The period since 6 May has been a period of unprecedented turbulence in UK politics. On the day I wrote this column I woke up having personally witnessed the departure of Gordon Brown as prime minister the previous night (by chance I was riding past Downing Street on the number three bus at the time). We now have the inauguration of the Cameron-Clegg coalition and must consider the implications for the public sector.
Whatever the outcome, we know that the public sector is going to face a significant savings challenge over the next four years if the country is to be saved from Hellenic-style meltdown. In reality, the issue is about the timing of the savings. In pre-election statements both Clegg and Cameron had been robust in the need for an immediate adjustment to the pattern of public spending.
Those of us, such as myself, who sit in the public sector finance director hot seat, know that difficult years are coming. The financial truth of a public sector net debt of the scale we have dictates that a fundamental re-sizing of the UK public sector is required. This must include visiting such controversial areas as the total number of public servants and the distribution of taxpayer support between the countries that make up the United Kingdom.
We can only accept this reality, but a concern is how new ministers will address this difficult problem and the advice they will be getting. Immediately, ministers will come under pressure from vested interests and from those who argue that any particular service should be ringfenced against the savings. In a sense this has already been reflected in the Conservatives’ commitment to protect health spending.
It seems to me that in a radical cost reduction situation no service can be treated separately. It must be remembered that in services such as health, education, child protection, policing and others, there are significant back office costs, which are an overhead to the frontline service that the public value. These back office arrangements must be seen as generic and in any scenario must be put up for scrutiny with a view to re-sizing, to make a contribution to achieving a more balanced position of public spending. So no spending area should be exempt.
Additionally, I urge caution. Hopefully, there will be some advisers to new ministers who remember the aggressive approach the Thatcher government took to public finance in the early 1990s, which ultimately led to severe financial difficulties culminating in the poll tax riots. A repeat of this would do the country no favours.
For FDs in local government there are particular challenges. Local authorities are the only tax raising body outside the treasury. This automatically makes local government unpopular with the electorate. Linked with this, the services that local government provides are diverse and its structures are complex so that the overall value to society – while immensely important – is less obvious when compared to services such as health.
With any new government likely to be committed to addressing the public sector deficit issue, public sector FDs will be at the frontline. We must demonstrate honesty with the stakeholder about the financial realities, show the ability to build internal consensus in delivering on the financial agenda and assertiveness in delivering realistic savings programmes.
There are going to be considerable changes over the next few years, but ultimately those of us that apply sound judgement based on empirical evidence can continue to deliver for our organisations, no matter how hard pressed we will be.
I believe some of the best talent in the finance community lies in the public sector and, as a profession, we need to have confidence that we can deliver for the country in the long term – regardless of who leads us.
Stephen Fitzgerald is director of finance for the London Borough of Hounslow
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