Politics vs Economics
Less than 24 hours since the Chancellor stood up in Parliament to announce his spending plans for 2015-16 much has already been written about both the style and content of his speech. Needless to say (and despite the Chancellors protestations this morning) this was a highly political speech with the upcoming general election firmly in view. Whoever wins in 2015 will undoubtedly inherit a very different public sector than existed in 2010.
When analyzing the content of the Chancellor’s statement much has been said about the extent of continued cuts to public service spending. But these levels of cuts were always going to be the case. The current position of our public finances would not allow for anything else. What is more there is little political contention about the need for cuts.
However, not all public services were cut. Certainly not in equal measure. We can perhaps learn more from what the Chancellor chose to (in relative terms) protect as we can from those things he chose to cut.
In terms of departmental spending international development once again comes out well with a 7.8% increase. Of this is due to international commitments to 0.7% of Gross National Income (GNI). The other big winner is the Single Intelligence Account which goes towards the intelligence services where there is a 3.4% increase. There is also to be a new £1 billion Conflict, Stability and Security Fund under the National Security Council. Finally there is to be £210 million investment in the National Cyber Security Programme (NCSP). In other measures there is to be no further cuts in the number of armed forces personnel and they are to be protected against any changes to progression pay.
The NHS is also relatively well protected with the Department for Health receiving a 1.9% increase. Although, the administrative budget for the NHS has been cut by over £1bn (a 27.3% cut in administrative costs). Interestingly the government has set aside significant funds to support further transformation in the way our health and social care services are provided. A £3.8bn budget has been allocated to support more integrated health and social services for older and disabled people. They have also ring-fenced £350mn of capital funding for projects to improve local integration including the sharing of patient data between the NHS and local authorities.
Finally the government has protected the elderly from much of the impact of the cuts. Of particular significance the state pension has been excluded from the new welfare spending cap. Given the ageing population and the pressure this will potentially place on public finances in the future this is an interesting move. The Warm Home Discount will provide £320m for discounts on electricity bills to the least well-off pensioners. The Department for Work and Pensions budget has been cut by 8.8% but most of these cuts will be from the administrative budget which has been cut by 20.3%.
Perhaps the most significant loser in all these cuts is the very group who are charged with implementing these changes – public service workers. Departmental administration budgets have been cut by a further £1.9bn. This means that most departments will have had a total reduction of 40%-50% in the six years from 2010-2016. Pay increases have once again been limited to 1% and automatic progression pay will be abolished in the civil service by 2015-16. It will also be abolished for teachers, become non-contractual and linked to performance for prison officers and also significantly reformed in the health service and police service.
This is particularly the case in local government which has already lost 32,000 posts in the last quarter of 2012 alone. The Department for Communities and Local Government faces a 28.3% cut in their total departmental budget although much of this is partially offset through capital investment commitments. The local government budget is cut by a further 2.3%. Bodies such as sports and arts organisations, that have previously been reliant on local government support, are likely to face very difficult times particularly given wider cuts to arts and sports funding. The use of charitable trusts, local government charging and National Lottery funding as ways to stymie the impact of these significant cuts. Even at this it is hard to see how local government will continue to deliver their statutory obligations in the context of these additional cuts.
Whether or not all these changes can be implemented by 2015 remains to be seen. However, the statement of intent is clear. With a further 144,000 public sector jobs to go by 2015-16 the government is radically altering the nature of the UK economy. It is important to remember that public sector pay is already low. Yes, average pay in the public sector is higher than in the private sector. But this negates the fact that public service workers do not do the same work. In fact public service workers are disproportionately employed in professional roles such as doctors, nurses and teachers. When comparing like-with-like the reality appears much more stark. Take, for example, that those with a degree-level qualification get paid 4.1% less in the public sector than in the private sector.
These public sector professionals are now faced with the challenge of meeting government targets for cuts and efficiencies at the same time as continuing to deliver vital public services. No wonder nurses, teachers and carers are among the most stressed workers. Public service jobs are already tough as I have blogged about here and here. This is about to get even tougher. For employers the challenge will be to continue to attract, train and retain skilled public service workers in the face of such adversity.