Director's introduction: state of the nation
This is an exciting time to be joining ICAEW in a new role focused on the public sector.
The United Kingdom has been through a period of upheaval and financial consolidation not seen since the end of the Second World War. The global shock to the international finance system led to a run on a UK bank and unprecedented levels of government intervention in the financial sector. Seven years after the start of the crisis, the legacy of these actions taken remains with us: a major bank still in public ownership, government spending in deficit and the national debt at a level rarely seen in peacetime.
The Coalition Government began the process of repairing the public finances and restoring public expenditure to a sustainable path, however the new Conservative Government still faces a significant challenge. Government still spends more money than it raises through taxation while the recent budget will help to address the annual deficit this creates, the Office of Budget Responsibility predicted only a roughly even (55%) chance the economy will return to surplus by 2019.
These are not the only challenges faced by government.
Due to an aging population, government spending is forecast to outstrip the ability of the government to raise taxes in the long run and is forecast to be in deficit again in the 2030s. Our levels of output per worker lag well behind other major economies such as the United States and France. There is also a need for significant investment in infrastructure, particularly in ultra-fast broadband, in better connectivity for our northern cities, and in a desperately needed airport capacity in the South East.
The tax system is still far too complex and frequent changes to regulations can stifle the ability of business to innovate and reduce willingness to make investment. Business especially needs greater certainty about tax and regulation as it is only through growth in business profits that the wealth to make investment, increase employment and pay taxes is generated.
The civil service itself recognises that it still has much to do to meet the challenge of growing the professional and specialist skills needed for the 21st century working environment. The National Audit Office continues to point out waste and inefficiency in large tracts of government spending. Meeting the aspiration of public service delivery being ‘digital by default’ is still some way off.
Sound public finances and an efficient government are in the interests of everyone. As a professional institute with the public interest at its heart, the challenge for ICAEW is to bring the expertise of its members to help government tackle these challenges. With an influential membership drawn from all sectors of the economy, public and private, ICAEW is well placed to provide this insight.
I believe there are some things all governments need to focus on to create the conditions for strong economic growth, these are:
- maintaining a stable macro-economic environment – including stable interest rates, inflation and taxation;
- running a balanced budget – ensuring public spending is sustainable and stays within the government’s income over the economic cycle;
- keeping the rules simple and clear – giving business and investors certainty and confidence by reducing the burden of regulation and keeping the tax system simple and predictable;
- investing in infrastructure – having a clear plan to provide high quality public infrastructures to secure national competitive advantage;
- encouraging investment – putting in place the right incentives to encourage businesses to invest in assets and skills to boost productivity and output; and
- continue the process of professionalising the civil service – only with modern institutions and the right skills and experience can government rise to the challenges of managing public finances.
Over the next year I will be taking forward these themes in a series of thought leadership pieces and articles. I will also be seeking to engage and involve our members who work in or with the public sector in the debate around public finances.
I look forward to participating in the debate with you!
Ross Campbell, Director, Public Sector, ICAEW
Public Sector Group, December 2015
Listen to the audio version of the director's introduction: state of the nation