Summary

In its short life so far, Boris Johnson’s government has made a point of declaring that it will spend a lot more on public services.

Theresa May’s government had already said that “the era of austerity is coming to an end”. It pledged to increase spending on the NHS much faster than the coalition and Conservative governments had since 2010. In the end, it spent £9.4bn more on the nine public services we cover in this report in 2019/20 than originally set out in the 2015 spending review.

However, the Johnson government has gone further. It has pledged more money for schools, police officers and the criminal justice system, and ended – for one year – the cuts to departmental budgets.

Decisions about the scope and quality of public services are necessarily political: there is no objective answer to the right level of spending. This report simply analyses the impact of spending on the performance of services – their scope, quality and efficiency.

Over the past nine years, since the start of tight public spending controls, most public services have become more efficient – doing more with less. This has been achieved by limiting staff pay increases and prompting workers to be more productive. But this strategy is approaching – or has already reached – its limit. Public services will in many cases now struggle to sustain the efficiencies that they have made.

All services have seen some decline in performance – either in their quality (the standard of public service provided and how satisfied users are) or scope (the range of services provided and the number of people able to access them).

In our analysis, the Johnson government may have budgeted enough to meet demand and maintain standards. But rising costs risk swallowing the planned increase in spending. The next government – whoever heads it – will have to spend more than is currently planned to improve services.

Despite the cash injections of the Johnson and May governments, we continue to have serious concerns about rising violence in prisons and about the scope of local government services – particularly adult social care.

Over the next five years, we project that demand for more than half of the public services we cover in this report will rise faster than population growth. Demand is rising particularly quickly for health and care services because of the ageing population, an increase in the number of people with multiple health conditions and rising life expectancy for people with physical and learning disabilities.

We estimate that the government and local authorities will spend £191.1 billion (bn) on the nine public services we cover by 2023/24. As Table 1.1 shows, this may be enough to meet demand while maintaining standards at 2018/19 levels for most services – but it will not be enough for the government to meet its own objectives for service improvement or expansion, such as better care for cancer patients and reduced levels of violence and self-harm in prisons.

The government may not have budgeted enough to maintain standards

Planned government spending may be enough to meet demand while maintaining standards at 2018/19 levels for most services. But current spending plans for local authorities do not look as if they are enough to maintain current standards in adult social care. We estimate that any future government would have to spend an additional £0.7bn by 2023/24 just to keep pace with the increase in the number of people who will need publicly funded care.

There are also good reasons to think that maintaining standards in the other eight services will be difficult. Our projections are a conservative estimate of the minimum funding required to meet demand.

The projections also do not account for any policy changes that could either increase demand or cost pressures above inflation. The cost of public services could easily rise faster than prices in the economy overall. The government has lifted the 1%

public sector pay cap brought in by David Cameron’s government in 2013; it has given above-inflation pay increases for school teachers, NHS staff, prison officers and police officers since 2017/18.

Increases in the national minimum wage have also raised the cost of providing adult social care, which has increased well above national inflation over the last three years and where a large number of care workers are paid the minimum wage.

The commitment of both the Conservatives and Labour to increase the national living wage[1] is likely to raise this cost still further.

Increases in demand are particularly likely to affect criminal courts and prisons, as Johnson’s pledges to increase the number of police officers[2] and boost funding for the Crown Prosecution Service are likely to increase the number of cases heard in courts, and so the number of prisoners.

Projected and planned spending on public services in 2023/24

 

General practice

Hospitals

Adult social care

Children's social care

Schools

Police

Criminal courts

Prisons

Current government policy £13.8bn £81.7bn £19.2bn £8.9bn £42.2bn £14.4bn £2.0bn £3.1bn
Meet demand £13.8bn £78.8 £19.9bn £8.9bn £38.6bn

£13.7bn

-

- £17.9bn

£1.9bn £3.1bn
Gap £- £- £0.7bn £- £-

Up to £3.5bn

£- £-

If these rising cost pressures force the government to increase spending at the same rate as they did after the 2015 spending review, then adult social care, children’s social care, criminal courts and prisons would all spend more than its current policy implies.

For the nine public services we cover in this report, we estimate that the May government’s decisions have meant that the government spent £9.4bn more in 2019/20 than originally set out in 2015. (That review was carried out by the Cameron government, but the May government chose not to revise it.)[3]

Any government will have to make hard choices in its spending plans

The Johnson government has a fiscal rule that annual borrowing will be below 2% of GDP in 2020/21. If it does not want to break this rule – which it is already on course to do this year[4] – then it faces a clear trade-off:

  • reduce the scope or quality of services
  • increase how much people pay directly for services
  • cut spending elsewhere
  • raise taxes.

These politically difficult trade-offs will not disappear after the 2020 spending review.

If spending on health, long-term care, and pensions and pensioner benefits were to rise in line with projections from the Office for Budget Responsibility (OBR), and public spending as a proportion of GDP remained constant, then all other government spending would almost halve as a percentage of GDP over the next 50 years,[5] from just over 20% to just under 10%.

There might be more scope for further efficiencies. But public services will struggle to make them through the same methods – holding down pay and asking staff to work harder – as they have over the last nine years. Past experience of reforms to transform services shows that while they may improve services, they do not always save money.[6]

Most public services have become more efficient since 2010

Most public services apart from prisons and children’s social care have become  more efficient since 2010. It now costs less in real terms to provide services of the same quality. The NHS reduced spending on medicines used in general practice by buying cheaper generics; local authorities managed to cut spending on libraries, road maintenance and waste collection deeply while citizen satisfaction declined only slightly.

Public services have become more efficient because of the public sector pay cap and staff working harder

The government’s main strategy to increase efficiency was to encourage public services to deliver more for less by cutting budgets. The public sector pay cap, by keeping wage growth below the rate of inflation in the wider economy, was the key contributor to efficiency gains in most services. Most public services also responded to lower budgets by trying to get staff to be more productive – secondary school teachers now teach more pupils, food standards and hygiene staff undertake more inspections and audits per person, and children’s social workers assess more referrals than in 2010.

There have, however, been big changes to the way that services are delivered in criminal courts and general practice. A large number of courts have closed and those that remain open have reduced both the amount of paper they use and the number of magistrates required to hear less serious cases. Similarly, GP practices have merged and the share of patients receiving online or telephone consultations has increased. But such reforms have not been a major contributor to efficiencies, and the long-term impact on the quality and scope of these services is unclear.

All services have seen some decline in performance

The quality and scope of all public services has declined because efficiencies have not been enough to bridge the growing gap between spending and demand in most of the services we assess. It now takes longer to be seen in A&E, or to book a GP appointment, than it did in 2010. More people in need of social care are reliant on informal care from family and friends rather than state provision. However, this decline in performance is less substantial than might be expected given that spending has not kept pace with demand in these services.

Public services are struggling to maintain the efficiencies they have made

Public services will struggle to keep providing services as efficiently as they do now – that is, delivering the same scope and quality of service on their current level of spending.

Recruitment and retention problems are growing

Workforce pressures are clearest in schools, where secondary schools are missing recruitment targets by increasingly wide margins and the teacher retention rate is falling. But vacancies and turnover are also increasing in adult social care; an increasing share of the clinical workforce in hospitals are leaving citing issues of work–life balance; and prison officers leaving their jobs are increasingly likely to do so having resigned mid-career rather than retired.

Staff surveys also show clear signs of pressure: the share of GPs saying that they intend to leave the profession rose between 2010 and 2017; and the share of police officers reporting that their workload was “too high” rose between 2016 and 2018.

Public services are using one-off sources of money and are overspending

In several cases, public services have started to draw on one-off sources of money to maintain spending. An increasing proportion of police forces are using their cash reserves, which have fallen by 35% in real terms since March 2015.

In other cases, departments have moved money originally allotted for investment to support day-to-day running costs of public services. The Department of Health and Social Care moved £4bn from its capital budget to its day-to-day resource budget between 2014/15 and 2018/19, and the Ministry of Justice moved almost £400m in the same way in 2017/18 and 2018/19. Local authorities have repeatedly spent more than they budgeted to on care. Local authorities spent more than they planned on children’s social care every year after 2010/11, and on adult social care between 2014/15 and 2016/17 – necessitating deeper cuts in local services elsewhere.

Public services have shifted costs onto individuals

The government and local authorities have continued to ask individuals to contribute more to public services. They have asked citizens to pay directly for services, and increased charges. More local authorities have introduced charges for garden waste collection since 2010. Cuts to legal aid mean that more defendants now have to pay for their own defence – or defend themselves, which results in cases taking longer to hear. Local authorities are paying less than the cost of care in care homes, so care homes are cross-subsidising publicly funded care by charging private self-funding clients more. Over half of local spending on planning was derived from fee income in 2017/18, compared to just over one third in 2009/10.

The government has also asked individuals to take more responsibility for services that were formerly delivered by the state. Local authorities are using more volunteers and community groups to run services such as libraries. Where local authorities have tightened their interpretation of eligibility criteria for adult social care, adults with care needs have increasingly relied on support provided informally by family and friends.

Public services are prioritising the most critical services in response to spending cuts

Some public services have cut the services they provide in favour of the most critical ones. The police have given priority to the most serious crimes and those which they are likely to solve, while reducing proactive work such as neighbourhood patrols. Similarly, local authority food hygiene and health and safety teams have made a priority of inspecting the businesses most likely to harm consumers.

At the time of deepest spending cuts, crown courts prioritised hearing cases where defendants were on remand (who can only be held in custody for a limited period), while waiting times for defendants on bail rose further.

Performance has declined furthest in prisons and adult social care

There has been some decline in performance in all nine public services covered in this report, but two areas stand out as of particular concern: prisons and adult social care. Neither can maintain the efficiencies they have made. Prison performance has declined on every key measure – levels of violence, self-harm and prisoner misbehaviour have risen, while fewer prisoners are taking part in rehabilitative activities. Fewer adults now receive publicly funded care they than did in 2015/16 – despite a rise in the number of people requesting support from local authorities.

The government ought to fill key gaps in performance data

Not all aspects of performance can be measured, but there are large gaps in the government’s current understanding. Throughout this report, we note the questions we cannot answer because of lack of official data or analysis – above all, the lack of consistent nationwide data. The following gaps should be priorities for any government to fill:

  • Activity in neighbourhood services, in a consistent form, nationwide.
  • The extent of private funding of social care; staff–resident ratios and staff qualification levels for social care; waiting times for adult social care assessments.
  • What happens to adults who request but do not receive publicly funded adult social care (revealing whether they find help elsewhere).
  • Comparable data for police forces on the demand for their services (e.g. expectednumbers of vulnerable people, and people with mental ill-health).
  • Workforce data in private prisons, to assess whether they have safe staffing levels – and generally, data to compare efficiency of public and private prisons.
  • The age of part-time (locum) doctors in general practice to assess whether the rise in part-time doctors reflects changing attitudes to work–life balance among new doctors.
  • Data on vacancies, and agency and pool staff, in general practice and hospitals.

Another major concern is whether criminal courts are following due process to reach the right verdicts – acquitting the innocent and convicting the guilty.

The government should commission survey evidence of defendants’ and legal practitioners’ perceptions and attitudes, and/or external review of case verdicts to determine, for example, whether defendants are being pressured into submitting early guilty pleas.

No government can make good spending decisions without understanding how its choices affect the performance of services and the impact on people’s lives. These gaps should be priorities for any government to resolve.

All governments ought to analyse the performance of services when making spending decisions

Previous governments have struggled to spend public money well. The next government – whether cutting or increasing public spending – could improve  the way it makes spending decisions. To get the best value from public spending, it should focus on performance, keeping track of the results. Without tracking performance, it cannot know how efficiently public services are performing, whether there is room for improvement or whether services can sustain their current performance.

Lacking these insights, governments for years – but particularly since 2015 – have fallen into a ‘crisis–cash–repeat cycle’, where they react to the political fallout from predictable problems with short-term emergency cash. This is an inefficient way to spend money. Public services will struggle to use this emergency cash to tackle longer-term, underlying problems – such as staff retention – when it is often only enough to address immediate problems and does not provide them with certainty on how much money they will have to spend in the coming years.

Aside from schools and the NHS, all other public services have budgets only until the end of 2020/21 – the last year covered by the most recent spending round. Due to uncertainty over the terms of Brexit, the government has delayed a multi-year spending review until 2020. If the government is to use that spending review to break out of the crisis–cash–repeat cycle, then it must spell out:

  • how much money it will spend on public services
  • what it expects them to achieve
  • the trade-offs between spending and performance
  • how, if at all, public services will sustain existing efficiencies or make new ones.

The Treasury and other government departments will need to better assess whether performance objectives are realistic given planned spending and likely efficiencies. The Institute for Government set out recommendations on how the government could improve the way it manages spending and performance in a recent report titled The Treasury’s Responsibility for the Results of Public Spending.[7]

Without setting a credible plan for spending and objectives, it is very likely that public service performance will continue to drift – even if occasionally, and partially, alleviated by injections of emergency cash – as it has done since the 2015 spending review.