Chancellor Alistair Darling was warned last night that the UK Government will have to take “sustained action” if it is to succeed in driving down the costs of running public services through efficiency savings.
A panel of independent advisers to the Treasury set out “ambitious” plans to slash £1billion from the annual operating costs for the public sector.
But in the foreword to their report, the panel warned that there are “few easy wins” for the government and that the full benefits of the efficiency programme will not be seen for another four years.
Mr Darling is relying on cutting the costs of running Whitehall in his struggle to get the public finances back on track after his £20billion economic “stimulus” package in the November pre-Budget report (PBR).
In the Budget today, the chancellor is expected to announce borrowing will soar to £160billion this year as a result of collapsing of tax revenues and the measures the government has taken to try to revive the economy.
At the same time, he will sharply downgrade his forecasts for the economy – with output set to shrink by around 3%, making it the worst recession since World War II.
The grim state of the economy was underlined by the latest inflation figures which showed the retail price index (RPI) dropping into negative territory – falling to minus 0.4% last month – for the first time in almost 50 years.
Meanwhile the International Monetary Fund (IMF) warned that the UK faced a £200billion bill for the bank bailout – 13.4% of the entire national economic output of £1.46trillion last year.
In its report, the Treasury panel acknowledged there was no certainty its projected savings could be achieved.
It adds: “The recommendations we present will require sustained action over the coming years, with few easy wins. The economic downturn has only sharpened the sense that concrete action, both in Whitehall and across the wider public sector will be necessary to protect services and ensure their continuing improvement.”
The report estimates that while £6billion of efficiency savings – including £5billion announced in the PBR – could be achieved by 2010-11, the full benefits of the package will not be seen until 2013-14.
PCS general secretary Mark Serwotka said the government should be targeting big corporations and the wealthy rather than civil servants.
“The government calls these cuts ‘efficiency savings’, but let’s be clear they are real cuts that will affect public services, people’s jobs, livelihoods and pensions,” he said.
“Instead of cutting more of my members’ jobs, the government should remember that just one HM Revenue and Customs employee brings in over £600,000 in revenue each year. If the government funded more staff they could collect the tax owed by big corporations and the super-rich and maintain public spending.”
The Local Government Association of England and Wales, meanwhile, warned that there was a limit to the savings that councils could achieve without affecting frontline public services.
However, in its latest Global Financial Stability Report, the IMF stressed that governments needed to be prepared to take tough action to restore confidence.
“In order to address investor concerns, governments need to clearly communicate the potential costs of financial support packages as part of a sustainable medium-term budget framework, including a credible commitment to fiscal correction once economic conditions improve,” it said.