Spring Budget: Day-to-day public spending will continue to increase by 1%

Chancellor announces Public Sector Productivity Plan

The Chancellor of the Exchequer has kept a 1% increase in day-to-day public spending above inflation, despite speculation it would be cut to just 0.75%.

In his Spring Budget, Jeremy Hunt announced a Public Sector Productivity Plan which marks the first step towards returning public sector productivity back to pre-pandemic levels and will ensure taxpayers’ money is spent as efficiently as possible.

Backed by £4.2bn in funding, the plan aims to allow public services to invest in new technologies like AI, replace outdated IT systems, free up frontline workers from time-consuming admin tasks and take action to reduce costs down the line.

Hunt said:  “Although spending has continued to rise every year, public sector productivity remains below pre-pandemic levels – by nearly 6%. This demonstrates that the way to improve public services is not always more money or more people – we also need to run them more efficiently. We need a more productive state not a bigger state.”

“It’s not fair to ask taxpayers to pay for more when public service productivity has fallen. Nor would it be wise to reduce that funding given the pressures that public services face. So I am keeping the planned growth in day to day spending at 1% in real terms. But we are going to spend it better.”

The NHS will receive an additional £3.4bn as part of this plan to invest in new tech and digital transformation, including making the NHS app a single front door for patients, piloting new AI to halve form-filling times for doctors, rolling out universal electronic patient records, and over one hundred upgraded AI-fitted scanners so doctors can read MRI scans more accurately and quickly.

This leaves £800m to be invested to boost productivity across other public services, including £230m for drones and new technology like facial recognition which will free up police officers’ time for more frontline work and £75 million to roll out the highly successful Violence Reduction Unit model across England and Wales.

HM Treasury claims the £800m investment in non-NHS public services will help deliver up to £1.8bn of benefits by 2029, with further measures including digitising jury bundles to free up 55,000 working hours spent on admin, creating 200 new children’s social care place to tackle overspends, and expanding the use of AI across government to make it easier to spot and catch those who try to defraud the public purse.

The Local Government Association (LGA) analysis shows cost and demand pressures have added £15bn (28.6%) to the cost of delivering council services since 2021/22. Almost two-thirds of spending for councils with social care responsibilities was spent on services for adults and children – this is up from 56.5% in 2016/17.

An LGA survey found 85% of councils said they would still have to make cost savings to balance their 2024/25 budget, despite extra government funding. Over half (52%) of all respondent councils anticipated having to make cost savings within at least three different neighbourhood services.

The LGA responded to the Budget, saying: “It is disappointing that the government has not announced measures to adequately fund the local services people rely on every day. Councils continue to transform services but, given that core spending power in 2024/25 has been cut by 23.3% in real terms compared to 2010/11, it is unsustainable to expect them to keep doing more for less in the face of unprecedented cost and demand pressures.

“Councils of all political colours are starting this financial year in a precarious position, and having to scale back or close a wide range of local services, so the continued squeeze in public spending in the years ahead is a frightening prospect for communities.

“This year also saw the sixth one-year settlement in a row for councils. Keeping them on a financial drip feed in this way has led to the steady weakening of local services. Councils need greater funding certainty through multi-year settlements to prevent this ongoing decline but also to ensure key national government policies – such as boosting economic growth, creating jobs and building homes – can be achieved.”

On changes to improve public sector productivity, Social Market Foundation researcher Niamh O Regan said: “Today's announcements on investment in technology to help modernise public services and improve delivery are welcome and necessary. Executed well, they could reduce the administrative burden on public sector staff and help to rebalance workloads. However, it is the quality of public sector leaders and managers that will decide how much is actually delivered. There is a growing body of evidence showing the importance of good leadership and management to public sector productivity, but it remains neglected in policy circles. Technological improvements will only achieve their potential if the people using the new kit are well managed and effectively deployed.”

Paul Johnson, director of the Institute of Financial Studies (IFS), said: “The chancellor left his provisional post-election spending plans effectively unchanged, despite reports that he would cut them back to ‘fund’ tax cuts. Those plans still look devilishly difficult to deliver. Sticking to them would require cuts to unprotected services (those not lucky enough to be covered by existing commitments and promises) of around 3.3% per year, under a plausible set of assumptions. This compares with cuts of 6.1% per year to those areas between 2009–10 and 2014–15, and increases of 5.2% per year over this parliament.

“The chancellor is still on track to stabilise debt as a fraction of national income in five years’ time, just about, but only on the basis of a pie-in-the-sky promise to increase fuel duties (this time we mean it – promise!) and a set of post-election spending plans that still imply substantial cuts to funding of many public services which are clearly struggling with their current level of funding. While his ambition to improve public sector efficiency and productivity is the right one, and his injection of capital funding into the NHS is a sensible way of doing so, delivering on such plans and securing cash savings will be very tough indeed. That capital funding won’t arrive until 2025–26 in any case.

“We should at least be grateful that Mr Hunt didn’t pencil in even larger cuts to as-yet-unspecified public services. Nonetheless, actually implementing his plans would require cutting unprotected services – including councils, courts, further education colleges and prisons – at around half the pace that George Osborne did between 2010 and 2015. Within the realms of possibility, perhaps, but there will be far less in the way of low-hanging fruit this time around, and banking on big improvements in public sector productivity is a risky business. Whoever is chancellor at the time of the next Spending Review – which the chancellor confirmed will not take place until after the election – might wish they’d chosen a different line of work.”