Cuts or Unsustainable Spending? There is an Alternative
We need a bold, national ‘invest-to-save’ programme for public services funded by taxes on the wealthiest.
Further cuts to public services are impossible without deep damage to the well-being of the population and the economy. And yet, the debacle of the last few weeks has made it even more expensive and risky for a government to borrow money to fund the public sector, particularly given relentlessly rising demand. Fortunately, there is a solution: a bold invest-to-save programme.
It is common practice in public services (and indeed the private sector) to spend a larger than usual sum of money in the short term in order to reduce costs over the medium to longer term. There are many examples. Giving extra support and remuneration to foster carers to make it less likely children need to be taken into much more expensive care. Spending more on public health initiatives to reduce demand for costly acute health care. Developing digital platforms to reduce isolation rather than waiting for people to suffer deteriorating mental health requiring intensive treatment. Such schemes are not an alternative to providing adequate funding for the ongoing day-to-day delivery of services but their goal is ultimately to reduce the scale of that funding without any reduction in quality.
A Bold National Programme
A government that genuinely cared about public services, but was fearful of potentially unlimited spending, would take the invest-to-save principle and place it at the heart of an ambitious, national campaign to both reform the public sector and reduce costs. It would be funded centrally but very largely designed and delivered locally, possibly by the new Integrated Care Systems, particularly if they were made genuinely cross-sector rather than NHS focused. And It would be fully costed by the Treasury and assessed by the OBR with clear plans for the savings that can be made over time.
Most importantly, it would be about more than simply funding random innovations or new tech: it would aim for a wholesale reduction of demand for public services by shifting the system away from the current treatment and emergency response model towards preventing personal or health crises emerging in the first place. As such, this would not be a marginal innovation fund: this would be the key part of the Government’s fiscal and public service reform agenda combined. Such an approach will involve many different elements but as New Local’s work has shown, it will require a fundamentally different relationship between public services and local communities - one that uses the assets, knowledge and energy of the latter to keep people happier and healthier.
One can easily imagine hard-headed Treasury mandarins looking askance at this: nice in theory but not quite as effective as literally turning off the funding taps. But we have reached a point where cuts have clearly become a false economy. Squeeze the funding in one part of the system and demand simply rises somewhere else. There is now good evidence, for example, that the austerity of the last decade has increased ill-health and hence demand for health and social care services. So, what looks like hard-headed, common sense is in fact a route to increased pressure on services and even higher costs.
Invest-to-save has the opposite effect. An evaluation of a recent national invest-to-save programme launched in Wales found individual projects could save as much as three pounds for every pound invested.
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The real problem is not the efficacy of invest-to-save but the fact that public sector bodies have a decreasing amount of resource and energy to commit to the transformations that could save money. This is what a national programme would resolve.
Funding the Invest to Save Programme
Nevertheless, a significant shift in the system that could radically improve both the performance and cost of public services is not going to be cheap - somewhere in the tens of billions at least. So, how would it be funded?
Were interest rates low, the economy strong and the UK’s fiscal credibility high, it would make sense to borrow the funds while also relying on rising tax receipts from economic growth. But neither of those conditions apply today, so the money would have to come from higher taxes.
There is a precedent for this: the 2002 Budget raised National Insurance to help provide extra funds for the NHS. That move proved very popular but we live in different times. An across the board tax rise would be unfair in the middle of a cost-of-living crisis. So, the tax for invest-to-save will have to come from those most able to pay. That extra taxation could be time-limited by linking it to the life of the invest-to-save programme, but some combination of higher income tax for those earning six figures and above, a wealth tax and raised corporation tax seems unavoidable.
Many would argue that these taxes would damage the prospects for economic growth. But what we have learned in the last few years is that the biggest threat to our economic well-being comes not from high taxes and sluggish growth but from a failure to be able to respond to crises in an increasingly volatile world. Public services are plainly fundamental to that capacity to respond - indeed it is the private sector that has needed repeated bailouts to avoid collapse, not the public sector. Starving the public sector of the resource to transform itself is now a bigger risk to the economy - and consequently the state of the public finances - than some extra taxes on the wealthiest members of our society.
So, the opportunity is there for government to seize a tried-and-tested way of simultaneously addressing the pressure on the public finances and improving public service outcomes. It may be a struggle to convince those in the Whitehall machine who find it hard to see beyond established alternatives but when those alternatives are so unpalatable, the struggle will be more than worth it.