Cuts could plunge 200 bodies into financial distress, report warns

15 Oct 15

More than 200 frontline public sector organisations could be in “financial distress” by the end of the parliament due to planned funding cuts, an analysis by Deloitte and the think-tank Reform has found.

The organisations’ annual State of the State report found these organisations may need Whitehall intervention to help them cope with pressures on services.

Half of these are NHS trusts but distress signals are also evident in local government, police and further education organisations, the report found.

Mike Turley, public sector lead at Deloitte, said financial distress signals from a host of public sector watchdogs suggested a turbulent time ahead for public services.

“Some will require either support from others in their sector or financial support from central government,” he stated.

“Each of the UK’s central and devolved administrations need to be clear on the risk of financial failure in the public sector and plan for intervention.”

The report also found that the public sector faced a productivity challenge in order to “recalibrate” to lower spending levels.

Interviews with over 40 local public sector leaders highlighted service redesign is viewed as the dominant challenge for the next five years. They expect their own organisations to have retrenched into core, statutory activities by 2020, but with more cross-sector working and a broader mix of providers across services.

Reform director Andrew Haldenby said this was a new era for the UK state. “Public money will be tight for years to come,” he added. 

“The UK public sector will keep getting leaner, fitter and more productive.”

According to an analysis in the report, if debt interest payments continue to rise at the current rate, the government would be spending more on servicing debt than on public services within 20 years.

This exposes the UK to risk from further financial crises and interest rate changes, Turley added.

“The level of debt is also a burden on the taxpayer, debt interest this year alone is more than the government spends on policing and justice, and for future generations, a child born at the height of the financial crisis might still see this debt legacy on the government balance sheet into their adulthood.”

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