Interest rates are rising and we have a £1.8trillion national debt and the worst productivity growth since World War II.
These are far from the sort of political circumstances Philip Hammond will have wanted in which to set out his Budget – and that’s before factoring in the stagnation of Brexit negotiations. Worse still, with some services stretched to breaking point, the government has found itself in a position that leaves little room for manoeuvre, let alone tax breaks or additional spending.
We have known for a long time that areas of the public sector face mounting resource challenges and those responsible for delivering services are under enormous strain. But as the Chartered Institute for Public Finance & Accountancy and the Institute for Government explained in the second edition of the Performance Tracker report, released in October this year, the era of tight spending controls is far from over and restraint on public sector spending is set to last long into the next decade.
Our analysis found mixed results, with some services, such as criminal courts and GPs, appearing to be on a stable course, and others, specifically prisons and hospitals, in need of immediate cash to avoid collapse. Taken as a whole, the report demonstrated the government’s failure to make successful transformative changes, or make explicit national decisions on the scope or quality of services. Under these conditions, problems have been allowed to mount, and the government has been confronted with successive crises (both practical and political), often leaving it with few options but to inject emergency cash.
So while we should not expect any rabbits to be pulled from hats, there are a number of pressing issues that Cipfa would expect to be addressed in this year’s Budget.
Every walk of political life must now be viewed through the lens of Brexit. It is imperative that the consequences for the public sector are kept in the foreground during the Brexit negotiation process. As well as quantifying the risks, examining the opportunities for public service transformation must also be given equal ministerial consideration. Furthermore, in planning for Brexit, the government must understand the immediate strain Brexit is placing on the sector due to increasing uncertainty, such as the rising number of unfilled vacancies.
To achieve the goal of one million new homes, future housing policy must be focused on flexible investment, sustainable and consistent rent policies and effective replacement of assets. Councils must be allowed greater freedoms and flexibility to build new homes and replace existing stock reduced under right to buy; and they need surety and stability in rent policies.
Achieving a sustainable funding regime for adult and children’s social care remains vital. There is an inevitable financial consequence of an ageing population. Without a predictable funding commitment, I am concerned that pressures in the system are deflecting the additional NHS funding from supporting transformation to balancing historic deficits. It is important that more is spent on transformative and preventative action to help reach a sustainable long term position. The promised green paper is looking increasingly unlikely to materialise, certainly before the end of the year, but government needs to set out what is required to reach a tenable and equitable position.
Cipfa would also like to see a coherence in the medium- to long-term financial plans the sector currently lacks. Since the Lyons Inquiry in 2004, there has been a disappointing narrowness in the government’s response on local government finance. This is typified in the inherent tensions in the system, where we see the erosion of equalisation as a societal good and ever greater focus on incentives that may only serve to widen disparities in the future. The government needs to commit to fully funding all key services before instigating further system changes.
A final point to make about authorities’ increased focus on commercialisation. Providing councils are following the rules that dictate making sound and affordable investment decisions, using specialist internal and external advisers to identify and mitigate any investment risks, these activities bring benefits for councils and taxpayers. There is a strong case for greater borrowing freedoms, for example in relation to social housing, but councils should not take higher commercial risk without the necessary improvement in commercial capabilities, enhanced governance and transparency. To do that, following our recent consultation, Cipfa will be tightening the prudential code to ensure it continues to provide the right balance between flexibility and prudence.
Rob Whiteman, chief executive, Cipfa