Today marks the first anniversary of George Osborne’s Emergency Budget. It will certainly be remembered for robustly tackling the record budget deficit. But its reputation will become bigger than that, because it also started a shift in the debate on public finances away from spending and cuts to how real value for money must be delivered for taxpayers. That is why it will be seen as a rare “game changer” in the way that government expenditure is measured, managed and even talked about.
We have seen other “big” Budgets before. Geoffrey Howe’s 1981 Budget tackled the rapid inflation that was wreaking havoc in the economy at that time. Nigel Lawson’s 1988 Budget significantly lowered the tax burden for individuals and created greater incentives for businesses to invest in the UK. However, no other Chancellor in the last fifty years faced a budget deficit of the scale that confronted George Osborne after the election. He was bold and did not duck the challenge.
The Comprehensive Spending Review in September last year built on that foundation and set out the details of how the Government would bring spending under control and achieve its fiscal mandate. This decisive action plan has won international backing and plaudits from the IMF and the OECD among others. Out on the doorstep during the local elections, I found a pragmatic acceptance that strong action is needed. One year on, the principles underpinning the Emergency Budget are continuing to win the argument on how the deficit should be tackled.
What is clear is that the opportunity facing the nation’s finances, and the Chancellor’s ambitions, go well beyond reducing costs. The economic imperative and the tangible change in public mood represent an important moment in time that must be seized. It is a once-in-a-generation opportunity to put the spotlight on value for money and bring about a cultural change in the way that it is delivered for the taxpayer.
The Government does not need to look too far to find inspiration on how to do it. Despite the banks’ fall from grace, there are many positive role models in the private sector. When I worked as a senior executive at Asda, the aim of lowering the cost of living for customers was something that motivated colleagues across the company. Cost control was a vital part of a culture committed to delivering the value for money: price, quality and service, demanded by our shoppers. In Board meetings, customer outcomes and return on investment were what counted, not how much money was thrown at a problem. That commitment to deliver value for money day in day out creates a degree of trust and loyalty that would be the envy of most public servants or government ministers.
Previous governments have found it difficult to engender that type of culture in the Civil Service and in our public services. But the evidence clearly shows that it is something the last government did not seriously attempt to do. Its ill-conceived experiment with “Big Government” backfired, despite a period of unprecedented economic growth. The UK was left with a structural deficit before the economic crisis that was consistently bigger than the Eurozone average from 2003 to 2007. Just as worrying, public sector productivity fell by 3.4% between 1998 and 2007 at an annual cost of £58 billion, which equates to over 41% of last year’s budget deficit. It is a legacy that will continue to haunt the Labour Party as it struggles to rebuild its credibility on economic policy.
The Coalition Government is committed to putting value for money at the centre of fiscal policy and creating a new yardstick by which future governments will be judged. This will require major changes in three main areas: in institutions, in management tools, and in the hearts and minds of both the public and our public servants. The Government has already made important steps in the first two areas.
The independent Office of Budget Responsibility (OBR) is one institutional change that will be a lasting legacy for the Chancellor. Creating an independent body to forecast and analyse public finances means that government will no longer be able to cook the books or indulge in what Lord Turnbull described to the Treasury Select Committee as “wishful thinking”. The OBR will give both Parliament and the public more confidence in a government spending plans and a greater ability to hold that government to account.
Beyond institutions, change is needed in the way that public finances are managed. This requires new objectives for civil servants in which value for money is a critical factor both in judging performance and in deciding prospects for promotion. The Government is raising the bar in the level of financial understanding that is expected from senior civil servants. Reforms that will make it possible to trace individual elements of projects from budget to outturn will also improve accountability and performance management. In the past, senior civil servants were more concerned about avoiding bad headlines and the size of their budget, rather than finding more effective ways to deliver public services. Those days are now long gone.
Sir Phillip Green’s review of expenditure showed that government also needs to dramatically improve the way it gathers information on spending across departments. The new Efficiency and Reform Group in the Cabinet Office is setting out ways to tackle these issues. Its plans to better co-ordinate procurement across government will lead to savings of around £3 billion a year. Initiatives like this will be vital in reversing the downward trend in public sector productivity.
The focus on value for money cannot only be about the things government buys, because public sector pay and benefits are its largest cost by far and account for around half of departmental resource spending. So, the Government has had little choice in addressing public sector pay and pushing ahead with much needed pension reforms. There is a pressing need to create a more level playing field between the public and private sectors that will encourage business-led job creation and, at the same time, make the taxpayer’s bill more affordable.
3. Hearts and minds
The ultimate test of whether value for money has become a real focus of attention will not lie in new institutions and management tools, but in whether there has been a fundamental change in the way people talk about public funds. The conversation will have turned to results and outcomes, not just the price paid for them, and the tired debate about “cuts versus spending” will have moved on to the value actually received by taxpayers.
The Emergency Budget is recognised as having played a critical role in shifting the terms of the debate towards value for money, as well as being a defining moment in confronting the economic crisis. By seizing the moment, George Osborne will be given credit for having created a “game changing” Budget that will have an enduring impact beyond the fiscal consolidation and this Parliament.