A business-as-usual approach risks hurting those most in need of public services
This Friday, 4 September, marks the beginning of the long awaited spending review process. How it pans out could go a long way to determining the future of our public services. A business-as-usual approach risks hurting those most in need of key services. But there is an alternative.
Department budget holders (outside of health, 5-16 schools, defence and overseas development aid) have been asked to model four-year plans based on two alternative funding scenarios, with 25 per cent and 40 per cent cuts respectively.
To meet these conditions, the temptation for ministers and senior civil servants may be to salami slice budgets: leaving existing configurations of service delivery fundamentally unchanged and instead simply scaling back ambition and resources.
In view of growing demographic pressures and an uncertain global economic environment, this would be precisely the type of short term spending review that the country can least afford.
Instead, the government needs an entirely different spending review to the last one, one that takes forward four key principals for public services: support employment and productivity, prioritise preventative spending, integrate services, and devolve power and budgets.
In a report this week, IPPR has set out detailed programmes across nine major budget areas that show how the government can begin to meet these principles within the tight fiscal rules they have set for themselves.
We believe employment and productivity can be supported with expanded childcare provision for the 40 per cent poorest households, as well as a job guarantee for all under-25s and increased protection for 16-19 education budgets.
Rising housing benefits could be targeted at source – through the provision of more affordable homes – by tripling the budget of the Homes and Communities Agency by 2018/19, enough to grant-fund approximately 50,000 additional social rent homes per year.
Targeted support for social exclusion could also be given extra resources and expanded with a new ‘Troubled Lives’ programme designed to join up services around severely excluded adults who depend on homelessness and drug and alcohol services locally.
The above recommendations (and more) are all deliverable within the government’s existing fiscal rules, producing a surplus in 2019/20, and incurring no greater cuts on other unprotected budgets than those already implied by the government’s existing plans.
This would be made possible by doing two things. First, targeting a £7 billion surplus, rather than a £10 billion surplus, by 2019/20. Second, making modest extensions to three of the tax changes announced at the July budget: slightly reducing tax relief for the pensions of the richest; aligning capital gains tax for high earners with the new dividend tax rate; and bringing the insurance premium tax closer to the rate of VAT.
IPPR would prefer to see a deficit reduction programme that is more responsive to the wider economy, operating over a longer time-horizon and with greater burden placed on tax increases. However, even within the existing fiscal rules set by the current government, there is scope for small adjustments that could make a significant difference.
Indeed, the chancellor himself recently went much further, significantly altering his own spending path between the March and July Budgets by delaying his planned surplus by a year and funding increased departmental expenditure partly through new tax rises.
Either way the government should not undertake a business-as-usual spending review; protecting a few isolated departments while cutting deep into others. An entirely new, more creative settlement is needed.
We are already halfway through the 2010s. We can ill afford to miss this opportunity to reshape and strengthen our public services for the rest of the twenty-first century.
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