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The peak state and the public service challenge
The document discusses the challenges facing public services in the UK. It notes that public spending peaked in 2010 following the 2008 financial crisis. Tax revenue has declined due to lower productivity and pay, while welfare costs and an aging population are rising. Improving efficiency in public services is difficult due to the nature of service work where demand determines costs, organizational complexity, and political pressures that can discourage operational changes. Unless productivity grows substantially, budget and productivity pressures on public services will continue for the foreseeable future.
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The peak state and the public service challenge
- 1. The peak stateand the public service challenge Steven Toft
- 2. The challenge… • Howdid we get here? What happened in 2008? • What is happening to the economy and the labour market? • What are the implications for public services? • Why the pressure for efficiency improvement will continue • What are the challenges? • Has the state peaked?
- 3. What happened in2008? Source: ONS Longer-term trends - Public Sector Finance
- 4. What happened in2008? Source: IMF World Economic Outlook 2016
- 5. In Chart by ResolutionFoundation Usually we recover after recessions but…
- 6. ….…we haven’t hadthe usual boomy bits. Source: ONS, OBR
- 7. Productivity & paystruggling Chart by Resolution Foundation
- 8. 8 Which means lowertax revenue Source: Resolution Foundation
- 9. Source: Resolution Foundation Thestate peaked in 2010
- 10. Source: Resolution Foundation Higherwelfare, lower public service spend
- 11. Was the postwarperiod a blip? Chart by Duncan Weldon using Band of England data Early days yet but….
- 12. Ageing population Source: ONSCensus data 2011 2025
- 13. Longer term… Source: OBRFiscal Sustainability Report – Chart by Michael O’Connor
- 14. Relatively hard toincrease productivity in service organisations Source: ONS
- 15. Service sector productivity UKUSA DEU FRA ESP ITA NOR DNK Total 2.4 2.2 1.0 1.0 -0.1 0.1 1.6 1.4 Manufacturing 4.3 7.1 2.7 3.2 1.9 0.1 3.5 2.5 Services 2.3 1.7 0.1 0.4 -0.8 -0.2 1.3 1.0 Average annual productivity growth 1998 - 2004 UK USA DEU FRA ESP ITA NOR DNK Total 0.5 2.2 1.3 1.0 2.9 0.8 0.0 1.8 Manufacturing 2.9 8.5 4.9 4.2 5.8 3.2 3.2 5.7 Services 0.4 1.2 0.5 0.8 2.0 0.2 0.8 1.9 Average annual productivity growth 2009-2011 Source: Bank of England
- 16. The dilemma…. Source: Basedon figures from Institute for Fiscal Studies and Resolution Foundation
- 17. Why improving publicsector efficiency is hard 1. The processes • More difficult to improve processes in service organisations • Customer is part of the process • Time taken depends on the characteristics of the customer • Public - Must deal with whoever comes through the door • Repeatable? Predictable? Controllable? • Demand = cost • Failure demand • One housing benefit dept found 80% customers went round again.
- 18. Why improving publicsector efficiency is hard 2. The organisations 5 things stop change •Complexity – the extent to which the business goals are unclear and the level of ambiguity in the organisation; •Political resistance – the presence of competing interest groups with high levels of power and influence; •Cultural resistance – how much a proposed change runs counter to the shared assumptions which prevail in the organisation; •Size and Scope – the extent to which the change affects lots of people and crosses organisational and national boundaries; •Lack of change experience – the extent to which managers have led similar change programmes in the past.
- 19. Why improving publicsector efficiency is hard 2. The organisations • Inherent complexity and ambiguity • More difficult to nail down strategic goals and measures • “In health care, prices are easy to observe, whilst quality is not” • Ambiguity creates openings for politicking • Silos and tribalism • Complexity multiplied when different organisations need to work together • Prolonged decision making
- 20. Why improving publicsector efficiency is hard 3. The politics • What makes operational sense doesn’t always make political sense • Media scrutiny can lead to perverse decisions • ‘Something must be done’ usually means a public servant will have to do it • When facts are inconvenient, we often pretend not to know them • Success demand • Politicians will always ‘meddle’ • “Business school thinkers can ‘do’ organizations but rarely are they up to speed with constitutions and politics.” – David Walker
- 21. Conclusions • We seemto be in a period of low growth for the next 5 years – possibly longer • We don’t know whether this is the aftershock of a severe recession or something completely new • Earnings growth likely to be low • Low tax revenues, high social security costs • Despite cuts, public debt will remain higher than for most of last 50 years • Ageing population puts pressure on welfare and public services • Public service spending has peaked - unlikely that per capita spending back to pre-recession level • The budget and productivity pressure will be with us for the rest of our working lives
Editor's Notes
- #20 Public sector organisations average one formal disciplinary case per 364 employees each year, compared with one disciplinary case per 119 employees among private services employers and one disciplinary case per 72 employees among manufacturing and production organisations. Not only that, even when they do discipline staff, they make a meal of it: Public services employers also spend far longer than their private services counterparts dealing with formal disciplinary and grievance cases, averaging 21 days of management time on every formal disciplinary case (11.5 days for private services organisations) and 12 days on every grievance case (6.7 days for private services employers)