It's time to make big choices about future spending
Politicians and the public are rightly preoccupied with the immediate and substantial economic challenges we face. Britain needs to put itself on the path back to growth and to reduce the deficit, tasks made significantly more difficult by the crisis in the Eurozone.
But in dealing with this crisis we also need to think about challenges that will hit us further down the line: rising pressures on public spending from an ageing of society and falling tax receipts.
Long-term spending pressures also come from a range of other sources, including a rising incidence of chronic disease, higher expectations of public services, changing family and social structures and the impact of climate change.
The Office for Budget Responsibility estimates that on current trends, increased costs through the NHS, state pensions and social care for the elderly by 2060, will amount to an extra 5.4% of GDP (or £80bn, in today's terms), while revenues from North Sea oil, transport and other taxes will fall by 2% of GDP.
These are not unmanageable pressures, still less justification for abandoning a commitment to excellent public services. Nonetheless, declining taxes and rising spending pressures pose a formidable fiscal challenge.
Of course, there are uncertainties associated with projecting into the future. An ageing population could see us growing older and fitter as opposed to older and sicker, with quite different implications for public spending and public service provision as a result. The impact of technological progress too is an unknown.
But even though we can't anticipate all challenges, there's already enough evidence to merit taking action now. Tinkering around the edges or going after low hanging fruit will not be enough. As a country we'll have to take major strategic decisions about our public services.
That's why the CBI and the Institute of Public Policy Research are publishing a paper on Monday to discuss the long-term strategic questions on public services that we need to address as a country. While we do not always agree about the choices that have to be made, we do agree that we must take action – we need to decide which services to prioritise; how we bring about a shift from reactive to preventative services; and how we use the capacity and expertise of public, private and voluntary sector providers to drive productivity improvements as well as deliver better services.
Prioritising services means making difficult decisions. It would make sense to target scarce resources on services considered most important for key national strategic objectives such as securing economic growth. Investing more in childcare, for example, would allow more individuals, especially women, to take up paid employment. But more emphasis in these areas will inevitably mean there will be less money to spend in others.
There is a strong case for shifting the emphasis of our public services onto prevention, rather than reacting to social problems once they arise. This could mean investing in early intervention services for children, or community health and social care services for the ageing population. Both options could reduce costs to the state further down the line. But doing this will require big choices about funding upfront costs.
The CBI has argued that opening up public services to a diversity of providers should be a priority to increase savings and improve services. Private and voluntary sector providers already play a role in delivering many services, but to meet the long term challenge we'll need to look carefully at what more they can do.
Increasing productivity may also involve looking at how public service professionals are recruited, rewarded and managed, and at how they can be given greater flexibility to innovate.