Good morning from New Economy Brief.
Last week, the Prime Minister announced that the government would scrap NHS England as part of a speech in which he vowed to reform the civil service by abolishing around 130 regulators and replacing some civil service jobs with AI.
But what proposals has the government actually put forward for civil service reform? And is successive governments’ obsession with ‘efficiency’ misplaced? This week, we look at the recent history of civil service reform, this government’s plans, and why quango-cutting is not the most effective route to better public services.
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A never-ending bonfire of the quangos.
Starmer’s government is certainly not the first to promise efficiency savings through civil service reform. In the 1979 election campaign, Margaret Thatcher promised a ‘war on waste’, and subsequently cut the number of civil servants from 732,000 to 630,000 during her first four years in office. New Labour then embraced ‘New Public Management’: importing private sector principles and quasi-markets into public services in an effort to improve performance through incentives and give ‘consumers’ greater choice. Then, under the coalition government, the so-called ‘bonfire of the quangos’ resulted in further cuts to various bodies and regulators. Two thirds of the arms-length bodies that existed in 2010 are now gone. Yet the impetus for root-and-branch reform continued under subsequent Conservative governments, with a new flurry of activity from Michael Gove and Dominic Cummings echoing many of the earlier critiques of the civil service.
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Rhetoric or action – what’s actually going on?
In his speech the Prime Minister admitted that many will feel they’ve heard this all before, and he is keen to give the impression that this time, he means business. And Starmer’s rhetoric on civil service reform certainly feels like it’s been designed to turn heads. From a “tepid bath of managed decline” to a “cottage industry of checkers and blockers”, his description of the “flabby” civil service has surprised many and attracted praise from unlikely suspects. Some even suggest that Starmer’s new tough stance is inspired by Elon Musk’s drastic state-shrinking efforts, with reform plans allegedly dubbed “project chainsaw” (something Number 10 denies). While this arguably represents more of an evolution from the New Labour push for reform than a radical break, it is still significant to see a Labour leader calling so clearly for a state that is not just smarter, but smaller.
Where’s the plan? But many argue that for all the fighting talk, there’s still no actual plan. In the words of the Institute for Government (IfG), “there is a gap between the soaring ambition and some of the specifics that Starmer set out”. But what do we know so far?
Eradicating duplication. One of the focuses of Starmer’s proposed reforms is ending duplication. This is his main argument for abolishing NHS England, which Health Secretary Wes Streeting says is doing largely the same thing as the Department of Health and Social Care. The government maintains that this merger will be a simple enough operation. However, the IfG isn’t convinced that it will be so straightforward. It argues that ministers’ role in relation to the NHS will have to be redefined, and that a decision will be needed about what happens to the NHS England staff working across seven regional offices. The IfG says that it isn’t yet clear whether those will become part of the civil service or whether some will remain in the NHS as regional authorities.
Cutting regulators. As well as bringing arms-length bodies in-house, the government has also vowed to slash regulation in an effort to cut bureaucracy. This includes folding the Payments Systems Regulator into the Financial Conduct Authority and the Regulator for Community Interest Companies into Companies House. The Chancellor has also announced that regulators will face twice-yearly performance reviews, at which they will be judged against targets that have been agreed with the industries they regulate – for example, how quickly they make a decision on planning applications and new licences for businesses and products – all in a bid to boost growth. However, former civil servant and public sector chief executive Martin Stanley argues that most regulators already do their best to avoid burdening the companies they regulate any more than they need to or, in some cases, have roles that have very little or nothing to do with growth (such as Ofsted or the Care Quality Commission). Critically, regulators also have an important role in protecting the public and ensuring safety. Weak regulations contributed to the Grenfell tragedy, with the Grenfell Tower Inquiry’s phase two report concluding that “the government’s deregulatory agenda … dominated the [Housing] department’s thinking to such an extent that even matters affecting the safety of life were ignored, delayed or disregarded.”
Performance. Another big focus of the reforms is civil servants’ performance. Minister for Intergovernmental Relations Pat McFadden has suggested that better efficiency can be achieved through better performance management of civil servants. However, this has angered trade unions. Dave Penman, General Secretary of the FDA – the union for civil service senior and middle managers – said that “reform has to have substance” and criticised the government for giving unions no advance notice of recent announcements. What’s more, if the government wants to attract the experts in science and data that it will need for a more agile and capable civil service, it will need to address the fact that they can currently earn far more in the private sector. The kind of reforms to the civil service pay framework that would meet this goal – as argued for by the Prospect union – highlight the dangers of tying reform to a cost-cutting agenda.
The use of AI. Another controversial element of the government’s plans is their emphasis on AI - echoing another Labour advocate for public service reform in suggesting that technology could replace some civil service jobs. Starmer claimed in last week’s speech that greater use of digital methods could save the civil service £45 billion. Check out our recent New Economy Brief on AI, where we explored plans for its use in boosting productivity in the public and private sectors.
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A false economy.
Starmer says he wants the civil service to be more “productive, agile and Mission focused”. In other words, he wants it to do more with less. And in a world where tax rises and public service cuts are both seen as politically undesirable, public service reform is the go-to strategy for governments promising the public more bang for its buck. But according to the IfG, abolishing public bodies is usually “expensive and disruptive”. So is reform really the cost-saving magic bullet the government claims?
Outsourcing. One significant civil service cost that has been somewhat left out of the debate is its reliance on management consultancy firms. From 2023 to 2024 alone, public bodies paid private consultants £3.4 billion – 62% more than four years previously. In their book The Big Con, academics Mariana Mazzucato and Rosie Collington argue that the public sector’s reliance on the consulting industry is dangerous for society and political life. They say that what consultants count as “value” may not align with government missions like tackling inequality or fighting climate change. They argue that this leads to ineffective policy and unaccountable governments.
Prevention is better than cure? Multiple studies show that one of the best ways to save the public sector money and deliver effective services is to spend more money earlier on so that worse problems don’t arise later. For example, spending on preventative healthcare can raise billions for the exchequer. This is both through savings from avoiding more drastic (and costly) medical procedures later, and higher tax receipts later down the line as fewer people are kept out of work by health problems. The Office for Budget Responsibility has highlighted ill health as a major risk to the UK economy. And as the IfG points out, the current UK policymaking process gives too little weight to prevention – another example of the perverse effects of the short-term cost-cutting that our fiscal rules encourage. All of this is to say that ‘streamlining’ the civil service may save money in the short term, but it brings a huge risk of costly problems further down the line if not coupled with investment.
Cuts to disability payments. Liz Kendall, Secretary of State for Work and Pensions, announced sweeping changes to disability and sickness benefits on Tuesday, which included making it harder for people to claim personal independence payments (PIP). The government has said this will save £5 billion by 2029/30. The move has been widely criticised, with the Joseph Rowntree Foundation calculating that it would be the largest cut to disability payments since the OBR was founded in 2010 – three times bigger than the cut that led then Work and Pensions Secretary Iain Duncan Smith to resign in 2016.
German defence and infrastructure investment. The incoming German coalition government has provisionally agreed a deal with the Greens to change their fiscal rules and invest nearly a trillion euros over 12 years into defence and other civilian infrastructure, such as transport, hospitals, energy, education, science, research and development, care and digitalisation. (Read last week's New Economy Brief for more on this). The latest reports say the Greens agreed on condition that €100 billion of the €500 billion earmarked for infrastructure would be allocated to a climate and transformation fund. The deal can become law once it is voted through by a two-thirds majority in the Bundesrat upper house on Friday.
Spanish PM calls for climate to be counted in defence spending. Pedro Sanchez has called for a broader definition of defence spending to include cyber security, anti-terrorism and efforts to combat climate change. The FT reports that the Spanish Prime Minister argued for a “360 degree” vision of security where “threats other than a Russian invasion had to be considered,” and stressed that his government “will not cut a single cent in social [spending]”.
Haldane: "It is time to rewire Treasury Brain”. Andy Haldane, Chief Executive of the Royal Society of the Arts and former chief economist of the Bank of England, warns that further cuts to spending will harm growth. He argues “there is a debate to be had about relaxing the UK’s over-rigid fiscal rules and frameworks to reflect a new world order and to prevent them being counter-productive domestically”, but ultimately advocates moving the Treasury’s growth responsibilities to a separate ministry to counterbalance the culture of fiscal conservatism emanating from HMT. Elsewhere, the New Statesman’s George Eaton reports that Rachel Reeves again came under pressure from colleagues to change her fiscal rules during a Cabinet meeting last week.
The cost of inaction. A new report from Boston Consulting Group and the University of Cambridge has calculated that 3° C of global warming could reduce GDP by up to 34% this century. Most of this economic damage from climate change comes not from the direct impact of extreme weather, but from productivity losses arising from reduced labour output, supply chain disruptions and industrial collapse. The report finds clear returns on investment from climate mitigation and adaptation: investing 1-2% of GDP could limit warming to 2° C and reduce economic harms by 90%, with only 2-4% of GDP lost.
Fair Pay Agreements. How could sectoral collective bargaining help the government achieve its missions? A new report from IPPR’s Joseph Evans makes the case for expanding the government’s trials for Fair Pay Agreements beyond adult social care to the childcare, rail and construction sectors. This would help collectively determine training standards, pay, and terms and conditions for businesses and workers as a way of resolving workforce challenges.
