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Our public sector team responds to the Chancellor's Autumn Statement highlighting the key announcements affecting the sector
Contents
Overall public sector view
Will McWilliams, Global Head of Public Sector and Head of Public Sector Advisory Services, Grant Thornton UK LLP, said:
“The Chancellor announced the need to reform public services, with an annual target to increase public sector productivity growth by 0.5% per annum, but there was no mention of investment in the NHS, social care, local government more generally nor other public services.
The financial and operational challenges facing local government demand substantial, systemic reforms from HM Treasury. This includes acknowledging the financial vulnerability of local authorities at risk of financial failure and addressing the inadequacy of the current funding formula to cater to the growing demand pressures from the diverse and evolving needs of communities. Local government had hoped that the statement would involve fiscal reform, including needs assessment, resource allocation, definition of core services, and an emphasis on flexibility, feedback mechanisms, and transparency. But the focus instead was firmly on boosting private-sector-led growth.
The significant departmental cuts baked into the forecast from last year’s Autumn Statement remain, with the fiscal headroom available to the Chancellor instead used to fund other measures. There are difficult choices ahead for whoever wins the next general election, with austerity-level funding reductions still possible for unprotected departments.”
For local government there were a few positives to take from the Autumn Statement with new planning reforms and the unfreezing of the local housing allowance both announced. There was also the further geographic rollout of existing policy with four new devolution deals and the extension of the Investment Zones in both time and money. This was coupled with some additional regeneration funding in the form of Levelling Up monies and £50 million for regeneration projects.
However, these announcements will do little to address the deep-set financial and operational challenges facing local government. Therefore, the Local Government Finance Settlement will send far greater reverberations across the sector. For now, those areas with new deals, new monies and new powers are likely to be pleased but far from ecstatic.
Given the significance of the Local Government Finance Settlement, we are currently undertaking a range of finance and scenario modelling to fully understand the implications.
The NHS had a two-year settlement in 2022 and since then additional funding has been allocated, so there was little expectation of more money in the Autumn Statement. Moreover, the Department of Health and Social Care (DHSC) recently failed to secure £1 billion funding from HM Treasury to fund the cost of strikes.
The Chancellor said very little about the NHS, other than a brief reference to the Long Term Workforce Plan, which is unfunded, and the need for public services to improve productivity by 0.5% a year. Whether this 0.5% is over and above the NHS’s planned efficiency target is unclear, most NHS organisations are currently targeting 5%. This does mean that there is no additional money to fund the seven million people waiting for elective treatment sitting on waiting lists, no new capital to fund infrastructure, diagnostic equipment, to make sure that the NHS has the latest digital and technology capability, and none to help reduce spiralling deficits across the country.
Earlier this week my colleagues Peter Saunders, Emily Mayne, and Nick Caley highlighted the growing pressure on hospital finances. The takeaway message from the Autumn Statement is clear - the health budget has grown (albeit not in real terms), more funding pots have been made available, and it has a larger workforce. The Government expects that this is sufficient, and the NHS needs to deliver within its financial envelope.
The Chancellor’s statement did not mention social care. Councils will now be waiting with baited breath for the provisional local government finance settlement for 24/25, due to be announced before Christmas. With NHS waiting lists exacerbating existing demand pressures in social care, combined with rising costs across all care markets, many upper-tier councils are now facing the most difficult budget balancing exercise in generations.
As part of the growth agenda, the Chancellor announced £520 million investment in the life sciences sector with the aim of building on the strength of the UK’s world-class pharma companies and supporting research and development in the sector. Some smaller investments were also announced - £51 million for our future health, a genetic research programme, and £5 million for Imperial College and Imperial College Healthcare to set up a Flemming Centre. The UK has a strong track record in life sciences innovations and has the biggest life sciences industry in Europe, a position that the government clearly wants to maintain.
As expected, there were no new announcements on transport other than a restatement of the rationale for the cancellation of HS2 and how the potential savings will be redistributed to underpin the "Network North" portfolio of projects. The concept of Network North requires clarification, including a clear identification of the benefits and costs associated with each component part, as has been widely discussed.
A move towards greater devolution and the potential for more Trailblazer devolution deals is an opportunity for regions like the North East to put forward plans for comprehensive investment, but as ever, finding the funds to implement change will be a challenge. The key for securing transport funding will be presenting coherent strategies that link transport asks to equitable economic growth, making it easy for the Treasury to say yes.
While the focus for the Chancellor was elsewhere, the Treasury used the Autumn Statement to make some meaningful changes to the energy landscape. In part these appear to seek to demonstrate that the centre of Government is committed to Net Zero after the PM slowed on some key targets over the summer, and more significantly, the Treasury were clearly behindthe damp squibof the last Contracts for Difference (CfD) auction.
It looks likely that the election campaign (whenever it arrives) will not see the Conservatives cave to some on the right of the partycalling for an end to the Net Zero policy. After all, the Chancellor referred to Net Zero 26 times in the text of the Autumn Statement.
While the re-capitalisation of the CfD budgethad already been announced, there were new announcements to incentive the rollout of heat pumps (no longer enforcing a rule that could significantly limit deployment in built-up areas), and cut the time for new connections to the electricity network (for the biggest plant, think offshore wind and nuclear, not your neighbour’s new solar panels). The government has allocated cash for local communities living close to major energy infrastructure (again, big pylons and large generators not solar PV) but surprisingly, with energy bills continuing to rise, there wasn’t any cash put towards short- or long-term support to help financially-strapped consumers meet their energy needs. Emissions from maritime and energy from waste will now be caught by the UK Emissions Trading Scheme (ETS) from 2026 and 2028, respectively.
It's worth noting also that in the detail of the papers released, the resource budget (i.e. for paying staff and running the department) for the new Department for Energy Security and Net Zero (DESNZ) will decrease by 10% in the next financial year, at the same time as the capital budget for DESNZ increases by approximately 40%.
