Date post: | 19-Feb-2017 |
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The peak state and the public service challenge
Steven Toft
The challenge…
• How did we get here? What happened in 2008?
• What is happening to the economy and the labour market?
• What are the implications for public services?
• Why the pressure for efficiency improvement will continue
• What are the challenges?• Has the state peaked?
What happened in 2008?
Source: ONS Longer-term trends - Public Sector Finance
What happened in 2008?
Source: IMF World Economic Outlook 2016
In
Chart by Resolution Foundation
Usually we recover after recessions but…
….…we haven’t had the usual boomy bits.
Source: ONS, OBR
Productivity & pay struggling
Chart by Resolution Foundation
8
Which means lower tax revenue
Source: Resolution Foundation
Source: Resolution Foundation
The state peaked in 2010
Source: Resolution Foundation
Higher welfare, lower public service spend
Was the postwar period a blip?
Chart by Duncan Weldon using Band of England data
Early days yet but….
Ageing population
Source: ONS Census data
2011 2025
Longer term…
Source: OBR Fiscal Sustainability Report – Chart by Michael O’Connor
Relatively hard to increase productivity in service organisations
Source: ONS
Service sector productivity
UK USA DEU FRA ESP ITA NOR DNK
Total 2.4 2.2 1.0 1.0 -0.1 0.1 1.6 1.4
Manufacturing 4.3 7.1 2.7 3.2 1.9 0.1 3.5 2.5
Services 2.3 1.7 0.1 0.4 -0.8 -0.2 1.3 1.0
Average annual productivity growth 1998 - 2004
UK USA DEU FRA ESP ITA NOR DNK
Total 0.5 2.2 1.3 1.0 2.9 0.8 0.0 1.8
Manufacturing 2.9 8.5 4.9 4.2 5.8 3.2 3.2 5.7
Services 0.4 1.2 0.5 0.8 2.0 0.2 0.8 1.9
Average annual productivity growth 2009-2011
Source: Bank of England
The dilemma….
Source: Based on figures from Institute for Fiscal Studies and Resolution Foundation
Why improving public sector efficiency is hard 1. The processes
• More difficult to improve processes in service organisations
• Customer is part of the process• Time taken depends on the characteristics of the
customer• Public - Must deal with whoever comes through the
door• Repeatable? Predictable? Controllable?• Demand = cost • Failure demand• One housing benefit dept found 80% customers went
round again.
Why improving public sector efficiency is hard 2. The organisations
5 things stop change•Complexity – the extent to which the business goals are unclear and the level of ambiguity in the organisation;•Political resistance – the presence of competing interest groups with high levels of power and influence;•Cultural resistance – how much a proposed change runs counter to the shared assumptions which prevail in the organisation;•Size and Scope – the extent to which the change affects lots of people and crosses organisational and national boundaries;•Lack of change experience – the extent to which managers have led similar change programmes in the past.
Why improving public sector efficiency is hard 2. The organisations
• Inherent complexity and ambiguity• More difficult to nail down strategic goals and
measures• “In health care, prices are easy to observe, whilst
quality is not”• Ambiguity creates openings for politicking• Silos and tribalism• Complexity multiplied when different organisations
need to work together• Prolonged decision making
Why improving public sector efficiency is hard 3. The politics
• What makes operational sense doesn’t always make political sense
• Media scrutiny can lead to perverse decisions • ‘Something must be done’ usually means a public
servant will have to do it• When facts are inconvenient, we often pretend not to
know them• Success demand• Politicians will always ‘meddle’• “Business school thinkers can ‘do’ organizations but
rarely are they up to speed with constitutions and politics.” – David Walker
Conclusions
• We seem to be in a period of low growth for the next 5 years – possibly longer
• We don’t know whether this is the aftershock of a severe recession or something completely new
• Earnings growth likely to be low• Low tax revenues, high social security costs• Despite cuts, public debt will remain higher than for most of
last 50 years• Ageing population puts pressure on welfare and public
services• Public service spending has peaked - unlikely that per
capita spending back to pre-recession level• The budget and productivity pressure will be with us for the
rest of our working lives