21 March 2008
Tucked away in last week's Budget documentation was the announcement that the government intends to set up a Public Value Programme, intended to ensure more bang for the taxpayer's buck.
A good thing, too, many petrolheads and bon viveurs will think, as they find themselves paying more for their pleasures.
But for the public sector this latest initiative, which Chancellor Alistair Darling mentioned in the briefest possible terms in his statement to MPs, was a clear signal that a whole new front is about to open up in the government's war on waste.
Public sector bodies hoping for a respite after a period of major belt-tightening will be disappointed. Having already delivered £23bn of savings under the Gershon programme, and with a further £30bn about to bite in the 2008–2011 spending round, they will now have to start planning for more all the way to 2013.
A cursory glance at the latest public finances outlined by the chancellor makes it clear why. Darling was forced to cut his growth forecast to 2.25% and increase projections for borrowing to £43bn in 2008/09 – on average some £5bn more than the projections in October's Pre-Budget Report for the next four years.
Consequently, Darling now predicts public sector net debt will rise to 39.8% of gross domestic product in 2010/11, dangerously close to the 40% limit stipulated by the Treasury's sustainable investment rule.
He also pencilled in annual spending growth of 1.9% from 2011 – even lower than the 2.2% for 2008–11 that has provoked so much complaint.
The respected independent think-tank the Institute for Fiscal Studies lost no time in warning that Darling's new figures were based on a 'highly optimistic' view of the impact of the current credit crunch on tax receipts. In particular, it drew attention to his spending plans for the 20011/12 and 2012/13 financial years.
Darling has decided to tighten the public finances by restricting spending by a further £12bn and increasing taxes by an extra £9bn over that period. This will help the chancellor close the overall gap between receipts and spending of around £7.5bn a year – which was first highlighted by the IFS in its Green Budget in January.
But Darling's fiscal projections, under which he just manages to balance the books and stay within the fiscal rules, are on shaky foundations and are likely to come tumbling down if the economy's performance does not accord with his rather rosy view.
IFS director Robert Chote argues that we have been here before. 'There is a danger that we are seeing the history of Labour's second term repeating itself,' he says. 'Gordon Brown insisted repeatedly after his forecasts began to go awry in 2002 that there was no problem with the public finances – but as soon as the 2005 election was won he announced a spending squeeze and introduced a series of tax-raising Budgets.'
No wonder another round of efficiency savings is on the menu. The Budget documents say the Public Value Programme will 'look at major areas of public spending and find smarter ways of doing business. Initial areas identified for investigation include road building, commissioning in the health sector, regeneration spending and public sector IT projects.'
The PVP will be overseen by Yvette Cooper, chief secretary to the Treasury, who will set out plans in the summer for cuts in administration and back-office costs. Targets for 2011 and beyond will be included in Budget 2009. Details of the programme are sketchy, but early indications are that it will be significantly broader in scope than Gershon and will scrutinise at a nuts-and-bolts level how government departments and the wider public sector spend their money.
News of 'grandson of Gershon' has already unsettled some in the sector, but Treasury minister Jane Kennedy has offered only a few crumbs of comfort. Speaking at a Budget breakfast meeting held by the New Statesman on March 13, she said: 'We have been absolutely committed to reforming the public sector as we need to make sure that if we're going to be investing in public services we're going to be providing the best public services. The sector has to be willing to open itself up to be measured against the best of the private sector.'
And she made it clear that it is not just ancillary services in the frame. Instead, Kennedy argued, market testing needed to be applied to services 'end to end' to see how they measure up. 'Our whole agenda going forward is to continue that analysis and scrutiny,' she added.
Brendan Barber, general secretary of the Trades Union Congress, criticised what he called 'an additional round of operational cuts' to be introduced from 2011. He argued that these were being pursued because ministers would not face down the business sector's demands for tax cuts.
'The government still has an ideological preference for private sector delivery of public services, thus feeding the anti-public service prejudice used to undermine the real achievements made possible over the past ten years by new funding and a committed workforce,' Barber claimed.
'It must ensure that they [public services] are properly funded and value the work of public servants, and abandon this relentless round of arbitrary cuts and targets.'
In truth, precisely what the Treasury has in mind remains unclear. But the announcement – also in the Budget – of a move to expand the range of procurement models used for public sector projects might provide a clue.
The aim is to inject greater flexibility into the process, and to harness the benefits of the Private Finance Initiative while reducing the associated costs by developing new forms of public-private partnerships.
Models that will be explored further include an 'integrator' structure to manage the procurement of projects whose exact requirements are difficult to pin down at the outset. Other approaches, such as schemes where a private contractor builds a facility at its own risk but a public body picks up part of the capital tab if it uses it, will also be developed.
A consultation document Infrastructure procurement: delivering long-term value, sets out the government's intentions and explicitly links this programme to the drive for greater value for money.
A Treasury spokesman confirmed to Public Finance that the two initiatives should be seen as part of the same savings drive. 'Quite clearly, we will be looking at savings to be achieved in both administration and operational budgets. It doesn't stop at targets and measurements, we're trying to look at what the right structures and incentives are to promote efficiency.'
Chote believes more wide-ranging measures are needed to fix a problem that requires more than just another efficiency drive. But with an election in two years he is not confident that remedial action will be taken any time soon.
'If the 2008 Budget was not a good time to deal fully with the underlying weakness of the public finances, it seems unlikely that next year's will be either. If there is a fiscal repair job to be done, Darling and Brown may be leaving it until after polling day,' he says.
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