Tuesday, 13 July 2010

UK public spending cuts: Good news, bad news

Yesterday evening I was interviewed on BBC Midlands Today on the current UK spending cuts, which are dominating the local news headlines, as budgets are cut daily for social care, schools, etc. As usual, it was not possible to say what I really wanted to say – the questions were narrow and my reactions were too slow to bend them to my message!

So my core argument didn’t get across – there’s good news and bad news about the cuts so far. And no political party is spelling out what is really going on.

The bad news is pretty clear. Overall, the current estimate is that the ringfencing of health and overseas aid, plus the ‘protection’ afforded to education and defence, means the average expenditure cuts in the rest of public services will amount to around 33-35% over the next five years. This is savage and not remotely possible without affecting frontline service staffing. The level of consequent unemployment of public service staff will be at least 600,000, possibly nearer 1m.

What will this mean for service users? First, a lot more people will be told they are not eligible for a service, where public agencies can exclude them– eligibility criteria will be drawn much tighter. If you are eligible, you will have to wait longer, you’ll get less service, it will be delivered by less experienced and trained staff and you will have less choice (if any) in what type of service is available to you. If you try to book an appointment (e.g. with a doctor or a social care worker), you’ll have to wait for it, it may well be cancelled before it happens and you’re unlikely to see the same professional staff as the last time.

Of course, you may well be able to turn from the Big State to get some help from the Big Society. But there’s likely to be bad news there, too. The recession has increased the number of people volunteering to help out others – but reduced the capacity of third sector organisations to use them productively, because they too are short of funds to organise themselves.

So, some tips:

• Don’t get ill (just protecting NHS spend won’t be enough to provide the likely number of future users with current service quality levels).
• Don’t let anyone you depend on for support get ill (or leave the neighbourhood).
• Be (VERY) nice to your neighbours (you may be needing them a lot more in future).
• Start saving – if you need any public service in the future, you may well not be able to get it or you may have to pay a large part of it when you do get it.
• If you’re young, start learning a foreign language (you may need to go abroad if you want a public sector job in the future – or a public service).
• Take up ‘easy access’ leisure activities like walking and birdwatching – anything that requires public sector provision, like swimming or sports centres, may be too expensive for you or too far away from you in the future.

It’s a pity that the coalition government parties don’t want to talk about these inevitable consequences of their decisions. The new era of ‘transparency’ is being spun as fast as the previous era of ‘transformation’.

But there is some good news as well. The first is that the cuts are possible – the number of public sector employees who are due to retire in the next five years is huge. This means that the spending plans can indeed be implemented and at relatively little cost (at least, compared to redundancy payments – of course, this will hit the public sector pensions bill but that would have happened anyway, irrespective of this round of cuts).

Second, we have just emerged from a period of higher public investment on capital than at any time in UK history (both in terms of money spent and in terms of spend as a proportion of GDP). This is particularly evident in the new schools and hospitals all over the country. This will mean that quality in services where the budget has been cut will not be so badly savaged as it would have been in the past – at least the service buildings and equipment are now in tiptop shape, at last putting right the damage from the 1976 IMF cuts and the abandonment of public service infrastructure in the Thatcher-Major era.

Third, not all the cuts in staffing will mean that services will be worse in ways which matter to users. We’ve slowly come to realise, particularly as a result of the Best Value regime in local government ten years ago and the ‘transformation’ agenda of the last five years, that the way we do local public services is probably NOT the best way. Many of the changes in the next few years will be for the better - e.g. social media will make access to services much easier and revolutionise understanding of how to get the most out of them. However, we don’t know which ones will be positively affected in this way – for most public services there is still no consensus on how to reconfigure them to improve them. Many of the changes in the next few years are likely to turn out to be blind alleys – at best, not leading to improvement and, at worst, making services significantly worse.

This applies both to ‘traditional’ public services – those that continue to be delivered by the professionalised public service providers – and also to the ‘co-produced’ services which in future will become the joint responsibility of public service agencies, service users and other members of the community. While the coalition is placing huge hope in the potential for the Big Society to mop up the service needs which will no longer be covered by public spending, the truth is uncomfortable – all our research indicates that the public sector (managers and staff) does not understand co-production, that professional public service staff are reluctant to get involved in it, are largely clueless on how to stimulate it and are poorly prepared to manage it systematically. Moreover, the public is likely to be given the message that they are being sold short by being palmed off with second-rate, non-professional services.

Funnily enough, the Labour party hasn’t been talking much about these ‘good news’ items. Maybe that’s because it wants to exaggerate the damage done to public sector jobs by the cuts, is embarrassed by rather than proud of its capital spending record in government and nervous about attacking public sector workers for the way they coldshoulder co-production. This is a pity, as Labour can only prepare for future government if they recognise the realities faced by the current and immediately previous governments.

Unfortunately, each of the ‘good news’ items has a sting in the tail. The early retirement of a huge part of the public service workforce will leave most public services to be delivered by relatively inexperienced staff and managers in agencies with seriously depleted organisational memories. The huge Noughties capital spending programme is being terminated early, leaving at least 20% of the high need schools, hospitals, transport and housing projects high and dry, so that some areas of the country will be massively disadvantaged for the next five years, compared to their luckier neighbours. And the big gains which will come from reconfiguring public services in intelligent and imaginative ways will be offset by the damage done by the precipitate speed with which the programme is being rushed through - too soon to find out what works, so that service changes imposed in a panic will cause pain for years and over a wide area, even when it’s quickly apparent that they are truly dumb.

Of course, there is still the battlecry from the coalition government that radical spending cuts are needed soon. We have to ask: “Really? Whatever damage they do?” That is hardly a rational approach.

Rather, we need to weigh up the pros and cons of radical and rapid spending cuts. We have on one side of the balance the avoidance of the high interest costs which would arise from a longer period of high debt levels (substantial, but not crippling) and the risk of a UK credit rating downgrade (very low).

On the other side of the balance, there is the major damage done to the quality of life of much of the UK population over the next five years, particularly those most vulnerable. In addition, there is the danger of a double-dip recession, which even the Office of Budget Responsibility has admitted has been increased by the government’s emergency budget.

There are red herrings to throw out of the scales entirely – e.g. the argument which has recently reappeared (though it was hardly voiced during the election campaign) that public sector spending crowds out private sector investment and production. This hoary old non-sequitur will surely not confuse as many people in 2010 as it did in the heady Bacon-and-Eltis days of 1976. Again, there is the argument that the debt will ‘crush future generations’ – the ‘one hand clapping’ argument which I’ve written about in this blog previously, which ignores the fact that public sector assets cover a large proportion of the debt and, as the economy recovers, will reflate fast in value and reduce the net debt value. Not to mention the fact that it is largely public spending which has stabilised housing values and reflated the stock UK market by 40% since the bottom of the recession and has therefore been responsible for a huge increase in the value of private wealth (corporate wealth and household pensions), far from ‘crowding out’ the private sector.

So, the verdict is very simple – the bad news outweighs the good news. These UK public spending cuts are too much, too soon, too fast.