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In the Spotlight

Tuesday November 3rd, 2009

By Morven MacNeil, GO Features Editor

Within months, the country faces a big decision; one that will affect every area of our lives, and every aspect of our future.

A general election is imminent next year, and the fate of public spending will lie with either the existing government or a new regime. So, what plans do the major political parties have with regards to public expenditure and procurement? GO analyses the key points raised at the recent party annual conferences and looks at what other interested organisations are recommending ahead of the Pre-Budget Report.

The Labour shapers

Budget Report 2009 stated that the Government will continue to improve and invest in public services while delivering the additional savings identified by the Operational Efficiency Programme over the next Spending Review period, rising to £9 billion a year by 2013-14. Current spending will grow by an average of 0.7 per cent a year in real terms between 2011-12 and 2013-14 and public sector net investment will move to 1.5 per cent of GDP by 2013-14.

Government spending by function

Total managed expenditure: £671 billion

Other – £72bn

Debt interest – £28bn

Public order and safety – £35bn

Housing and environment – £29bn

Industry, agriculture, employment and training – £20bn

Defence – £38bn

Education – £88bn

Transport – £23bn

Health – £119bn

Personal social services – £31bn

Social protection – £189bn

Source: HM Treasury 2009-10 near-cash projections

By 2015, Britain with Labour will be prosperous, fairer, greener, and more democratic – this is according to The Choice for Britain report which the party launched at their autumn Annual Conference ahead of the Chancellor’s Pre-Budget Report, which as GO went to print was expected to be published at the end of November.

Prime Minister Gordon Brown stated in the report: “We will continue to manage public spending carefully and make hard choices as we push for greater value for money and reform: we are wise spenders, not big spenders. We are stepping up the drive for efficiency: there are now fewer civil servants than at any time for 40 years. We have set out departmental spending plans for 2009-10 and 2010-11 with projections for current spending and investment after 2011. In the Pre-Budget Report, we will show how frontline services will be protected.

“We are guided by our values as we set future priorities: the commitment to better public services, a future fair for all not just the wealthy few, and a stable economy. The Tories’ proposals to enact immediate and indiscriminate cuts would plunge us into a great depression. Changing course would harm and hinder the hard-won recovery.”

At the Labour Party Annual Conference, Chancellor Alastair Darling said legislation will be implemented soon to end ‘the reckless culture that puts short-term profits over long-term success’. He also announced that since cutting VAT in December 2008, an additional £1 billion has been going each month into the pockets of shoppers and retailers.

The Chancellor said: “Instead of cutting, we brought forward planned capital projects, modernising schools, homes and hospitals. But I stick with my Budget prediction that, as long as we continue to support the economy, recovery will be under way in the UK by the turn of the year.

“In order to get borrowing down, spending will have to be tighter in the years ahead, against a background where public investment has tripled over the past decade. For just as there was a choice over tackling the recession and helping the recovery, so there is on public spending. We believe passionately that frontline public services are vital to support everyone to meet their ambitions.”

The Conservative shakers

Meanwhile, at the Conservative Party Annual Conference in October Shadow Chancellor George Osborne set out specific measures which the Conservatives believe the Government should announce in the Pre-Budget Report.

The measures would save an estimated £7 billion-plus a year in government spending by the end of the next Parliament, or more than £23 billion over the full term of the Parliament. These savings would come on top of the longer-term savings from raising the state pension age.

The Government, according to Mr Osborne, should recommend no headline increase in pay for all public sector workers in 2011, except for the lowest paid one million who should be protected. Military personnel on active service overseas should have their Operational Allowance doubled to an average of £4800 for a six-month tour of duty. Altogether, this would reduce government spending by £3.2 billion a year from 2011 onwards, or more than £12 billion over the next Parliament. These savings would be equivalent to protecting more than 100,000 public sector jobs.

Mr Osborne also said the Government should set out plans to reduce the administrative costs of Whitehall bureaucracy and quangos by at least one third. This would reduce government spending by £3 billion a year by the end of the next Parliament, or by more than £7 billion over the life of the Parliament.

The Government should find ways to cap the biggest government pensions, including those for senior civil servants, local council executives and quangocrats. This cap should prevent any taxpayer-funded increase in senior government pensions, already worth over £50,000 a year, and stop all taxpayer-funded pensions for these groups in future exceeding £50,000 a year. Such a measure would reduce the growth of public sector pension liabilities by hundreds of millions of pounds over the next decade.

The Government should also announce an updated review of the state pension age, as recommended by Adair Turner’s Pension Commission. Given the state of the public finances and rapidly changing demographic projections, the review should consider whether the increase in the pension age from 65 to 66 should be brought forward from 2026, starting no earlier than 2016 for men and 2020 for women.

Mr Osborne said: “Unless we reverse the dramatic fall in productivity over which this Government has presided, one thing is certain – the front line will suffer. Departmental budgets will have to be set to get more for less across the public sector.

“This constant process of rooting out waste; eliminating failing programmes; reviewing procurement; publishing spending information online; increasing productivity; ending the constant stream of pointless eye-catching initiatives – all this will make the greatest contribution to reducing the budget deficit.

“Tens of billions of pounds will have to be saved this way. The reform of public services will be driven not just by those who manage them, but by the choices of those who use them.”

The Liberal Democrat challengers

Liberal Democrat Shadow Chancellor Vince Cable warned at his party’s Annual Conference in September that if public spending is cut in the usual way there will be ‘great damage to local and national services’.

He said civil service bonuses and the culture of massively inflated salaries would be cut by the Liberal Democrats and that a freeze in the total pay bill would be better than cuts in services.

Mr Cable said: “There are far too many government officials and quangos overseeing local government, the NHS and teachers.  There is no need for the vast central government databases, like the ID card, the so called ‘super database’ and the NHS scheme. Tax credits extend too far up the income scale. There are too many unaffordable defence commitments and procurement contracts, including new Trident submarines. Civil service mandarins – and MPs – enjoy very generous subsidised public sector pensions which desperately need reform. This system is grossly unfair when the basic state pension is less than the poverty level; when the pension age is to rise to 68; and when occupational pensions in private firms have been cut to shreds.

“Then the industrial welfare state absorbs billions through Regional Development Agencies and other quangos of questionable relevance. And we all love the NHS but no one can seriously claim that it couldn’t be better run. All aspects of public spending have to be looked at critically, as our councils have to do as a matter of course.

“There is no credibility and no future in being the last of the big spenders. Economic reality means that if more is spent on some items there is less elsewhere.  Politicians offering their expensive freebies will be treated with the same contempt as bankers lapping up their double cream bonuses, year after year, succeed or fail.”

Mr Cable argues the Liberal Democrat approach to spending is fundamentally different – they want an open, democratic debate about priorities. He added: “Local decision-making is more accountable and more efficient. This requires lifting the dead hand of centralisation and scrapping the command and control quangos who treat local elected representatives like children. We would give additional roles to councils through health commissioning. And with that duty should go responsibility, including more local revenue raising powers including business rates.”

Business speaks out

The CBI, the UK’s leading business lobby organisation, has released a Public Services Strategy Board paper, Doing more with less: a credible strategy, ahead of the Pre-Budget Report. CBI Director-General Richard Lambert has also written to the Chancellor calling on him to ensure his report delivers a credible plan for balancing the public finances by 2015-16, two years earlier than planned. The CBI believes that in order to boost investor confidence and get the UK on the path to recovery, the public finances will have to be in good shape by no later than that date. But the CBI is also warning that the Government will need to take an extra £120 billion out of its current spending plans to balance the books.

They estimate that £50 billion will need to be found between now and 2013 to allow for a slower economic recovery than the Government is predicting, and a further £70 billion will be needed after 2013 in order to balance the budget by 2015-16, rather than by 2017-18 as set out in the 2009 Budget Report.

Despite huge amounts of investment, productivity within the public sector has fallen over the last decade. The CBI believes radical public sector reform could reap huge savings for taxpayers, while ensuring the public benefits from high-quality services. This would include making use of new and proven technologies, as well as increasing competition, which could achieve £63 billion of savings by 2015-16.

Improving workforce management by adopting good private sector practice, including better management of staff sickness and temporarily freezing the public sector pay bill, could yield a further £27 billion of savings by 2015. Cutting waste from within government could save a minimum of £16 billion by 2015-16, while pooling local authority budgets to avoid duplication of services could reap further savings.

CBI Deputy Director-General John Cridland said: “We have identified how the required savings might be achieved by re-engineering the ways in which public services are delivered. By introducing new technology and competition, eliminating waste and inefficiency, and tackling unaffordable pensions and pay head on, we can avoid crude cuts to frontline staff and the vital services on which we all depend.

“Our proposals are not exhaustive, but they are evidence-based and illustrate the sorts of savings that could be achieved with strong political will.”

Richard Parsons, Service Head of Procurement and Corporate Programmes at the London Borough of Tower Hamlets, believes the CBI report contains some important challenges for the public sector, and that many individuals are already working on programmes designed at getting more for less. He said: “We need to ask ourselves critical questions about the costs of our services and the value provided, and seek innovative ways for radically reducing costs. I find some of the savings calculations within the report somewhat crude and unconvincing, but the public sector does nevertheless need to rise to the challenge.”

Terry Street, Principal Consultant and Procurement and Outsourcing Product Manager at Socitm Consulting, agrees with the CBI report that new technology can help address the public spending gap. He commented: “Case studies from Lancashire, Wakefield and Glasgow highlight the potential savings from local government transformation, with better management of information, telecommunications and computer technology being key factors in boosting productivity, making services more efficient and rationalising property portfolios. This ties in with an approach developed by Socitm, the Society for IT Management, which proposes a leaner and more agile model for local authorities – entitled The Council of the Future – with the potential to be rolled out across the wider public sector. Success will depend on the senior management team creating a vision and implementing an effective, step-by-step programme for change which avoids disruption but has wins built in at every stage.

“Socitm and the CBI seem to agree that the council of the future will be very different from the council of today – and has to be. Tinkering at the edges or simply tightening the purse strings will not deliver sustainable solutions. A bold approach is required that challenges the status quo to its core. The CBI report shows what is possible with the right investment and the right attitude. All the political parties need to embrace this ‘spend to save’ approach in a mature programme that stimulates innovation and supports risk-taking.”

Other responses

The Government must not sacrifice its support for small businesses as part of widely anticipated spending cuts to plug the gap in the public finances, the Forum of Private Business (FPB) has warned.

The forecast for public sector net borrowing by the end of 2009 is £185 billion, meaning substantial spending cuts will be required in order to plug the gap. In view of this, the FPB has submitted its proposals for ‘responsible growth’ ahead of the Pre-Budget Report. Measures include improving existing support schemes, reducing small firms’ corporation tax, tax incentives for micro-businesses recruiting staff, and introducing a comprehensive regulatory review.

“Despite recent suggestions that the economy is heading out of the woods, it is clear there is still a difficult road ahead. Government cuts should not include those programmes that are making a real difference for struggling firms,” said FPB Policy Representative Matt Goodman. “The next 18 months will be crucial. As the main drivers of growth, small businesses need to be placed at the heart of plans for economic recovery so they can make the most of future opportunities.”

“At the same time, the Government will have to consider the impact of recession on public finances. We believe our proposals are a cost-effective path to responsible growth.”

The Business Services Association (BSA) has also released a Pre-Budget Report submission, citing that the lack of planning on the part of government departments raises the cost of entering the market.

BSA Chief Executive Mark Fox said: “Cancellations in plans midway through the tendering process because of decisions to go in-house leaves firms to incur the cost of putting together a bid, as no recouping costs are offered. These potential expenses are a deterrent to entering the market. In order to attract more bidders to the market, bidders should be given recouping costs in the event of a cancellation in projects.  

“We would urge the Government to look at practical ways to make access to public contracts cheaper and simpler. Current government processes act as significant barriers to SMEs, for example, even contemplating bidding for public sector contracts. There is evidence to suggest that some of the larger suppliers are beginning to be disincentivised.”


Next year is bound to bring great changes, regardless of which political party comes to power. Whether the next government decides to spend more to improve services or to reform and rebalance the public finances, 2010 looks set to be the most challenging year to date for both public spending and public services.

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