The Spending Review provides opportunities for greater efficiency

28 Feb 19

The Treasury could use the Spending Review to ensure public money is spent as efficiently as possible, says consultant Clive Sparrow. 

money
 

This year should see a government Spending Review set the shape of public services into the 2020s.

The first such detailed review for four years and one of most important policy questions facing the government this year.

Unfortunately, the 2019 Spending Review looks like becoming another casualty of Brexit uncertainty.

At this late stage, there is a complete lack of clarity about how HM Treasury will run their negotiations with Whitehall departments.

The chancellor has yet to confirm:

  • When the Spending Review is going to start or finish
  • What the overall spending envelope is going to be
  • Whether the review will offer a one, three or five-year plan for public spending.

The Spring Statement on 13 March will be a logical time to provide clarity and for the chancellor to set the overall spending envelope.

Given the uncertainty around Brexit, however, this is unlikely to happen.

And there is a possibility that the 2019 Spending Review will eventually turn out to be a one-year budget, providing no guidance on medium-term funding.

This would be disappointing because it prevents public services from the kind of strategic planning they need to make the most of their funding.

The government has talked about the era of austerity coming to an end.

However, once we strip out the fact that more money is already pledged to the NHS, there are commitments to overseas aid spending and to the defence budget, in order to maintain per capita real terms spending on the other unprotected areas of public services, the chancellor will likely need to find at least £5bn by 2023-24 to bridge the spending gap.

Even though there is little clarity around the 2019 Spending Review, Whitehall departments should surely be looking now in earnest for genuine productivity improvements to bridge this spending gap - as the alternative to raising taxes or continuing austerity.

There is scope for significant further efficiency gains because throughout the period of austerity since 2010 so-called efficiencies have been achieved mainly by smoke and mirrors, namely:

  • Holding down pay
  • Cutting staff numbers without knowing the implications
  • Asking people to do more
  • Increasing user contributions, whether in time (e.g. increased us of library volunteers) or asking users to pay more (e.g. in civil courts, waste collection, planning).

In other words, so-called efficiencies have been generated by “doing more of the same” rather than through reform. This is evidenced by signs of strain and emerging pressures in public services:

  • Declining quality (eg rising violence in prisons)
  • Concerns about sustainability of private provider market (e.g. evidence of councils paying below the cost of adult residential care)
  • Difficulties in recruiting and retaining high-quality staff
  • Declining pay satisfaction
  • Rising rates of long-term sickness
  • A growing tendency to overspend budgets in some services.

In summary, although public sector efficiency has apparently been increasing since 2010, “doing things differently” is unfortunately the exception rather than rule.

An approach that continues to be characterised mainly by “doing more of the same” is no longer sustainable. The strain and emerging pressures cannot continue.

Therefore, the delivery of efficiency gains now needs to change radically. The search should cover the entire process of turning public money into positive outcomes for individuals and society: it must not just mean reducing spend. It means delivering better outcomes and more effective government, while using public money in the smartest way possible.

The 2019 Spending Review must concentrate on new ways of working, trying genuinely to do more with less in part by connecting public spending more explicitly with what public bodies are trying to achieve for citizens.

Spending decisions should be shaped by the performance of services and the outcomes sought, rather than by departmental allocations.

The challenge is: can the Treasury break out of traditional departmental allocations and instead ensure that public money is well spent, that it secures outcomes.

This means constructively supporting and challenging every part of Whitehall: answering questions like can we purchase inputs at a lower cost without affecting quality? Can we produce more outputs for the resources we’re putting in? Are we doing the right things? Does this policy really work?

The aim should be to help Whitehall better understand across departmental boundaries the efficiency of public services, activities and programmes; and recognise where and how they might be improved.

Significant scope remains for efficiency improvement over the medium-term: in particular, through service redesign, the use of markets and competition and the use of new technology and data.  

HM Treasury should not use short-term uncertainties around the 2019 Spending Review as an excuse for delaying progress in meeting this challenge.

  • Clive Sparrow

    a non-executive director of the Central London Community Healthcare NHS Trust and an independent adviser on business transformation and performance improvement.

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