Having promised to cut spending rather than raise taxes to eliminate the deficit while at the same time promising additional spending in a whole host of areas, what can we expect public management to be like over the next five years? In this article, Perri 6 outlines the bleak future ahead, writing that even if public managers survive the next few years, they will still not be able to relax much.
If the voters will believe you, then a good way to get elected is to promise them that your government will spend less of their money and, at the same time, provide the people with more generous services. It is hardly a novel approach. But, provided the voters are not convinced by any alternatives they are offered, it can work. And in May 2015, at least in England although not in the rest of the United Kingdom, it did.
Having promised both things, how is the trick actually going to be done? And what will public management in Britain be like for those running our public services over the next five or even ten years?
The Conservative government has committed itself to getting the annual public sector budget back into the black by around 2019-20 or so. That promise includes the capital budget. The annual deficit alone is around 5-5.5 per cent of GDP, depending on which method you use to calculate it. Although the deficit peaked in 2009, it was actually slightly higher in early 2015 than it was 2013. And total accumulated net public sector debt stands, again depending on just what basis you prefer to use for measuring it, at around 80 per cent of GDP.
Luckily, for the moment, it’s fairly cheap for the British government to service its debt. As the gilt markets price in the uncertainties of a referendum on Britain’s remaining a member of the European Union and of a second Scottish independence referendum, those costs might rise a little. But most investors still think that even a government of ‘rump UK’ outside the EU with some kind of free trade deal with Europe would still stand solidly behind its own debts.
Getting the deficit down to zero requires tax increases or spending cuts or both. The Chancellor has ruled out increases in the three taxes which provide the biggest slices of the government’s annual income – Value Added Tax, income tax and national insurance. Indeed, like Odysseus tying himself to the mast as his ship sailed past the sirens, Osborne has even promised to pass a law to stop himself from raising these taxes, just in case he should have a moment of weakness of the will.
More than this, he has promised to increase the pay threshold before which people pay any income tax to £12,500 a year, and to raise the threshold for the 40 per cent rate to £50,000 a year. Some tax reliefs will be cut, although the money gained by cutting relief on private pensions has been committed already to paying for a cut in inheritance tax, so that will not increase revenues. So if national taxes are to rise, that leaves either the “sin” taxes on alcohol and tobacco, which bring in rather modest proportions of government income, or else corporation tax (about which the Chancellor has previously boasted of Britain’s competitive low rate) and capital gains tax. Leaving the government so little flexibility to respond to an economic downturn is likely to worry the bond markets, and we might see that uncertainty push up the costs of borrowing a little at some point.
So that leaves spending cuts as the main way of eliminating the deficit and starting to pay down some of the accumulated debt in five years’ time. Oh, but hang on…
The Conservatives have made a list of promises that involve additional spending. Here is a selection of some of the most eye-catching ones.
- £8 billion more for the National Health Service, either by the end of the parliament or according to some statements by some ministers, in every year of the parliament;
- continuing the pledge that state pension will rise by the highest rate of wages, prices or 2.5 each year until 2020, which is expected to bring it to £7000 a year;
- a move to seven day working for the NHS, in local family doctors’ surgeries and in availability of consultants in hospitals;
- 600,000 additional free child care places;
- protecting from cuts the amount spent on 5-16 schooling per pupil, including accommodate the extra 7 per cent of pupils who will enrol (but they will not uprate the amount per pupil to deal with inflation in costs of education); and
- an extra £13 billion in transport infrastructure for the north of England.
Then there are Conservative promises that affect the government’s balance sheet, rather than public spending, at least in the medium term. Removing the cap on university places presumably means loading more debt onto the student loans scheme. That has to show up as one of the government’s liabilities, and would probably still have to, even if the loan book were sold.
On top of all this, there is a host of particular promises, none of which on their own will cost huge sums, but taken together will put pressure on the plan. Giving all employees, including those in the public sector, the right to a few days each year of paid volunteering leave will cost money. The promised additional efforts to control immigration will probably require additional resources for the border force. The incentives to be provided to energy companies to expand ‘fracking’ will not come cheap. Trebling the numbers of apprenticeships in food, farming and agri-tech is not hugely expensive given the low base from which Britain starts and given that some of the costs can be placed on the private sector, but there will be some costs to the public purse.
Some of the promised reorganisations such as the single farm inspectorate, the new London-wide Land Commission will cost money. Most people expect more mergers in police forces: that might save money in the long run but in the short term most mergers are expensive. Recruiting and retaining the additional ‘super heads’ to foisted upon ‘coasting’ schools will not come cheap. The new data surveillance powers which the Home Office has promised for the security services will require some pricey new technology and some expensive IT and decryption experts who can normally expect better salaries in the private sector than the public sector typically offers.
But let’s get back to the big numbers. We know, because during the election the subject was never off the air waves, that there are to be £12 billion of cuts to welfare programmes for people of working age. The Work and Pensions secretary, Iain Duncan Smith, admitted just before the election that he hadn’t worked out how to find more than about £2 billion of the £12 billion of cuts promised. We know that old age pensions are protected and the cuts will fall on programmes for people of working age. Likely, there will be some cuts to Jobseeker’s Allowance. But that is no longer the most expensive programme. Abolishing it altogether would be difficult.
Does that mean cuts to disability benefits? Under pressure, the prime minister seemed to suggest that cuts there would be limited. Perhaps it means child benefit? Pressed on the point, the prime minister insisted that the benefit would ‘stay’ but didn’t commit himself to maintaining its present levels. Perhaps it means housing benefit? That’s now a big ticket item. The reason spending on it has risen is obvious. Rents have soared with the housing boom. Indeed, the gentrification process which has transformed London has pushed up rents dramatically to the point that people in many jobs on typical salaries are paying huge proportions of their income in rent.
For those not in work, housing benefit has to bear much of the strain, even after the cuts which have imposed ceilings on amounts in particular areas. Further cuts in housing benefit look inevitable. But the effect will be push the poorest people out of London and the south east, where most demand for their labour is to be found. So the risk is that when pushed out to cheaper areas, they may struggle to find work or at least to find well paid work, which could either push up the bill for other benefits or for tax credits.
If the next recession arrives in 2018-19, as it well might, this leaves no room to allow the welfare budget to rise to deal with the unemployment to which it will presumably give rise.
Facing the axe
Without tax increases, but with protection and even some extra spending for pensions, the NHS and schools, and new money for the ‘northern powerhouse’, everything else will face the axe. The fact that councils have already had their spending cut by around a quarter as sector might mean that there is not much more to be found by improved efficiency there. Forcing the transfer of the last council housing to housing associations, schools over to academy status and some social service functions over to the NHS mainly means a transfer of spending to the national government account, rather than saving big sums. And those three take up most of what local government currently does, although the new devolved economic development and regional coordination powers across the public services should mean interesting new roles for councils which don’t involve running a lot of big labour-intensive frontline services.
Further cuts in policing are likely. But the police also need new, more modern and mobile IT systems, which will show up on the balance sheet. Presumably, unlike in the last parliament, there will be cuts in the science budget. Further defence cuts will take Britain even further away from the 2 per cent NATO target, which will offend the US and could prove unsustainable anyway, as the Russian government is ramping up conflict with the west again. Overseas aid will surely be cut, but this is a very small part of the nation’s finances. One can say the same of the Foreign Office and its embassies: probably embassies will have to merge and there will be fewer staff in King Charles Street, but that won’t do a great deal to bridge the gap which Osborne has promised to span by 2020.
So that leaves support for farming and fisheries, the environment, business support and promotion, culture and sport, justice and prisons, transport other than the capital budget which the government has promised to increase and a cluster of regulatory bodies and executive agencies ranging from the tax collectors themselves in Her Majesty’s Revenue and Customs and big bodies like the National Offender Management Service to small profitable bodies in defence which are more likely to be privatised than have their small spending cut further. Since few of the big programmes can be abolished – after all, taxes have to be collected and prisons run – and because some programmes such as farm support are politically very sensitive, the Chancellor will presumably have to slice the salami thinly and carefully, department by department.
That leaves a question about Scotland. Will the UK government effectively force the Scottish government to accept fiscal self-reliance, ending subsidies from the rest of the UK, as the price of more autonomy? If it does, then within England, that might very slightly ease the spending pressures in the short term, although it is worth remembering that for many decades in the last century, Scotland paid more to the exchequer in London than it took back in services. If there is a transitional arrangement to continue subsidy from the rest of the UK on a declining basis for some years, as Scotland takes on its new taxing and spending powers, then the increases in public spending which voters in Scotland seem set to insist on will have implications for the rest of the UK’s public expenditure too.
Public management over the next five years
What can we expect public management to be like under these conditions over the next five years? Apart from ‘managing cutbacks’ (or ‘taking redundancy’), perhaps the simplest and clearest general answer is ‘finding efficiencies without using much capital-intensive modernisation to do it’. If the government is serious about eliminating the deficit on the whole of British government’s account including the one for capital, then the scope for big IT projects and big new data modernising systems to take advantage of emerging artificial intelligence technologies, new energy sources and even some new data-dependent working practices will be very limited.
By 2020, citizen entitlements will take up a bigger share of state spending and the money spent on the management systems even for running those entitlement programmes, let alone for other things, will take up a smaller slice of the pie. The gulf which has always existed between public and private sector management practices is likely to grow wider, except perhaps in the security services which will have to be given advanced systems requiring capital investment. Mergers will be required in back office functions ranging from finance and payroll to IT, from estate management to client record management. Councils, police forces, hospitals, schools, universities will all find themselves transferring their own operations to or just buying these services from a few huge centralised bodies.
For many of the labour intensive public services such as local government, social care and policing and other emergency services, we have to expect some degree of movement from reliance on paid professional labour to volunteers. Anyone who has run an office recruiting, training, retaining and managing volunteers and paying their expenses and writing references for them will know that scaling up those operations is not cheap, even though salaries are not being paid. But in many labour-intensive services, there will be no alternative. Politically, this substitution will be dressed up with the language of civil society and engaged communities and good citizenship. But the fact of substitution will not be disguised.
One view of the charts that the Institute for Fiscal Studies generated from the Conservative promises about public spending suggests that in the last year of the parliament, around 2020, spending will – slightly oddly – rise again. Whether that happens, remains to be seen. If the next recession has already arrived by then, so bringing tax revenues down, that uptick may not materialise. But public managers should not suppose that after surviving the next few years, they will be able to relax much. By then, the demand pressures of the ageing population, of growing demands for new infrastructure projects to deal with climate change and of the gathering storm of middle class job insecurity arising from the new automation, together with the continued pressures of competitiveness to keep the lid on tax revenues will mean that well into the 2020s and 2030s managing the public services in Britain will be about squeezing out efficiency without all the capacity Britain will need for ambitious modernisation.
In turn, that will raise challenges of how to attract, recruit educate and train and retain the best management talent into the public services. We can tell the next generation of young public managers that they will have the challenge of working on fascinating management problems. But we’ll have to own up to them that they will be cursed with living in interesting times.
Note: This article was originally published on the Centre for Government and Leadership blog and gives the views of the author, and not the position of the British Politics and Policy blog, nor of the London School of Economics. Please read our comments policy before posting.