Beyond digital, what else will impact public service innovation?

Public service innovation appears to be back at the top of the new government’s agenda now.  Digital minister, Matt Hancock has said, at a business forum “we can’t deliver the Spending Review without a digital revolution” and clearly has the Chancellor onside with £1.8bn pledged for digital technology.  But there are some less obvious elements to the Autumn Statement that could impact success in this space over the next term. At a recent FT free lunch, Paul Johnson of the Institute of Fiscal Studies, highlighted shifts in the direction for public service reform that companies or organisations looking to innovate in the public sector should be aware of.

1.The Chancellor’s own fiscal charter might scupper his spending plans

The spending plans depend on net tax increases of £14 billion a year up to 2020 including higher stamp duty and the new apprenticeship levy.   Although Paul Johnson was positive that the Autumn Statement put the government on a ‘more realistic’ course than if the Chancellor had stuck to the Manifesto, tax revenues still look uncertain. With the apprenticeship levy (0.5% of companies payroll when it is over £3 million), companies will try to offset, or in Paul’s words, ‘gamify’, their way out of paying it through their own skills programmes. Stamp duty too depends on a buoyant housing market but could have the desired impact of slowing down property price rises, also hitting revenues. Having to adjust forecasts wouldn’t normally be a problem says the IFS.  Statistically the Chancellor only ever has a 55% chance of meeting his spending targets. Politically though, not meeting the targets means the Chancellor’s rigid fiscal charter (a surplus of £10.1 billion by 2019-20) falters. It could be the deadline not the figures that triggers a change in tack for the Treasury.

2. Expect to see a further shift towards health or pensions

The ageing population is building pressure to move away from the working age benefits (like tax credits) towards pensions and healthcare for older people. By 2020 there will be 20% more over 65s than in 2010, yet at the moment we have the lowest pension provision in any OECD country and lowest use of private healthcare in any EU country. So the likelihood is that health spending will need to rise significantly more than planned as a proportion of national income, as will pensions, at the expense of other services.

3. It will become harder to attract talent into the private sector to drive public sector innovation

Since 2010 public sector pay has increased slowly whilst the private sector’s fell dramatically. But now the tables are turning, private sector pay is predicted to grow by 4% whilst the austerity programme will cap government wage rises to a maximum 1%. A further 100,000 job losses are planned over the next five years leaving the smallest civil service as a share of the workforce since WWII. This creates challenges for Civil Service CEO John Manzoni who will be looking to secure an injection of commercial nous and tech skills to drive the transformation programme.

4. The landscape for local services is going to fundamentally change

Dramatic cuts in central government support for local government (more than 50% over the next four years) herald more freedom for local government over their finance than we’ve seen for decades. Authorities will be allowed to keep business rates, receipts from asset sales and increase council tax to fund adult social care which now makes up half of local government costs.   But the IFS warns this will trigger a significant unbalancing of local spending.  The squeeze could hit deprived areas twice as hard as prosperous ones, and as much as 30% cuts in some parts of the country. So public / private partnerships will become more important than ever, and companies shouldn’t hold back from coming up with solutions.  Tech innovation, big data, new collaborative delivery models are going to be essential to make services sustainable for this spending review and beyond.

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