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Through a glass, lightly

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By Tony Travers

18 November 2010

Should the public sector start drowning its sorrows as the cuts kick in? Doom merchants certainly seem to think so. But perhaps in reality the glass is half full and not half empty. Tony Travers finds some reasons to be cheerful

A noisy running debate about ‘the cuts’ was inevitable once the Conservative/Liberal Democrat government decided to eradicate the UK’s budget deficit by the middle of the decade. With the Comprehensive Spending Review now behind us, councils, public bodies and the media are beginning to think through the impact of expenditure reductions in 2011/12 and beyond.

Reactions range from stunned disbelief to resigned acceptance. In private, some senior officials in councils, the NHS, the police and education talk in ‘I can’t believe this will ever happen’ terms. Others appear glumly at ease with their fate. A few are clearly exhilarated by the scale of the challenge.

Things might be very bad, or it might be that the scale of the expected effects is exaggerated. Is the glass half full or half empty? We will only know the answer to this question in 2015, or possibly earlier if the government is forced (as some believe will happen) into a humiliating U-turn by the public reaction to the spending cuts. Only time will tell whether last week’s riot outside the Conservatives’ headquarters in London is an indicator of what lies ahead.

Six months of continuous woe and gloom about the future of public expenditure has, without doubt, had an effect on the state of politics. The government has piled on the agony from the moment it took office, making sure that every benefit cut, tax rise and spending reduction is lovingly leaked, solemnly announced and then politically fought over. Commentators have helped this process by speaking of ‘the worst cuts since the 1920s’. Despite the fact that the government’s deficit has miraculously come down and Britain’s credit rating goes from strength to strength, the need for a war footing has remained firmly signalled.

Lobby groups, think-tanks and the ­Opposition have been pumping out horror stories about the impact of the cuts on more or less every aspect of government activity. The list of potentially damaged groups, services and places is ­extraordinary, embracing benefit ­recipients, the arts, the ‘squeezed middle’, elderly people, affluent child benefit households, the North, the NHS, inner cities, young people, public sector workers, the armed forces, poor people, highway maintenance, business support, further education, adult care, Scotland, the private sector, social housing, universities, Wales, further education, local government, children’s services, prisons, the Midlands, the police, regional development, students, the diplomatic service, street lighting, women, libraries, science, London, planning, infrastructure investment, schools, aircraft carriers, street cleaning, funding for voluntary organisations, concessionary fares, Northern Ireland, bus services, the courts, Whitehall departments, Trident, tax collection, the fire brigade and the BBC.

An unlucky centipede would be ­unlikely to boast this many bleeding stumps. Moreover, all the lobbying by the various interests might have played into the government’s hands. At every stage of the coalition war strategy, the government has wanted to overplay the grimness of what lies ahead. Blood, toil, tears and sweat indeed. Thus for several months we faced threatened ‘25%–40% departmental cuts’ which, in the Spending ­Review, actually averaged 19%.

Subsequently, the sighs of relief in some parts of the public sector have been palpable, even though Chancellor George Osborne actually promised the longest and deepest period of public spending constraint since 1945. As everything is judged against expectations, the worse the government can ramp up the expected pain, the easier it is for ministers to get away with what are truly very big cuts.
London Mayor Boris Johnson and US President Barack Obama clearly demonstrate the importance of expectations. When the former was campaigning to be mayor, his opponents attempted to portray him as stupid, incompetent and nasty. Immediately after he was elected, expectations were balefully low. Subsequently Johnson has shown himself to be a social liberal, defender of London’s rail investments and champion of the losers from Prime Minister David Cameron’s housing benefit reforms. The capital’s cycle hire scheme (‘Boris Bikes’) will forever bear his name. Compared with expectations, London’s second mayor has proved a near triumph.

Obama, on the other hand, was afforded unquestioning faith and loyalty from liberals across the planet. He was seen as the man to put an end to his predecessor George Bush’s dreadful wars, to right the wrongs of racism, to revive the US economy and, if things went really well, to turn the US into Utopia. He was given a Nobel Prize almost immediately after ­taking office.
Against this exaggerated backdrop of hope, the poor man would inevitably be judged to fail, as indeed he has.

These examples of the need to manage expectations link back to the government’s public spending gloom-fest, which has been lovingly escalated by the media since May. The stories of public service slash and burn to come will doubtless have gone a long way towards convincing the electorate that very bad things will indeed happen over the next four years. If, however, public services do not collapse and voters are surprised by the extent of the provision that remains in 2015, the main beneficiaries will be the coalition.

A number of councils, seeing that their cuts are frontloaded, have begun publicising the kind of service reductions that could take place once next April’s budgets are set. Housing repairs might be halted, street lights switched off, entitlement to care curtailed and bins emptied less frequently. Charges might be increased for parking, licensing, social services and planning. As with the Spending Review, the media have generally reported the ‘worst’ end of any ranges of possible impact. While it is possible that some authorities will allow their streets to pile high with rubbish, it is extremely unlikely.
Most councils and other public service providers are faced with a dilemma. Should they work tirelessly to minimise the effects of the government’s centrally imposed cuts or should they make deliberately awkward service cuts and thus force the government to face the ­consequences of its deficit reduction policies?

In reality, few public bodies will do anything other than attempt to minimise the impact on the public. There will be plenty of (legitimate) political efforts to ensure the government is seen to be to blame. But overwhelmingly, services will be protected wherever possible.

However the extraordinary years from 2011 to 2015 affect the public sector, we can be sure that councils, hospitals, schools, police commissioners, fire chief officers, planners and GPs will all act to limit the impact on service users. Many providers will come up with revolutionary ways of cutting costs and re-casting services. Recruitment and pay freezes are already in place, as are halts to some capital programmes. Councils and other providers are rapidly exploring the possibilities of joint provision, possibly with joint departments and officers. Local authorities are forming procurement consortiums. Many service providers will bring in contractors in the hope of ­improving efficiency.
Finally, it is almost inevitable that some services will either be stopped or transferred to voluntary providers. Special constables, volunteer library and museum staff, parents and helpers of various kinds will be embraced so as to fill in the space left by full-time officials. Whether or not this move to voluntarism is called the ‘Big Society’, it will shift the boundaries ­between the state and the private sector.

Officials and politicians who must now face this upheaval will, in most cases, find it exhilarating and challenging – even if they oppose everything the government is doing.

Thus, not only is the likely ‘worst case scenario’ possibly being accidentally over-promoted, but those who provide services will be working flat out to minimise the effects on the weak and needy.
As a result, there must be a chance that the public will, by 2013 or 2014, feel that things are not as bad as expected. Most street lights will still be on, schools and hospitals will still be open and bins will still be emptied. ‘Localism’ might have ­allowed councils significantly greater freedom to use an array of local budgets to provide consistent and cheaper services.

The government might also be helped by the economy. If the forecasters are correct and overall growth in gross domestic product returns to its 2%–2.5% trend, there will be new private sector jobs to replace the lost government ones. It is also just possible that the impact of public sector job losses will prove to have been pessimistic. Most of the losses will be because of retirements and voluntary redundancy – very different from some of the media stories of ‘600,000 redundancies’.

Of course, things might prove to be as bad as the very worst forecasts and projections have suggested. There might be massive service cuts and many redundancies. Street protests and strikes might be the norm by 2012. The Cameron-­Osborne-Clegg government might be languishing in the polls and Labour might dominate the argument against the cuts. But early evidence (and it is still only six months into the Parliament) suggests that, on balance, the public understands the need for spending reductions and that they strongly support reforms to the benefit system.

The Labour Party has an awkward ­position in all this. Whether fair or not, it will be relentlessly blamed for the financial ‘mess’ it left the country in. Privately, many Labour MPs admire the decisiveness and vigour of the coalition and wish the previous government had had more gumption. There is also some private support within the Opposition for elements of welfare reform, for rationalising defence and for cutting the deficit. Worse still, it is possible that by ramping up the threat posed by every spending cut, they are making it easier for the ­Tories and LibDems by lowering the public’s longer-term expectations. It is clear why most Labour frontbenchers have been keeping quiet.

There can be no doubt that this, the final weekly edition of Public Finance, coincides with the most threatening, challenging and yet exciting moment in the British public sector’s recent history. Nothing since, probably, the Second World War has seen such sudden mobilisation of the public sector and such a need for radical change. Mrs Thatcher’s actions were timid by comparison with what now lies ahead.

The monthly version of PF, supported by its hour-by-hour electronic twin, will chronicle the many outcomes (intended or otherwise) of the policy reforms the government has so swiftly enacted. The debate about the cuts and the future of the state has now begun in earnest.

Tony Travers is the director of the Greater London Group at the London School of Economics


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