Coalition Government needs to focus on economic growth

The priority of the public – and many politicians – is economic growth. Yet the Government is distracted by restructures of the NHS, welfare and local government finance, says Mike Thatcher

There wasn’t much festive cheer across the public sector this Christmas. Those public servants still in their jobs were grateful for a few days away from the fray, while the thousands made redundant face an almost impossible search for work.

Job losses last year affected town halls, schools, hospitals, police forces and the military as funding cuts started to bite. Meanwhile, pay was frozen and pension benefits came under increasing attack from the Treasury.

What to expect from the Coalition Government in 2013

Can we expect some respite in 2013? As the two Coalition parties consider their approaches to the next general election, will we see a softening of the austerity agenda and an easing up on public sector reform?

The short answer is ‘no’. The cuts are only just beginning, and many of the most important reforms are yet to be implemented. In 2013 we will see transformations to welfare provision, local government finance and health services.

Changes to welfare alone amount to a revolution that will take away many of the safety nets previously seen as sacrosanct. Initially, the Coalition Government announced cuts of £18bn to the welfare bill, but Chancellor George Osborne has now confirmed that a further £10bn will be removed by 2016-17.

The revolution begins in April with the introduction of a total benefit cap. Then, in October, universal credit will be phased in, combining means-tested payments, tax credits and housing benefit. Council Tax benefit is excluded from universal credit. Currently delivered by local authorities on behalf of the Government, this becomes a local scheme from April.

A victory for localism, you might think. Well, you would be wrong. The Government is giving councils 10% less than the current cost of the benefit and has said pensioners must not lose out. Town halls face reducing the Council Tax benefit paid to non-pensioners or cutting services elsewhere.

There is, or should be, an alternative. Local authorities are democratic organisations that can increase Council Tax for those who pay it. Except communities secretary Eric Pickles has promised to extend England’s Council Tax freeze.

There will be some compensation from Whitehall – an extra £225m in funding in 2013-14 and 2014-15 – but this can’t be a long-term solution. The one consolation for councils is that they aren’t facing reorganisation. Unfortunately, the same cannot be said for the NHS.

Restructuring the NHS: no going back now

Having promised no top-down reorganisation, the Coalition has done just that. The way patients receive medical care in England is undergoing the biggest upheaval since the NHS was created. Clinical commissioning groups will take responsibility for £60bn. Primary care trusts and strategic health authorities will be abolished, and a new Commissioning Board will become accountable. The opposition caused by this restructure has seen off one health secretary and caused Prime Minister David Cameron many sleepless nights.

Moreover, it has antagonised NHS staff at a time when the organisation is seeking £20bn in savings by 2015. Will the turbulence and extra cost be worthwhile for patients and the taxpayer? It’s too soon to say, but early signs aren’t encouraging.

Many NHS trusts and foundation trusts are in financial difficulty, waiting times are increasing and non-urgent procedures, such as cataract removals and hernia operations, are being rationed. Cameron probably already regrets making such huge changes at a time of austerity. But he has no choice now but to soldier on.

Why the Government should focus on economic growth and not restructuring

The danger for the premier is that he has three reform programmes – involving the NHS, local government and welfare – all coming into effect at the same time. He can only hope that there are no disasters.

But it’s a political gamble. Perhaps the Coalition’s new year resolution should be to focus on economic growth rather than further public sector restructuring.

Mike Thatcher is editor of Public Finance

Mike Thatcher is Senior Publications Manager at EY.