A UK austerity surprise

 

What have been the big lessons of three years of "austerity"? Everyone will have their own view. But here's one that's surprised politicians on both sides of the debate: you can cut council budgets by a quarter, in real terms, and the majority of people won't really notice the difference.

I know readers will be jumping to correct me. In a recent poll by Ipsos Mori, 48% of people agreed with the statement that "budget cuts have gone too far and threaten social unrest."

But here's the funny thing; the same poll asked people whether they had personally noticed a change in the quality of their local services. 65% said they had not.

That fits with the anecdotal evidence I've been getting, travelling around the UK. Nearly every council leader I speak to - Labour or Conservative - says they're worried about future cuts, but they also say they've managed to protect the bulk of services so far.

The level of satisfaction with some councils is even going up: 74% of people now say they are satisfied with the services delivered by Hackney Council, for example. That compares with 23% in 2001 and 53% in 2006. (Thanks to Ben Page of Ipsos Mori for drawing my attention to these numbers.)

Graph showing % of Hackney residents satisfied with Hackney Council 74% of Hackney residents now say they are satisfied with the Council

That is quite impressive, when you consider that the average local council will have seen its budget cut by more than 25%, after inflation, by the end of next year. The number of people working in local government has also fallen dramatically, as I've discussed before.

Human nature

Why have these cuts caused so much less bother than many expected, when they were announced?

One answer - favoured by the right - would be that there was even more fat to cut in local government than people thought. Councils had too much money in the good years, and were spending it badly.

Another - which politicians on the left might go for - is that councils, and the government generally, have been good at concentrating cuts on a relatively small share of the population. On this view, the pain is there, it's just being not being felt by the people most likely to vote or write to their MPs.

Probably, it's a mixture of both. Poll after poll shows that one part of the population HAS very much noticed the effects of austerity: disabled people. Maybe George Osborne should not have been surprised by the reception he got at last year's Paralympics.

Likewise, many of the planned cuts to the welfare bill - like the benefit 'cap' for families- will be felt keenly by only a small number of households.

But, that's the welfare cuts. The fact that council leaders believe they have protected the front line so far suggests that there was also a lot of 'spare capacity" out there, ready to cut.

We know from experience that when money is flowing freely into a public service, civil servants tend to get less efficient at spending it. We then get more value for money out of them again, when budgets are cut. It's human nature.

You can't cut spending forever without hitting the quality of services, but after a period of rising spending, you can certainly have a period of getting the same for less. Indeed, the likes of Hackney actually seem to be delivering more.

For all the complaints, we may also be seeing this in the NHS. Calculating productivity in the public sector is notoriously dicey, but the latest data - see chart below - show productivity in the NHS grew more slowly than in the rest of the economy from 2001 onwards, when money was flowing in.

UK Labour Productivity for the healthcare sector and the economy as a whole UK Labour Productivity for the healthcare sector and the economy as a whole (1995=100)

Since the financial crisis that pattern has gone into reverse, with productivity in the NHS outpacing the rest of the economy. (Though, health warning: the figures only go up to 2010, and we know productivity in the rest of the economy has been nothing to write home about.)

Austerity lessons

And the lesson of all this?

Mr Osborne's critics on the right would see a clear lesson: far from cutting government too much, he hasn't cut it nearly enough.

No doubt his Labour critics would see it differently: as a reflection, perhaps, of the way that even Labour councils have concentrated cuts on people who are less able to make a fuss.

But we economists might come away with a more positive thought: if there was this much hidden capacity lurking in local government - who knows, maybe we're seriously underestimating the rest of the economy's potential as well.

 
Stephanie Flanders, Economics editor Article written by Stephanie Flanders Stephanie Flanders Former economics editor

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  • rate this
    0

    Comment number 288.

    . A Belligerent Minority
    Or, to put it another way, the councils in question decided that their counciltaxpayers deserved a proper service provision, with priorities determined locally, funded disproportionately by those more able to pay!
    =
    Paternalism and we waste almost a quarter if not more of our working lives paying for it! Truly they have stolen 25% & more of my day, Slavery by another name

  • rate this
    +1

    Comment number 287.

    Feed back from most posts complain about potholes. Is 25% of council budgets spent on road maintenance?

    Councils were stuffed with staff that ratepayers cannot afford. And we are still liable for the pensions.

  • rate this
    +1

    Comment number 286.

    @284. Its a statement of fact. Civil servants are paid more than the PM.

    To answer your question. Sharon Shoesmith

  • rate this
    0

    Comment number 285.

    Two comments.

    Hackney is fast becoming gentrified.The increase ib satisfaction for public services reflects the rapidly changing class composition fhe area as white working class and lower paid ethnics move out

    Is declining NHS productivity based on the NHS study on which Lansley based his reforms? Dr Black,Lancet 2012,reported rising productivity as mortality rates fell by 30% in,10yrs

  • rate this
    +1

    Comment number 284.

    Whirlygig, you are putting forward a Straw Man argument. If reward should be decided against responsibility, the ONLY people ever held responsible for disasters in how Public Money is spent in this country are the politicians. When was the last Public Servant sacked and lost his pension for a bad or incompetent decision? I would say probably never! Their peers protect them (and themselves)!

  • rate this
    0

    Comment number 283.

    As councils trim social services budgets it becomes even harder for hospitals to discharge elderly patients leading to more bed blocking, longer waits in A&E etc. The effects of council cuts are being felt in the NHS

  • rate this
    0

    Comment number 282.

    Ms Flaunders is right: 74% now say they are satisfied with Hackney Council services. She is also right to state: ".. one part of the population HAS very much noticed the effects of austerity: disabled people." Hackney faces imminent closure of 4 centres, impacting on the needs of disabled & older people & carers (& all register a significantly lower level of satisfaction with Hackney's services).

  • rate this
    0

    Comment number 281.

    @279. A straw man argument. The PM is an elected Politician, equivalent in a Council is the leader who is paid a lot less than the PM. Chief Exec of a Council is equivalent to a Head of a Civil Service Dept such as Sir Bob Kerslake who is paid more than the PM (and he isn't the highest paid). The PM argument also excludes the issue of the free housing, transport etc provided with the role.

  • rate this
    +1

    Comment number 280.

    Some top notch lazy reporting yet again. If 5 minutes was spent researching this story it would have become clear that the majority of the 25% cuts will be made over the next 3 years. These cuts will conveniently not hit home till after 2015; whens that election again? Also most council get over half their funding from council tax, so their total funding is not going to be cut by anywhere near 25%

  • rate this
    -1

    Comment number 279.

    Can somebody please explain to me why many Council CEO's and even some Council Head's of Department, are now paid much more than the Prime Minister?

  • rate this
    +1

    Comment number 278.

    Having had a chance to read your article I find that the most obvious point that you seem to overlook is that the poorer a person is the more they rely on council services. while most people only think of the library, education and refuse collection, what about all the other services that are provided, housing, sports facilities, social care services, parks and recreation facilities, etc.

  • rate this
    +2

    Comment number 277.

    Council services go on quietly behind the scenes and are only visible when something goes wrong. The success of my work (environmental health) is judged by residents not being injured or dying. This will never be visible to the public.

    People don't have the same attachment to local government as they do to the NHS. They will only appreciate its true value after it is gone.

  • rate this
    +1

    Comment number 276.

    An example of waste - Surrey County Council replacing almost all it's lamp posts - 70,000 of them, at a cost of 150m.

  • rate this
    0

    Comment number 275.

    If anyone didn't think that local authorities were awash with money before the cuts was fooling themselves. There is nothing like local government to waste money: just look at their offices.

    Of course the spectre of starving widows freezing to death in garrets is always trotted out to justify more tax and spend but in reality those needs are easy to meet. The six figure salaries are what costs.

  • rate this
    +2

    Comment number 274.

    Is there any council service that could not be outsourced effectively? Many are already. Only a handful of council staff will then be needed to monitor them. We could be given our money back in the form of vouchers. e.g people with children should be given vouchers to use in any school they like, vulnerable people should be given a care voucher to spend how they like depending on their needs.

  • rate this
    +1

    Comment number 273.

    229 "I suppose you would also shut libraries and stop council support for arts like local theatres and arts groups as well?"

    Yep, great ideas. The council is there is fulfill utility tasks, not provide entertainment and subsidy to certain groups. That is not the job of a council. If my business become unviable, I dont get a subsidy, neither should a theatre business or a sports centre.

  • rate this
    +1

    Comment number 272.

    Cut council budgets by a quarter and people won't really notice the difference?
    Tell that to those, usually vulnerable, people whose bus services have been withdrawn, whose community and sports centres have been closed, whose libraries and museums have shut and whose advice centres have gone.
    Get out of the capital, out of the leafy suburbs and into the regions, and open your eyes Stephanie.

  • rate this
    -1

    Comment number 271.

    They own all the land. They can't house the population. They can't employ the population. All the public school boys can do is trouser public money and take no responsibility. May be we should just get rid of them, oh no wait the rest of the poulation are worse.

  • rate this
    +2

    Comment number 270.

    #261 actually 5_000_000 imigrants less would reduce the housing bills as those people would be doing the jobs of the immigrants

  • rate this
    +1

    Comment number 269.

    263.Jaw dropping truth
    Read again, I said for low paid workers. I do not agree with giving bigger houses the more kids you squeeze out. Building social housing would pay for itself in 10 years with rent and savings on HB. The economic job creation would be beneficial. It can be structured tenats pay for the upkeep. Councils have £bil from sale of council housing + few bill from foeign aid.

 

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