The pressure on the chancellor to ease austerity is intensifying by the day, with increasingly noisy calls for a more doveish approach from within his own party.
This nervousness seems to reflect a growing popular anxiety about the impact real-terms cuts of 20-30% have had on some basic services. The focus for this pressure has been the demand for the public sector pay cap to be lifted. That may satisfy hard-pressed public sector workers who have not had a real-terms pay increase for up to seven years, but will not solve the more pressing productivity challenge.
To address that, Phillip Hammond should make a major investment in public sector transformation. Done in the right way, this would greatly improve service delivery, raise productivity and save billions in the long run.
The Treasury has already accepted borrowing to invest in growth is prudent, particularly when capital is cheap. Government capital spending is due to rise by over 40% this decade and there is a growing political consensus to boost this through supply-side interventions backed by large-scale investment funds.
The Conservative manifesto committed £170bn for housing, infrastructure and research and development, including a dedicated £23bn national productivity investment fund. Labour proposed investment of £250bn over the next decade through a national transformation fund.
There is an equally compelling economic case for ambitious, targeted investment in public services to reduce demand and enhance productivity over the longer term in much the same way that governments make the case for investment in infrastructure and industry.
Of course, as an employer of more than five million people heavily focused on one of the fastest growing sectors of our economy – health and care – transforming the efficiency of the public sector would have very significant benefits for the government’s primary economic goal: improving productivity.
That investment should focus on resourcing a wholesale shift in public service away from the current model of crisis response to one of early intervention.
Under such an approach, social workers and charities, for example, identify young children at high risk and offer early help rather than wait for them to become teenagers when their needs are so much more complex and expensive to resolve. In health, early intervention includes offering support for recently-diagnosed diabetics and those with other long-term conditions to live more healthy lifestyles, reducing the risk of complications that lead to costly care in later life.
The benefits of such a shift are considerable. The Early Intervention Foundation has estimated £16.6bn per year could be saved. That is equivalent to £287 per person being spent on the cost of late intervention in England and Wales. Longitudinal academic studies and the foundation’s evaluations have demonstrated early intervention results in higher levels of literacy, employment, earnings and physical health and lower levels of domestic violence, reoffending, homelessness, and children in care. As well as saving public funds and benefitting the economy, such outcomes are inherently more humane.
Much of this may sound like common sense but it is not simple or cheap. It requires major changes to working practices, extensive retraining of public servants, investment in skills such as data science to identify people at risk and better managed interventions that adapt as needs change.
While austerity has created a much greater appetite amongst public sector leaders to apply early intervention, it has also made it increasingly difficult to do so. Our own anecdotal experience suggests a growing number of councils are reducing their investment in early intervention simply to plug the gaps in their crisis response.
The government and other parties should take establish an early intervention investment fund. This should not be a seed fund for innovative projects; such vehicles already exist. It should be a comprehensive and well-resourced programme of investment over the next five to ten years. This may require billions rather than millions but certainly nothing close to the scale of the industrial investment funds mooted.
The fund should provide repayable capital to front-load investments in prevention which are proven to deliver reductions in demand and fiscal savings for local public services. It should also offer development grants to improve data collection, skills and performance monitoring, and payments for outcomes where the exchequer is the beneficiary.
So as Phillip Hammond weighs his options ahead of a defining autumn budget, he should keep in mind the models and approaches to significantly ramp up the productivity and impact of the public sector already exist. The missing ingredient is investment.
Adam Lent, Director, NLGN and Robert Pollock, Director, Social Finance