The spectre of the November Spending Review now hangs over us all. The current talk coming from the chancellor seems to imply it won’t be as tough as those we’ve seen in previous years—his very publicly spun desire for 40% cuts to non-protected departments suggests he wants us to believe most other areas will face comparatively lower cuts. Similarly, the latest spin from government is that the worst has been avoided. Nevertheless, looking at the figures in the July Budget it is clear we are in fact in for tough times. The independent Institute for Fiscal Studies, for example, have calculated that departments that are not protected by a ring-fence will have to cut over 12% from their budgets over the next five years.

So how will non-protected services like the police cope? Can free art galleries survive? For how many more years can the public sector recruit good people while pay goes up substantially less than that in the private sector? Can local authorities take a 10% hit to their already much shrunk budgets, let alone a 40% one? And, while such cuts are likely to see the virtual end of funding for many non-statutory activities, what will it do to social care and child protection, which many feel are starting to creak dangerously already?

Apart from the sheer scale of cuts, we may be in for some radical changes to the way finance is distributed. Rumours abound of a very serious attempt afoot to create a substantial—£1bn plus—‘outcome fund’. In other words, a pot of money that would be paid out only on the basis of outcomes in the hope that it that encourages cross-cutting work.

In many ways, this is an interesting development and could seem like a win for those who advocate more investment in preventative, early action work. However, the issue remains that those who pay for a preventative programme are often not the ones who will benefit from the resulting lower expenditure further down the line. So, money spent on keeping old folk active may help reduce spending pressure on the NHS budget but not on the social services who implemented the scheme. Effective youth service provision will, over time, help the prison service and police budgets—as well as those of HMRC and DWP if young people work more and claim less as a result of that provision. But no money will go back to the local authority who paid for the extra youth provision in the first place.

The net result of all this is that we get much less investment in early intervention than we really want. So a pot dedicated to this approach, that sits outside formal departmental budgets, may help us see more action in this area. And since the pot is dedicated to this sort of funding only, departments won’t have to agonise about whether to spend on acute needs or more outcome-focused efforts—which usually ends up with the former, a short-term approach, winning out.

But it’s not all that straightforward. In the first instance, this funding pot will be created in an environment where most other budgets—for acute services, primarily—are being cut.  Those who have advocated early action may not have considered that such a fund is made possible by the cuts many departments have already suffered. So while individual departments are spared the need to pick and choose between long-term and short-term services, the former is still only possible at the expense of the latter.

The pitch to outcomes not only reflects a view that payment-by-results is the right way to go, but is highly likely to mean that the Government wants to push on hard with more Social Impact Bonds (SIBs). These outcome payment-based vehicles, funded up front by investors who are rewarded only if outcomes are achieved, have been the shiny new toy in the policy wonk locker for a while now. There has been a lot of enthusiasm for them from government, from cash-strapped local authorities, and from others who see the prospect of getting investors to put up money in advance as a good way forward. We are learning as we go along here. Some SIBs seem to be working, but others, like a major one in New York on re-offending, have not. For most it is just too early to say.

Moving too fast in this area threatens to undo the sensible learning that we can secure. All sort of issues will be raised by the Spending Review. But we should all keep an eye out for where it takes us along the path to funding being increasingly based on outcomes.

This blog has been adapted from a piece written for and published by theMJ.co.uk 

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