Assessing the performance of public services

The previous five chapters assessed what happened to each of the five public services between 2009/10 and 2015/16. This chapter draws the data together, to provide an overall assessment of performance.

It begins by reviewing spending, and the Government’s ability to maintain control of this. An assessment of public service performance has to look well beyond the amount of money being spent, and the chapter therefore pulls together information on three other factors:

  • Demand: We need to know what is happening to the ‘gap’ between spending and the demand for services. An increase in spending is in effect a cut if it is accompanied by an even larger growth in demand.
  • Efficiency: A gap between spending and demand does not have to mean a decline in scope or quality, if the Government can find ways to achieve more with the public’s money.
  • Scope and quality: If the Government fails to make the efficiency changes needed to bridge the gap between spending and quality, standards will decline, or people will be forced to wait for – or do without – access to services.

The chapter ends by considering some lessons that can be learned from the implementation of Spending Review 2010.

Government largely controlled spending and prioritised our five services, though by 2015–16 major deficits had emerged in hospitals.

Austerity provides the overall backdrop for the five stories we tell in this report, but that does not mean that all the services we have looked at had their funding slashed. We estimate that across the five – hospitals, adult social care, schools, prisons and the police – the total change in spending was in fact a 6.2% increase. This ranged from a 21% real-terms reduction in prisons to an increase of 15% for hospitals.

For the vast majority of the period, none of the departments overseeing these services overspent its planned day-to-day spending budgets.* Spending levels were in line with those set at Spending Review 2010. There were two exceptions – MoJ received extra money from the reserve, following the cancellation of planned sentencing reforms in 2011; and in 2015/16 hospitals were running record deficits of over £2bn, though the Department of Health managed to remain within budget.**r

Within these departmental budgets, our frontline services were protected from the hardest edge of austerity. In all cases, the spending reduction at the level of the service was lower (or the increase higher) than in the Whitehall department overseeing that service.

Large gaps between spending and demand arose in policing, prisons, adult social care and more recently in hospitals.

Alongside the change in spending, there were major shifts in the demand for services between 2009/10 and 2015/16.

In adult social care, prisons and the police, around a 20% ‘gap’ emerged between actual spending and the counterfactual level that would have been required in 2015/16 if spending had risen in line with demand.

  1. There was a rise in demand for adult social care, with growing numbers of over-65s (up by 16% in the past six years) and of working-age adults with long-term needs. At the same time, spending fell by 6% in real terms.
  2. In prisons, demand remained relatively constant, with roughly the same number of prisoners over the time period. But spending fell by over 20% in real terms.
  3. Demand in policing is harder to measure, but the overall population increase, around 5% during the period, could be said to have put pressure on this ‘public good’ service. This compares to a 17% real-terms fall in spending.

There were much smaller differences between spending and demand in hospitals and schools.

  1. Initially, demand in hospitals rose in line with spending: funding rose by 8% in real terms up to 2013/14, with activity in hospitals rising 11% over the same period.[106] But the consistent rise in A&E waiting times since 2013 suggests that relentless increases in demand have outstripped the service’s ability to deliver, despite the continued increases in spending.
  2. While schools faced an increase in pupil numbers, they fared relatively well compared with other services. Pupil numbers (up 6% overall) rose by around the same amount as spending (up 7% in real terms).

Substantial efficiency improvements bridged the gaps in policing, and in prisons up to 2013, with smaller improvements in hospitals and schools.

A gap between spending and demand does not have to mean a decline in scope or quality, if government can find ways to raise the efficiency of public services – to do more for less. We can look at two aspects of this: making economies and raising productivity.

Making economies. This is essentially about buying things cheaper. It involves reducing the amount paid for the people, goods and services used to produce the service. If prices or wages are lowered, then the same service can be produced for less money.

Most of the money public services spend goes on wages: pay bills typically account for around 70% of the cost of providing public services. In all five of our services, median wages have grown at a slower rate than for the economy as a whole, and have fallen in real terms. For example, data from the Annual Survey of Hours and Earnings shows that median wages for police officers grew by 7% in cash terms, and median wages for prison officers grew by only 2.5% between 2009 and 2016. This compares to an increase of 11% across all jobs in the public and private sectors.

In other areas, the prices paid for goods and services have also fallen. For example, local authorities have reduced the amount paid for privately provided care places by around 6% since 2011.

Raising productivity. This is essentially about doing things better. It involves increasing the amount of a service that is produced by a given number of people or assets (say, prisons or schools). There are lots of ways to raise productivity, from simply using staff time better to developing a completely new technology to deliver the service.

We can get a sense of how much productivity might have been improved, by comparing the actual cost of providing a service with the counterfactual of how much it would have cost to provide if it hadn’t. Given changes in demand, how much would services have cost to provide if they had continued to convert inputs to outputs at the same rate?*** This exercise suggests there could have been substantial increases in productivity across our five services.

This is most striking in the areas that faced the biggest reductions in expenditure, with prisons holding roughly the same number of prisoners for around 20% less than the counterfactual cost, and policing achieving the same level of public satisfaction for around 10% less. The numbers suggest that more modest improvements in productivity were achieved in hospitals, and increases in efficiency in schools that were reversed as spending continued to increase in later years. There was little evidence of improvements in productivity in adult social care.****

Efficiency or poorer quality? Through both economies and productivity increases, the Government potentially managed to do more for less in many areas. But to establish whether there were actual efficiencies, we need to assess one other factor – quality. A service that is making efficiency gains will do the same (or more for less) to the same standard. Quality is, by its nature, hard to measure, but in the preceding chapters, we found a range of proxy measures to capture what might be happening.

Again the patterns vary, with the most striking divergence in the criminal justice system.

  • The police faced the challenge of 17% spending reductions, which was managed without an apparent drop in service quality. This suggests that there were indeed substantial improvements in efficiency in policing across the period.
  • For prisons, initially our proxies for quality hold up, again suggesting substantial improvements in efficiency. But from 2014 onwards, there was a clear and rapid deterioration in the indicators relating to violence and safety. There was also a fall-off in the provision of programmes that may be related to rehabilitation, for example there was a drop in the number of prisoners gaining formal level 1 and 2 qualifications. It is clear that the seeming improvements in efficiency within prisons after 2014 were in fact largely a deterioration in quality.

In hospitals and schools, it appears that the modest improvements in efficiency were real.*****

  • In hospitals, for those actually receiving treatment, the data suggests that quality was holding up. For example, the number of patients contracting bacterial infections (e.g. MRSA and Clostridium difficile) and developing pressure ulcers decreased year on year. Similarly, satisfaction levels among service users hardly changed.
  • The same is true for schools, which managed to keep teacher–pupil ratios and academic standards consistent

So where did improvements in efficiency manage to bridge the gap between spending and demand? It appears that improvements in efficiency bridged the large gap in policing throughout the period, and the similarly large gap in prisons in the earlier years. In schools, there was no sustained gap between spending and demand, and relatively minor changes in efficiency.

Reductions in scope and quality were used to bridge the gap in adult social care throughout, and from around 2014 onwards in hospitals and prisons.

In three other areas, however, efficiencies were not enough to bridge the gap between spending and demand. Here it is clear that the scope and quality of services took the strain.

In adult social care, the pressures have largely manifested themselves in formal restrictions on people’s ability to access services. Between 2010/11 and 2013/14 the proportion of councils paying for services for people with low or moderate needs fell to just 13%. There was a 25% reduction in the numbers receiving support – and since then, there appear to have been further reductions. There have also been knock-on effects from these restrictions. They are increasingly leading to delayed transfers from the NHS as people end up staying in hospital longer than necessary, waiting for care packages in their home or the community. This is damaging for individuals and places further pressure on the hospital sector. 

Hospitals, unlike adult social care, in most cases cannot directly restrict access to services by raising the eligibility threshold, given that the NHS is ‘free at the point of delivery’ for everyone.****** Rather than formally restricting access to services, they are simply requiring people to wait longer for them, while running up deficits as activity outstrips spending. The A&E four-hour target for admission, transfer or discharge has not been met on a quarterly basis since December 2012; the standard for treating cancer patients within 62 days of an urgent GP referral was breached for the first time in March 2014 and has been declining since; and the proportion of patients waiting more than 18 weeks to begin treatment for non-urgent conditions has been consistently below the target since March 2016 – the worst performance since the target was introduced in April 2012.

For prisons, we have already seen that a deterioration in quality, specifically around safety and security, was clear post-2014, setting the service on an unsustainable course. The reductions in staffing in this period were not a sign of efficiencies being achieved, but a change that would eventually have to be reversed.

The Spending Review 2010’s hard budgets succeeded in the short term, but did not stimulate the transformation needed in the longer term.

Our review of the performance of five key public services suggests that, despite predictions to the contrary, the 2010 Spending Review was successful in controlling spending and achieving efficiencies for the first three to four years, and still appears to be achieving this for policing. How was this possible? Three key factors explain this:

  1. The Government set hard budgets and stuck to them. Settlements in the 2010 Spending Review (and the 2013 Spending Round that covered only 2015/16) were not reopened. Departments were clear about their resource limits and understood that the Government’s commitment to deficit reduction would not allow for any increase.
  2. The high levels of spending growth – by historical standards – in the 2000s meant that at least initially there were some easy savings to go for, including reductions in administrative costs. All the services we looked at were able to reduce or constrain staffing costs in the early years without any apparent impact on quality, reversing or slowing the rapid growth in the previous 10 years.
  3. The ability to hold down pay and, perhaps to a lesser extent, other input prices such as the fees paid to social care providers, may in part have been made possible by the relatively weak growth of earnings in the rest of the economy. 

These factors, coupled with the targeting of expenditure on the front line, worked in the short term. But it is clear that not enough action was taken during this period to fundamentally change the way public services were delivered – for example, by reducing demand, making better use of IT, or integrating services. Changes to people’s behaviour and the way the NHS works have not succeeded in controlling hospital admissions.[107] The MoJ’s plans to introduce sentence ‘discounts’ for early guilty pleas – and save £130m in the process – were dropped in 2011.[108] Plans to integrate health and social care following the 2012 Lansley reforms have had little national impact, with delays in hospital discharges increasing dramatically.

Such changes are politically and organisationally challenging. They might not have proved necessary had 2014 marked the end of austerity, as was originally planned. But the economy performed far worse than expected. The strains caused by services simply tightening their belts began to show in the run-up to the 2015 Spending Review. Government was increasingly relying on unsustainable factors, including falling quality, explicit rationing and increased queueing, in prisons, adult social care and hospitals respectively. Looking back from 2017, with further spending reductions tabled and economic uncertainty ahead, the early years of austerity look like a missed opportunity.

The next chapter looks at what has happened as the 2015 Spending Review has been implemented, and in light of this, what the Chancellor should do in the coming Budget.

* Note that the DfE has in recent years overspent on its capital budget, in relation to a privately financed school building programme. 

** Although the Comptroller and Auditor General Sir Amyas Morse noted that, while the Department of Health remained within budget, it had ‘again used a range of short-term measures to manage its budgetary position but this is not a sustainable answer to the financial problems which it faces’.

*** All other elements – specifically the levels of activity, prices and wages – are the same as what actually happened in the counterfactual. 

**** Indeed the ONS’s Public Service Productivity Estimates 2014, the latest figures available, show productivity falling within adult social care over the period 2009–2014. publicservicesproductivity/articles/publicservicesproductivityestimatestotal publicservices/2014

***** This is broadly in line with the ONS’s estimates. These show productivity rising in health (a wider measure than just hospitals) up to 2014. In education (again a wider measure than just schools), productivity rose up to 2012, but these gains were reversed in the period 2013–14. There are no estimates available for 2015 onwards.

****** Although some NHS commissioners are beginning to consult the public on explicit rationing of things such as over-the-counter medicines and IVF. See Robertson, R., ‘NHS rationing under the radar’, blog, The King’s Fund, 17 August 2016.