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Ben Lucas, Director of the 2020 Public Service Commision, posts here on Labour’s shifting strategy on public spending. I agree with everything he says.

A point he implies, but to which I would give greater emphasis, is the need to make a case for public services based not just on what we can afford but on the longer term economic interests of the country. The debate about deficits and cuts has tended to revert to a simplistic economic model in which the private sector generates money, the Government taxes it, and the public sector spends it.

The Government’s economic case for public spending is more in terms of maintaining employment and activity rather than the role public spending can play in helping address the medium term challenges such as demographic change and competitiveness. If Labour is to try and show it has an approach to public services which is both realistic and different to that of the Conservatives it needs to develop a story about the economic value of public services along with policy approaches that give this edge. One way of squaring this with the undoubted spending squeeze ahead is to explore how adversity can foster innovation.

Studies of social innovation (such as that reported by the Young Foundation last year) show that being in a difficult situation can be the best spur for creativity (in better times it is harder to stir people from complacency). Another key factor is the freedom to innovate. As public service budgets get squeezed the temptation for central Government will be to tie everything down promising that budgets and service levels will be maintained in the areas the public seems to care about most. But such an approach would be disastrous leaving service managers and front line workers no room or incentive to do things differently.

Currently it is assumed that the areas that will be most badly hit by public service retrenchment are those – like the North East – which have the highest proportion of their local economy in the public sector. But if the squeeze leads to new ways of thinking and working it could be those areas that see the biggest advances in overall productivity. This is not just about more efficient spending. Education and health care are two of the fastest expanding areas of global economic activity. Innovation in the public services could help the UK compete more effectively in these markets.     

Rather than simply splitting the difference between ‘steady as she goes’ and the ‘we’re doomed’ view of public spending, the Government needs to show how effective  public services can contribute to economic dynamism as well as social inclusion and well being. But this case relies on them giving local service providers the freedom to work with service users and communities to develop ways of providing public services which achieve better outcomes with the same or fewer resources.

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