PA Consulting comments on the Spring Budget

Read on for comments from:

• Shaun Delaney, Head of Public Services
• James Turnbull, Head of UK Energy and Utilities
• Amanda Kelly, Local Government Lead
• Stephen Farrington-Bell, healthcare expert
• Jenny Lewis, digital healthcare expert
• Jason Whyte, financial services expert
• Derreck Van Gelderen, AI and data expert
• Alon Carmel, energy transition expert
• Elaine Whyte, defence and security expert

Shaun Delaney, Head of Public Services, says:

The Chancellor’s attempts to boost public sector productivity through technology will not be a silver bullet.

Given public sector productivity is still 5.7% below pre-pandemic levels, the investment announced must be complemented by strong ministerial commitment to rooting out inefficiencies, breaking down siloes, and applying fresh thinking to make any real headway on public sector productivity. Technology solutions will not, on their own, fix the productivity gap or achieve the £1.8 billion in savings that the Chancellor anticipates.

Innovation is key to unlocking the productivity puzzle.

Innovation has been a missing ingredient in some areas of the public sector for too long – but it is essential to reanimate the economy. Today’s measures show the Chancellor recognises that the public sector has two roles: Driving innovation for the country as a whole and applying innovation to itself. This calls for top-down direction and a drive from the Government to create closer partnerships with the private and third sector in order to accelerate and scale the opportunities.

Beyond buying technology for the NHS, the Government must have a clear implementation roadmap – or it will be a wasted investment.

It could be easy to dismiss Hunt’s £6 billion capital infusion into the NHS as a drop in the ocean, given the service already receives higher funding than pre-pandemic levels despite treating fewer patients. Yet modernising IT systems and a smarter use of data is crucial to tackling NHS waiting times, improving NHS productivity, and making our health service better for patients. Nonetheless, investing in game-changing technologies is just the starting point. The important step now is for the Government to also invest in building trust, redesigning clinical practices, and securing buy-in of AI from clinicians, so that the benefits of the technology can be realised.

No better time to invest in emerging technology for use in the public sector.

The Government has shown it will experiment with developing its lower risk back-office capabilities in new technologies, such as automating the writing and clinical coding of GP letters, and does not intend for the UK to be left behind its counterparts. These measures will help the public sector gain knowledge and experience in implementing emerging technologies and provide the confidence to move to more front-office applications. This will ultimately speed up policy development, boost productivity and efficiency, and improve public services.

James Turnbull, Head of UK Energy and Utilities, says:

A welcome budget for the energy transition, but more detailed policy announcements are needed.

The Chancellor’s efforts to support the scale-up and investment in the vital sectors supporting the energy transition are an essential step in the right direction. Higher investment from private sector – coupled with lower investment risk – should, over time, see consumers benefit from lower energy costs as we look to realise our net zero ambitions.

The budget demonstrates the Government’s commitment to deliver on the recently published Civil Nuclear Roadmap.

It was good to see the Chancellor confirming the UK’s commitment to nuclear energy and the important role it will continue to play in our energy mix and energy security – confirming the UK’s ambition that nuclear will provide 25% of our energy by 2050. Additional levelling up investment in Teeside, where the Hartlepool Nuclear Licensed Site exists, will help create a welcome “Green Hub” in this region.

The budget is a helpful steer towards a sustainable energy mix.

Alongside the support for nuclear, the UK’s renewable energy sector received a major boost with a record £1bn budget set for this year's CfD auction with £800m earmarked for offshore wind – aiming to make up for the underwhelming auction of 2023. This was in addition to the extra £120 million for the existing Green Industries Growth Accelerator, primarily aimed at offshore wind and carbon capture usage and storage (CCUS).

Amanda Kelly, Local Government Lead, says:

Investing in local leaders to deliver their ambitions for their places is critical to growth outside of London and the Southeast.

It is good to see more devolution of powers to local leaders, an essential move as we are the most centralised government of all the OECD countries. We need Treasury to now really work with those leaders to ensure money and power are positioned to best support local self-determination. This is the best route to increasing productivity in places and really delivering on the levelling up ambition. More places who want a deal, seem to be getting one – and more places with a deal are getting extensions. We’re clearly going to see continued devolution, and it seems to be an area where there is genuine cross government agreement on direction of travel. The biggest risk to delivering on the ambition for local areas is the funding crisis facing local government. This is the backbone of services to local communities, and we urgently need to address the very real issues they are facing.

We need to fundamentally rethink how we resource the unique needs of our regions.

Longer term, more flexible funding on both resource and capital has been needed for a long time, so while individual initiatives can be useful, we need to fundamentally rethink how we are going to respond to, and resource, the strengths in our regions for the long term. That includes tapping into the unique identifies of our regions – including ensuring we are equipping people with the right skills to meet the needs of local employers. We’re already seeing innovative plans in places like Greater Manchester where they have proposed a Manchester Baccalaureate providing an equal pathway for technical education. If we are to boost productivity in our regions, we need to be more innovative in thinking about how we invest in people.

If our cities outside of London performed to the level of international peers, it would add £100bn to the UK economy.

Levelling up might come and go as a term but inequalities between and within regions have been around for generations. Increased productivity was a key tenet of the Chancellor’s speech and arguably the best way of getting that growth is from investment in our regions. Another step the Government could implement would be a move to a more sustainable long term funding settlement for places. Ideally at least five years. That means no more one-year funding cycles and bidding pots. They don’t work and they don’t support investment in doing things differently.

Stephen Farrington-Bell, healthcare expert, says:

Day-to-day pressures have continued to force out greater investment.

£2.5bn for day-to-day spending in 2024/25 reflects immediate pressures of the system, such as industrial action, pay and issues with patient flow.

While the revenue budgets for the Department of Health and Social Care (DHSC) in 2023/24 have seen a slight increase compared to the projections made in the 2023 Autumn Statement, the capital budgets remain lower than anticipated.

This means that revenue continues to push out immediate funding for better facilities or transformational new treatments, which could limit the impact of any new digital investments.

Jenny Lewis, digital healthcare expert, says:

The Chancellor’s investment in AI is welcome, but clinicians aren’t going to start using a tool like AI until they absolutely believe it works.

Reforms to speed-up NHS test results using AI are a positive step in creating a fit for purpose and digitally enabled NHS, but for any chance of success the Government now needs to look at building trust. Gaining the trust of clinicians in AI is a huge issue. Clinicians have spent their careers building their reputations, and the care they provide has always been defined by their clinical judgement. Clinicians aren’t going to start using a tool until they absolutely believe it works. This is all made worse by a ‘not made here syndrome’ in the NHS, which will require every Trust to convince their clinical community of the benefits.

You can’t just inject new technology and wait for people to take it up.

It’s one thing investing in the technology within the machines, but that will achieve nothing without a wholesale redesign of processes. Redesigning operational workflows to embed AI tooling in the process, from creating an initial scan image to reporting on the outcome, must be the Government’s next priority. Clinical processes need to be standardised so new technology can be formally embedded into standard procedures.

The Government is missing a trick focusing solely on speeding up the reporting of scans, the deeper benefits for the NHS and for the public lie in using AI to address waiting lists.

A far easier challenge to tackle - and one that reaps even larger rewards – is using AI to get patients off the waiting list and into clinical care. Booking patients into scanners and organising the workload of clinicians to maximise the resources we have are two areas where AI can have a huge impact. We have seen a 15% increase in patients seen in imaging departments within three months using these techniques.

Jason Whyte, financial services expert, says:

One of the Chancellor’s major concerns is securing greater investment in UK companies and UK infrastructure projects.

This is more than just flag-waving. The UK’s Defined Benefit pension schemes have historically been major investors in the UK, and willing to give up liquidity for steady income that aligns well to the payments they make to their annuitants. But these schemes are closed to new members and will gradually shrink over time, while the Government still needs new sources of infrastructure investment. Both the Autumn Statement and the Budget aimed to draw more investment towards UK-based companies and projects – which not only reflects how much importance the Chancellor places on it, but also that the pensions industry is not fully on board. While several companies signed up to the Mansion House Compact, others responded that their hands were tied by regulation.

New reporting proposals will keep the focus on both Local Government and private sector pensions.

The Local Government Pension Schemes will be required to report on their asset allocation – including UK investments – and their progress on pooling assets. In turn, private sector Defined Contribution schemes will be required to provide reporting on their value for money relative to two large peers and to report on both their returns and their UK investments. While no immediate action is planned, the reporting will give the Government a clearer picture of how different pensions companies invest. That will give it some ammunition both to pressure those with lower levels of UK investment to keep up with their peers, or to amend the regulations if necessary.

New products to encourage retail investment in the UK, and an echo of 1980s privatisation.

Two new products aimed at retail investors were announced – a fixed interest British Savings Bond from National Savings & Investments, and an additional £5,000 ISA allowance for investment in UK-based companies. It is unclear what the appetite for these will be. Historically, the public’s most enthusiastic response has been reserved for products that help them achieve their goals, such as the Help To Buy ISA and Lifetime ISA. One of the stocks that the Chancellor will be hoping investors put in their new UK ISAs will be NatWest, with the Government intending to make a retail share offer as part of a plan to fully exit its remaining shareholding this summer. If you see Sid, tell him?

Pensions Lifetime Provider remains a goal – or is it a pipedream?

The Chancellor reconfirmed the Government’s continued investigation of whether a Pensions Lifetime Provider is feasible. The ability to carry a pension from one employer to the next has been successful in Australia’s more consolidated market. Yet for the UK – where there are already over 12 million deferred small pension pots – the Small Pots Working Group felt that making consolidation easier was a higher priority than a lifetime provider. Experience in Norway, which allows both portable pensions and consolidation, shows that building the systems to make it possible can be fiendishly complicated.

Will PISCES lure the next generation of big fish into the UK’s pond?

One of the more intriguing provisions in the Budget is the consultation on PISCES – the Private Intermittent Securities and Capital Exchange System. The proposal is for a platform that will enable private companies to conduct intermittent capital raising, without having to go to a full stock market listing. The hope is that the flexibility of the platform will draw high growth startups to raise capital in the UK and encourage them to stay until they IPO on one of the more senior markets. But to hook the big prizes, PISCES will need to offer compelling access to professional and institutional investors with a fit-for-purpose compliance regime.

Derreck Van Gelderen, AI and data expert, says:

Whilst the UK has the potential to become the “World’s Next Silicon Valley”, it is difficult to assess whether the UK is indeed “on track”.

We were expecting to see a specific investment today to support this mission, especially as the UK still lags behind rival global leaders – US, China and Singapore.

Very little has been said about the education needed to maximise the reach of the investment.

The UK desperately needs to take a pivotal role in embracing AI education and embedding comprehensive AI literacy across the education sector to cultivate a generation of thinkers, creators, and innovators who will navigate the future with confidence and imagination.

The UK’s strategy must shift to an integrated approach that equally prioritises nurturing AI talent as well as advancing its infrastructure.

With the latest advancements in Generative AI, it has never been easier for people to learn about this subject and to eventually become practitioners, so it is an area that must be prioritised.

Even the most ground-breaking solution will hold no value unless it is being used effectively.

AI has the power to help people explore complex concepts, experiment with new ideas, and visualise solutions in ways previously unimaginable. Only by focusing on educating all generations will the UK be able to meet its goal of “making the UK a great place to build and use AI to change our lives for the better”.

Alon Carmel, energy transition expert, says:

The UK Government has confirmed the budgets for CfD Renewable Energy Auction AR6 this summer with £1bn for all renewables and £800m being allocated for offshore wind.

The devil is in the detail though: how many GW of renewables this will pay for, and how close it brings us to the Government’s targets (such as 50GW offshore wind by 2030), will depend on the clearing prices and the level of competition. Prices are likely to increase compared to the record low prices set in 2022 at c. £37/MWh. The maximum bid price in this year’s auction is £73/MWh, which is in an increase of more than 60% above the maximum prices set in 2023. This is in recognition of the increased supply chain inflation, commodity costs and higher cost of capital that we have seen over the last few years.

The UK’s record-setting budget for renewable energy projects is a positive development for the renewables sector, allowing investors to feel optimistic about the opportunities in the UK’s energy transition.

Depending on clearing prices and competition levels, this budget could support 6-10GW or potentially more of renewable energy capacity.

This significant investment is crucial for making up for lost time and the missed opportunity of the 2023 auction, accelerating progress towards the ambitious 2030 target of 50GW of offshore wind power.

However, meeting this target will require contracting 6-8GW of new capacity annually, and it remains uncertain whether the current budgets and competition levels will be sufficient.

Additionally, numerous offshore wind farm projects, including projects from Orsted, RWE, Equinor, Scottish Power and more are racing to be ready to compete for this budget.

Some projects that won CfDs in 2022 at the record low price of £37/MWh are considering reducing the size of that CfD award and bid the residual amounts into this year’s auction in anticipation of better prices and improved commercial returns after a difficult few years in the sector.

Elaine Whyte, defence and security expert, says:

The geopolitical environment creates a challenging backdrop for the Budget, as the UK’s role in promoting peace and security around the world, most pressingly in Ukraine, competes with fiscal challenges.

The Government is holding the Defence budget at 2% of GDP until economic conditions allow an increase, potentially to 2.5%. However, the current geopolitical challenges and competing priorities are a strategy quagmire for defence leaders, who are expected to deliver a world-class and broad fighting capability within existing budgets, while threats are becoming increasingly sophisticated and variable. Leaders can navigate this, but must rise to these challenges by ‘choosing and changing’ – making hard choices about the UK’s role, being efficient in the use of resources, and preparing the enterprise to change with future threats much more quickly.

Productivity is crucial for defence, as the UK prioritises resupplying and rearming stockpiles after substantial equipment loans to Ukraine, in an increasingly fractious global arena.

There is a clear need to collaborate across the sector and supply chain, as well as for ingenious new approaches to procurement and whole systems management, to achieve defence and security outcomes within the current budget. This can only be achieved through fundamental change to the way the defence enterprise operates. For example, embracing the productivity gains of architecting capabilities and technical solutions at a higher level than is done today, can unblock the route to delivering more capability faster and cheaper, using common ‘platforms’ to reduce cost and time overheads.

This fundamentally different approach will have a big impact on the congested battlefield of data and information.

The whole defence enterprise needs to forge a new path that deepens collaboration and accelerates innovation. This requires new strategic partnerships, talent strategies and harnessing the power of emerging technology as warfare enters the information era. In this respect, it is good news that the Budget encourages investment in new technologies and AI, positioning the UK as the new Silicon Valley at the forefront of next-generation challenges and solutions. The appetite for change in implementation must now match up to the ambition of the intent.