Where now for public services?

UK politicians need to recognise that economic growth will not return to 'normal' in the foreseeable future. As a result, we need to think radically about how public services can be managed and funded

The 2013 CIPFA conference has the title 'Beyond Austerity'. At first glance this seems strange, as it appears to suggest austerity is now over and we are ready to move to sunlit lands. The truth couldn’t be more different.

In 2009 I gave my inaugural professorial lecture at Nottingham Business School entitled 'Where now for public services'. The main thrust of the lecture was the future of public services, in the UK and internationally, at the beginning of an era which we now term financial austerity. I emphasised that we should be cautious about any idea that the UK economy would return to normal (ie 2-3% economic growth per annum) in the short term and we should think in terms of how we should organise and deliver public services in an era of limited or nil growth in resources.

This would require consideration of matters such as:

• the role and limits of the state in the provision of public services;
• individual and collective responsibilities in relation to public services;
• the relative priorities for public service provision;
• how public services should be paid for;
• the balance between the use of incentives and greater authoritarianism in public policy;
• how the public sector should be organised and governed;
• and the role of the private sector in future public service provision

In 2010 the coalition government came to power with its primary objective of eliminating the public budget deficit by a combination of tax increases, public expenditure reductions and economic growth. Well, of course, we all know it hasn’t turned out like this.

The UK economy hasn’t returned to 'normal' and the annual public budget deficit is still large. While the government has reduced the deficit somewhat it will be nowhere near its objective of eliminating the deficit in the lifetime of this Parliament. While we have had large-scale reductions in public expenditure in some areas (especially local government), we have seen increases in public expenditure in other areas.

Although there has been much pain and suffering, especially by those who have lost jobs,  the broad landscape of public services is broadly unchanged.  A bit less here and a bit more there but nothing too radical that will upset the electorate.

Every one of the repeated statements from the Chancellor since 2010 (in the various Budgets, Spending Reviews and Autumn Statements that have taken place) have largely followed a similar pattern and give out the following two main messages.

• we are making progress in cutting the deficit and we must stick to it;
• economic growth forecasts have had to be reduced downwards, but growth will return to normal in a couple of years

On 26 June the Chancellor will announce the findings of his latest Spending Review, which will just cover the year 2015/16. What we can be certain about is that it will announce that:

• financial austerity will continue;
• further large-scale reductions will take place in public spending in some areas;
• there will be no material changes to the landscape of public services, but there may be spin to suggest that such changes will take place in a painless manner (eg the odd merger of a couple of government agencies);
• economic growth will return to normal in a couple of years

As in 2009, I strongly suggest this is just not going to happen either in the UK or in Europe. We start from a position of stagnant economic growth and massive public and private debt. Private and business confidence is at rock bottom. We are sitting on top of a massive asset bubble that will burst and send more shockwaves throughout the financial system. The situation in the eurozone is still very dangerous even though the crisis might have been stilled for a while.

I still believe that 'normal' economic growth will not come to the rescue and we had better start getting used to the situation that we will be living in an era of nil or small (ie less than 1% per annum) economic growth for the foreseeable future.  We need to recognise that this is an historical turning point that destroys the post-war political consensus on the welfare state and is the end of the upwards march of economic growth (at least in Europe).

It therefore follows that we need to start thinking seriously about how public services can be funded and managed in such an economic environment so different from the past. Things to consider include:

• are there situations where the state can withdraw from delivering and/or funding certain activities and leave it to private individuals (eg leisure, culture and sport)?
• are there universal public services that should be converted to targeted services, whether that targeting be in terms of need, income etc?
• to make certain public services (eg preventative services) more effective, does the state need to become more authoritarian (eg does it make sense for planning law to allow a fast food restaurant to be built adjacent to a school full of obese pupils)?
• do we need to significantly extend the charging regime for public services (eg waste disposal)?
• should the NHS be financed by a newly introduced and compulsory health insurance scheme with individuals given a choice about insurer (public or private)?

The problem with this, of course, is that all of these will be incredibly unpopular with the general public who have been conditioned to believe that things will be back to 'normal' in a year or two.

Throughout Europe, electorates have clearly rejected austerity parties in preference to those who promise more public spending. Hence, they are politically toxic and will be ignored by all UK politicians. Maybe this is why so many people voted for Ukip in last week's local elections.