Why Labour needs to rediscover an ‘invest to save’ approach

Party conference season is in full swing but debate is already looking ahead to the new government’s first Budget, scheduled for 30 October.

An early test of the new government’s authority 

Labour won a vote on one of its early fiscal decisions to clear up the ‘£22bn black hole’ it inherited from the previous occupants, with its decision to withdraw universal winter fuel payments for pensioners, in favour of a means-tested system.  

In the end over 50 MPs from the governing party abstained from the vote, but with such a big majority it was never under threat of defeat. That majority means they can do what they like, but the episode threatens to brand the new government with a stingy reputation before it even begins its real work. 

Sir Keir Starmer vows to ‘clean up the mess’ left by his predecessors, but also speaks of a ‘decade of national renewal’. Yet the mood music already feels like we could wind up with another decade of austerity. Having promised in the General Election campaign not to raise VAT, income tax and national insurance, how will Labour square the fiscal circles without making more and more cuts? 

Public services in crisis 

We’ll have to wait for the Budget to see. Perhaps the downbeat messaging so far is about ‘rolling the pitch’ – lowering expectations in advance so the actual Budget announcement doesn’t seem so bad. But people need some messages of hope from our leaders, which seem in short supply so far. How can you bring about ‘renewal’ without hope?  

Public services are deteriorating everywhere. Hospital waiting lists remain near all-time highs, with the government’s official NHS reviewer Lord Darzi characterising the NHS as in a ‘critical condition’. More local governments are at risk of effectively filing for bankruptcy. Government departments in ‘non-protected’ areas (i.e. not health, defence or education) are bracing for steep real-terms cuts. 

Meanwhile, out in the voluntary sector, none of this financial pain is new to us. On the heels of a decade of slashed local authority budgets and ever-tightening screws on benefits, much of the burden fell on the voluntary sector. Then we had the pandemic and cost-of-living crisis, further hollowing out the sector’s capacity and limited financial reserves.  

The situation is no longer something that politicians can just ignore. Yes, charities will always be there and will continue to find creative ways to keep going and serving beneficiaries. Some organsations will close, and others will spring up. But the often unseen and under-appreciated support that the voluntary sector provides across all kinds of critical public services is now under severe pressure. Increasingly, charities are just not able to shoulder the demand being transferred onto them. 

Commissioning in crisis 

The latest wave of the Voluntary Sector Barometer, which has provided data about the financial resilience of the sector since the pandemic, finds that income is the biggest concern for 77% of respondents, with 67% reporting a deteriorating financial position and 41% using financial reserves for operational costs. 84% of respondents to an NCVO survey last year said that public sector grants and contracts have not covered their costs since 2020, with many saying that had been the case for far longer.  

That is not sustainable. We’re surely reaching the point where subsidising loss-making contracts with charitable income is no longer an option for charity boards that take their fiduciary duties seriously. For those that don’t, their organisations will be at increasing risk of messy and unplanned collapse. Public sector commissioners will find contracts being handed back, or that those organisations they commissioned no longer exist. 

Hospices: a wake-up call for government 

Government at all levels is about to get a wake-up call when it comes to charities’ role in keeping demand out of multiple, crucial public sector systems: from the NHS, to criminal justice, to housing and homelessness, to domestic violence, to mental health. These are all high priorities for the new government – and it quickly needs to consider the sector’s importance and expertise when ‘taking the hard decisions’. 

Let’s take a recent example: hospices. Over the summer, several hospices announced large staff cuts due to financial pressures. Hospices are normally substantially financed by fundraising income and revenues from charity shops. But they also rely on contracts with the NHS for a significant share of their income. A combination of contracts that didn’t match high inflation, and wage increases in public sector health staffing (for nurses etc) have caused budgetary shortfalls which can’t be topped up by those other revenues. 

Hospice UK has reported that a fifth of their 200 members have either cut services in the past year or are planning to do so. The impact of less hospice capacity will not only be devastating for people who are dying and their families, but on the whole healthcare system, which the Prime Minister himself describes as ‘broken’.  

Prevention is better, and cheaper, than cure 

Do we really have to learn all this (again), the hard way? I’m no economist, but I think prevention is better than cure, and it’s usually cheaper, too. Placing people who are dying into hospice care is far better for them and their families, and keeps them from taking up beds in hospitals which are expensive (and is not an efficient use of those beds).  

Stopping youth centres from closing, so they can provide support and things for young people to do, is better for them and cheaper than putting them in prison or deploying police constantly to deal with gang violence. Providing counselling for people with mental health needs to help them recover is better for them, and cheaper than letting their health and living circumstances deteriorate to the point that they need all kinds of other interventions for substance abuse or homelessness. 

The problem is the perennial difficulty for governments of all stripes to properly consider the full, long-term costs when making short-term fiscal decisions. That’s also a challenge for charities too. But I’d argue there’s a principle from the last Labour government which this one urgently needs to rediscover and expand upon: ‘Invest to Save’.  

In the most basic terms Invest to Save means that if you can demonstrate that a particular up-front investment of cash would save money in the longer term, there’s a sound economic argument for it. Especially if it improves services and alleviates human suffering along the way.  

In theory, prevention runs through much of the new government’s policy agenda, for example for the health service. But will this survive contact with HM Treasury? There’s an opportunity to think differently, without throwing economic prudence completely out the window. Will they?  

Austerity 2.0 won’t work 

One of the central messages of the new government is its focus on economic growth. Interestingly, some leading economists and Lord Gus O’Donnell just published an open letter in the Financial Times, making the case that growth won’t happen without investment. The influential centre-left think tank IPPR has argued that levels of investment in the UK are below competitor countries and that government investment in the UK is ‘low, volatile and short-termist’. 

Society isn’t divorced from the economy, they’re intertwined. Growth won’t happen – or at best it will be severely restricted – if the population isn’t healthy, educated and skilled, safe and employed. Of course there are tensions between capital and revenue spending, and between levels of taxation and the need to spend more on public services. But just cutting budgets to make the numbers add up isn’t going to work, politically or economically.  

The new government needs to chart a different path to its predecessors at the Budget on 30 October. It could do so by putting investment in prevention at the heart of its decision-making processes. Otherwise, I fear it may come to be seen by an exhausted electorate as another version of the same old, same old. 

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