The State of the State 2016-17 Brexit and the business of governmentUK Public Sector | #stateofstate

The numbers 01Government in numbersThe state of public financesEliminating the debt

Through business lenses 02Productivity lensTalent lensBalance sheet lens

A citizen view 03Seven key findingsThe citizen view of the state

A view from leaders 04Six key findings The view from the top

Governments in the UK 05Total identifiable spending per head on servicesNorthern IrelandScotlandWales

Recommendations 06Brexit and the business of government

Join the discussion 07Register for webinarsGet in touchAbout the report

Contents

01

The numbers

The numbers

Government in numbers

51

182

12648

43

138

28

30

69

Figure 1. Government income will be £716 billion in 2016-17

39

240

30

145

29

102

46

24

3434

49

Government will spend £772 billion in 2016-17

Debt interest

Personal social services

Public order and safetyOther including EU transactions

HealthTransportEducation

Industry, agriculture and employmentDefence

Social protection

Housing and environment

Source: Budget 2016, HM Treasury

National insuranceExcise dutiesCorporation tax

Other (non-tax)

VAT

Council taxBusiness rates

Income tax

Other (tax)

Figures in £ billion Figures in £ billion

5.3 millionpeople employed by the UK public sector

73UK members of the European Parliament

17.4 millionthe number of people who voted to leave the EU

The numbers

The state of public finances

1. Economy, interrupted

2. Public finances, disrupted

3. Resetting fiscal policy

Four questions arise from Brexit as the Government considers its fiscal options:

“ Will the mandate or the objective change?”

“ Will infrastructure spending replace austerity as the dominant fiscal theme?”

“ Will Brexit compromise or support public sector transformation?”

“ For how long will the Government continue to run a deficit and increase its debt?”

The numbers

The state of public finances – Eliminating the debtFigure 2. Eliminating the deficit

Borrowing Pre-referendum forecast Shock senario Severe shock senerio

40

60

80

100

120

140

160

Source: HM Treasury and Office for Budget Responsibility, 2016

07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18

20

Deficit elimination

Through business lenses

02

Through business lenses

Government through business lenses – Productivity lens

Ten elements of public sector productivity that are exposed to Brexit

Public finances

Transport, especially where it crosses national borders

Whitehall’s capacity and capability particularly in trade negotiations and engagement

with business

Immigration, including the status of EU citizens working in the UK, and their welfare

entitlements

Tax systems and laws which could need to

be recreated

Policing and border control

Regional and rural funding

Workforce arrangements, especially for the NHS

and social care

Regulations, e.g. employment

Higher education because the UK’s universities access substantial EU funding for research and host 125,000

EU students

Through business lenses

Government through business lenses – Talent lensTo assess the scale of potential of automation for the UK public sector, its occupations can be divided into three types of role:

Administrative or operative roles in which activities are mostly repetitive and predictable. They can be desk-based such as administrative jobs or more physical, such as hospital porters.

Interactive or frontline roles which mostly require a high degree of personal interaction, such as teachers, social workers and police officers.

Cognitive roles that mostly require strategic thinking and complex reasoning, such as finance directors and chief executives.

Data from Oxford and Deloitte suggests that administrative and operative roles are most likely to be automated.

of public sector roles cannot be automated but could make better use of data for decision making.

50%

Automation will save £17 billion by 2030 impacting 861,000

jobs.

Through business lenses

Government through business lenses – Balance sheet lens

09-10 10-11 11-12 12-1313-14

Restated2 14-15 Notes

Assets £1,249.5bn £1,234.3bn £1,270.6bn £1,297.5bn £1,414.9bn £1,455.3bn Assets – what the state owns – include £395.5 billion in infrastructure assets, £374.4 billion in property and £51.2 billion in land assets.

Liabilities (£2,477.4bn) (£2,420.0bn) (£2,617.4bn) (£2,925.4bn) (£3,255.5bn) (£3,558.5bn) Liabilities – what the state owes - include £1,493.3 billion in public service pension liabilities and £1,174.5 billion in government borrowings.

Net liability

(£1,227.9bn) (£1,185.7bn) (£1,346.8bn) (£1,627.9bn) (£1,840.6bn) (£2,103.2bn)

Net liability – the difference between assets and liabilities – these have increased since 2013-14 by £262.6 billion. The primary driver of this increase was a change in the discounting rate used to value the public sector pension liability.

A citizen view03

A citizen view

The citizen view of the state – Seven key findings

Most people expect public services to get worse because

of Brexit

Citizens want the public sector to listen more and

collaborate better

The public sector needs to bridge the digital divide

The public see the NHS as a higher priority for the government than Brexit

Satisfaction with most public services remains high

Austerity’s impact has been felt most within certain groups – and

has risen in the past year

The appetite for tax rises to fund spending has risen

since austerity began

A citizen view

The citizen view of the state

18%BUT

41%

60%

Top 3 government priorities:

felt their expectations had been exceeded by public services

support tax rises to extend public services, up from 46% in 2009

expect Brexit to make services worse

say the NHS and healthcare

say leaving the EU

say education and schools

33%57%

30%

30% think the public sector is better than the private sector at providing services, up from in 2004 20%

25% think private sector is better, down from in 2004 36%

27% feel affected a fair amount or a great deal by austerity measures

23% feel that the public sector understands their needs

17% feel that the public sector listens to their preferences

63% feel that the public sector working collaboratively would improve quality of services

A view from leaders

04

A view from leaders

Six key findings

Demand management is part of a wider issue in the citizen-

state relationship

The future is more collaboration and a more flexible

workforce

Leadership needs to be effective, high-profile, diverse and

continually renewed

Brexit brings uncertainty, but public sector leaders

are sanguine

The NHS needs continued transformation as well

as funding

Digital progress is yet to meet ambition

A view from leaders

Interviews with public sector leaders

“ Brexit has thrown a huge spanner of uncertainty into Whitehall.”

“ The language has changed. It’s more explicitly about policing according to need, and that’s a fundamental shift. We used to pride ourselves on being all things to all people.”

“ Politicians keep ******* around, saying there will be more money and people will think ‘everything’s alright then’. But by 2018, by 2019, we’ll be at a precipice.”

“ By 2020, there will be deep collaboration.”

“ We’ve wasted time digitising systems that weren’t fit for purpose in the first place.”

“ Our workforce needs to be much more fluid.”

“ We need to disrespect existing boundaries.”“ By 2020, we’ll have

a more integrated local state.”

Governments in the UK

05

Governments in the UK

Total identifiable spending per head on services

£ per head (thousands)

9.598.587.5 10 10.5 11 11.5

North East

North West

Yorkshire and the Humber

East Midlands

West Midlands

East

London

South East

South West

Wales

Scotland

Northern Ireland

Source: Public Expenditure Statistical Analyses 2016, HM Treasury figures for 2014-15

7

Governments in the UK

Governments in the UK – Northern Ireland

There is a sense of optimism, energy and confidence in the future, with two-party government, an independent minister, first official opposition and the Programme for Government.

Economically, this decade has seen a renaissance for NI that has exceeded expectations. Over the last five years Invest NI has promoted 42,488 new jobs, attracted £3 billion in employment related investment and seen £589 million invested in research and development.

Brexit raises unique concerns for NI.

The fishing, farming and food industries are significantly exposed to Brexit.

NI will become home to the UK’s only land border with an EU member state.

NI Civil Service reduced its headcount by 17 per cent within two years and reduced its number of departments by a quarter.

It has set Northern Ireland’s public administration on a more sustainable footing and its leaders are now focused on people-centred and cultural change.

Governments in the UK

Governments in the UK – Scotland

Scotland stood out in the EU referendum result as the UK’s most Europhile nation.

Whilst Brexit has raised the question of a second independence referendum there are legal and financial barriers.

The EU is only able to negotiate departure with a member state – which is the UK – and second, the UK parliament would need to pass legislation to allow for a second independence referendum.

Scotland’s deficit is double the UK’s overall deficit when measured as a share of GDP.

A capital spending programme of £100 million was announced in the summer of 2016, which is expected to be drawn from 2015-16 underspends.

Projects will be assessed for the funding based on how quickly they can start, the number of jobs they will create and their wider effect on the supply chain.

If the UK Government decides to recalibrate its fiscal policy towards investment, it may take a similar approach.

Governments in the UK

Governments in the UK – Wales

This year’s Welsh Assembly elections saw a minority Labour government formed with support from Plaid Cymru for a term of office that looks set to take Welsh devolution forward.

The Welsh Government has laid out focused plans to stretch its new fiscal powers as well as a distinctive public policy agenda through six Bills in its first year.

In Wales, the referendum result of 52.5 per cent to leave the EU mirrored the UK result.

Clearly, the central questions for the Welsh government in Brexit negotiations are whether trade deals will support Welsh export industries and whether the UK government will replace EU funding streams.

Recommendations06

Recommendations

Brexit and the business of government – Five recommendations

Engaging the citizen in public sector reform will help reset expectations

and manage demand

Public leadership needs to be celebrated, valued and supported

to meet new challenges

Government should maintain focus on business as usual throughout

Brexit – and that includes transformation programmes

Brexit is an opportunity to rethink rather

than recreate

Digital transformation needs to focus on changing organisations

one step at a time while maintaining momentum

Join the discussion07

Join the discussion

Register for webinarsThe State of the State 2016-17, Brexit and the business of government3 November, 13:00 to 14:00Join the report’s authors to explore: what is the state of the state?

 

The Autumn statement24 November, 13:00 to 14:00  The 2016 Autumn Statement marks a turning point for the UK’s fiscal policy as Chancellor Philip Hammond resets tax and spending plans in response to Brexit. Taking place the day after the statement, this webinar will bring together Deloitte experts to explore what it means for the economy, tax and the public sector.

Register using the links above this presentation

Mike TurleyGlobal Public Sector Leader020 7303 3162mturley@deloitte.co.uk

Andrew HaldenbyDirector020 3327 1186andrew.haldenby@reform.co.uk

Ed Roddis Head of Public Sector Research 020 7007 2920eroddis@deloitte.co.uk

Join the discussion

Get in touchDeloitte Reform

@DeloitteUKGov

@reformthinktank

Join the discussion

About the reportFor the fifth year, Deloitte LLP and Reform have produced an annual report featuring commentary on the public finances, interviews with public sector leaders and analysis of government ‘through a business lens’.

This year’s report also features an exclusive survey that shows what the public think about the state, the public services and how Brexit could affect the UK.

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