The Treasury has confirmed that there will be a spending review in 2013. Will it be strategic and forward-looking – or just about more cuts?
The coalition is under mounting pressure to develop a more effective strategy for growth. Ministers are casting around for ideas but in doing so risk missing what’s right in front of them – the role public spending could play in promoting productivity.
The Treasury has now confirmed that there will be a further spending review in 2013. The default option is for this to be just a Whitehall negotiation about cuts (as reports of rows between Steve Hilton and the DWP over welfare cuts already foreshadow). But the alternative would be to have a much more strategic assessment of the relationship between public expenditure and economic and social growth.
Whilst there may have been little time to conduct a more strategic review of public expenditure in 2010, the opposite considerations should apply for the 2013 review. In the middle of a deep economic hole, facing a series of daunting social and economic challenges, now is when public policy should be focusing on the big strategic questions.
Is the overall shape of public expenditure right, is it focused enough on building productive potential, as opposed to providing social protection? What are the criteria that we should be using to make rational, long-term choices about spending priorities? What can be learnt from the existing cuts programme – what are the success stories, where are the gaps in provision, what are the trends in outcomes?
Are we clear and candid about what public spending can and cannot achieve, how can we manage demand more effectively and what can we learn from the use of performance budgeting and zero-based reviews in countries like Sweden and Canada?
The need to ask these questions has never been greater. Public expenditure has been cut by £81bn, with a further £30bn, promised between 2015-17, and yet, as the IFS has noted, only a fraction of the cuts have yet been implemented, which means much deeper cuts still to come. Austerity will last longer and be more painful than was anticipated in 2010 and the private sector has not been able to plug the gap. Moreover, there is a looming black hole generated by the potential costs of an ageing society, climate change and chronic health conditions.
On the positive side, these pressures could create the conditions for new kinds of productivity and for a rebalancing of value towards care and reciprocity. This is especially true when linked with changes in the way in which digital technology has enabled citizens to interact with each other and produce their own service outcomes, which could transform public service commissioning and design.
The debate about public services has been dominated in the last few years by consumer choice perspectives, which have emphasised the importance of choice and markets. But this is a very narrow way of looking at the much bigger question of the relationship between citizens, communities and the state. The burning platform generated by austerity, recession and demographic change creates an opportunity to reframe the role of public services in terms of social productivity. The focus of a strategic spending review should be on how to make this happen.
As a starter for debate, here are five suggestions for cross cutting priorities – driving efficiency through service integration; unlocking social value in order to help reduce demand; refashioning social insurance so that it is both more flexible and sustainable; negotiating funding autonomy for English cities and counties; and promoting economic productivity and local enterprise.
On efficiency, traditional cost saving programmes will not be enough, the real focus should be on breaking down silos, so that services are aligned to community need, not departmental structure. The integration of health and social care is an urgent priority, as part of which resources must switch from acute care to prevention – which means biting the bullet on the closure of some General Hospitals.
Public services are at the nexus of the relationship between citizens, communities and government; a key question which the review should address is how to make this a more collaborative relationship, so as to improve outcomes and reduce demand. The starting point should be to support and build on existing social assets within neighbourhoods such as family and community networks.
On the big ticket items like social care, the value of network based care far outweighs that of state care both financially and in terms of outcomes. A critical challenge will be how personal budgets can be developed into a more multi-faceted approach to family and neighbourhood budget pooling in order to re-socialise adult care. Similar considerations apply to public health and the management of a number of chronic health conditions, each of which will be dependent on behavioural change that works with the grain of communities of place and of identity.
We are in the middle of profound economic change, most people are now worse off and more insecure than they were a decade ago. Meanwhile, traditional models for public provision of social goods ranging from pensions and social care to higher education and chronic health care are increasingly untenable. In these circumstances, we need to create a new model of social insurance for our times, which embeds ideas such as flex security and a modernised contributory principle.
There should be greater transparency about what people contribute and receive, through personalised accounts, which people can manage more flexibly to meet their lifetime needs, such as for training, business and income support and housing. At the same time, people with the means to do so should contribute more to the cost of their socially provided services. The overall aim should be to encourage greater resilience and reciprocity and to ensure that social need is met in a way that is both equitable and sustainable.
To paraphrase Tip O’Neill, all spending is local, so the spending review should also look at the relationship between Whitehall and England’s towns and cities. Developments in Scotland will re-open the debate about the Barnet formula, at the same time England is increasingly out of kilter with itself, with a booming global megopolis in London and growing economic disparities across the rest of the country.
The Spending Review should establish a new deal with England’s major cities and counties, whereby they negotiate substantial funding autonomy on the basis of pooled budgets, and control over their own revenue base, in return for accepting that their aggregate total will be slightly lower than the current sum of the various national silo funding streams. In this way the economic and social destiny of the major cities will lie much more in the hands of their own citizens and their civic and business leaders.
Public expenditure should be rebalanced towards promoting economic productivity – with greater priority put on infrastructure, sustainable energy, and skills and apprenticeships. And the public sector, locally and nationally should use its assets much more smartly to promote enterprise. The legacy of the last decade is high quality new public buildings in most communities. These need to be utilised, in the way open data is already being freed up, to generate social and economic productivity – a sort of Sunday trading for the public sector.
We also need a coherent strategy for growing social markets both in current and emerging areas of public service and for unlocking the capital that this will require. Social value procurement could be the lever for achieving scale in creating social enterprises out of public services. Similarly, micro enterprises should be supported to respond to the new opportunities created by personal budgets and neighbourhood commissioning. Most ambitiously, there should be a new focus on aligning social business with emerging demand, for example to the opportunities presented by an ageing society, with the new products, services and expectations that this will entail.
This is a big agenda. It will require new thinking and a new framework of principles and measures but most importantly it will require new levels of citizen engagement. Public disdain for politics and business has never been greater. Right the way across Europe we are seeing the consequences of political and business elites failing to carry their voters with them. What is needed now is honesty about the scale of the challenge allied to an open policy making process which seeks to construct a genuine consensus about public spending choices. The coalition flunked the opportunity to do this in 2010, will it be bold enough to do it in 2013?
Ben Lucas is chair of public services at the RSA and principal partner of the 2020 Public Services Hub