025/26.

The 10-year plan and spending review will now determine if the government has a meaningful reform programme

Streeting has been clear that NHS reform should involve “three shifts”: moving care out of hospitals, shifting from sickness to prevention, and making the switch from analogue to digital. 188 Nelson F, ‘UK health minister says NHS needs to make ‘three big shifts’ to survive’, The Financial Times, 7 September 2024, retrieved 7 November 2024, https://www.ft.com/content/1e71c913-4dea-4088-878e-4d3e2889b875  This is an approach with which the Institute for Government broadly agrees, and argued for in our report on how the government can fix public services.

Delivering those goals will require a greater focus on wider health and care services, particularly general practice and public health, and not just on hospitals. Some initial steps were taken in the budget – for example, a commitment to upgrade 200 GP surgeries, approximately 2% of the general practice estate, 189 Hoddinott S, Delivering a general practice estate that is fit for purpose, Institute for Government, 8 Jun 2024, https://www.instituteforgovernment.org.uk/publication/general-practice-estate  and increasing the duty on tobacco and the Soft Drinks Industry Levy. 190 HM Treasury, Autumn Budget 2024, HC 295, The Stationery Office, October 2024, p. 134, https://assets.publishing.service.gov.uk/media/672232d010b0d582ee8c4905/Autumn_Budget_2024__web_accessible_.pdf , p.37

It would be too much to expect that Labour would lay out exactly how it planned to meet all of its ambitions in a budget that took place less than four months after the election. But the new government could have made bolder first steps towards its long- term goals, just as it did by increasing capital spending. Instead, the budget should be understood as an attempt to stabilise the service while the government develops its reform programme in the 10-year plan.

The true test of the government’s commitment to NHS reform will therefore come at the spending review next spring.

There are some key tests for the government at that point:

  • Will it move away from the long-standing pattern of hospitals receiving an increasing share of NHS funding?
  • Will it outline priorities and outcomes other than hospital output metrics?
  • Will the government also target reforming adult social care? The NHS and the adult social care sector are interdependent, and it is impossible for the government to effectively reform the former without having at least some idea of how it intends to reform the latter.
  • Will there be a meaningful shift towards prevention that looks beyond the NHS and considers the wider determinants of health?

If the government does not meaningfully address these points, it will be an indication that it has been caught, like previous governments, in the gravitational pull of the acute hospital sector, focusing money and ministerial attention on the largest and most publicly prominent part of the system.

Spending on the NHS is likely to continue to grow for the rest of the spending review period

Regardless of the outcome of the 10-year plan, the government will have to continue to increase funding for the NHS between 2025/26 and 2029/30 at roughly the same pace as between 2023/24 and 2025/26 if it wants to meet its commitment on the LTWP. We have therefore assumed that spending will grow at 3.6% per year in real terms between 2025/26 and 2029/30. In the absence of any other evidence, we assume that spending on general practice and hospitals both increase at that rate, though that is far from certain in general practice, due to the historical preference to increase hospital funding more quickly.

Under that spending trajectory, the government will invest an average of £7.1bn more per year in the NHS between 2025/26 and 2029/30.* If it continues to spend that money in the same way as the government between 2019 and 2024 – that is, predominantly on employing more doctors and nurses in hospitals – it is difficult to see how NHS performance will meaningfully improve. But if the government spends that money well, the additional funding could help address some of the drivers of poor NHS productivity, including issues within hospitals and problems caused by relative underinvestment in the wider system: general practice, community health, mental health, public health and the adult social care sector.

Due to the size of the NHS’s budget, spending increases of this size will necessitate difficult choices about taxation and spending elsewhere. This makes it all the more important that the money is spent in the most effective way possible.

Austerity postponed? The impact of Labour’s first budget on public services

A cross-service analysis of the budget’s impact on four key areas: the NHS, local government, schools and the criminal justice system.

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The front cover of the IfG's report on the impact of Labour's first budget on public services. It features a photo of Rachel Reeves holding the budget briefcase.
A child playing

Local government

Local government received a better settlement than expected for this year and next

Pressure on local government finances has never been higher. Spending remains lower in real terms in 2024/25 than it was in 2010/11, but while funding has been cut, demand for acute statutory services – in particular, adult and children’s social care and homelessness services – has continued to grow. As a result, eight local authorities have issued a total of 12 section 114 notices (colloquially known as ‘bankruptcy’ notices) since 2018. Only two notices were issued in the preceding 30 years. 201 Hoddinott S, ‘Local authority section 114 (bankruptcy) notices’, Institute for Government, 9 October 2023, https://www.instituteforgovernment.org.uk/explainer/local-authority-section-114-notices  

The 2024 spring budget implied further cuts to local government spending. However, a larger than anticipated spending envelope has allowed the government to increase grant funding for local government by £1.3bn in 2025/26, including £600m for adult and children’s social care. 202 HM Treasury, Autumn Budget 2024, HC 295, The Stationery Office, 2024, pp. 55, https://assets.publishing.service.gov.uk/media/6722120210b0d582ee8c48c0/Autumn_Budget_2024__print_.pdf  In combination with revenue from council tax and business rates, this implies a real-terms increase in local authorities’ core spending power of around 3.2%. 203 Ibid.  This is roughly in line with the average per-year increase of 3.1% seen since 2019/20. 

However, the budget’s provisions for local government appear also to be front-loaded. Given current spending plans, we project that core spending power will only grow at an average of 1.2% per year between 2025/26 and 2029/30. 

Much of the additional money will be swallowed by NLW and NIC rises 

While the additional £1.3bn in funding for 2025/26 will, of course, prove helpful, it will be diminished by the increase in the national living wage (NLW) and employers’ National Insurance contributions (NIC). 

From April 2025, the NLW for over-21s will increase by 6.7% from £11.44 to £12.21 an hour, 204 Ibid, pp.42.  rising much faster than average wages. This puts particular pressure on the social care sector. In March 2024, around 16% of adult social care staff were paid the then NLW (£10.42) and 59% were paid below the increased NLW (£11.44) being implemented from 1 April 2024. 205 Skills for Care, The state of the adult social care sector and workforce in England 2024, October 2024, p. 103, https://www.skillsforcare.org.uk/Adult-Social-Care-Workforce-Data/Workforce-intelligence/documents/State-of-the-adult-social-care-sector/The-state-of…  In 2025/26, it is likely that some 60% of social care staff will again require pay rises to stay at or above Labour’s uprated NLW, and further raises may be required to maintain pay differentials. The Local Government Association estimate that the rise in NLW will add £1.2bn to the cost of adult social care in 2025/26, double the funding available for both adult and children’s social care that year. 206 Local Government Association, ‘Autumn Budget and Spending Review Submission 2024’, Local Government Association, 13 September 2024, retrieved 7 November 2024, https://www.local.gov.uk/publications/autumn-budget-and-spending-review-submission-2024

The government also increased employers’ NIC by 1.2% and lowered the secondary threshold – the amount above which employers must pay NI on each employee’s salary – from £9,100 to £5,000. 207 HM Treasury, Autumn Budget 2024, HC 295, The Stationery Office, 2024, pp. 4, https://assets.publishing.service.gov.uk/media/6722120210b0d582ee8c48c0/Autumn_Budget_2024__print_.pdf  While the Office for Budget Responsibility (OBR) suggests that public sector employers will be at least partially compensated for this rise in NIC, 208 Office for Budget Responsibility, ‘Economic and fiscal outlook – October 2024’, Table 3.2, 30 October 2024, retrieved 7 November 2024, p.55, https://obr.uk/docs/dlm_uploads/OBR_Economic_and_fiscal_outlook_Oct_2024.pdf  both adult and children’s social care rely heavily on private provision, for which there is no planned compensation. These sectors also often employ temporary and agency staff, who are now more likely to reach the secondary threshold and be liable for employers’ NIC. It is likely that private care providers pass these costs on to local government. 

Councils are on course to overspend on adult social care budgets by £564m in 2024/25. 209 Association of Directors of Adult Social Services, Autumn Survey 2024, November 2024, ADASS Autumn Survey, https://www.adass.org.uk/documents/adass-autumn-survey-2024/  In 2025/26, the rise in NLW and employers’ NIC will add to this pressure, quickly depleting the £600m uplift for social care. 

Local government spending remains below 2010/11 levels

In 2025/26, core spending power will be 9% lower in real terms than in 2010/11. The population will have grown by 12% over the same period, and by 31% among over-65s, driving demand for local government services and adult social care in particular. 210 Office for National Statistics, ‘National population projections table of contents’ Office for National Statistics, (no date) retrieved 7 November 2024, https://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/populationprojections/datasets/2014basednationalpopulationprojectionstable…  Councils would require at least an extra £6.6bn of funding in 2025/26 to bring core spending power back in line with what it was in 2010/11 – a number that does not account for the rise in population and therefore demand for local authority services in that time.

The impact of the new funding on local authorities’ finances depends on its distribution. While core spending power has fallen across England since 2010/11, the most deprived local authorities have seen greater reductions than their better-off counterparts. Between 2010/11 and 2024/25, due to decisions made by central government, local authorities in the most deprived decile of the country saw their core spending power fall by almost a quarter (24.4%) in real terms, compared with just 3.1% in the least deprived decile. 212 Hoddinott S, Rowland C, Davies N, Kim D and Nye P, Fixing public services, Institute for Government, 22 July 2024, pp.32, www.instituteforgovernment.org.uk/publication/fixing-public-services-labour-government

The budget had nothing to say about how funding will be distributed in 2025/26, but the local government finance settlement later this financial year is a key opportunity to redress this disparity. If little is done, then these spending plans will not alleviate the financial strain on the most deprived local authorities.

Growth in demand for local government services will use up all funding increases

We project that core spending power and demand will both grow at an average of 2.2% per year between 2023/24 and 2029/30. Without accounting for the rising NLW and employers’ NICs, estimated funding is only just sufficient to meet demand. Given that these costs will be significant, however, it is more likely that performance in local government services will decline rather than improve between 2023/24 and 2029/30, unless there is reform or more funding.

These demand pressures are fuelled in large part by adult and children’s social care. As a result of a growing and ageing population, rising rates of disability among working-age adults and increasing child poverty, local authorities have spent more and more of their budgets on social care over the last decade. 214 Ibid, pp.35.  In 2009/10, spending on adult and children’s social care accounted for approximately half (53%) of total local authority spending. By 2023/24, it was nearly three quarters (72%).

Over the last decade, the increasing demand for social care has crowded out spending on other local ‘neighbourhood’ services, such as libraries and waste collection. 229 Ibid, pp.36.  Given the shortfall between social care funding and expected demand in 2025/26, it is likely that these neighbourhood services will continue to disproportionately suffer. 

Reforms planned for 2025/26 may reduce demand somewhat 

The government has introduced a number of reforms to reduce demand, but the impact of these is unclear and they are certainly unlikely to have meaningful impact in 2025/26. 

The budget allocates over £250m to testing children’s social care reforms, including £44m of new funding dedicated to a Kinship Allowance pilot. 230 HM Treasury, Autumn Budget 2024, HC 295, The Stationery Office, 2024, pp. 84, https://assets.publishing.service.gov.uk/media/6722120210b0d582ee8c48c0/Autumn_Budget_2024__print_.pdf  If successful, the pilots will reduce spending on residential care placements, one of the main drivers of children’s social care expenditure in recent years. The budget also assigned £90m to renovating and expanding the children’s homes estate. 231 Ibid.  Investment in council-run children’s care homes is vital given the poor value for money that private provision tends to represent. 232 Competition and Markets Authority, ‘Children’s social care market study final report: England summary’, GOV.UK, 2022, p. 5,https://assets.publishing.service.gov.uk/media/622878cce90e0747aa8eb67e/England_summary_.pdf  However, it is unclear how much of a dent £90m will make in this problem, given that 76% of residential care placements in England were with private providers in 2022. 233 Ibid, p. 3.  

Finally, the government is providing an additional £233m for homelessness prevention, 234 HM Treasury, Autumn Budget 2024, HC 295, The Stationery Office, 2024, pp. 55, https://assets.publishing.service.gov.uk/media/6722120210b0d582ee8c48c0/Autumn_Budget_2024__print_.pdf  although it is unclear exactly what this funding is earmarked for. The £500m cash injection to the Affordable Homes Programme 235 Ibid, p. 65.  could also help prevent homelessness if directed at increasing the supply of affordable rental properties, but its effects would take a while to be felt and would likely not be wide-ranging enough. If the government is to make headway in tackling homelessness, it should study the success of the last Labour government’s more holistic approach, which co-ordinated policies on housing, health, welfare and crime. 236 Norris E, ‘What Angela Rayner’s new homelessness unit can learn from New Labour’, blog, Institute for Government, 12 June 2024, retrieved 7 November 2024, https://www.instituteforgovernment.org.uk/comment/angela-rayner-homelessness-unit  

As expected, difficult questions have been left for the spending review and local government finance settlement 

The budget committed to three much-needed local government funding reforms but left the details to the upcoming spending review and local government finance settlement, which are better suited to long-term planning. 

First, the chancellor promised a multi-year local government financial settlement from 2026/27. 237 HM Treasury, Autumn Budget 2024, HC 295, The Stationery Office, 2024, pp. 95, https://assets.publishing.service.gov.uk/media/6722120210b0d582ee8c48c0/Autumn_Budget_2024__print_.pdf  This is especially welcome, as recent settlements have tended to cover only the upcoming financial year, limiting local authorities’ ability to plan for the long term and invest in prevention. 

Second, the budget contained plans to decrease the number of grants earmarked for spending in specific areas. 238 Ibid, p. 58.  Greater autonomy for local authorities is also welcome, though it is unclear what will happen to spending on neighbourhood services since this is often crowded out by spending on social care. 

Third, the government announced that it would review the distribution of funding between councils “to ensure that it reflects an up-to-date assessment of need and local revenues”. 239 Ibid, p. 55.  Similar reforms have been repeatedly promised and delayed since 2016 240 Atkins G, Hoddinott S, ‘Local government funding in England’, Institute for Government, 10 March 2020, https://www.instituteforgovernment.org.uk/explainer/local-government-funding-england  – clarity is needed on which councils’ funding allocations will change, by how much, and when these changes will take effect. 

There are also questions for adult and children’s social care. The government made a promising commitment to “early intervention” and “fixing the broken care market” in children’s social care. 241 HM Treasury, Autumn Budget 2024, HC 295, The Stationery Office, 2024, pp. 95, https://assets.publishing.service.gov.uk/media/6722120210b0d582ee8c48c0/Autumn_Budget_2024__print_.pdf  However, it made no mention of reforms to adult social care, despite a manifesto pledge to reform the sector. 242 HM Treasury, Autumn Budget 2024, HC 295, The Stationery Office, 2024, pp. 95, https://assets.publishing.service.gov.uk/media/6722120210b0d582ee8c48c0/Autumn_Budget_2024__print_.pdf  The spending review should set out a strategy and funding plan for realising these important changes.

School pupils carrying bags and books.

Schools

Mainstream schools will struggle to meaningfully reduce attainment gaps between now and the end of 2025/26 

Coming into this budget, England’s school system faced serious challenges. After a decade in which performance improved, primary school attainment dropped sharply following the pandemic and educational disparities for both primary and secondary pupils increased. 

Meanwhile, as we set out in July, access to special educational needs and disabilities (SEND) provision is constrained, though the cost threatens the financial viability of councils, while secondary school teacher recruitment is in crisis and school buildings are in poor condition after years of underfunding. 245 Hoddinott S, Rowland C, Davies N, Kim D and Nye P, Fixing public services, Institute for Government, 22 July 2024, www.instituteforgovernment.org.uk/publication/fixing-public-services-labour-government  So – as with other public services – the schools sector came into the budget looking for extra cash. 

To an extent, Labour has delivered. The budget increases core schools funding (covering 5–16 education in all state-funded schools) from £61.6bn in 2024/25 to £63.9bn in 2025/26 in current prices, an increase of £2.3bn. The OBR says that, excluding one-off items, this is an increase of 1.4%. 246 Office for Budget Responsibility, Economic and fiscal outlook, October 2024, p. 122, CP 1169, The Stationery Office, 2024.

This is smaller than the increases seen in many other departments. But as pupil numbers are expected to fall over the period concerned – by 0.2% in 2025 – while demand for many other public services is likely to rise, in some cases substantially, overall this is a real-terms per-pupil increase in funding.

However, £1bn of the £2.3bn increase in school funding (43%) is to be spent on provision for children with SEND or those in alternative provision. This is high – and continues the trend of an increasing share of the schools budget going on ‘high needs’ spending. Given major problems over access to appropriate SEND provision 248 Hoddinott S, Rowland C, Davies N, Kim D and Nye P, Fixing public services, Institute for Government, 22 July 2024, www.instituteforgovernment.org.uk/publication/fixing-public-services-labour-government  as well as huge financial challenges, this additional funding for SEND provision will be welcomed by the sector.

In our assessment of funding versus service demand, we estimate that funding for mainstream schools will grow more quickly than demand – by 1.7% – between 2023/24 and 2025/26. 255 The focus of this chapter is the same as that of the Institute’s Performance Tracker report – mainstream, state-funded schools serving pupils aged 5–16. See Hoddinott S, Davies N, Fright M and others, Performance Tracker 2023, Institute for Government, 30 October 2023, www.instituteforgovernment.org.uk/publication/performance-tracker-2023  Looking just at the change from 2024/25 to 2025/26, we think funding will grow by 0.9% more than demand. 

However, once school funding reaches councils, some local areas are already making additional diversions of money from mainstream budgets to their high-needs budgets – in two cases, taking per-pupil funding below ‘guaranteed’ minimums set by DfE. 256 Whittaker F, ‘DfE lets councils skirt minimum funding rules to prop up SEND’, Schools Week, 11 October 2024, https://schoolsweek.co.uk/dfe-lets-councils-skirt-minimum-funding-rules-to-prop-up-send  If this trend continues, this could materially affect the amount of money mainstream schools have to work with. 

In these circumstances, it is going to be difficult for schools to meaningfully improve teacher recruitment and reduce attainment gaps between now and the end of 2025/26.

Funding after 2025/26 will put performance at risk 

Looking further ahead, between the end of 2025/26 and the end of 2029/30 we estimate funding to be an average of 0.8% annually below what it needs to be to maintain current performance, assuming funding stays flat in real, per-pupil terms. Any above-inflation pay awards, which might help with teacher recruitment, would eat further into this. This scenario also does not make any assumption that extra funding is diverted to fill the cumulative deficit that has built up on local authorities’ books as a result of high SEND cost – as at March 2023 (the most recent figures we have) this stood at £1.6bn. 257 Nye P, ‘SEND spending needs reform to stop local authorities going bust’, blog, Institute for Government, 26 January 2024, www.instituteforgovernment.org.uk/comment/send-spending-reform-local-authorities  

Extra capital funding will allow for more maintenance and school rebuilding 

On capital funding, the poor state of much of the schools estate – brought into sharp focus by the RAAC crisis last year, 258 Nye P and Davies N, ‘School concrete crisis shows the danger of short-term capital budget thinking’, Institute for Government, 5 September 2023, www.instituteforgovernment.org.uk/comment/school-concrete-crisis  and the £10.6bn-plus of maintenance work required to bring mainstream primary and secondary school buildings up to a good standard 259 Hoddinott S, Davies N, Fright M and others, Performance Tracker 2023, Institute for Government, 30 October 2023, www.instituteforgovernment.org.uk/publication/performance-tracker-2023  – does not seem to have done much to help DfE in its negotiations with the Treasury. 

The department’s capital budget for 2025/26 has been set at £6.7bn, a 19% real-terms increase from 2024/25 spending, but only a 10% increase on what was originally budgeted for the year. 260 Capital spending in 2024/25 is forecast to be £0.6bn lower than initially planned.  While this is a meaningful increase, it is from a very low base. Budgeted capital spending of £6.7bn in 2025/26 is still only roughly in line with budgets through the 2010s, adjusted for inflation, following steep cuts made by the coalition government. 

Within the 2025/26 total is £1.4bn for school rebuilding. The budget documents say this includes 100 projects that will start next year, as part of a programme to rebuild 518 schools in total. Additionally there is £2.1bn to improve the condition of the school estate (other parts of DfE’s capital budget cover spending on skills and other areas). Both these amounts are welcome and are above the amounts expected to be spent in 2024/25 – but overall this is not a generous capital settlement for DfE.

Line of police officers guarding Downing Street during a protest march

Criminal justice

The Ministry of Justice has received a generous funding settlement for 2024/25 and 2025/26 

Labour inherited a criminal justice system on the brink. It says something that the police, racked by scandals and with historically low levels of trust and confidence, are probably in the best shape of all the criminal justice agencies. Criminal courts, prisons and probation are all failing to meet demand and fulfil their basic functions adequately, and far from improving, performance has been consistently heading in the wrong direction.

An Institute for Government small multiples line chart that shows the IfG's projections of funding and demand for the police, courts, and prisons between 2023/24 and 2029/30, where none of the three services have sufficient funding to meet demand in that time.

Record court backlogs mean cases are now frequently being scheduled for 2026 or even 2027, probation supervision is being rationed to focus only on higher-risk offenders and the spiralling prison population required the incoming government to immediately announce the early release of thousands of prisoners. 264 Hoddinott S, Rowland C, Davies N, Kim D and Nye P, Fixing public services, Institute for Government, 22 July 2024, https://www.instituteforgovernment.org.uk/publication/fixing-public-services-labour-government/criminal-justice-system  

Despite these critical problems, the previous government’s spending plans implied that criminal justice, as an unprotected area of public spending, would be subject to cuts. Given the anticipated growth in demand for these services, this would have led to a further dramatic decline in performance. In July, we concluded that implementing these cuts would prove untenable: 265 Hoddinott S, Rowland C, Davies N, Kim D and Nye P, Fixing public services, Institute for Government, 22 July 2024, https://www.instituteforgovernment.org.uk/publication/fixing-public-services-labour-government/implications-current-spending-plans  the new government appears to agree. 

Ahead of the budget, it was reported that MoJ would be required to make cuts, but it was actually one of the winners from the budget, with a more generous settlement for 2025/26 than most departments. Day-to-day spending is set to increase by 5.1% in real terms next year, on top of a bigger budget this year, which will now be 3.4% higher than 2023/24.

Higher spending on prisons should stabilise performance in the short term 

A detailed service-by-service breakdown was not provided in the budget, but the government appears to be focusing its financial firepower and policy changes on stabilising the situation in prisons, with probation also receiving additional money. 

The budget promised “at least an additional £500 million” for prisons and probation in 2025/26 to recruit thousands more staff. Serious understaffing in some prisons limits the number of prisoners that can be detained and makes it substantially harder to give prisoners access to purposeful activity like education and work, or to reduce levels of violence and self-harm. Increasing the number of prison officers should help limit the decline in prison performance. 

Even more consequential was the decision made by the government in July to release eligible prisoners after serving only 40% of their sentences, rather than the standard 50%. This first came into effect in September and the second tranche of prisoners was released a week before the budget. This has given prisons much needed, albeit only temporary, breathing room and a further capacity crunch at some point in 2025/26 is inevitable without further measures. 

The MoJ also received a relatively generous capital allocation and the government is investing up to £2.3bn in prison expansion in 2024/25 and 2025/26, with thousands more prisons places due to open. The department has now received several years of bumper capital allocations, but it is unclear whether the new government can build prison places more quickly than its predecessor. If not, capacity will grow more slowly than demand unless the government can successfully reduce the latter. 

It has also announced that David Gauke, a former Conservative justice secretary, will lead a review of sentencing. Due to report in the spring, it is expected to make a series of recommendations to reduce the number of people sent to prison, including fewer short sentences. However, the government will need to act quickly to avoid the need for more stopgap emergency measures in 2025/26. 

Case backlogs in criminal courts are likely to get worse 

The performance of criminal courts is likely to deteriorate further, at least in the short term. The government had already announced that crown court sitting days would be capped at 106,500 in 2024/25, 266 House of Commons, Written questions, answers and statements, ‘Crown Court: Kent’, question tabled on 10 October 2024, https://questions-statements.parliament.uk/written-questions/detail/2024-10-10/8581  just 2% below the number of sitting days last year. That will almost certainly see the case backlog grow further, with victims and defendants required to wait longer for their day in court, and the quality of justice continuing to worsen. 

No decision has yet been made on the number of sitting days that will be funded in 2025/26, but the government likely feels it has little choice in the short term but to accept a growing court backlog to reduce the pressure on prisons.

Police performance will remain stable at best in 2025/26 

In contrast to the MoJ, Home Office spending is due to be cut by 3.3% in 2025/26 but the impact of this on police spending is unclear. Most of the cuts will fall on asylum, which the department is also responsible for, while the government has said it will “increase the core government grant for police forces”. However, the budget does not state whether this is a real-terms increase or just a cash increase. 

In the absence of a more detailed breakdown of Home Office spending plans, we assume that spending will rise in line with the Home Office’s forecast spend on between 2022/23 and 2024/25, is flat in real terms in 2025/26. The small scale of announcements points towards performance remaining stable at best. The government says the settlement will put it “on track to start to deliver” its pledge to increase the number of neighbourhood police officers by 13,000, suggesting minimal progress in 2025/26. Likewise, the establishment of ‘trailblazer’ Young Futures Hubs implies a limited initial programme. And while improving “police efficiencies” and “enabling officers to spend more time on the frontline” would be welcome, no information is provided on how this will be achieved. 

Criminal justice performance will likely fall from 2026/27 onwards 

We assume that spending will fall in real terms from 2026/27 to 2029/30. After taking account of commitments to health, education, defence, aid and childcare, that would leave unprotected areas of public spending like the police, criminal courts and prisons facing real-terms cuts of 1.4% per year. However, we estimate that criminal court demand will be broadly flat (assuming the government does not increase officer numbers), while police demand will grow by 2.0% per year and prison demand by 2.6% per year over this period. 

The budget states that the spending review process will include reforms to boost police productivity and reduce demand for prisons. Even if those reforms are successful, it is unlikely that they will be able to compensate for such a large mismatch between projected spending and demand. As such, without additional funding, performance in all services is likely to decline from 2026/27 onwards.

NHS lanyard and close up of money

Questions for the spending review

The government has provided substantial funding increases in 2024/25 and 2025/26, which should, for most public services, address immediate problems and prevent further declines. But spending from 2025/26 to 2029/30 is planned to grow much more slowly – albeit from a higher base. Although figures for each department have not yet been provided, the overall envelope implies cuts to unprotected areas. This leaves the government with an array of difficult decisions to make at the spending review, which will conclude in spring. 

Most fundamental will be whether to provide additional funding and, if not, where cuts should fall. Given spending looks likely to be tight, delivering sustainable and improving public services will be dependent on improving how public services operate. Our work shows that this will need to involve a plan for recruiting and retaining staff, joining up decisions across services to improve outcomes, focusing on prevention, and improving estates and equipment. 273 Hoddinott S, Rowland C, Davies N, Kim D and Nye P, Fixing public services, Institute for Government, 22 July 2024, https://www.instituteforgovernment.org.uk/publication/fixing-public-services-labour-government/  Whether the government can deliver this will determine whether public services improve and will define Labour’s time in power. 

Can the government recruit and retain staff without busting budgets? 

On entering office, Labour quickly accepted the above-inflation pay recommendations made by pay review bodies (PRBs) and provided a bumper settlement to junior doctors to resolve their long-running dispute. While necessary for recruitment, retention and public service performance, it will not head off strikes for long. Key staff groups such as doctors, nurses, teachers and police officers have seen their pay fall substantially in real terms and relative to the private sector since 2010. Many are expecting further above-inflation pay rises in the coming years to rectify this.

PRBs are next due to report in the spring and the budget states that pay awards for 2025/26 will need to be paid for from the settlements announced at the budget. If the PRB recommendations are higher than budgeted for, the government will need to make cuts to other parts of departmental spending to cover the shortfall or make additional funding available at the spending review. This is likely to be an ongoing dilemma for ministers this parliament. Labour will not be able to deliver its public service objectives without recruiting and retaining high-performing staff, and avoiding disruptive strikes, but doing so may come at a substantial cost. 

Will the government sustain higher capital spending – and use it well? 

Higher capital investment is, according to the government, one of the key differences between its approach and that taken by the previous government. 274 HM Treasury, Autumn Budget 2024, HC 295, The Stationery Office, 2024, pp. 1, https://assets.publishing.service.gov.uk/media/6722120210b0d582ee8c48c0/Autumn_Budget_2024__print_.pdf  In public services, there were particularly generous settlements for DHSC and MoJ. Higher investment will help to address a crumbling estate, outdated IT and insufficient access to modern equipment, all of which are drivers of poor productivity across public services. 

However, as the budget acknowledges, underinvestment has been a problem for decades. For example, there have only been two years since 1970 when the UK has spent more than the OECD average on health capital. 275 Hoddinott S, Davies N, Fright M and others, Performance Tracker 2023, Institute for Government, 30 October 2023, https://www.instituteforgovernment.org.uk/publication/performance-tracker-2023/hospitals  Fixing the problems that have arisen from this will take sustained investment. While the budget included £1bn for hospitals maintenance, the backlog currently stands at £13.8bn and grew by more than £2bn in the last year alone. 

Capital budgets must also be allocated well. 276 Pope T, Tetlow G and Pattison J, Capital spending in public services: Fixing how the government invests in the NHS, schools and prisons, 26 June 2024, https://www.instituteforgovernment.org.uk/publication/capital-spending-public-services  The budget announcement of five-year capital budgets, extended every two years, 277 HM Treasury, Autumn Budget 2024, HC 295, The Stationery Office, 2024, pp. 20, https://assets.publishing.service.gov.uk/media/6722120210b0d582ee8c48c0/Autumn_Budget_2024__print_.pdf  will provide welcome certainty and allow government and public bodies to better plan their investments (though it is unclear whether departments will pass this on to local government, the NHS and other public bodies). Likewise, the emphasis on maintenance is likely to represent better value for money than the usual focus on new buildings and should be retained in the spending review. 

The budget is also right to highlight the role of technology in boosting public service productivity. Innovations such as artificial intelligence have the potential to be transformative, but in the short to medium term the government should concentrate its efforts on relatively low-tech issues such as outdated IT hardware and software, patchy Wi-Fi and poor data sharing. Fixing the digital plumbing may not be sexy but it will make a huge difference to those working in front-line public services. 

Will the government successfully take a mission-led approach to the spending review? 

Decisions on the budget were reached in a traditional manner, with individual departments making spending bids and then negotiating bilaterally with the Treasury, focusing on addressing short-term crises. This is at odds with the more joined-up ‘mission-led’ model Labour has championed, which it has said it will use for next year’s ‘reform-driven’ spending review. Realising that vision will play a central role in determining whether or not it can deliver meaningful improvements to public services this parliament. 

The five missions, three of which relate directly to public services, are Labour’s plan for ‘national renewal’ and the logic for taking a mission-based approach is clear. Public services are interdependent and all the biggest challenges facing government require co-ordinated action by different departments and public bodies. Yet this is poorly reflected in siloed budgeting processes, with departments forced to compete against, rather than work together with, each other for funding. 

As a result, departments have little incentive to collaborate and often work at cross purposes, reducing the positive impact that they can have. Taking a mission-based approach to the spending review could enable greater collaboration and more grownup discussions about how best to allocate resources in pursuit of common goals, maximising the improvement to public services given the funding available. 

While the theory is promising, the government has a lot of work to do to make it a reality. ‘Mission boards’ have been established but their ways of working are still being formalised. There is enthusiasm among both ministers and officials for this approach, but it is unclear whether this will survive contact with the brutal reality of a multi-year spending review process, especially if funding is tight and departments are trying to protect core budgets.

The government must quickly establish more concrete mechanisms for establishing priorities, ensuring these drive spending allocations, and holding ministers and officials accountable for delivery. Previous Institute work has recommended cross-departmental spending bids, with allocations made to each mission, which could enable a more collaborative and mission-driven process. 278 Bartrum O, Paxton B and Clyne R, How to run the next multi-year spending review, Institute for Government, 2024, www.instituteforgovernment.org.uk/publication/how-run-next-multi-year-spending-review  

Without this, there is a risk that closely related reforms scheduled for the spending review – the 10 Year Health Plan, changes to local government funding, improvements to SEND provision, children’s social care reform and a homelessness taskforce – will lack proper co-ordination. 

Will the government shift spending towards prevention? 

The budget sketches out a nascent public service reform agenda, with plans to improve public service efficiency through a more preventative, devolved and tech-enabled approach. Making public services more preventative is central to the NHS and safer streets missions, is a sensible ambition and there is good evidence that such a shift would improve lives and reduce demand on expensive acute services. 284 Hoddinott S, Davies N, Kim D, A preventative approach to public services, Institute for Government, 22 May 2024, https://www.instituteforgovernment.org.uk/publication/preventative-approach-public-services  

But past governments have found it hard to match their rhetorical commitment to prevention with spending. Indeed, since 2010 there has been a clear move in spending away from prevention and towards acute public services. For example, while local authority spending on safeguarding services and looked-after children has risen by more than half in real terms (58.1%) between 2009/10 and 2022/23, spending on children’s services and services for young people has been cut by nearly four fifths (77.9%). 285 Ibid.  

The budget did include some preventative measures, including higher taxes on tobacco and alcohol, and an increase to the Soft Drinks Industry Levy. It also committed to restricting the advertising of junk food and ending the sale of tobacco as part of the government’s 10 Year Health Plan in the spring. However, there was little evidence in the budget that spending in 2025/26 will shift towards prevention. To the contrary, the government appears to have prioritised acute services such as hospitals and prisons. This is an understandable response to high-profile performance failures in these areas, but the government will need to take a different approach in the spending review if it wants to improve the allocative efficiency of public services. 

Doing so will require political will and embedding prevention into the spending framework. This should include using the spending review to define and protect preventative spending, publish a cross-government prevention strategy and properly fund evaluations of preventative programmes. 286 Ibid.  

What role will devolution play in improving public services? 

There are several strands to the government’s public service devolution plans, with more details planned for the spending review. First, there is a commitment to provide local authorities with multi-year funding settlements and to consolidate many small ring-fenced funding pots into the main local government finance settlement. 

Second, the upcoming English devolution white paper is due to include proposals for “simpler structures” and “council reorganisation”. 287 HM Treasury, Autumn Budget 2024, HC 295, The Stationery Office, 2024, pp. 58, https://assets.publishing.service.gov.uk/media/6722120210b0d582ee8c48c0/Autumn_Budget_2024__print_.pdf  Third, the budget states that the government plans to devolve “more power to communities” with the objective of delivering public services more efficiently. 288 Ibid.  

Government is currently very centralised and there is a good case for giving local areas greater autonomy over the design, delivery and funding of public services. While national scale and consistency can be valuable, of greater benefit for most services is the ability to flex in response to local demand. Unfortunately, department-based budgeting and prescriptive policy making means that Whitehall silos, which usually bear little relation to people’s needs or how they access services, are recreated locally. This leads to duplication, wasted effort and an often frustrating experience for staff and service users alike. Resolving the problems offers the prospect of substantially improved public service performance. 

The theory is compelling, but there are many questions about how this will work in practice: in particular, the extent to which the government will seek to reorganise sub-national structures or improve existing ones; how different public bodies working locally will be incentivised to work together more effectively; and how any changes can be implemented without causing unhelpful disruption.

Conclusion

The government has taken some necessary first steps on the long journey to returning public services to a standard acceptable to the public – something in which it has placed significant political capital. But it has left itself much to do in the upcoming spending review, particularly in the context of an uncertain period following the election of Donald Trump as US president. This challenge, like others, will need to be overcome if the government is to deliver what is a promising reform agenda. Now is the time to start.

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