Public sector leaders did not learn much about what the future holds for them following the Pre-Budget Report or the Smarter government paper.
The chancellor added around 1% to planned total spending in 2011/12 and 2012/13, but the underlying spending trend was very much in line with the plans he had announced in the Budget in April. Those plans already implied (according to PwC estimates) an overall real cut in departmental spending limits of around 9% in the three years running up to 2013/14.
The reality for most public services is likely to be even tougher for two reasons. First, the protection announced by the chancellor for policing, health, schools, and international development means that other areas will have to be cut more sharply in order to keep within overall spending limits. Secondly, the debt markets will demand that the current budget deficit should be eliminated faster than waiting until 2017/18 as the government’s current plans imply.
PwC’s analysis suggests that this would require a further fiscal tightening of around 1.8% of GDP over the three-year period up to 2013/14. Spread evenly between tax rises and spending cuts this implies an additional real departmental spending decrease of around 4% cumulatively over this period.
So this was a pre-election PBR. Expect more fireworks in a post-election Budget – whatever the outcome of the election. In the meantime public sector leaders will be wise to spend the phoney war planning – and planning on the basis of worst-case spending assumptions, including in the areas that the government has said it will try to protect. This is the time to make sure that their organisations are on track to be as efficient as possible, but also the time to be doing some quiet thinking about how services can be scaled back when funding constraints bite.
Finally, the public sector will note wryly that the PBR contained one concrete measure that will help them contain costs, namely capping pay increases at 1% in 2011/12 and 2012/13 – which will probably mean a real-terms decrease. This measure, along with the announcements on pension contributions for public sector employees, and the impact of the increase in National Insurance contributions, means that they will be dealing with the consequences of the fiscal squeeze at the same time that it hits their personal pockets.
Jon Sibson is head of PricewaterhouseCooper’s government and public sector practice
