The State of the State 2013


Reform and Deloitte LLP have launched The State of the State 2013. Now in its second year, this annual report aims to provide independent analysis of the UK public sector. The publication brings together data from a range of public sources, including the Whole of Government Accounts, Budget and the Public Expenditure Statistical Analyses.

Government as we used to know it is unaffordable

Under pressure from the global financial crisis, government as we knew it became unaffordable. Demand for public spending will continue to grow because of our ageing society. So while the Coalition Government’s fiscal consolidation programme is reducing public spending in the short term, demand on health, long-term care and pension spending will force it back up again unless the depth of spending cuts are matched by equally deep reform. According to the UK’s official fiscal watchdog, current patterns of demand and supply would require public spending to rise by four per cent of GDP by the time today’s 30 year olds are 80. That is £61 billion at today’s prices.

Sustainable public services will require deeper reform

The State of the State suggests that the Coalition Government has taken some bold and unprecedented steps to tackle some of the UK’s most intransigent public policy issues. Pension reform, welfare spending and social care funding have all traditionally been seen as uniquely difficult issues for politicians to reform, each of which the Coalition has begun to address.

However, the report argues that while the existing reforms are crucial first steps, more profound change is still required to create the necessary impact on the UK’s balance sheet. No area of state activity can be considered taboo for reform. That includes public sector productivity, which has become a critical issue for the UK state.

Addressing the productivity challenge

National productivity – both private and public – is second lowest among the G7. In the public sector, productivity has been flat for 15 years and the level of activity in the public services goes up and down according to levels of funding. Breaking that link is now vital. If not, public sector productivity will stay tied to funding and outputs will fall significantly.

The study shows the scale of the challenge. The Institute for Fiscal Studies (IFS) estimates a fall in departmental spending of 18.6 per cent between 2010-11 and 2017-18. If outputs fell by that amount, the productivity increase required for the public sector to maintain its current level of activity would be the equivalent of an additional 42 working days per year for every public sector employee, all other factors remaining constant.

A mixture of workforce reform, more effective use of technology, focused performance management and efficient ways of working will be required to meet this productivity challenge.
National productivity – both private and public – is second lowest among the G7. In the public sector, productivity has been flat for 15 years and the level of activity in the public services goes up and down according to levels of funding. Breaking that link is now vital. If not, public sector productivity will stay tied to funding and outputs will fall significantly.

The study shows the scale of the challenge. The Institute for Fiscal Studies (IFS) estimates a fall in departmental spending of 18.6 per cent between 2010-11 and 2017-18. If outputs fell by that amount, the productivity increase required for the public sector to maintain its current level of activity would be the equivalent of an additional 42 working days per year for every public sector employee, all other factors remaining constant.

A mixture of workforce reform, more effective use of technology, focused performance management and efficient ways of working will be required to meet this productivity challenge.

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