24 Nov 2016 10:33am

What the Autumn Statement means for the public sector

Finance directors in the UK’s public service organisations were not expecting the chancellor to offer significant relief from the austerity-driven spending reductions of recent years. In his first Autumn Statement, Philip Hammond did not surprise them, except possibly with the severity of the OBR’s estimate of the negative impact on the public finances of the Brexit referendum result

Caption: The absence of announcements on social care and NHS funding was striking

In the run up to the statement, there was an unusually strong consensus view across the public services that the priority for higher spending is social care. Not just because the evidence of unmet need and quality concerns is building, but also because NHS leaders are more clearly articulating the role that inadequate social care is playing in the serious operational and financial problems facing acute hospital and community healthcare providers.

The National Audit Office reported this week that two-thirds of NHS trusts were in deficit in 2015/16, that the financial problems are endemic and this is not sustainable.

Against this background, the absence of announcements on social care and NHS funding was striking. The two sectors are currently working together on local Sustainability and Transformation Plans covering all of England, designed to close the daunting gap between care need and resources in the years ahead. They will have to complete this work without any new financial boost.

Infrastructure and housing did rather better with £1.4bn of new investment in the Affordable Homes Programme and greater flexibility for housing associations, developers and councils in how this money can be used. For the first time, they will be able to use it to build homes for affordable rent, rather than shared ownership or rent to buy. The new mayor-led Combined Authorities are getting new borrowing powers to enable them to put financial muscle behind their economic development and transport plans.

This focus on longer term investment is no doubt necessary, but for those responsible for local public services, the main message they will take from the chancellor is that austerity is here to stay well beyond this Parliament. Public spending as a share of GDP will continue to fall towards 40% from its 2010 level of 45%. The work will continue to reduce costs whilst meeting the growing demand for services from an ageing population.

Local authorities will be particularly concerned at the OBR’s gloomy prognosis for the economy post-Brexit. Recent changes make councils increasingly reliant on the income they raise directly in their local area from business rates and council tax, with central government withdrawing from its role in equalising funding between affluent and deprived areas. Understanding the local consequences of the OBR’s forecast will be a priority for local financial planners.

Gareth Davies is a partner at Mazars LLP, London and Durham


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