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  1. Government Computing
November 18, 2022

What does the Autumn Statement mean for UK public sector tech?

Austerity is back in all but name, and that has implications for public sector tech, says Rob Stoneman of GlobalData.

By Robert Stoneman

The UK Chancellor Jeremy Hunt outlined a mixture of tax rises and cuts to UK public spending totalling £55bn as part of the 2022 Autumn Statement yesterday. While the NHS, social care and schools remain relatively well protected, for everyone else, spending will be stuck at levels outlined in the 2021 Spending Review, a real-term cut in today’s high-inflation economy. It also confirms much of the pain will be pushed back until after the 2024 general election, with spending from 2025 growing at just 1% per year and capital spending also frozen in cash terms.

Chancellor Jeremy Hunt delivered his autumn statement 2022 yesterday. Spending cuts are on the way. (Photo by JUSTIN TALLIS / AFP) (Photo by JUSTIN TALLIS/AFP via Getty Images)

Public services already face a perfect storm of challenges after more than a decade of austerity. With the wider cost-of-living crisis and demographic changes further increasing service demands, public sector bodies continue to grapple with where to prioritise investment, including more than £19 billion of annual investment in ICT products, services, and staff.

Here, we explore the most noteworthy ramifications of the Autumn Statement for the public sector and its technology suppliers, picking out a few key points that may fly under the radar.

Autumn Statement 2022: The NHS, social care and schools remain protected

NHS funding in England will increase by £3.3bn a year over the next two years. Adult social care will also receive £2.8bn next year and £4.7bn the year after to provide 200,000 extra care packages. This includes money saved by delaying the cap on care costs and the extra funding local authorities can raise through increasing council tax by up to 5%.

Directing extra cash towards the NHS will ensure long-term projects such as the New Hospital Programme, frontline digitisation and implementing digital care models can go ahead as planned. At the same time, hospitals will be given much-needed resources to tackle the winter crises which NHS leaders are expecting over the coming months and ICSs may be able to avoid the funding shortfalls, as recently reported. However, the extra cash for the NHS will still fall short of combatting the 11% rise in inflation and thus will represent a real terms cut when additional demand is also factored in.

Similarly, spending on schools will also increase by £2.3bn over the next two years, restoring per-pupil funding to 2010 levels. Much of this will have to fund energy payments and increases to teachers’ pay, but it will at least spare schools some of the worst pain faced by other sectors. Discussion of maintaining education standards as a moral, rather than simply economic, mission also shows that Hunt has far greater levels of engagement and understanding in this area than his recent predecessors. Notable by its absence, though, was any new funding for further education (FE) colleges, again seemingly confirming FE as the Cinderella sector within education.  

A reprieve for some departments, austerity for others

For other departments, the statement represented a less rosy picture. The only other departments to see increases in resource departmental expenditure limits (RDEL) were the Department for Work and Pensions and HM Revenue and Customs. As part of this, both are to increase the focus on reducing fraud and error, so there could be additional opportunities for technology to support such programmes moving forward. Outside of England, both Scotland and Wales also see increased RDEL, aimed at enabling them to fund health and education projects.

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Elsewhere, the Home Office, Ministry of Justice, FCDO, DEFRA and Cabinet Office all see slight reductions in RDEL. This will be disappointing to the criminal justice sector considering considerable court backlogs and shortages of police officers in many areas. Similarly, the Ministry of Defence also sees a small reduction despite the renewed commitment to maintaining the NATO spending target of 2% of GDP. All other departments have the same budget allocation as in the 2021 Spending Review, though this still amounts to a cut in real terms due to higher inflation.

However, while resource budgets are reducing, capital budgets (primarily to fund major programmes) are increasing in inverse proportion to RDEL changes. Also noteworthy is that yet another review of government efficiency has been launched, the fourth (we believe) since Sir Peter Gershon undertook an initial one in 2003/4. Also, on top of a focus on reducing fraud and error, there is increased funding for the nine Catapults looking at tech futures, and STEM and innovation are heavily promoted to maintain Britain as a science ’superpower’. Yet, alas, specific IT projects get little focus.

Tough times ahead for local government and levelling up

Though local authorities will be pleased by additional funding for social care, there remain concerns over using council tax increases and the drawing down of reserves to meet pressures. Raising the referendum limit for increasing council tax to 3% per year from April 2023 (plus another 2% for authorities providing social care) will provide much-needed funds, but it is a blunt tool when it comes to levelling-up inequalities. Areas of greater deprivation tend to be more reliant on central government grant funding due to lower local tax receipts, so any additional council tax receipts will likely benefit well-off areas more. On a more positive note, a £13.6bn package of business rates support was also announced to support small businesses alongside guarantees no councils will lose any income as a result.

The statement also saw a notional recommitment to the wider levelling-up agenda. Three further devolution agreements were confirmed – for Suffolk, Cornwall, and one unspecified in the North East of England – as well as confirmation of two “trailblazer” deals with the Greater Manchester and West Midlands Combined Authorities. With the devolution agenda still going, this certainly represents an opportunity for ICT suppliers as councils pool resources and rationalise contracts.

There was also confirmation that round two of the Levelling Up Fund will proceed as planned. However, Investment Zones are no more as they are to be repurposed around “a limited number of high potential clusters”, while the existing expressions of interest will not be taken forward. What this means in practice is not clear, but it again speaks to the fact that levelling-up remains, in many ways, little more than a collection of limited competitive funding pots as opposed to a fully fleshed-out strategy.

Renewed commitment to infrastructure

On a more positive note for levelling-up, the Chancellor’s decision to press on with key infrastructure projects is positive for both the transport and broadband sectors. Transport-wise, both High Speed 2 (HS2) and Northern Powerhouse Rail (NPR) have been safeguarded. This will come as a relief after £9bn earmarked for the Trans Pennine mainline upgrade and Network Rail’s evolution into Great British Railways (GBR) were both recently put on hold.

Despite this, a major rethink of the UK’s railways seems increasingly likely, especially with near complete public-sector ownership in Wales and Scotland, and greater devolution of powers to the Manchester and West Midlands Combined Authorities prompting questions over deeper vertical integration. Whatever the outcome, more public sector opportunities for ICT suppliers to the rail industry should result.

Similarly, providers of mobile and fixed broadband systems and services will be heartened by the government’s ongoing commitment to Boris Johnson’s Project Gigabit, with nationwide coverage of gigabit-capable broadband still targeted for 2030. With contracts now being awarded across the country, this is one government-backed technology programme whose value remains clear.

Challenging years ahead for the public sector – and its IT departments

Overall, the Autumn Statement cannot hide the fact the UK public sector faces challenging years ahead. A decade of austerity has already hollowed out services, and a second round will bite harder now that there is less fiscal headroom to absorb cuts than before. With the wider cost-of-living crisis and demographic changes further increasing service demands, the public sector will not be able to dramatically increase the £19bn spent annually on ICT products, services, and staff.

However, there will still be opportunity areas within this. Previous austerity measures have seen some sectors, most notably healthcare, able to increase investment while other areas stagnated. For instance, ICT spending by healthcare bodies rose by 11% between 2016-17 and 2020-21, the only part of the public sector to see any significant growth in technology spending in this period. The measures outlined in the Autumn Statement will not dramatically alter this picture.

Rob Stoneman is service director for UK public sector at GlobalData

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