UK to cut spending

Peter Clarke

UK public spending: Prime Minister pledges to protect 'front-line public services'
UK Prime Minister Gordon Brown has spelt out the UK government's policy for public spending until the general election and, if he wins, for the fourth term of the Labour government. Speaking at the Labour Party Conference on Tuesday, and in subsequent interviews, he confirmed that the UK government would cut public spending in order to reduce Britain's fiscal deficit “while maintaining and indeed improving front-line public services.” He claimed this was a caring approach which would protect schools, hospitals and the police. The Prime Minister announced that the government's flagship ID card scheme will be dramatically curtailed.

What will this mean to S/ITS companies?
Gordon Brown did his best to steady the public sector's nerves on the issue of public spending, but has conceded that there will be cuts in spending. Local governments, for example, are assuming that their budgets will be cut between 10% and 20% and are planning their 2010-11 budgets accordingly. Lower public spending reduces opportunities and revenues for S/ITS companies. Suppliers selling into 'front-line services', education, health and social services, the police and armed forces have less to worry about as these services are, for the moment at least, protected by the government's plans. Plans to spend over £1 billion over the two years from September 2010 to provide free care for the elderly (in England) in their own homes could provide a boost for telehealth suppliers. (This has applied to the elderly in Scotland for the past three years.)

The Prime Minister announced a Deficit Reduction Plan aimed at both increasing revenues and controlling expenditure. He said that his government “will raise tax at the very top, cut costs, have realistic public sector pay settlements, make savings we know we can and in 2011 raise National Insurance by half a percent. That will ensure that each and every year we protect and improve Britain's front-line services.” Building the post-recession UK economy as a green economy is seen as a priority.

The Conservatives have been calling for cuts in spending for some months in order to reduce the public sector's deficit, and have already announced that if they win the general election they will not stick to Labour's spending plans but will introduce their own Emergency Budget.

Sticking to the Efficiency Programme

The government has already set out its plans for the next 12 months in the November 2008 pre-budget statement and the 2009 Budget (which announced plans for 3-4% cuts in back-office and IT spending). Each of these built upon the Efficiency Programme that has been in place since 2004. Its focus has been to cut back-office costs to release funds for front-line services. The government has consistently claimed that this is the best way of protecting front-line services. Further details will be announced in November in the pre-budget statement. However, in the current febrile political atmosphere we expect a series of hints and announcements in the intervening weeks. The Chancellor of the Exchequer will announce the parameters for drawing up the Debt Reduction Plan “soon”.

The Prime Minster's announcement takes the government's spending plans beyond the current Efficiency Programme. This will confirm the suspicions of many, especially the opposition in Parliament, who have been pointing out that this is inadequate in the current circumstances. The Prime Minister is now saying that “choices have to be made”. Public sector managers know that this is the signal to prioritise their spending plans. The government wants a well thought out plan for achieving efficiency savings in 2010-11 and beyond.

'Front-line services' will be protected. These are defined as education, the health service, the police and the armed forces. Specifically, the Prime Minister pledged that the three armed forces will “always have all the equipment they need.” He also pledged to increase investment in education, which must mean that the Building Schools for the Future programme is safe.

No detail is available, but delivering these priorities will be a big task as it will involve some of the public sector's biggest budgets. It has become known that despite the Prime Minister's announcements there will be no net increase in public spending, which must mean that there will be even bigger cuts elsewhere.

Some large projects will become sacrificial lambs
The Prime Minster's announcement on ID cards indicates that other large projects could become sacrificial lambs within the Deficit Reduction Plan. Indeed the First Minister, Lord Mandleson, made it clear two weeks ago that nothing was sacrosanct.