'Austerity' in public services: lessons from the 2010s

The estimated £40bn of departmental savings that Jeremy Hunt needs to find would be much more damaging to public services and harder to deliver than the coalition government’s 2010 austerity programme.

Hunt should use the 17 November fiscal statement to set out a broad direction of travel now – and take time to ensure spending plans align with the government’s priorities –  before setting out firmer plans at a later date. 

This paper, published by the Institute for Government with the Chartered Institute of Public Finance and Accountancy (CIPFA), assesses the extent to which the methods used to deliver 2010 levels of savings can be applied in 2022.  

The paper says finding £40bn of day-to-day departmental spending cuts relative to current plans by 2026/27 would require budgets to fall by 7.8% in real terms (2% per year) over the next four years – the same level as 2010-2015. Even cuts of £20bn would still require tighter budgets than delivered in the 2015 spending review period. Government commitments to protect the health budget and spend more on defence also suggests other departments would need to take bigger hits. On any reasonable definition, this would be a return to austerity.  

However, with the first round of austerity and the pandemic leaving public services in a much more fragile position than they were in 2010, the paper finds that the methods used in 2010 are no longer politically or practically viable – and says despite rightly delaying the launch of his spending plans, the chancellor should not rush to announce specific spending cuts at the autumn statement in November. Sustainable savings will take time and upfront capital investment, such as in equipment, software or facilities.  

The report’s key findings are:  

• The 2010 focus on holding down public sector pay and cutting staff while pushing them to work harder is not politically or practically viable now, particularly given the high inflation rate. The NHS and schools already face the prospect of widespread pay strikes while issues with retention and recruitment have meant a shortage of 50,000 nurses and 12,000 hospital doctors.  
• Other approaches like cutting capital spending, preventative services or lower-profile services – could even be counter-productive, reducing productivity or increasing pressure on other services.  Maintenance backlogs for Schools, the NHS, courts and prisons already stands at £23.7bn. 
• In virtually all cases, quick cuts to funding will result in worse services and the need to provide emergency funding at a later date – which is exactly what happened in adult social care and prisons over the past decade, where spending fell by 10% and 20% respectively by the middle of the decade, before increasing again via emergency cash injection.