The next chancellor needs to create an Office for Future Generations to correct the chronic short-termism that prevents governments investing in cost-saving early intervention
How can we avert the growing crisis in local government, health service and other public service budgets, squaring the circle of rising demand and reduced resources? A new report by the Early Action Task Force, Towards Effective Prevention, sets out a route map and is described as 'essential reading for anyone planning for the next government' by Margaret Hodge, chair of the Public Accounts Committee.
Too often, public sector managers are caught in a negative spiral - cutting back on the very things that could reduce demand longer term, or robbing Peter to pay Paul to finance early action. Free nursery education for 2 year olds, for example, was paid for by cutting the early intervention budget.
Chronic underinvestment in early action is the result, despite a growing consensus about its importance. The current government has sought to reduce welfare dependency, increase social mobility, reduce crime and improve public health, for example. Yet the NAO found last year that only 6 per cent of relevant spending was devoted to early action, even though this could save money and lead to better outcomes.
The problem can only get worse, as demand continues to rise due to an ageing population, a growing epidemic of preventable mental and physical diseases and services that fail to prevent or resolve complex social problems. As the Office for Budget Responsibility concluded in its last Fiscal Sustainability report, public finances remain on an unsustainable course, longer term, despite planned cuts now.
A fundamental shift is needed to reduce demand and achieve sustainable finances. The Task Force advocates a 10 year investment strategy in early action which would reduce need as well as promote well-being and economic growth, helping people of all ages to contribute their best.
Short-termism is the real enemy of early action. A new ten-year government planning horizon would include a 'ten year test,' requiring public services to set out the impact over 10 years of spending decisions and the effect on other agencies. Within this 10 year perspective, firm 5-year budgets would be set in every spending review to aid planning, and these would be updated and rolled forward at 3 year intervals, so that budgets do not end on a cliff edge as governments change.
The report also recommends a separate budget for early action to protect it from being raided to fund 'current account' pressures, following the model of capital expenditure, which was also starved of investment until it was treated separately. A consistent definition of early action would be applied and, to prevent abuse, would be enforced by the Office of National Statistics.
New incentives as well as new investment are needed to find new ways to tackle social problems and reduce demand, often at local level, creating new alliances across agencies and sectors, as Community Budgets have done.
Getting new money is challenging but not impossible. A proportion of higher than expected economic growth could be devoted to increased investment. A one off tax on 'social polluters,' such as the alcohol, gambling and payday loan industries, might also help fund a £250 million Early Action Loan Fund to promote better working across different budgets. Incentives are currently weak for one body to invest when the savings fall to another. Local action to reduce social problems that increase national welfare costs might be a prime candidate. Social investment should help finance innovation and pilots. The solution longer term is to shift the total of government spending toward early and away from acute action, through 'transition plans' over the next 10 years.
External bodies should also promote “longer-termism.” Gordon Brown handed interest rates to the Bank of England. George Osborne gave fiscal forecasting to the Office for Budget Responsibility. The next Chancellor should create a new Office for Future Generations to report to the public on government performance in investing prudently in the future, as is already being done in Wales. The OBR should audit and help improve new ten year planning too.
Planning for the future will unlock investment to tackle the crises in demand that are staring politicians and public managers in the face today.
Caroline Slocock is a member of the Early Action Task Force, author of Toward Effective Prevention and director of Civil Exchange. She is a former senior policy adviser at the Treasury
