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Thinking about numbers

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When the post-6 May government spells out how it intends to cut back public expenditure, it will be necessary to have a statistician to hand at all times to understand what is going on. 

For a start, there is the issue of the commitments by Labour and the Conservatives to ring-fence NHS spending in ‘real terms’.

This promise sounds robust, however, careful interpretation might mean raising spending by just £1 above inflation over a full Parliament.

If inflation were to run at 2% per year, this would leave the NHS with barely 2% in extra cash each year. It is hard to believe this is what health professionals are expecting.

The psychology of falling costs is different from that of rising service spending

Tony Travers

Then there are the commitments to preserve frontline services. Gordon Brown gave such a commitment last week in relation to the police. It would be easier to understand what it meant if anyone could define the border between ‘frontline’ and ‘non-frontline’.

The implication is that police officers would be kept while civilians would be cut back. One inevitable consequence of removing back-office staff would, of course, be that the police would end up filling in more forms than at present.

‘Efficiencies’ present similar problems. Ministers and their shadows demand improved efficiency from public services.

Yet in the period since the Gershon report in 2004, councils have annually been delivering 2½-3% of efficiency savings. Local government should be almost 15% more efficient now than in 2004. How much further can this kind of efficiency go?

Moreover, if councils and other public bodies can really now make huge efficiency savings, why (one might ask) have they been allowed to waste money until now?

What would that say about auditors and other regulators? It is worth remembering the National Audit Office has always been circumspect in judgments about how real ‘efficiency savings’ have really been.

Finally, we will all need to start thinking in a more deflationary way. In periods of austerity in the 1970s and 1980s, real-terms reductions in council grants were always made when inflation was, by today’s standards, high. When inflation was 10%, it was possible to cut grant by 5% in real terms by awarding a 5% increase.

To deliver a 5% grant cut today, when inflation is 2%, means a 3% cash cut in grant.

The psychology of falling costs is different from that of rising service spending. If council expenditure starts to fall in cash, it is likely to have unexpected consequences on service planning and budgeting.

We are going to have to think a great deal about numbers in the coming years.

Tony Travers, Director, Greater London Group, London School of Economics

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