Budget 2017: What’s left in reserve for the public sector?

Nick C Jones blogs on today’s Budget and considers what it means for the public sector

It was vital that the Budget laid the foundations for a much needed boost to the UK's productivity by investing in the pillars of good growth such as skills and infrastructure. But equally important, as the UK government heads towards triggering Article 50, was the Chancellor’s desire to start building up an ‘insurance fund’ to meet future Brexit headwinds.

So what did the Chancellor’s only Spring Budget mean for those under strain in the public sector? Inevitably it means further public spending restraint, which is unsurprising with the deficit (public sector net borrowing) still hovering just under 3% of GDP almost a decade after the financial crisis and debt to GDP above 80%. So there are further cuts to come, including the Efficiency Review seeking to deliver an extra £3.5billion in spending cuts over the remainder of the Parliament, with departments being asked to model 3% and 6% cuts from their running costs in 2019/20.

Clearly, any Budget must also balance between short term need and longer term requirement. Targeted interventions were needed where the system is creaking most, such as the additional £2bn in funding for social care over the next three years (and £1bn in 2017/18).

Longer term, it was welcome to see the National Productivity Investment Fund being used to develop artificial intelligence and robotics, as areas of opportunity for productivity improvement in the public, as well as the private sector.

But if there is to be a real acceleration in productivity, place-based growth needs to be prioritised and ideas such as the RSA’s Inclusive Growth Investment Fund and further fiscal devolution must come into consideration. Indeed, it was an opportunity missed that alongside the Budget there appear to be few new devolution deals close to completion, or in the immediate pipeline.

With continuing pressure on public spending, this Budget provided a further push to pursue longer term transformation in two of the biggest areas of public spending – education and health and care, together accounting for about one third of public spending. Although both are largely ring-fenced, they still face the pressure of almost insatiable levels of demand.

Indeed, technical education was given a huge boost with the proposals to launch T-levels, alongside £500m of additional funding. This is a welcome shift in emphasis, starting to put vocational and academic pathways on more equal terms.

In health and care, for some time the imbalanced treatment of NHS funding (ring fenced) and social care (not protected) has seen increasing pressure borne by local authorities at the same time as adjusting to a new future funding settlement with rates retention. The Chancellor has laid the foundations for (another) review of funding although the real transformation will happen if health and care can become truly integrated with a focus on population outcomes in an area.

However, an elephant in the public spending war room is what to do about the biggest single area of spending – welfare (at around one third of the total), and in particular pensions (about half of all welfare spending). How long will it be before the triple lock becomes unsustainable?

Overall, this steady as you go Budget further reinforces the need to complete the massive transformations that are already under way across the public sector, with three particular priorities.

Firstly, and obviously, there is a continuing need to strategically and sustainably manage costs. This includes looking for further opportunities to co-locate services and share costs across organisational boundaries, pool funds and co-commission outcomes and realise the value of assets across multiple public sector organisations.

Secondly, public sector organisations need to accelerate the trial and use new technologies which have the power to transform public services from maturing approaches to big data and digital through to automation and the Internet of Things. Indeed, much more can be done to work with tech entrepreneurs and the funding community to deliver the huge potential of Gov.Tech.

Thirdly, at a time of public sector cuts, pay restraint and staff shortages retaining and attracting talent has become ever more important as the future of work changes and under severe competition for resources from the private sector.

Resilience was the watchword for this Budget and there is no doubt that the public sector will need agility to cope with future changes alongside a laser focus on doing better for less.

Nick C Jones | Director, Public Sector Research Centre
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