At the last Conservative Party conference, the prime minister announced the end of austerity. But in the months that have followed, this claim seems to be derailing. A recent report from the Institute for Fiscal Studies showed billions more in spending is needed if the government is to maintain per capita spending across those departments that do not have ring-fenced budgets.
So how can the government get this train back on the right track? Most important will be this year’s Spending Review, which was promised in last year’s Spring Statement. Here is where the evidence to support the prime minister’s bold statements should be clearly displayed, supported by a forward-looking view and concrete plans that turn words into action.
Brexit does complicate this situation further for the chancellor, with Mr Hammond himself repeatedly warning of the ‘large fiscal consequences’ of ‘no deal’. Economists predict this will lead to weaker growth and a smaller economy. The increasing likelihood of a no-deal situation unfolding means finding additional funds to stop the squeeze on our public services will require difficult choices.
Another major problem that has emerged from the current predicament is the tiny amount of oxygen left for debating local government issues, as politicians’ eyes remain firmly set on Brexit, and civil servants are tied up with preparations for no deal scenarios. Given the Spending Review is due this year, we would normally expect much more information at this point in the cycle.
These policy challenges are quite apparent but without greater action, rhetoric will not match reality, leading to further service reductions. Indeed, the absence of change and lack of bold fiscal decisions increasingly looks like the riskiest path to take. The fact is demand for public services is going up, and the funds to support this is shrinking.
As we showed last year in our Performance Tracker, Office for Budget Responsibility forecasts published in July 2018 show that, if current spending and tax take were simply projected forward, spending on health, long-term care, pensions and pensioner benefits alone (along with debt interest payments) would equal tax receipts within 50 years. That is, if the government chooses to keep to its commitments on health and older people it would have nothing left for any other form of public spending.
What CIPFA will be looking for in the Spending Review, and what the UK should be hoping for, is a shift away from the short-termism currently plaguing the public sector. Good public financial management should take a long-term view, and must embrace realism. Though of course politics will always be a complicating factor. ‘More tax’ tends to be a poor campaign slogan.
What the Chancellor must do in the Spending Review is tell a coherent story, one that allows for the radical and bold change that puts government onto a sustainable financial pathway. It should also bring about the greater devolution required to empower local authorities, while incentivising public service improvements, joint delivery, better use of data, and technological innovation.
Without such a forward-looking vision, public trust in government will continue to fall. Implementing such a vision will likely take significant investment and service redesign but time is of the essence. While the UK’s decision makers continue to focus on Brexit, the world will march on and opportunities will be lost for communities and the vital public services they rely on.
This article first appeared in The MJ.