Autumn Statement 2023 – Impact on Public Services

The #AutumnStatement2023 reflects the progress made this year, with inflation halved, achieving one of the Prime Minister's missions for this year. The Chancellor has benefited from this additional fiscal headroom to deliver some headline tax changes by reducing National Insurance by 2%. Baringa reflects on what this will mean for public finances as part of our series on Public Sector Productivity.??

Growth remains set to be relatively slow, with the Office for Budget Responsibility (OBR) forecasting an average of 1.4% p.a. from 2023 to 2028. After peaking at 7% in 2023, inflation (GDP deflator) is also forecast to lower to an average of 1.84% between 2024 and 2028. These two measures are likely to have a lasting impact on the funding and delivery of public services as the Chancellor commits to growth in public spending below the rate of growth in the economy, and with inflation running above growth, real-term cuts to spending on public services are expected.??

The OBR highlight the impact of this decision in their detailed commentary, highlighting that HM Treasury has made a series of enduring spending commitments beyond this spending review period, including:??

• The NHS assumed at 3.6% p.a. in real terms to meet the Long-Term Workforce Plan
• Increasing Defence spending to 2.5% of GDP from current levels at 2%?
• maintaining Official Development Assistance (ODA) at 0.5% of GNI p.a.??
• expanding the free childcare provision to 30 hours a week for nine-month-old to 2-year-olds.

In the Treasury’s post-SR21 resource spending projects, these assumptions would leave other ‘unprotected’ departments spending, which accounts for around a third of other spending needing to fall by 2.3 per cent a year in real terms from 2025-26 or 4.1% if ODA was reverted to 0.7%.??

The Treasury has suggested this “gap” could be plugged with higher public sector productivity, with a 5% increase raising ~￡20bn additional funding, more than the ￡13.6bn fall in ‘unprotected’ spending. This ambition is clearly optimistic and based on the ONS’s latest assessment that public sector productivity growth has averaged around 0.2% p.a. since 1997, requiring a 2500% increase is needed over the next period.??

This fiscal restraint will be a stretch for all public sector services and Baringa’s experience guiding clients through the process to drive productivity. To drive this change within public services, organisations must focus on these three key areas:??

For more on how we can help your organisation unlock productivity improvements through a more outcome-focused approach see here or?contact our experts, Matt Jones , Rhiannon Evans or Theo Whitaker .