The State of the State 2015-16
UK government is in the middle of a decade-long recalibration as the public sector aligns to a lower level of public spending. While the first half of this decade has been characterised by austerity and cost reduction, the next half should focus on aspiration and redesign as public sector leaders across the UK shape a more focused state.
The State of the State brings together commentary on the public finances, insight from roundtable discussions and interviews with local public sector leaders to provide a snapshot of the UK Government and public sector.
Now in its fourth year, the report aims to offer a constructive and grounded analysis of the state’s challenges.
Government in numbers
- 8 – number of political parties that are currently parties of national and devolved government in the UK
- 947 – number of legislators in the UK parliaments, along with 775 members of the House of Lords
- £23,428 – the amount of government debt for every UK resident
- £50,943 – the cost to every UK income tax payer to pay off government debt immediately
- £1.852 trillion - The state’s net liability, which measures the difference between what the Government owns and what it owes at an accounting year end.
The state of the public finances
After a five-year programme of deficit reduction, broadly 80 per cent through public spending cuts, the deficit is expected to stand at £69.5 billion this financial year. The UK Coalition ultimately reduced it by half from its 2010 high, leaving the remaining half to be reduced in this UK Parliament.
In the past year, signals have emerged that some local public sector organisations – councils, NHS bodies, police forces and further education colleges – could be facing financial distress as a result of funding reductions at the same time as shifting patterns of demand for their services. Sector-wide warnings suggests that more than 200 of these frontline public sector organisations could require intervention in the course of this UK Parliament.
Government through business lenses
Government is not a business. But applying ‘business lenses’ to the public sector can allow for distinctive perspectives and fresh thinking. Our analysis suggests that as the Government continues to recalibrate the public sector to a lower level of spending, it should consider reform through three such lenses: a productivity lens, a talent lens and a balance sheet lens.
Productivity gains can help the public sector maximise its efforts, focus on the impact it delivers and make the most of its funding. We suggest that every hour of public sector staff time saved in a year through better productivity is worth £72 million to the UK’s public purse. Our analysis has also identified seven characteristics of highly productive public sector organisations.
Advanced governments around the world are increasingly alive to the importance of talent but unfortunately, austerity has taken its toll on the public sector workforce. Redundancies, pay freezes and reduced promotion opportunities have affected morale. But as public sector organisations continue to reduce their headcount, redesign their operations and seek productivity gains, public sector leaders know that they need skilled and motivated employees more than ever.
Balance sheet lens
The Government faces a debt reduction dilemma. Paying down its £1.5 trillion debts as quickly as possible would reduce exposure to risk and debt servicing costs, but could require a continuation or acceleration of austerity measures. Conversely, with interest rates low, there is an argument to let high debt levels continue and pay debts down over decades, allowing for greater public spending and investment.
The view from local public sector leaders
Exclusively for The State of the State, Deloitte and Reform commissioned Ipsos MORI to interview local public sector chief executives on their experience and outlook. This summer, they talked to more than 40 such leaders from across England, Northern Ireland, Scotland and Wales who are collectively responsible for £16 billion of public spending. They told us that:
- They expect a shift from cost reduction to redesign in the years ahead, and while they believe the coming five years will be challenging, many are optimistic about the future of their organisation and the services it delivers
- Morale has suffered as a result of redundancies, pay freezes and reduced promotions, but the level of continuing transformation in their organisation makes the need to keep talented, skilled people greater than ever
- Technology is seen as critical to a more productive, cost-effective and customer-centred public sector, but funding and cultural change are the key barriers to harnessing it more effectively
- By 2020, many expect their organisations to have retrenched into core, statutory activities. Most expect their organisation – and the system within which it operates – to have been redesigned to make it leaner and clearer on its mission.
Around the UK
The State of the State features commentary on the public sector in the UK’s four countries. Among our analysis, we observe that:
- While Northern Ireland has experienced a surge in investment, ongoing political instability threatens to hamper its economic potential
- Central and local government in Scotland will be watching the council reorganisations in Wales and Northern Ireland with interest – just as Scotland’s bold move to merge its police forces and fire services is being watched south of the border
- In Wales, council reorganisation comes with budget implications, because successful reform could require investment to achieve savings in the medium and longer term.
Spending Review 2015
On Thursday 3 December, Deloitte will host a webinar with industry experts to discuss the Spending Review announced on 25 November and what it means for government departments and local public services. The webinar will also discuss the key findings from The State of the State report and give participants the opportunity to discuss the challenges facing the public sector.