UK Spring Statement: The renewed need for resilient public services

On Wednesday, 23 March, the UK Chancellor of the Exchequer Rishi Sunak addressed the House of Commons to deliver his Spring Statement. The much-awaited annual address, half a year after the Autumn Budget and Spending Review where the Chancellor allocated funds for Government departments and public services and announced changes to benefits, came at a time of rapidly rising living costs in the UK. Not even two months before the Statement, the Chancellor had announced a £9 billion support package, including a £200 energy bill loan to all Britons and a £150 council tax rebate to 80% of households, to ‘take the sting’ out of rising energy bills[1].

In the month since Russia’s full-scale invasion of Ukraine, the cost of living crisis in the UK has grown bleaker still, a reality which Mr. Sunak spoke about towards the beginning of his Statement. Inflation, which hit a 30-year high of 6.2% in February[2], has now been forecast by the Office for Budget Responsibility (OBR) to peak close to 9% this year. 2022-23 is now expected to see the largest single-year decline in real household disposable incomes since 1956-57, with inflation-adjusted living standards not set to return to pre-pandemic levels until 2024-25. In a further prediction likely to raise fears of stagflation and given the likely impact of lower disposable incomes on consumer spending, the OBR has additionally revised its previous forecast for growth in 2022 down from 6% to 3.8%[3]. This will inevitably have far-reaching implications for people’s need for government services, such as Universal Credit, which is set to rise in April by a rate of 3.1%, far below that of inflation[4].

In the face of these mounting pressures, it was inevitable that Mr. Sunak would have to announce further mitigatory measures to shield Britons from the worst effects of the cost of living crisis. And he did, announcing three ‘immediate measures’:

1. Cutting fuel duty

In the most widely anticipated of the three ‘immediate measures’, Mr. Sunak announced a cut to fuel duty in the amount of 5p per litre, for a period of 12 months. This cut, taking effect from 6pm on the day of the Statement, will cost the Treasury an estimated £5 billion.

2. Abolishing VAT on green energy and energy efficiency measures

Although not unexpected, this policy may have come as more of a surprise to some, given the Chancellor’s well-documented reticence towards the net zero policy[5]. However, in line with Downing Street plans to bolster energy security by expanding UK production of nuclear and renewable energy[6], Mr. Sunak completely abolished VAT on all energy-saving measures, including solar panels, insulation and heat pumps.

3. Doubling the Household Support Fund

To provide state assistance to vulnerable households with the cost of essential items, Mr. Sunak announced an additional £500 million for the Household Support Fund from April, bringing the total amount of funding provided for the Fund to £1 billion.  

Mr Sunak also used his Statement to reaffirm his commitment to cutting taxes, announcing an effective cut in personal taxes through an increase to the National Insurance income threshold and a commitment to reduce income tax by the end of this Parliament.  That said, despite coming under pressure from Labour and members of his own party in recent weeks to scrap the planned 1.25-percentage-point rise in National Insurance contributions[7], Mr. Sunak defended the measure, arguing it was necessary and that every penny would go towards health and care in the UK.

What is also significant about the Statement is what was left unsaid: public services. Mr. Sunak adhered to the departmental allocations outlined in last October’s Spending Review, which saw a 3% increase in departmental budgets and the reversal of most pre-Covid cuts. However, analysis by the Institute for Fiscal Studies (IFS) has found that inflation will wipe out one-quarter of the real-terms increases to spending on public services announced in October[8]. Without new funding, this amounts in essence to a squeeze on budgets for public services: in fact, the OBR has estimated inflation has already wiped £5 to £17 billion from departmental finances, even as departments and the services they provide seek to clear Covid backlogs[9]. But Mr. Sunak has already indicated he is reluctant to revisit departmental budgets just half a year from setting them[10].

In our reaction to the Autumn Budget in October 2021, the Serco Institute heralded a new norm in public services. Covid-19 placed an unprecedented strain on public services, endowed us with a newfound appreciation for frontline workers and services upon whom we relied during the public health emergency, and in so doing forged a new relationship between state and citizen.

In our latest UK publication, People Powered Public Services – Monitoring UK Opinion, we found that respondents’ satisfaction with public services had, in aggregate, declined slightly between August and January. We posited that the increasing cost of living was partly responsible for a squeeze on working-age Britons’ satisfaction with the services they used. With inflation, energy and fuel prices set to rise still higher, it is likely that still more people will come to rely on public services: it is therefore increasingly important that their quality be safeguarded, even as services recover from the Omicron wave of Covid. Now more than ever, it is vital that citizens have access to services on which they can depend, as they pay more at the pump and prepare for energy bills to spiral still higher.

We have already made the case that it would be a moral failure not to learn the lessons of Covid to craft the public services of the future: resilient, agile, and driven by the innovation and cross-sector collaboration we saw unleashed on a breathtaking scale during the pandemic. The case for embedding these tenets into everyday public services has grown stronger and more urgent since the autumn.

In view of worsening personal and government finances, it has become still more vital that public services are enabled to adapt to shifting fiscal circumstances. Governments must ensure the exemplary standards set during Covid continue to be met, and while Mr. Sunak’s Spring Statement may have featured little in the way of public spending, we must anticipate that the conversation will once again turn to vital public services. And when that happens, the state and its delivery partners must demonstrate that they remain capable of the resilience and innovation we have borne witness to over the past two years.

 

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