Why did the Government back off public service reform in the Spending Review?

30 November 2015

Reform identified a retreat from the goal of public sector productivity in the Spending Review last week (evidenced by the increase in the number of ring-fenced budgets and the fact that the big political offers in the Review were more money for the police and the NHS).  In his column for the Sunday Times, David Smith, Economics Editor, picked up on the same idea and asked why. He suggested several possible reasons:

  •       George Osborne never actually meant to achieve a more productive public sector (“Maybe Osborne’s bark was always worse than his bite.”)
  •       There is less political mileage in the productivity push under the new Labour leadership (“Maybe he has adjusted to the fact that he no longer has to be so tough on spending to draw out Labour’s lack of fiscal credibility. Under the party’s new leadership it is on open display.”)
  •       He is simply tired of the effort (“maybe fiscal fatigue has set in.”)

The first idea is really about the politics of all this. The thought would be that the Chancellor never really wanted to take the efficiency case to the voters. He had to do so in the last Parliament when there were no alternative. He would much rather send the message that he enjoys spending on public services, which he said in terms before the financial crisis and which he has returned to now (as much as he can).  (We might add that a shift to a high spending message confounded the Opposition in Parliament, which is an extremely tempting achievement for any Minister).

There must be a lot of truth in this. Clearly Ministers have never wanted to be out-spent by their political opponents in some areas, notably the NHS.

It does however raise the question of what exactly the Government now stands for. In September, the Prime Minister argued that the job of the Government was to deliver a “smarter State”, meaning better services and greater opportunity “when there’s not as much money to go around”. That wasn’t the message of last Wednesday.

It also casts into doubt the Government’s approach to improving public services full stop. As a Reform paper said last week, the great thing about improving productivity is that it leads to a focus on  the outcomes that matter to people. Backing off productivity means less pressure to improve outcomes, which can hardly be to a government’s advantage.

“Fiscal fatigue” is a great way of saying something that also feels true. As Reform said last week, “Increasing the productivity of the public sector is not for the politically faint-hearted.”  Any politician would be forgiven for wishing to appease the lobbies for higher spending. The trouble here is that appeasement won’t work. Those lobbies will just be back for more, especially if they sense that Ministers can be moved.

I would add to David Smith’s list a basic lack of confidence in driving productivity, based on a lack of information. The Treasury and the spending departments don’t know the costs and outcomes of public services, whereas they do know what they spend. It’s much, much easier in these circumstances to focus on the spending message. In this light, the best announcement in the Spending Review was a “new Costing Unit to build a more forensic understanding of the cost of public services and drive productivity across the public sector”. That should in time give more information and confidence to governments.

David Smith concluded: “Osborne is accused by critics of wanting to destroy the State. He has demonstrated, once again, that he means to preserve it.” It is good to “preserve it” but he has to improve it too. That now seems harder compared to the position six days ago.

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