Hearing 6

Fabian Society Commission on Future Spending Choices

Hearing 6: ‘Principles and tough decisions: public services’

15th April 2013, 11am-1pm

Key questions for this hearing include:

  • In a time of spending restraint what new commitments should be made and how can they be paid for?
  • When and how can preventative spending lead to savings elsewhere?
  • What should spending restraint mean for the balance between universalism, means-testing and co-payment?
  • Should NHS spending continue to rise, at the expense of other public services?
  • In a time of spending restraint, should public institutions have more control of their employees’ pay and conditions?

Speakers

  • Ian Mulheirn (Director, SMF)
  • John Tizard
  • Anna Dixon (Head of Policy, King’s Fund)

Summary

This hearing began withIan Mulheirnoutlining the scale of the financial challenge facing public services now and after the next election in 2015. Specific plans for spending after the next election will not be announced until the next Spending Round in June. But owing to poor economic performance and trends in social security spending £34bn of further cuts have been pencilled for the period 2015-16 since 2010.

Mulheirn noted that assuming the continued protection of departments ring-fenced during the current Spending Review period, unprotected departments face average cuts of 22 per cent between 2015-16 and 2017-18. This would leave the Ministry of Justice with cuts of £1.4bn and £1.6bn to the Home Office budget.

Compounding this problem is the flat productivity observed in public services between 1998 and 2008. Given that service outputs have broadly tracked inputs across this period, Mulheirn showed that falling inputs in the context of fiscal tightening suggests the possibility that the pain will have to be spread more widely. A strategy such as this one, which might include removing the health ring fence for instance, presents a potentially more attractive offer than burdening unprotected spending areas further. The question, Mulheirn noted, was whether the NHS could remain a universal service in this scenario.

These questions in relation to health were explored in more depth by the hearing’s second witness, Anna Dixon. Picking up the theme of Mulheirn’s closing remarks, Dixon noted that the NHS budget is around six times that of the social care budget, and at 8.2 per cent of GDP, seven times larger in real terms than in 1960.

The Commission heard that while these figures may appear alarming in isolation, they should be understood in an international context. In Europe and abroad many countries devote a greater proportion of GDP to health spending, and long term projections confirm this pattern. Even under the OBR’s most pessimistic projection in which health consumes around 16 per cent of GDP by 2060, this would still be below the forecast for US health spending today.

Dixon went on to demonstrate how discussion about the drivers of this spend tends to diverge from the available evidence on healthcare budgets. Although population ageing remains at the forefront of the public debate, it accounts for a relatively small component of total health care spending, both historically and on current projections. More important are pressures from medical technology and the capacity of the NHS to treat a wider range of illnesses. Underpinning these upward pressures, Dixon confirmed the observation made by Ian Mulheirn and others in earlier hearings that because it is what economists call a ‘superior good’ societies increase spending on health as their wealth rises

Dixon brought her presentation to a close by outlining the findings of deliberative research with the public looking at ways to manage health’s rising budget. The findings of this research, conducted by The King’s Fund, underscores a tension: the public are strongly wedded to the founding NHS principle of universalism but wish to see high service quality maintained. Nevertheless, the public are conscious of the funding pressures faced by the health service, and the most important thing in any decision over its future Dixon argued, was that the public are involved.

The Commission then received evidence from John Tizard, whose presentation focused on how to achieve better outcomes for services users and value for money through Whole Place budgeting.

Tizard began by outlining the theory behind Whole Place or ‘community budgeting’, which holds that by combing a range of expenditures in a local place it is possible to achieve a better use of resources while making the design and delivery of services more rational.

Drawing on his own experience as a programme director for the previous Labour government’s ‘Total Place’ pilot in Worcestershire, it was argued that budgets and services based around place provide the opportunity to focus on the best outcomes for public service users.

Rejecting the perception that the Whole Place schemes mean the creation of a single ‘pot of money’ for each locality, Tizard argued that this approach is as interested in how to strategically align budgets and decision making according to the particular needs and characteristics of a place. Nor does this mean totally local decision making, but rather recognises a role for central priorities and resource allocation.

It was suggested that a number of factors currently restrain the potential of this approach. In particular, the absence of a consensual debate about national entitlements makes it difficult to discuss meaningfully what should be left to local discretion and what should not. In addition, Tizard argued that the future success of Whole Place budgeting would rely on a quality of leadership capable of challenging vested interests and institutional boundaries, as well as the willingness of Whitehall to be properly involved in the transition to this approach.

Questions and discussion at this hearing focused on the appropriate level to which budget decisions should be devolved, and the practical and theoretical problems involved in doing so. In the context of making spending reductions it was felt that there had not been enough effort to coordinate the decisions of agencies at a local level. Some witnesses and commissioners felt this was a missed opportunity to further a Whole Place perspective during a period of disruption reconfiguration.

Later discussion touched in more depth on the barriers to a more devolved approach to budget setting and service design, given the apparent level of agreement about the virtues of a more local approach. Whether Whitehall is the only actor to consider in this respect was challenged, with some participants suggesting greater reassurance about the long term commitment to the Whole Place perspective was required in order for it to flourish. Others raised concerned about large scale devolution of power from the centre, asking whether an acceptable level of accountability existed away from the centre in order to ensure the standard of outcomes that we expect.