119. Can Labour’s spending review really mend public services?

0:11Hello and welcome to The Rest is Money with me Steph McGovern and with me Robert Peston and also with us Paul Johnson is back. Hello, Paul. Hi. It's lovely to have you back. Obviously, director of the IFS, which you've been doing for how long now? 14 years. And how much longer have you got left? Another six or seven months. Because you are abandoning ship. You're abandoning the UK. This is terrible. You have been the voice of reason when it comes to public finances. And God only knows what kind of chaos will ensue once you've moved on. I'll still exist, Robert. I'll still exist. I wonder if you'll still be commenting.

0:44I hope so. I hope if people like you keep asking. Well, we do. Are we going to ask him back? Should we ask? Once he's not got the title, we might ask him back. You never know. It depends on the scores. You never know. I think we wanted to kick off, actually, by looking ahead to the spending review. So we've had this budget which put up taxes and borrowing by 70 billion a year. It felt like an enormous event. But there's, I mean, some might argue an even bigger event coming up next year in the spring. And what it does is it decides how much money individual government departments will get from 2026 to the end of the parliament.

1:26What this budget did was set out a year's worth of spending allocations. But this one then picks up after that. How important will this be? Well, this is going to be much tougher even than the budget. And one of the reasons I thought the budget didn't do actually as much as I expected it to do is it really kicked a lot of hard problems down the road. And in particular, it kicked down the road the problems about what spending is going to be after next year. So what the budget did was set out, this is how much money we're going to give the health service and schools and so on this year and next year.

2:00And then it said, well, we'll set the overall envelope for the rest of the Parliament after that. So how much are we going to increase total spending by each year after next year? And whilst it was pretty generous this year and next, the envelope for the years after that was really very tight. What do I mean by that? Rachel Reeves said, I will increase spending by just 1.3 % a year, year on year, after next year. Well, that's a real increase. That's not, you know, that's not nothing. But we know that the health service will get more than that because the health service always gets loads more than that.

2:33And because that's by far the biggest total... And remind people what share of public spending these days is taken by the health service. If you look at public service spending, so spending on stuff as opposed to debt interest or paying benefits and so on, it's more than£4 in every 10 that we spend. So 40 % of every bit of public service spending goes on the health service. Exactly. And that's up from about a quarter just 25 years ago. So it's taking a bigger and bigger share. So over the last Labour government, everything was going up, but the health services were going up faster. During austerity, most things were going down, but the health services were still going up a bit.

3:12So it's just gone higher and higher as a fraction of the total. So when you put their spending up by more than 1.3 percent... And it leaves nothing for everything else. Particularly when we know that defence will have to go up, at least in line with the size of the economy, and we've got commitments for things like childcare. At best, actually, it will leave nothing for everything else. and you could actually argue that it will result in some cuts in other departments. So this is going to be a really tough spending review. And in the budget, Rachel Reeves said that she would hold it in late spring.

3:41That's been clarified to mean June. Very spring-like June, isn't it? Well, late spring stretches probably to September in Treasury speak. This is going to be tough. And we had reports that even this year there were quite tough negotiations with secretaries of state about what they were going to get. and this was a world in which they were, on average, getting quite a lot. If they really do keep to this 1.3 % a year in total through the study of the year, I was detecting your voice when you say if. You're not convinced that they will stick. You don't think they can stick to it? I think it's going to be really tough to stick to that.

4:17But, of course, the Chancellor has hemmed herself in. I mean, she has said no more tax increases, and then she seems to be slightly unsaying that. but she's also right up against the limits of her fiscal rules. So no borrowing other than for investment. Well, she's meeting that by the tiniest of tiny margins. So things might move in her direction. The forecast might get better. The economy might grow more and that will make things a bit easier. But there's an equal chance that they won't go in her direction. And at the same time, obviously, we're talking about how much the commitment is to the NHS.

4:53but even this week we're talking about the problem with the prison service and there's loads of other areas, aren't there, where it's going to need more money and will probably need reform, which costs money. Is that going to be able to happen? Well, there's a lot more money this year and next and actually very unusually. I mean, in terms of billions of pounds, the health service got loads, 22. Can I just ask you, the 22 billion that's going in for these two years into the health service, put that into some kind of historical context? Because when I talk to people in the health service, they say it's very welcome, but they don't believe it's transformative.

5:30Well, that's the trouble with something the size of the health service. I mean, we spend getting over 200 billion a year on it, so 22 billion over a couple of years is 10%. It's a significant increase. In historical perspective, it's a sort of average scale of increase that we've had over the period of the health service. So it's significant and it will be enough to keep things going. And actually productivity this year in the health service has improved after a catastrophic period since 2019. And where are we seeing those improvements in productivity? Well, we're seeing that actually the amount of activity, the number of operations and so on has gone up this year.

6:09Relative to the amount that's going in. So outputs are increasing relative to funding. But this year it's still down relative, well down relative to where it was in 2019. but after four or five years of just down, down, down, it's actually started to tick up this year. So there is some good news. There is some movement in the right direction there. So we caught up then with COVID in terms of... We haven't caught up in terms of where waiting lists are, in terms of the degree of productivity and all those sorts of things. We are at least now doing as much as, maybe even a little bit more than we were back in 2019, but with an awful lot more, something like 15 % or 20 % more doctors and nurses and so on, and only a little bit more in the way of activity.

6:48I want to come back to the challenge of improving public services outside of health and defence, on the basis of what look like very tight budgets in a minute. But I just want to drill down a little bit more on the challenge in the health service itself. One of the things that you and I grew up with in terms of the prevailing view about the health service, the NHS, was that although in some respects health outcomes in the NHS were a bit worse than in other European countries, for example, and in other developed nations, nonetheless the NHS looked very productive. You know, the share of GDP being taken by the NHS for pretty good outcomes, if not world-class outcomes, were still pretty good.

7:46One of the things that has happened over the last, I mean, really quite long period now, 10 years, is that productivity, as we've been talking about in the health service, has collapsed. And what that means is we get way worse outcomes, particularly for things like cancer treatment in the UK than many other countries, but we are spending a colossal amount of money. It's no longer value. You know, those bad outcomes are straightforwardly bad, including being really bad value for money. I mean, I suppose the question is, is there something in your view now that we have to face up to in terms of the structure of the health service?

8:27I mean, what are we doing wrong relative to other countries? Well, that's a really tough question. I mean, in terms of what's happened to productivity in the health service, as if anything actually did grow over the 2010s, partly because the budget was squeezed, and certainly for the first half of the 2010s, outputs were rising faster than inputs. And it's doing so much more than it was, you know, even 20 or 30 years ago. The demands on it are extraordinary. But I'm just talking about relative to outcomes in other countries, which seems to me to be the relevant point. You're absolutely right. We've had this collapse in productivity since 2019.

8:59But one of the things that's really depressing about our health system is that we all worship at the feet of the NHS, but it is not a good health service relative to what people in many other countries experience. And you're exactly right. In terms of curing all sorts of cancers and so on, we are not particularly good. Our life expectancy is not particularly good relative to that in lots of countries. Well, I don't know the answer to that. In terms of our life expectancy, there's all sorts of things that go on here that go way beyond what's happening in... that goes way beyond what's happening in the health service.

9:31And it's worth saying, in lots of countries, in the UK, we had big increases in life expectancy all the way up to about 2010. And then that's really slowed down. And in some parts of the UK, it's gone into reverse. There are some parts of the UK where people are dying much earlier. It seems to be massively associated with poverty. Health inequalities have grown. It's my area, isn't it? It's where I live in the northeast. Certainly big regional differences there. Now, if you compare our health service with most other countries, we are not unusual in having a system which is effectively publicly funded and effectively broadly free at the point of view.

10:09So a lot of other countries have some upfront payments and insurance. But broadly speaking, it's not terribly. I mean, it's not unusual to have essentially a free health service. And one of the things that drives me absolutely mad is when people say, oh, well, at least it's not the American health service. Well, no, it's not, but then nor is any other health service in the developed world, the American health service. What we should be comparing ourselves to is the French or the Dutch or the German health service or what have you, which are not along those American private insurance lines, which is incredibly inefficient.

10:44I mean, great. If you're rich in America, you've got great health care. But my goodness, it's expensive. And if you're poor, it's a real struggle. But across most of continental Europe, you've broadly speaking, you've publicly provided healthcare, maybe a social insurance model. But in terms of people's experience of it, they would experience it as something that they can get to when they need it. Now, what's different about ours? I think one issue is it's just kind of a single sort of massive, incredibly hard to manage thing. Another is we have underinvested in capital. So we spend actually a sort of average amount as a fraction of national income now on our health service.

11:24But for the last 10, 15 years, we spent less on building operating theatres, buying MRI scanners and all those sorts of things. So we've got less stuff and we've got fewer beds than most of these other countries. So we're running at capacity all the time. And one of the things that surprised me, we just do less management of it. We've got fewer managers. We've got probably less high quality, less high powered direction and management of the health service than you'll get in other sectors. And of course, that's politically unpopular. All politicians say, well, let's just cut out the management.

11:56Actually, we're under managed. We're not over managed. That's really interesting you say that because my mom worked in the NHS for over 40 years as a radiographer. And she said the worst thing that happened was management coming in and having too many managers. So, you know, in terms of people who didn't understand what their job involved. Yeah. Well, you can be under managed both in terms of the numbers of people, but also in terms of how good the management is. Is it not also about the fact that we do less preventative stuff? So we're not as good at the beginning about teaching you about being healthy and eating well and everything else.

12:30We're actually on terms of things like vaccinations, we're actually really good. I mean, if you look at sort of some of the international comparisons, one of the places things we come out really well on is preventative stuff. like vaccinations. But, I mean, going back to what you were saying about inequalities, I think we are, in European terms, a pretty unequal country, both regionally and locally. And we know that when you've got inequalities, people towards the bottom of the pile tend to do significantly worse in terms of their health. So we're probably putting more pressure on our health service than some other.

13:01But, I mean, there's also, as you say, the underinvestment, for example, in kit-like scanners. But also, there seems to me to be still, this is actually something I looked at in some detail, when my late wife got cancer, and I did a bit of campaigning on this after she died. And one of the things that has been a long-running problem in this country is simply detecting cancers early enough. and she was a non-smoker and was diagnosed with lung cancer. But even though she had certain conditions for a while, nobody thought that it might be, because quite often lung cancer is asymptomatic, but she had symptoms that were consistent with it.

13:50It took months for her to have the kind of x-rays and scans that could have picked it up really considerably earlier. And there are a number of issues here. It's partly awareness on the part of patients. patients, you know, people who are suffering from things often don't get the doctor early enough. And then doctors themselves historically have been reluctant to send people off to have the kind of examination scans and all the rest of it that would pick stuff up. The earlier you pick up cancer, the easier it is to get rid of it. And actually, the cheaper it is for the health service, because when you pick up a cancer late, not only is it incredibly hard to save somebody, But in the process of not saving them, you're spending an absolute fortune in terms of really expensive treatments to try and prolong life for just a bit, as it were.

14:37And somehow we just don't. And other countries are just so much better at picking up cancers early enough to sort of deal with them to really massively increase people's life expectancy. Yeah, I think this reflects, I mean, it is worth saying that the one thing that picked up reasonably quickly post-COVID was diagnostic interventions for potential cancers. And that's the only thing that picked up post-COVID. Everything else we had lots less of. So that at least was some slightly positive story. But a lot of this, I think, is down to the difficulty in accessing primary care. in other words, GPs who, you know, we have had promise after promise after promise for, you know, decades that primary care, preventative care is where the money would go.

15:21And it never has. There are no more GPs than there were 25 or even 30 years ago. There are more than double the number of hospital doctors than there were in that period. So all of the investment has gone into that one end. So that creates a bottleneck. And, you know, we've all experienced difficulties even getting to see our GP. And then what you don't have, which you will have in many other countries at a sort of well-stocked GP surgery, is the capacity to do an x-ray or the capacity to take blood and have a look at it and so on. So the whole system becomes much more complex. So how do you sort it out?

15:56What does Rachel Reeves need to do? And, you know, can it be? Well, it's where streeting is. Yes, but in terms of money. I mean, on the health service, I genuinely don't know. I mean, it's such a complicated. And one of the problems we have is that I can explain to you how the school system works. I can explain to you how university works. I can explain even the intricacies of our big parts of our tax and pension system. I literally cannot explain to you how the health service works. And actually, you need to have worked in it for 20 years actually to kind of really have a sense of how that goes.

16:31What do you mean by that? I'm both fascinated and horrified when you say it. What do you mean you can't explain it? Well, there are so many, and I can't remember the numbers. There are lots of different ways in which money flows through the system. There are lots of different tiers of management in the system. There are, I can't remember, 20 different regulators in the system. There are different sorts of ways of determining how much people get paid for things. Private companies who try to work with the health service find it incredibly difficult to engage with the procurement processes and all of those sorts of things.

17:05It is just a massively complicated system. And just to be absolutely clear, more complicated than it needs to be. Well, I think so. But again, it's really hard to tell. But, you know, there are, what are there, a million and a half or whatever the number are people working in this organisation. It's probably wrong even to think about it as an organisation. It's just so vast and takes up such a large part of the economy. And I think at some point in the next decade or two, I think if it follows the workforce plan it's following, I think something like one in ten of everyone in work in this country will be working in the health and social care system.

17:44I mean, this is just extraordinary. It's the biggest employer where I'm from in Middlesbrough by far. You know, everyone's mum and dad either worked for the Chemical and Steelworks or the NHS. Yes. Whenever I speak to Rachel Reeves or Keir Starmer, they keep saying and reform will sort everything. They don't tell us precisely what they mean by reform, but it is their watchword of the moment that at a time when money is tight, everything's going to be OK, because the way that we deliver public services will be changed to make all of them more efficient and productive. and I guess that's just I want to ask you since you're the person who has been more steeped in this part of the economy than pretty much anybody else in the UK and you'll have heard other governments talk about reform how much can they genuinely achieve and over what time scale well I think there's two parts to that I mean any of us who have used public services know that you know they could be better and they could be more efficient and that you know that is true in spades for the health service, but it's true of most other parts of the public sector as well.

18:52But they're talking about this across the piece. They're not just saying health, they're saying everything. So, you know, we can all see that things need to be and could be better. But that's super easy to say, but incredibly hard to achieve. I think Duncan Robinson at The Economist, who coined this term the reform fairy to go alongside the magic money tree. You know, you kind of, you know, rave your magic wand and everything will be reformed and better. Of course, there is need for reform of some kind, but it's an incredibly, again, an incredibly hard thing to achieve. And we have seen different sorts of reforms across different sorts of public services over many years.

19:29I mean, in a way, the school system is quite different in many ways to where it was 20 years ago. There's lots more accountability. It's actually in some ways become more effective. We've had reforms to the health service. I mean, Andrew Lansley under the last government introduced kind of massive structural reforms, which were a bit of a disaster. And that's a kind of a real lesson in not trying to do anything too big too quickly and actually really trying to understand properly how things work before doing this. I mean, I come back to how you make this reform. I don't know. And I don't think the government currently knows how to do it.

20:05It's right to look for it. But can you rely on it delivering? No, you can't. Everybody will have their own experiences of different public services which just feel so massively behind. I attracted a bit of attention the other day on social media when I talked about having my phone nicked. This was a few months ago. And the police simply refused. I told them where it was because the GPS from my other devices told me exactly where the phone had been. It was snatched from me in the street or by a biker. and I went straight to find my iPhone, could see where it was, sent the police a Google Maps picture of the front door and they just wouldn't go.

20:53I mean, their explanations were, one, there's just too much street crime, we can't deal with all of it. And the other one was, and by the way, we're not allowed to use GPS data to obtain a warrant and go in. But what they could have done is they could have gone round and banged on the door and just asked politely, we think they may be... But they'd be doing that all day. But they won't do it at all. They simply won't do it. So they're not allowed to use GPS data. They are not allowed to use GPS data to get a warrant. No, they're not. And it is, the law has to be changed. Actually, I've talked to Home Secretary about this and she, I think, has announced that they are looking at a change in the law to allow the police to use GPS data.

21:31But it is sort of mad that if you could use GPS data on all sorts of things, you know, the productivity of the piece would definitely, improve but secondly i don't know if you've if you've ever had a statement taken yes by the police recently right what they ought to do is record it and then use all the writing out yeah i mean honestly it took something like two hours because you know they have to write down it it just takes forever whereas in our daily lives you know i use ai transcription services it's you know it produces a perfectly reasonable transcript in about a millisecond all they have to do is take the voice recording, convert it into a transcript, show it to me.

22:11I can then say, well, I didn't say that and just make the odd correction. And a process of taking a statement that currently takes two hours would take about three minutes. I feel like this has turned into a therapy session for you, Robert, hasn't it? No, no, no. This is all about public productivity improvement. My friend's a police officer. I was talking to him about this very thing actually last week and he was saying, it's amazing how many crimes they solve by ring doorbells now though. So they are able to use that. They use that to solve loads. What, because they've got the CCTV? Yeah, because everyone's filming everything all the time.

22:41So they can get... And that is definitely working, is it? Yeah, well, that's what he was telling me. Right, lads, I think we need a quick break.

22:54The thing I'm really interested in about what is the jobs market and this sense of, you know, the government desperately wants to get all these economically active people, get as many of them as they can back into work. And at the same time, obviously, we've had a budget that's made it more expensive for employers to employ people, particularly the young, the low paid, part time workers. And then there's an employment rights bill as well, which obviously makes it businesses are saying, organisations are saying it's making it riskier for them to take people on because of the rights from day one and everything.

23:27So what's going to happen? Well, let me get something off my chest first then, which is we don't know what's going on in the jobs market because the Office of National Statistics survey of this stuff is absolutely useless. Why? They're managing to get a tiny number of people actually to respond to their survey. So we don't actually know how many people are in work or how many people in particular are out of the labour market or unemployed or what have you. I mean, we're just working in an incredible fog. Can I just ask you a question about that? Because there is literally no more important piece of information when it comes to economic policymaking than how many people are in work and how many people are out of work and why.

24:11It is, I mean, what is the point of any economic system? It is to provide ways for people to make a living. There's literally no more important piece of data. This absolutely cornerstone of all economic policymaking has been, to coin a phrase, shit for, I mean, just ages now. Why? What went wrong? Well, it's called, I mean, what we're talking about here is something called the Labour Force Survey, which the response rates to that were falling over a period of time and then through COVID absolutely collapsed. When you say the response rates, people just didn't, weren't prepared to say, well, not filling it in.

24:46People not preparing to give the information. I mean, I've actually, you know, a few years ago did this and it takes a bit of time and it's done over the phone. and you can get a bit irritated with it because it's still asking you. I mean, five or ten questions in there are asking me if I was on a government training scheme. And I go, well, obviously I'm not on a government training scheme. Anyway. Maybe they were suggesting you should be. Quite possibly. But partly they moved away from doing this face-to-face and they found the sort of phone systems much less effective. People are becoming less willing to share their information.