COMMENT
Time for action: reforming public services and balancing the budget
In May we set out a challenge to the next government to fundamentally re-engineer public services. Our propos- als, which are contained in our latest report Time for Action, draw on the lessons learnt by our member companies through the recession and provide practical advice about how our public services should adapt to ensure they continue to provide the best possible service in challenging times, says Susan Anderson
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Susan Anderson is director, public services and skills at the CBI
s we reach the end of this government’s ‘first hundred days’, there is no doubt
that they are serious about cutting the deficit and reducing the cost of our public services. But a reduction in budget spending doesn’t have to mean a reduction in frontline services.
Public spending in the UK has grown considerably in recent years, averaging real terms growth of 4% a year since 2000 and is now close to 50% of UK output – its highest level since the early 1980s. While benefiting from increased levels of investment, the productivity of the NHS, education and other important public services has edged downwards in stark contrast with rising trends across the private sector.
In the years ahead every penny spent must secure value: delivering the level and quality of services we have come to expect will require increases in productivity across-the-board. The private sector has already felt this squeeze and can provide a useful insight into how we can maintain or improve public services while cutting costs.
Our report highlights three areas where immediate action needs to be taken. First, we need to apply the brake to make immediate cost savings. Second, we need to ensure every pound is spent well and that we root out all waste. Third, we need to fundamentally re-engineer the way we deliver
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our public services to ensure we continue to realise savings in the long term.
Applying the brake
Workforce flexibility and the reduction of non-essential expenditure gave businesses the headroom needed to cope with the challenging conditions they faced during the recession. The increased labour market flexibility in the private sector allowed businesses to retain staff, rather than relying on redundancies, meaning that total employment fell much less than in previous recessions.
Workforce costs make up a significant component of expenditure in the public sector. In 2008-9 the public sector pay bill was £160bn. Over the last ten years, public sector employment has grown by 12% a year on average, more than twice as fast as private sector employment.
The CBI welcomed the two year public sector pay freeze introduced in the emergency budget. Given that most private sector firms froze pay during the recession and are continuing to take a cautious approach to wage settlements, it is right that the public sector shows similar restraint. We estimate that a two year pay-bill freeze will save £18bn.
Over the long term, more steps should be taken to modernise the public sector salary structure. Most workers recognise that job
security now depends on what they bring to the workplace, not their seniority or tenure. Frustratingly for good public sector employees, there is little differentiation of pay between strong and weak performers.
We are also calling for an immediate spending brake to be applied to non-essential expenditure. Halving the amount spent on advertising campaigns and consultants will save £3bn by 2015-16 and we believe conversations are already taking place in this area.
Every pound well spent
Private firms are regularly expected to deliver 5-10% efficiency gains every year and we are calling on the government to act in the same way. Danny Alexander, the chief secretary to the treasury, recently called on each government department to find savings substantially higher than this level, but a focus on reducing costs must be ongoing rather than a one-off measure.
Competition should be used across all government departments to flush out wasteful and inefficient practice and to incentivise wider adoption of proven solutions. By subjecting an incumbent service provider to competition, whether public, private or third sector, poor quality services can be rooted out and efficiency improved.
Time for Action highlights a number of areas where
Jul/Aug 10
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