Speaking up for Public Services

Speaking up for Public Services

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Britain’s public services are a vital bedrock in sustaining local economies and communities both in good times and now, during the worst economic recession in living memory. They ensure essential investment in infrastructure and support for business and can mitigate the worst social and economic consequences of the downturn. But as public services come under increasing pressure to cut costs and jobs, Speaking up for Public Services challenges the view that spending cuts are the only option. For Britain to emerge successfully from the current recession in a strong position for the future, we need to strengthen and sustain our core public services.

Executive Summary

As Britain faces up to a public finance crisis of unprecedented proportions, public spending has become a key political battleground. Over the last few months we have seen the debate turned on its head, shifting from how and when to reduce the public deficit to a general acceptance that there will be and should be substantial cuts in public spending and services. This has seemingly taken place without a full discussion of the alternatives or the implications of cuts to public services.

This pamphlet seeks to provide a different context, to question the urgency of calls to cut the public sector deficit, and to set out the case for the vital role played by the public sector during the current recession and beyond. Our premise is that sustaining public services is vital to economic recoveryand the future prosperity of the country.

Recovery is the best way to tackle the public deficit in the long term, and that means planning for a budget deficit in the short term until the recovery is firmly under way. Cuts in public spending would only have an effect on future competitiveness and would impact on the most vulnerable and needy in society. As argued by David Blanchflower, respected economist and former member of the Bank of England's Monetary Policy Committee: 'Lesson one in a deep recession is you don't cut public spending until you are into the boom phase.'

We know from history that, without effective government intervention, the cost of recession is borne hardest by those who lose their jobs and by the vulnerable and poor that depend most on public services. We also know the big mistake made in the late 1980s and early 1990s was to give priority to macro-economic policy to fight inflation over employment and welfare policies. After the recession, youth unemployment was two or three times higher than unemployment suffered by older people, was higher within cities, and was even higher for people of black and minority ethnic backgrounds. The impact of recession was felt hardest among young people, with a legacy that lives on today.

Britain is a wealthy country. Average pay is among the highest in the world, while marginal personal tax rates for the highest earners is low for a country with fully developed public services. Tax increases for the better off will not be popular but will be necessary and preferable to slashing those services on which the poorest and most vulnerable rely.

The UK loses up to an estimated £25bn a year through tax avoidance and evasion. A restructuring of tax and a crackdown on avoidance and evasion is necessary to restore financial stability and to start to address the gap between the rich and poor.

Learning the lessons of history

Siren calls for a deflationary package of public spending cuts in order to 'balance the books' have no real understanding of the impact on front-line public services or indeed the potential to plunge the country into a 'double dip' recession. There is strong polling evidence that suggests the public is against such a strategy in any event. An Ipsos MORI poll conducted in June 2009 found that very few people agree there is a real need to cut spending on public services in order to pay off the national debt.

We need a much clearer understanding of the relationship between the current high levels of public debt generated by the financial crash and the recession and the actual amounts spent on vital public services. The total national debt at the end of July 2009 was just over £800bn, or 58.8 per cent of national Gross Domestic Product (GDP). Excluding the cost of financial sector intervention, public sector debt stood at £658.1bn, or 46.6 per cent of GDP.4 The national debt rose from the very low level of 30 per cent of GDP in 2002 to 37 per cent in 2007, mainly due to increased investment in health and education. The sharp rise since 2008 has been caused by the recession in terms of lower tax receipts, higher spending on benefits and the cost of the financial bailout of banks and financial institutions. Even at the current levels it is below the national debt of Japan (194 per cent of GDP), Italy (100 per cent) and the United States (71 per cent). Indeed, it is worth bearing in mind that at the end of the Second World War, the national UK debt was 150 per cent of GDP. There is an obvious need to keep a clear perspective on the issue of national debt and its relationship with spending on public services.

Public spending cuts would only add to economic decline at this stage. Adding redundant public sector workers to the already swollen ranks of the unemployed will impose additional pressures on benefit budgets and further reduce spending power within the economy as a whole. The public sector is an important lynchpin not just in itself but also in terms of the wider economy. The involvement of private and third sector bodies in the delivery of public services, for instance, has continued to grow over the past decade, producing nearly 6 per cent of GDP and employing over 1.2m people. This interdependence of public, private and third sectors makes it difficult to consider public spending cuts without appreciating the impact upon the wider economy and those private and third sector organisations that deliver essential public services.

The wider economy would also take a hit from cuts to public expenditure through the inevitable impact on the £125bn spent annually on public sector procurement. Cuts may help balance the books in the medium term, but the impact on business, employment and essential services would only increase economic and social costs in the long term.

Building long-term economic stability through public services

The public sector represents an essential bulwark against continuing financial crises and the impact of the economic downturn. Whether it is sustaining employment, supporting businesses, mitigating the social costs of recession or underpinning training and education to provide the platform for future competitiveness, the public sector is the only cohesive force that can operate in the wider public interest. The equation is straightforward: direct cuts in public spending lead to increased costs elsewhere. Paying people to be unemployed does not make economic sense. The cost of benefits was £169bn in 2008/09, almost the same as the entire public sector pay bill. It costs £8,000 per year for each unemployed person, which includes £3,000 lost tax revenue. The price of public spending cuts is greater inequality and social division, with all of the associated costs and consequences these bring.

Public services are major employers and purchasers of goods and services. They create jobs, provide decent pay and pensions and set a benchmark in terms of equal opportunities. There have been threats made to public sector pay and pensions on the grounds that public service workers must 'share the pain' with the private sector. The public sector pay target has been below inflation for the last three years. Further attacks on terms and conditions would not only reduce spending power in a key part of the economy, but also lead to a return to the recruitment and retention problems we last saw in the 1980s and early 1990s.

The social costs of fiddling while Rome burns

The impact of the recession would only be exacerbated by cuts in public spending. Unemployment is threatening to reach 3 million, and of this number approximately 40 per cent will be under 25. There is a danger of creating another generation of workless youth with long-term costs to both government and society.

There is evidence that every 3 per cent rise in unemployment leads to a 2.7 per cent rise in heart attacks among men aged 30-44 and increases of 2.4 per cent in murders and suicides in people under the age of 64. We also know that recessions and rising unemployment are a major source of the increase in poverty; 70 per cent of nonworking families are poor compared to only 5 per cent of working families.

Lengthening the dole queues with legions of former public sector employees does not make any sense. Our own survey of over 2,000 public sector managers showed that 92 per cent think the recession is increasing the demand for public services. With the demands placed on personal social services, the NHS, police, social housing, leisure services, debt advice and employment services among others, it makes even less sense to rein in the public sector in order to satisfy the narrow constraints of fiscal prudence.

Public employment and public services act as an anchor in maintaining social as well as economic stability. Poverty costs the UK £25bn a year - a figure comparable to the projected costs of replacing Britain's nuclear deterrent Trident. Further reductions in public spending and the public sector headcount will only inflate an already heavy price for society as a whole.

Doing more with less

Contrary to the popular myth that the public sector is bloated and inefficient, there is strong evidence that the investment in public services made since 1997 has led to real improvements in services. Increased spending on health and education has resulted in huge reductions in hospital waiting times and increased educational attainment, while programmes such as Sure Start have resulted in important benefits to around two million families.

A key study undertaken by the Association for Public Service Excellence (APSE) shows that for every £1 of public money invested in public services through direct employment and through procurement of supplies and services a further 64p is generated in the local economy. The public sector is in fact a driver of economic growth through local multipliers of public spending. This helps to sustain more resilient local economies.

There is further evidence of an improvement culture within the public sector, engaging the energy, enthusiasm and support of public sector managers, the workforce, trade unions and service users. The MacLeod Review undertaken for the Government argued that better employee engagement could do more for the success of UK organisations 'than almost anything else'. Employees are not an afterthought: high-quality employment with good pay and terms and conditions, secure pensions and the provision of training and employee development are crucial to future competitiveness. If we want better and improving public services we need to invest in the workforce and set the benchmark against which other employers and industries can be measured.

Beyond the recession

This pamphlet sets out the positive case for public services and investing in those services during the recession. Investment in public services pays for itself in the long run - whether that is in improved public infrastructure, housing, transport, schools and hospitals or in education, skills, training and the provision of high-quality employment with all of the positive economic and social benefits that brings.

But we can't turn off the tap at the merest sign of the green shoots of recovery. Sustained investment and support for public services is the catalyst that will drive the economic recovery and our long-term economic, social and environmental wellbeing. The public sector is a fundamental part of our economic and commercial success. Public spending is not the cause of the national debt and if we are to build a strong, competitive and sustainable economic future then public services are part of the solution, not part of the problem.

'We must lay hold of the fact that economic laws are not made by nature. They are made by human beings.' - Franklin D. Roosevelt

The role of public services during an economic downturn

The UK economy, and indeed the world economy, is faced with a degree of downturn that may rival the Great Depression of the 1930s. For public services this has far reaching implications: rising unemployment and business failure are eroding the tax take and forcing up government indebtedness at a time when demand for services is increasing. The benefit bill rises as jobs are lost and incomes fall; demand for social housing increases as mortgage default levels go up; the police, the justice system and the prison service come under pressure from increasing crime levels; the health service copes with an increase in mental and physical ill health.

Faced with these twin pressures of falling revenues and rising demand, the Government is coming under pressure to pull back from its erstwhile commitment to expanding the range and quality of public services. There is a real danger that planned investment in new schools, colleges, hospitals and transport links will be reined in, in an effort to make the books balance. Moreover there are growing signs of a political backlash against the public sector, with threats to public sector pay, pensions and perceived job security.

With the impact of the recession dominating lives, public borrowing high and resources in increasingly short supply, the demand to reduce spending on public services grows day by day. Spending on the UK public sector has grown in the past decade, leading to a misconception that the public sector is somehow 'featherbedded' and a drain on resources.

This pamphlet challenges that misconception and demonstrates how a sustainable public sector is vital to underpin a strong economy, society and environment. Now is not the time to whittle away public services but to use resources in the most effective way to help mitigate the effects of the downturn and place the country in a position to emerge competitively in a new global economy.