It is clearly good news that the UK economy has finally emerged from recession – albeit only just. At the same time, there must be some trepidation among those working in the public sector that the starting gun has been fired on a public sector recession that is likely to last for several years. It is now only a matter of time before we are faced with the deepest and most prolonged cuts in public expenditure that anyone can remember.
The apparent fragility of the recovery raises an important question for whichever party wins the forthcoming election: should cuts in public spending be deferred until the green shoots have time to grow more vigorously, or does the government need to demonstrate quickly to the financial markets that it is serious about reducing the structural deficit in order to restore confidence in its management of the economy?
In practice, the difference between the two positions is not all that great. An incoming Conservative government would hold an emergency budget immediately after the election, in May or June 2010, whereas the Labour government has indicated that it would stick with current spending plans until April 2011. But whether they begin in four or 14 months’ time, the cuts are certainly coming.
There are already signs that public sector bodies are starting to feel the pain. A few may even run into deficit in the current financial year. Now is the time to draw up clear and radical plans to reduce costs and to identify the priority front-line services that should be protected. By definition that means identifying those services that are of lower priority and must be scaled back or terminated altogether.
Options that need to be seriously addressed include: cutting back on discretionary spend; reducing the pay bill, whether through a pay freeze or headcount reductions, or both; consolidating operations to improve efficiency and release property and other assets for disposal; and reconfiguring service delivery in order to reduce costs while maintaining quality.
Some of this can be achieved quickly, but many of the changes that are needed will require careful planning. The important message from today’s news about the economy is this: there is no time to lose. Plans need to be made now, so that the public sector is ready to respond immediately, whenever the incoming government decides it is time for the axe to fall.
Alan Downey is head of public sector at KPMG
