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 rebalance the public sector balance sheet, future governments will be forced to slow down public expenditure. However, the extent will vary according to the outcome of the General Election with both the 2010 Budget and Comprehensive Spending Review (which will set out spending for post 2011) unlikely to be fixed before then. For some time Labour continued to about growth, but at lower levels than previously, while the Conservatives argued that the priority is to address the high levels of debt through a new culture of ‘thrift in government’. However, since the early Autumn 2009 both parties are now talking the language of cuts. Improvements in public finances, and therefore the funding of many VCOs, will lag behind any improvements in the economy. But the impact will vary for different parts of the VCS depending on how reliant they are on government funding (see levels and sources of VCS income).

What are the implications?

  • Potential tax increases or further increases to public sector debt to ensure governments are able meet their pre-existing funding commitments.
  • Too severe spending cuts or tax increases 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’.
  • Whichever party is in power is likely to continue to open up public services to a more diverse range of suppliers, to find the most cost-efficient and effective supplier which could include the VCS (see bringing markets into public services).
  • However, 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?

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.

Other comments:

Budget 2009

Published by: HM Treasury

Date: April 2009

Format: Web

What is it? A microsite that summarises the key areas of the 2009 Budget.

How useful is this? Each section of the microsite provides a clear summary of how the government will achieve each of its long-term economic goals through this year’s budget. It includes sections on ensuring financial stability, helping people fairly and improving public services.

Other comments: There is some speculation that there will be no budget for 2010 until after the General Election. A pre-budget report however is due out in Autumn 2009.

 

Last updated at 11:45 Tue 22/Sep/09.

Recent comments

AuthorComment
Helen's picture

Helen

Guest specialist

Niche markets are key for local Age Concern organisations as they can bring added value to services that other providers do not have a track record in - but - economies of scale are key in making services stack up financially. Toe nail clipping is a point in case where many Age Concern organisations make a small charge knowing they are subsidising a vital service. Making that service break even is a big challenge and brings into play issues about charging, pricing and costing, public perception of the charity and staff, volunteer and trustee perceptions too. A complex mix!

Joh's picture

Joh

The Whole Truth is that despite Small organisations suffering from the "40%" cuts in public spending - We need to get behind these companies and support them as a collective rather then allowing them to drop out of the way and be forgotten quicker then how I forget my way home after a heavy night out. Investments need to be made now by the 'public' in securing the future of small Organisations. Its a shame though, because we all know that people are not prepared to help out.

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