Viewpoint: Welsh spending review

The emergency budget in June set out the government's plans

The collapse of the banks has left a mess to be swept up and it looks like public sector spending is both the dustpan and the brush.

The emergency budget in June 2010 set out the government's plans to reduce public sector expenditure by £99bn by 2015-16. When the commitment to protect spending on health and overseas aid is taken into account, this equates to an average reduction of 25% in real terms over the next four years.

Local government waits with trepidation for the Comprehensive Spending Review and the subsequent assembly budget in November. In the meantime, the assembly government has planning assumptions of annual cash reductions of 3% on revenue spend and 10% on capital spend.

For local government this could mean a fall in revenue by around £140m each year and capital funding could fall by £50m a year. Councils have found it extremely challenging to make ends meet when settlements were increasing.

Due to a combination of increases in demand for services, rising expectations and increases in costs, cuts of this magnitude will have a profound effect on the services that councils deliver. The capital reductions are particularly worrying.

Reductions of this scale will inevitably result in job losses across the public sector. Local government in Wales has already announced between 3,000 and 4,000 job losses over the next three to five years all of which has a knock on effect on spending in the local economy.

Greater proportion

This is troublesome given that a greater proportion of Wales' working population works (26.6%) directly for one of the public services compared to the UK average of 21.1%.

A report last year by the Centre for Cities highlighted that "Swansea, Hastings, Ipswich, Barnsley, Newcastle, Liverpool, Blackpool and Newport as being highly vulnerable" because they have a heavy reliance on jobs in public sector areas considered to be "at risk" of cuts.

Many rural areas are also hugely dependent on public sector jobs: for example, Ceredigion, Pembrokeshire and Gwynedd have the highest percentages of working age populations who work in the public sector.

The public sector in Wales spends over £4.3bn a year on goods and services with the private or voluntary sector and discussions are already underway on how new service models might be developed with these sectors in order to maintain provision.

The result is that Wales is potentially more vulnerable to a double dip recession than the rest of the UK. Despite the spend per head on economic development being higher in Wales than in any other part of the UK (the equivalent of £80 for every person in Wales), Wales' gross value added per head of population has fallen further behind the UK average from 80% in 2002 to 74% in 2008.

This puts Wales in a more difficult position to deal with the approaching financial constraints.

Growing gap

During this period we have seen a growing gap in per pupil spending between England and Wales and this in turn is being reflected in the growing attainment gap between the two countries

First Minister Carwyn Jones's commitment to protect education spending in Wales is limited to ensuring that the reductions it faces are 1% less than other services. It is the WLGA view that education is key to reducing poverty and improving Wales' economic potential.

While WAG intends to protect its "universal" policies, such as free prescriptions and concessionary fares, other changes in areas such as housing benefit have led the Institute of Fiscal Studies to suggest that the June 2010 budget cuts and service reductions will impact disproportionately on those that are most vulnerable.

Much can be achieved through improving efficiency and increasing collaboration between organisations. Using the combined purchasing power of the public sector in Wales has already achieved significant savings - over £7m (including £2m on IT equipment).

This is being taken further both directly within organisations and through the assembly government's Efficiency and Innovation Board led by Jane Hutt.

The board is also examining what can be delivered regionally and how we can change our systems to reduce bureaucracy and process. In England, for example, burdensome inspection is being reduced and the Audit Commission abolished.

The examples of Canada and Sweden show that it is possible to reduce large deficits in public spending but this was achieved by ensuring that no service areas was considered "off bounds" for potential cuts.

The ring fencing of larger service budgets inevitably means that services which are the "meat and drink" of local authorities such as waste collection, street lighting and cleansing, parks and leisure will find the next period incredibly challenging.

Convenient mantra

Thus what we need in Wales is a mature debate that examines all possible options - what are the services and policies that are the most vital to Welsh citizens and communities? Now is not the time to cling to policy decisions that, while very laudable, were made in a fundamentally different financial environment.

The whole of the public sector in Wales must truly work together and share the pain - there needs to be an overall coherence in the design and implementation of the Welsh fiscal cuts programme.

These are all difficult choices for politicians particularly in the run up to the assembly elections but the stark reality is the measures proposed by the UK coalition government imply the longest and deepest sustained period of cuts in public service spending since the days of rationing.

Do more with less might be a convenient mantra for national politicians

But sadly in reality the reductions envisaged in both the quantity or quality of public services means that do less with less may be the order of the day.