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Levels of public spending

The recession and record levels of government debt means that the large increases in public spending over the last decade have come to an end. In order to tackle the Budget deficit, the Government is planning to large cuts in public expenditure. Central government departments will have their budgets cut on average by 25% over the next four years, in an effort to eliminate the structural budget deficit by 2015. Spending cuts will vary by department, with health and international aid protected from the cuts. How will the focus on thrift impact on your organisation? Have you started planning for possible cuts?

Full details of where the cuts will fall expected to be announced in the Autumn. In addition, local government is facing up to a 2% reduction in central funding this year.

What are the implications?

• Potential for futher tax increases to ensure the government is able to meet their deficit reduction targets.
• Severe spending cuts or tax increases could risk stifling the economy and impacting on consumer confidence and spending.
• Most leaders and managers in the sector will find the new economic climate unfamiliar and challenging as they have been used to operating in a long period of growth.
• Increasing focus on and pressure to demonstrate value for money and efficiency in public services, particularly in a Conservative Government’s culture of ‘thrift’.
• A likelihood of the continuation of opening up public services to a more diverse range of suppliers, to find the most cost-efficient and effective supplier (see bringing markets into public services).
• A reduction in funds available for public services could lead to a potential decline in the role of the VCS in public service delivery unless VCOs are able to offer the most value for money
• Medium sized organisations are most likely to suffer from cuts in public spending as on average they receive 40% of their total income from the state and do not benefit from the same level of resources particularly in terms of fundraising as the bigger organisations.
• Increased competition for available funds for VCOs which may lead to increased collaboration and partnership working.
• Services that the government does not have a statutory obligation to provide may see a significant reduction in funding.

Moving forward

Pressure on government spending means that VCOs will need to get better at understanding and demonstrating the true cost and value of their work if they are to be able to negotiate adequate funding in a competitive environment.   

• How can your organisation develop its negotiating skills to improve your discussions with funders and potential funders?
• Do you have good systems in place to assess your outcomes, and the broader value you create (social, economic and environmental)?

Pressures on public finances are going to lead to a reduction in spending on public services.

• What strategies can your organisation put in place now to manage potential future changes in funding?
• Can you diversify your income sources to better secure your organisation's future income?

Being clear about what you offer commissioners could put you at a competitive advantage.

• You may wish to think about your position in relation to other players – do you want to stay small and cover niche markets, or work towards targeting high volumes of clients to benefit from economies of scale?
• Could working in partnership with other VCOs help you to secure funds in the future?

If you need some guidance thinking through the options open to you, have a look at our pages on planning. You need to bear in mind some of the issues here and on our other drivers to feed into your planning.

You might also like to have a look at our Future Focus 1 publication which considers the implications of funding developments. And of course you can join for free to get our ebulletin which will help you think through all these elements of facing the future with confidence.

Want to know more?

Public Finance Databank

Published by: HM Treasury

Date: Monthly

Format: Web

What is it? The Public Finances Databank is a compilation of published data covering the main aspects of the Government Finances including receipts, expenditure, borrowing and debt.

How useful is this? The data is collated from OTS, a reliable source. All the data are presented in clearly defined tables and charts which provide a quick and easy way of assessing past performance as well as showing forecasts for the future. The data is also available to download in excel spreadsheets.

Budget 2010

Published by: HM Treasury

Date: June 2010

Format: Web

What is it? An ebook version of the Budget

How useful is this? Helps you get a feel for the document as you flick through it. It comes from a website which has a number of ways of looking at the budget such as '"Support for enterprise in your area. Find out how this Budget will help to build an economy that works for your region by using our interactive map."