Rarely can an Autumn Statement have caused so much surprise. Accompanied by the sound of hacks tearing up long-prepared copy outlining the next round of austerity, with its inevitable decimation of the state and unfortunately timed police cuts, Chancellor George Osborne unveiled a Spending Review so astonishing in content and tone that it provoked excitement, bemusement and even a Mao-ment of madness.
Robert Chote, head of the Office for Budget Responsibility, will now receive lots of invitations to rummage around the back of people’s sofas and inspect their hoover bags, in the hope that along with Lego figurines, dog hairs and discarded Werther’s Originals he will find that mislaid £27bn. For it is this fiscal windfall, a projected reduction in the scale of the deficit, based on improved tax receipts, together with OBR’s remarkably stable and even improving GDP figures, that largely provided Osborne’s room for manoeuvre.
Osborne U-turned on tax credits, breaching his own welfare cap, while still committing to deliver £12bn benefit cuts and a 14% reduction in DWP costs. Then he announced that overall departmental spending reductions would be significantly smaller in this Parliament than in the last. Of course, since the Government is committed to protect health and overseas aid expenditure, and to meet the NATO target for defence spending, the expectation was that the axe would fall unevenly, with some departments facing particularly swingeing cuts. But Osborne the Magician had still more prestidigitations to perform. Using both the new OBR latitude and a range of tax adjustments, Osborne created a public spending profile in which much of the frontline (local services, many core delivery bodies) is broadly protected – and even extended – while Whitehall departments are clobbered.
Some headlines. Pensioners will enjoy the biggest state pension increase for 15 years. VAT on sanitary towels will be hypothecated to fund women’s charities. The Housing Budget is doubled. The Government targets 400 000 new homes by the end of the decade. There will be a new stamp duty on second homes to dampen the price distortions of the buy-to-let market. A London Help to Buy scheme will be introduced.
On the spending side, the picture is striking. Though still predicated on efficiencies of £22bn, the NHS gets £6bn of its promised £9bn up front. The BIS budget is cut by 17%, but cash for Science is protected in real terms. Department for Transport spending falls by 37%. But its infrastructure spending will rise by around 50%, with London alone receiving £11bn investment on infrastructure. Cabinet Office and Treasury will be cut by around a quarter, but spend on the Government Digital Service will rise substantially. CLG will be cut by an eye-watering 56%. However, Osborne asserted that despite a cap on housing benefit and the disappearance of central government revenue grant to councils, the combination of 100% business rate retention, an option to spend all of the receipts from asset disposals, a new 2% social care uplift on council tax, a range of devolution measures and a new £12bn local growth fund will leave the average revenue position for local authorities unchanged across this Parliament. DEFRA’s budget will fall by 15%, but there will be £2bn more for flood defences. DCMS core will fall by 20%, but the Arts Council budget will rise slightly, and Sport England’s grow by 29%. Total financial support for education rises, with 30 hours of free childcare for 3 and 4 year olds, accompanied by a new funding formula for schools and a major push towards universal academisation. And alongside a 30% increase in anti-terrorism resources there will be no cut in the police budget.
As well as stepping up the Government’s commitment to devolution, these plans to some degree radicalise work done over twenty years ago with the ‘Next Steps’ reforms, which created the modern public-sector delivery landscape. Delivery has now been decisively empowered at the expense of the Mandarins.
The End of Austerity trumpet some Osborne supporters. Well, not quite and there are risks. Funding apprenticeships through payroll levies may prove controversial, especially when businesses will also have to implement the National Living Wage and are being asked to cough up for infrastructure investment too. Control of business rates will benefit some local authorities, but those with inescapably low business densities may suffer. Council tax payers can expect increases to pay for social care. Backdating of adverse changes to student loans introduces a novel principle of blank-cheque financing of contractual obligations, which may prove controversial and even legally contestable.
Then there is that OBR windfall. Robert Chote suggests that there is a 50% chance his improved estimate will be understated and a 50% chance it will prove overstated. Hardly completely secure, then. Moreover he makes optimistic GDP assumptions at a time when successive forecasts have fallen. Earlier this month the Bank of England revised its estimates downwards, albeit to a higher level than OBR’s forecast. The IMF has also dampened its predictions and its estimate for 2016 is 0.2% lower than OBR’s assumptions A 2% annual growth rate over this Parliament would probably be the envy of the developed world. But at around a sixth lower than the OBR’s estimates, it would be catastrophic for Osborne’s revenue expectations.
What does all this mean for consulting?
There are huge opportunities, not least in infrastructure implementation. Here, the Government’s ambitions exceed the £12bn of new money Osborne announced. Their fulfilment will require the leveraging of private finance to an unprecedented degree and a range of local initiatives. As infrastructure experts and integrators, who can help plan projects effectively, develop attractive financial models and link deliverables strategically to core economic goals, many MCA members have the capabilities to make a lasting difference.
Notwithstanding the broadly expansive tone of the Chancellor’s Statement, resources are not plentiful. An emasculated Whitehall must now reinvent itself, determine what its strategic role is, how it commissions policy, manages its oversight relationship with delivery bodies, and how it uses a diminishing number of levers of influence to manage and incentivise often complex delivery chains. The Treasury and Cabinet Office plainly still envisage a significant role for Departments. They have introduced a new framework of Single Departmental Plans (to be published in December) setting out their responsibilities. The MCA has made representations in the past about the need for a cross-government, interagency and interdepartmental grip on efficiency. The state may not be shrinking at the predicted rate. But it is still shrinking, and in a lop-sided fashion. Whether Whitehall oversees matters or in the more devolved context, agencies and local authorities must make their own judgements, there remains a place for a principled assessment of what the state should continue doing and what it should discontinue altogether. As accomplished portfolio managers, advising businesses on what to invest in – and just as importantly what to stop doing – consultants know what is needed for this kind of exercise.
Devolution itself was an issue our own submission to the Spending Review highlighted. Osborne’s shift of power to the regions and to delivery agencies is nothing short of the reinvention of the UK state. There is potential to go much further. If Osborne’s projections are right and the broad position for local authorities will be neutral in this Parliament – and that is a big if – then they will nevertheless be significantly smaller than they were in 2010. Devolution provides councils a larger share of local spend pots that have nevertheless seen over five years of net reductions. Devolution also means extra responsibilities. To succeed, local authorities will have to be at the sharp end of a “networked state”, working with business and community groups, leading coalitions for change as much as directly delivering services. This will require different skills, new partnership arrangements and objective support from proven innovators, such as MCA members, who can assist with everything from customer segmentation and the promotion of self-help, to innovative managed service models. The integrated devolved powers should allow more cross-agency commissioning to address complex problems. Nowhere will this be more important than in health. MCA advisers are already helping the NHS deliver its £22bn of efficiencies. But the opportunity for joined-up actions at local level should lead to the renewed emphasis on public health, prevention, community and integrated care MCA members have been calling for.
Our submission also highlighted the importance of Digital. The emphasis in the last Parliament was on using Digital for cost reduction, largely through online replication of existing citizen-facing channels. Yet many Digital models MCA member firms are developing, in both the private and public sectors, demonstrate that Digital can be used as a mechanism to save money while fundamentally reinventing services and empowering citizens. The latter is a desirable goal at any time. As the state reinvents, redirects and rations its activities, it is essential. The uplift in resources at the Government Digital Service is significant. Of course, there have been tensions within GDS’s role: partly a driver of systems integration on complex pan-departmental programmes, partly an agitator for more localised Digital innovation. We will soon discover what significance, if any, there is that Osborne signalled the GDS resource increase immediately after announcing a large-scale project to create personalised online tax arrangements by HMRC. Whatever, MCA members can assist with the big complex systems work and with more bespoke local innovations.
While GDS has been boosted, the Cabinet Office’s future more generally is unclear. In the last Parliament, under its activist Minister Francis Maude, the Cabinet Office affected the role of an operational heart of government, micromanaging contractor spend, managing government property and reducing the number of delivery bodies. The becalming of much Whitehall activity noticed by some (though not all) MCA members after the last election pending the Spending Review and the many upheavals at the Cabinet Office may indicate that this mantle has passed back to the Treasury. The precise nature of Cabinet Office oversight of Single Departmental Plans, and thus the extent of its power, will emerge in due course.
The MCA is fully and cordially engaged with the Crown Commercial Service, a Cabinet Office function, on the replacement of Consultancy One, feeding in member ideas on diversification, more innovative commercials, better processes and on how quality and innovation can be fostered. Doubtless our Consulting Excellence initiative will be influential here. This work is very important. The Government’s approach to consulting in the last Parliament was a curate’s egg. The necessary focus on spending reduction secured innovations, some new commercial arrangements and more targeted use of consultants – all welcome from the viewpoint of MCA members. Yet there is still a long way to go to secure supplier diversification and the most effective deployment of consultants as catalysts for change. What is welcome is that many Whitehall officials increasingly see consultants as potential generators of great ideas, even if the mechanisms for securing those ideas are as yet far from perfect. What is less welcome is the default assumption still seen in some quarters that consulting spend is inherently bad and best reduced by arbitrary capping. We will continue to try to move the debate towards more mature consideration of consulting’s value and ROI.
Yet it is worth questioning whether in such a radically refashioned public sector a system of centralised procurement oversight can be workable. If many big initiatives on public health, on criminal justice and on regeneration are likely to be overseen now by powerful city regions bringing hitherto dispersed service spend together, is the Cabinet Office near enough and sufficiently relevant to this activity to be able to make a difference? We will continue to try to help Government find the right answers.
If Osborne stays lucky and meets his broad fiscal objectives, he will be ushering in an era of change. If he doesn’t, and Robert Chote goes into hiding (possibly down the back of your sofa), the change will need to happen anyway, but in much more straitened and exacting conditions. Either way, the agents of the new Osborne settlement for the UK public sector – empowered councils, schools, health trusts, police forces, and a leaner, meaner Whitehall – will need expert advice and great ideas to succeed.