UK Chancellor Jeremy Hunt yesterday outlined a mix of tax hikes and UK public spending cuts totaling £55billion as part of the Autumn 2022 statement. While the NHS, social care and schools remain relatively well protected, for everyone else spending will be locked in at the levels outlined in the 2021 spending review, a reduction in real terms in today’s high inflation economy. It also confirms that much of the pain will be pushed back until after the 2024 general election, with spending from 2025 growing at just 1% per year and capital spending also frozen in cash terms.
Public services are already facing a veritable storm of challenges after more than a decade of austerity. With the wider cost of living crisis and changing demographics further increasing demand for services, public sector bodies continue to grapple with where to prioritize investment, including over £19bn of annual investment in ICT products, services and personnel.
Here, we explore the fall statement’s most notable ramifications for the public sector and its technology providers, picking out a few key points that might go unnoticed.
Fall 2022 Statement: NHS, social services and schools remain protected
Funding for the NHS in England will increase by £3.3 billion a year over the next two years. Adult Social Care will also receive £2.8bn next year and £4.7bn the following year to provide an additional 200,000 care packages. This includes the money saved by delaying the childcare fee cap and the extra funding local authorities can get by raising council tax by up to 5%.
The allocation of additional funds to the NHS will ensure that long-term projects such as the New Hospital programme, frontline digitization and the implementation of digital models of care can proceed as planned. At the same time, hospitals will receive much-needed resources to deal with the winter crises that NHS leaders expect over the next few months and ICS may be able to avoid funding shortfalls, as recently reported. However, the extra money for the NHS will still not be enough to tackle the 11% rise in inflation and will therefore represent a reduction in real terms when the extra demand is also taken into account.
Similarly, spending on schools will also increase by £2.3bn over the next two years, restoring funding per pupil to 2010 levels. teachers’ salaries, but it will at least spare schools some of the worst suffering faced by other sectors. The discussion of maintaining educational standards as a moral mission, rather than just an economic one, also shows that Hunt has far higher levels of commitment and understanding in this area than his recent predecessors. Notable by its absence, however, was any new funding for colleges of higher education (FE), again seemingly confirming FE as the Cinderella sector within education.
Reprieve for some departments, austerity for others
For other departments, the statement represented a less rosy picture. The only other departments to see increases to Resource Department Spending Limits (RDEL) were the Department for Work and Pensions and HM Revenue and Customs. As part of this, both need to put more emphasis on reducing fraud and error, so there may be additional opportunities for technology to support these programs in the future. Outside of England, Scotland and Wales are also seeing an increase in RDEL, aimed at allowing them to fund health and education projects.
Elsewhere, the Home Office, Justice Department, FCDO, DEFRA and Cabinet Office are all seeing slight reductions in RDEL. This will be disappointing for the criminal justice sector given the huge backlogs and police shortages in many areas. Similarly, the Ministry of Defense also sees a slight reduction despite the renewed commitment to maintain NATO’s spending target of 2% of GDP. All other departments have the same budget allocation as in the 2021 spending review, although this still represents a reduction in real terms due to higher inflation.
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However, as resource budgets decrease, capital budgets (mainly to fund major programs) increase in inverse proportion to changes in RDEL. It should also be noted that another review of government effectiveness has been launched, the fourth (in our opinion) since Sir Peter Gershon undertook a first review in 2003/4. Additionally, in addition to a focus on reducing fraud and error, funding for the nine catapults studying the future of technology is increased, and STEM and innovation are strongly encouraged to maintain the Great Britain as a scientific “superpower”. Yet, alas, specific IT projects receive little attention.
Challenging Times Ahead for Local Government and Upgrading
Although local authorities will be happy with additional funding for social care, concerns remain over the use of council tax increases and the drawing down of reserves to cope with the pressures. Raising the referendum limit for council tax increases to 3% per annum from April 2023 (plus an additional 2% for authorities providing social care) will provide much needed funds, but it is a brutal tool when it comes to leveling out unevenness. Worse areas tend to be more dependent on central government subsidies due to lower local tax revenues, so any additional tax revenue is likely to benefit wealthier areas more. On a more positive note, a £13.6bn package of business rate support was also announced to support small businesses alongside ensuring no council will lose revenue as a result.
The statement also saw a theoretical recommitment to the broader leveling agenda. Three further devolution deals have been confirmed – for Suffolk, Cornwall and an unspecified one in the North East of England – along with the confirmation of two ‘pioneer’ deals with the combined Greater Manchester and West Midlands authorities . With the decentralization agenda still underway, this certainly presents an opportunity for ICT providers as councils pool resources and streamline contracts.
It has also been confirmed that the second round of the Leveling Fund will go ahead as planned. However, the Investment Zones are no more because they must be reconverted around “a limited number of high-potential clusters”, while existing expressions of interest will not be pursued. What this means in practice is unclear, but it once again shows that leveling remains, in many ways, little more than a set of limited competitive funding pots as opposed to a fully fleshed out strategy.
Renewed commitment to infrastructure
On a more positive note for leveling, the Chancellor’s decision to proceed with key infrastructure projects is positive for the transport and broadband sectors. As for transport, High Speed 2 (HS2) and Northern Powerhouse Rail (NPR) have been protected. It will come as a relief after £9bn earmarked for the upgrade of the Trans Pennine Mainline and the move from Network Rail to Great British Railways (GBR) were recently put on hold.
Despite this, a major overhaul of Britain’s railways looks increasingly likely, particularly with almost complete public sector ownership in Wales and Scotland, and further devolution of powers to the combined authorities of Manchester and the United States. West Midlands, raising questions about deeper vertical integration. Whatever the outcome, it should result in more opportunities in the public sector for ICT providers to the rail industry.
Similarly, providers of mobile and fixed broadband systems and services will be encouraged by the Government’s continued commitment to Boris Johnson’s Gigabit project, with national gigabit-enabled broadband coverage still targeted for 2030. With contracts currently awarded nationwide, it is a government-backed technology program whose value remains evident.
Tough years ahead for the public sector – and its IT departments
Overall, the autumn statement cannot hide the fact that the UK public sector will face difficult years. A decade of austerity has already drained services, and a second round will be tougher now that there is less fiscal space to absorb the cuts than before. With the wider cost of living crisis and changing demographics further increasing demand for services, the public sector will not be able to significantly increase the £19 billion spent annually on ICT products, services and staff. .
However, there will always be opportunities in this area. Previous austerity measures allowed some sectors, notably health care, to increase investment while others stagnated. For example, ICT spending by healthcare organizations increased by 11% between 2016-17 and 2020-21, the only part of the public sector to see significant growth in technology spending over this period. The measures described in the autumn statement will not radically change this picture.
Rob Stoneman is Director of UK Public Sector Services at GlobalData
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