Austerity is dead, long live reform?

9 October 2018
By Andrew Haldenby
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This year’s Conservative Party conference turned on the “end of austerity” as promised by the Prime Minister.  What does this mean for the Government’s policies on public services for the rest of this Parliament?

Reform’s annual publication with Deloitte, The State of the State, is launched today and, as every year, has helpful information to bring to bear on this question.

Public mood changes on “austerity”

The State of the State confirms the medium term shift in public opinion, away  from “austerity”, which other polls have picked up. The report’s Figure 12, below, shows how support for higher taxes, to pay for “extended” public services, has risen over the last nine years.

State of the State figure 12: shift in attitudes to tax and spending
State of the State report figure 12: shift in attitudes to tax and spending

Theresa May: new priorities for public spending announced?

No doubt this was in the Prime Minister’s mind when she said, “the British people need to know that the end is in sight. And our message to them must be this: we get it …. a decade after the financial crash, people need to know that the austerity it led to is over and that their hard work has paid off.”

In her speech, she highlighted three aspects of austerity: frozen public sector pay, “local services” that had to do more with less, and “families” that felt the squeeze. This is probably a very good clue to what the Prime Minister wants to do in simple terms: increase public sector pay, increase spending on local government and increase take-home pay.  (NB that last hope involves policy areas other than public services.)

Austerity is dead, long live reform?

The bigger question is to how the Government can combine increases in public spending with a new focus on outcomes and productivity, coupled with (where necessary) the changes needed to achieve it.

The austerity period certainly saw spending reduced too sharply in some public services.  They would include social care and prisons. The Reform / Deloitte reports have consistently reported, however, that “austerity” did have one positive outcome.  It concentrated minds and gave public services leaders every encouragement to take decisions, sometimes long overdue, that aimed to improve services while reducing costs.

The Treasury’s challenge at the Spending Review next year is to keep that focus on productivity together with more generous budgets.  Public sector leaders, interviewed for the new State of the State report, provide a lot of ideas to do just that.  They include a much greater use of technology, a better understanding of how different public services work together, and also a focus on how public services can help foster local economic growth.

A new vision of high-performing public services

The main lesson of the last period of major public spending increases, under Tony Blair and Gordon Brown, is that extra spending is not enough.  Lord (Ara) Darzi, a Health Minister at the time, has since said that the Government needed a clearer vision of the public services that it was seeking to build. On the NHS, he concluded that the Service was certainly better for the extra money it received.  It had not, however, used the money to update itself for the new challenges that it was about to face (broadly, to shift to an agenda of prevention rather than funding an ever larger hospital sector).  As he said:

“In the last 10 years, the injection of money did a lot of good. There was a huge amount of progress, fantastic outputs and outcomes. But we missed the best opportunity in the history of the NHS to actually reform it. We just threw money at it, rather than actually reforming it.”

The current Government will have to do better. At the conference, Matthew Hancock rightly spoke about the role of new technology in healthcare, but did not set out his thinking on the deeper questions that Ara Darzi mentioned. Equally, Damian Hinds did not set out his vision of the future of the school system given that Ministers no longer wish every school to be an academy.  David Gauke gave a stronger speech, setting out a coherent plan to improve rehabilitation through an end to short custodial sentences and a number of new ideas to improve prisoner education and training.

To be fair to the Cabinet, the confusion over the shape of Brexit will have dominated nearly all their thinking in 2018. That confusion should be reduced within weeks.  Ministers’ headspace will return.  The 2019 Spending Review is the chance for Theresa May to set out her vision for high-performing services, delivering value for the extra resources which she will give them.