This year’s State of the State finds the UK Government moving from an era of challenge around one objective – eliminating the budget deficit – into an era of multiple and complex challenges. The next five years will see additional demands on the public sector as it manages the UK’s departure from the EU, continues to drive major reforms and maintains business as usual.

1. The State of the State 2016-17
Brexit and the business of government
UK Public Sector | #stateofstate

2. The numbers 01
Government in numbers
The state of public finances
Eliminating the debt
Through business lenses 02
Productivity lens
Talent lens
Balance sheet lens
A citizen view 03
Seven key findings
The citizen view of the state
A view from leaders 04
Six key findings
The view from the top
Governments in the UK 05
Total identifiable spending per head on services
Northern Ireland
Scotland
Wales
Recommendations 06
Brexit and the business of government
Join the discussion 07
Register for webinars
Get in touch
About the report
Contents

3. 01
The numbers

4. The numbers
Government in numbers
51
182
126
48
43
138
28
30
69
Figure 1.
Government income will be £716 billion
in 2016-17
39
240
30
145
29
102
46
24
34
34
49
Government will spend £772 billion
in 2016-17
Debt interest
Personal social services
Public order and safety
Other including EU transactions
Health
Transport
Education
Industry, agriculture and employment
Defence
Social protection
Housing and environment
Source: Budget 2016, HM Treasury
National insurance
Excise duties
Corporation tax
Other (non-tax)
VAT
Council tax
Business rates
Income tax
Other (tax)
Figures in £ billion Figures in £ billion
5.3 million
people employed by the UK public sector
73
UK members of the European Parliament
17.4 million
the number of people who voted to leave the EU

5. The numbers
The state of public finances
1. Economy,
interrupted
2. Public finances,
disrupted
3. Resetting fiscal
policy
Four questions arise from Brexit as the Government considers its fiscal options:
“Will the mandate or the
objective change?”
“Will infrastructure
spending replace austerity
as the dominant fiscal
theme?”
“Will Brexit compromise
or support public sector
transformation?”
“For how long will the
Government continue to run
a deficit and increase its debt?”

6. The numbers
The state of public finances – Eliminating the debt
Figure 2. Eliminating the deficit
Borrowing Pre-referendum forecast Shock senario Severe shock senerio
40
60
80
100
120
140
160
Source: HM Treasury and Office for Budget Responsibility, 2016
07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18
20
Deficit elimination

7. Through business
lenses
02

8. Through business lenses
Government through business lenses – Productivity lens
Ten elements of public sector productivity that are exposed to Brexit
Public finances
Transport, especially
where it crosses
national borders
Whitehall’s capacity and
capability particularly in trade
negotiations and engagement
with business
Immigration, including the
status of EU citizens working
in the UK, and their welfare
entitlements
Tax systems and laws
which could need to
be recreated
Policing and border
control
Regional and rural
funding
Workforce arrangements,
especially for the NHS
and social care
Regulations, e.g.
employment
Higher education because
the UK’s universities access
substantial EU funding for
research and host 125,000
EU students

9. Through business lenses
Government through business lenses – Talent lens
To assess the scale of potential of
automation for the UK public sector, its
occupations can be divided into three
types of role:
Administrative or operative roles in
which activities are mostly repetitive and
predictable. They can be desk-based such
as administrative jobs or more physical,
such as hospital porters.
Interactive or frontline roles which
mostly require a high degree of personal
interaction, such as teachers, social
workers and police officers.
Cognitive roles that mostly require
strategic thinking and complex reasoning,
such as finance directors and chief
executives.
Data from Oxford and Deloitte suggests that administrative and operative roles
are most likely to be automated.
of public sector roles
cannot be automated
but could make
better use of data for
decision making.
50%
Automation will save
£17 billion by 2030
impacting 861,000
jobs.

10. Through business lenses
Government through business lenses – Balance sheet lens
09-10 10-11 11-12 12-13
13-14
Restated2
14-15 Notes
Assets £1,249.5bn £1,234.3bn £1,270.6bn £1,297.5bn £1,414.9bn £1,455.3bn
Assets – what the state owns – include £395.5
billion in infrastructure assets, £374.4 billion in
property and £51.2 billion in land assets.
Liabilities (£2,477.4bn) (£2,420.0bn) (£2,617.4bn) (£2,925.4bn) (£3,255.5bn) (£3,558.5bn)
Liabilities – what the state owes - include £1,493.3
billion in public service pension liabilities and
£1,174.5 billion in government borrowings.
Net
liability
(£1,227.9bn) (£1,185.7bn) (£1,346.8bn) (£1,627.9bn) (£1,840.6bn) (£2,103.2bn)
Net liability – the difference between assets and
liabilities – these have increased since 2013-14 by
£262.6 billion. The primary driver of this increase
was a change in the discounting rate used to
value the public sector pension liability.

11. A citizen view
03

12. A citizen view
The citizen view of the state – Seven key findings
Most people expect public
services to get worse because
of Brexit
Citizens want the public
sector to listen more and
collaborate better
The public sector needs to
bridge the digital divide
The public see the NHS as
a higher priority for the
government than Brexit
Satisfaction with most
public services
remains high
Austerity’s impact has been felt
most within certain groups – and
has risen in the past year
The appetite for tax rises to
fund spending has risen
since austerity began

13. A citizen view
The citizen view of the state
18%
BUT
41%
60%
Top 3 government priorities:
felt their expectations
had been exceeded
by public services
support tax rises to extend
public services, up from
46% in 2009
expect Brexit to make
services worse
say the NHS and
healthcare
say leaving the EU
say education
and schools
33%
57%
30%
30% think the public sector is
better than the private
sector at providing services,
up from in 2004
20%
25% think private sector
is better, down from
in 2004
36%
27% feel affected a fair amount or a great
deal by austerity measures
23% feel that the public sector understands
their needs
17% feel that the public sector listens to
their preferences
63% feel that the public sector working collaboratively
would improve quality of services

14. A view from
leaders
04

15. A view from leaders
Six key findings
Demand management is part
of a wider issue in the citizen-
state relationship
The future is more collaboration
and a more flexible
workforce
Leadership needs to be effective,
high-profile, diverse and
continually renewed
Brexit brings uncertainty,
but public sector leaders
are sanguine
The NHS needs continued
transformation as well
as funding
Digital progress is yet to
meet ambition

16. A view from leaders
Interviews with public sector leaders
“Brexit has thrown a huge
spanner of uncertainty into
Whitehall.”
“The language has changed.
It’s more explicitly about
policing according to need,
and that’s a fundamental
shift. We used to pride
ourselves on being all
things to all people.”
“Politicians keep *******
around, saying there will be
more money and people will
think ‘everything’s alright
then’. But by 2018, by 2019,
we’ll be at a precipice.”
“By 2020, there will be deep
collaboration.”
“We’ve
wasted time
digitising
systems that
weren’t fit
for purpose
in the first
place.”
“Our
workforce
needs to be
much more
fluid.”
“We need to
disrespect
existing
boundaries.”“By 2020, we’ll have
a more integrated
local state.”

17. Governments
in the UK
05

18. Governments in the UK
Total identifiable spending per head on services
£ per head (thousands)
9.598.587.5 10 10.5 11 11.5
North East
North West
Yorkshire and the Humber
East Midlands
West Midlands
East
London
South East
South West
Wales
Scotland
Northern Ireland
Source: Public Expenditure Statistical Analyses 2016, HM Treasury figures for 2014-15
7

19. Governments in the UK
Governments in the UK – Northern Ireland
There is a sense of optimism, energy and
confidence in the future, with two-party
government, an independent minister, first official
opposition and the Programme for Government.
Economically, this decade has seen a renaissance
for NI that has exceeded expectations. Over the
last five years Invest NI has promoted 42,488 new
jobs, attracted £3 billion in employment related
investment and seen £589 million invested in
research and development.
Brexit raises unique concerns for NI.
The fishing, farming and food industries are
significantly exposed to Brexit.
NI will become home to the UK’s only land border
with an EU member state.
NI Civil Service reduced its headcount by 17 per
cent within two years and reduced its number
of departments by a quarter.
It has set Northern Ireland’s public administration
on a more sustainable footing and its leaders
are now focused on people-centred and
cultural change.

20. Governments in the UK
Governments in the UK – Scotland
Scotland stood out in the EU referendum result
as the UK’s most Europhile nation.
Whilst Brexit has raised the question of a second
independence referendum there are legal and
financial barriers.
The EU is only able to negotiate departure with
a member state – which is the UK – and second,
the UK parliament would need to pass legislation
to allow for a second independence referendum.
Scotland’s deficit is double the UK’s overall deficit
when measured as a share of GDP.
A capital spending programme of £100 million
was announced in the summer of 2016,
which is expected to be drawn from 2015-16
underspends.
Projects will be assessed for the funding based
on how quickly they can start, the number of
jobs they will create and their wider effect on the
supply chain.
If the UK Government decides to recalibrate its
fiscal policy towards investment, it may take a
similar approach.

21. Governments in the UK
Governments in the UK – Wales
This year’s Welsh Assembly elections saw a
minority Labour government formed with
support from Plaid Cymru for a term of office that
looks set to take Welsh devolution forward.
The Welsh Government has laid out focused
plans to stretch its new fiscal powers as well as
a distinctive public policy agenda through six Bills
in its first year.
In Wales, the referendum result of 52.5 per cent
to leave the EU mirrored the UK result.
Clearly, the central questions for the Welsh
government in Brexit negotiations are whether
trade deals will support Welsh export industries
and whether the UK government will replace EU
funding streams.

22. Recommendations
06

23. Recommendations
Brexit and the business of government
– Five recommendations
Engaging the citizen in public sector
reform will help reset expectations
and manage demand
Public leadership needs to be
celebrated, valued and supported
to meet new challenges
Government should maintain focus
on business as usual throughout
Brexit – and that includes
transformation programmes
Brexit is an opportunity
to rethink rather
than recreate
Digital transformation needs to
focus on changing organisations
one step at a time while
maintaining momentum

24. Join the discussion
07

25. Join the discussion
Register for webinars
The State of the State 2016-17, Brexit and the business of government
3 November, 13:00 to 14:00
Join the report’s authors to explore: what is the state of the state?
The Autumn statement
24 November, 13:00 to 14:00
The 2016 Autumn Statement marks a turning point for the UK’s fiscal policy
as Chancellor Philip Hammond resets tax and spending plans in response
to Brexit. Taking place the day after the statement, this webinar will bring
together Deloitte experts to explore what it means for the economy, tax
and the public sector.
Register using the links above this presentation

26. Mike Turley
Global Public Sector Leader
020 7303 3162
mturley@deloitte.co.uk
Andrew Haldenby
Director
020 3327 1186
andrew.haldenby@reform.co.uk
Ed Roddis
Head of Public Sector Research
020 7007 2920
eroddis@deloitte.co.uk
Join the discussion
Get in touch
Deloitte Reform
@DeloitteUKGov
@reformthinktank

27. Join the discussion
About the report
For the fifth year, Deloitte LLP and Reform have produced an
annual report featuring commentary on the public finances,
interviews with public sector leaders and analysis of government
‘through a business lens’.
This year’s report also features an exclusive survey that shows
what the public think about the state, the public services and how
Brexit could affect the UK.

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