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Public Sector Outlook 2022: Plenty of reasons to be optimistic

06 January 2022

What can our public sector clients expect in 2022? In this article, Jonathan Branton and Alexander Rose identify the announcements, events and emerging themes that are likely to be relevant to those working in Central Government and Local Government in the coming months. 

Forecasting is a notoriously risky business - therefore in this article we have sought to manage that risk by sticking to already emerging issues and referring to scheduled events that are likely to be of relevance to our public sector clients in the coming year.  Of course, our aim is not to try to predict the future but to use the information already available to support you to prepare properly.

Energy Prices will be a front page issue

Gas market prices recently reached record highs of £4.50 per therm.  This was approximately nine times higher than the year before.  We've previously written articles about how certain sectors are likely to be disproportionately hit by such rises (including steel, paper and chemical manufacturers).  At the same time, households are likely to be affected by increased bills.  We expect the Public Sector will be heavily involved in addressing these problems, both through subsidies to those businesses most affected but also through measures to mitigate the effects of higher bills upon the poorest in society.

The Government will take a less restrictive approach to Covid-19

Despite the surge in Covid-19 cases due to the Omicron variant, the Government chose not to impose a lockdown in England in late 2021.  We believe this is indicative of a deliberate Government policy of being less reactive to the disease.  The success of this approach relies upon having an effective vaccination programme and ensuring people with symptoms behave in a manner that reduces contact with others.  As a result, we expect the Public Sector will again be at the forefront of the Covid-19 response.

The NHS will continue to encourage people to behave responsibly and this messaging will also be communicated by other parts of the Public Sector.   Preparing for new variants of Covid-19 will necessitate the funding of companies, universities and other organisations engaged in Covid-19 related R&D and equipment manufacturing.  Restrictions, although used more sparingly, are likely to occur in some situations and the Government may well choose to provide subsidies to mitigate the effects.  We anticipate that in most situations these will be delivered by Local Government.

Michael Gove becomes the face of Levelling Up

Michael Gove was appointed as Secretary of State for Levelling Up, Housing and Communities in September 2021, but has so far been comparatively quiet.  This is likely to change in early 2022, with the publication of the Levelling Up White Paper.

The policy of Levelling Up is central to the Government's prospects of holding on to the Red Wall seats gained in the 2019 election and Michael Gove has a reputation for being able to push through reforms. Therefore we anticipate that this will be one of the major public sector news stories of 2022.  One of its most obviously tangible forms will come via the Levelling Up Fund, as further tranches of public money are directed to the regions in order to stimulate investment in areas that are considered to need it most.

The White Paper is likely to be an extension of the philosophy set out in Michael Gove's 2008 essay 'Why Conservative social policy delivers progressive ends' which argues for reforms which recognise "strong local loyalties which make the exercise of authority accountable and meaningful", noting that "citizens engage best with Government when Government reflects the sort of people they are".

In line with this, reports suggest the Levelling Up White Paper will propose a new devolution framework for England that increases accountability and local decision making.  In particular, recognising the success of the Mayoral Combined Authority model, the White Paper is expected to propose more directly elected leaders and streamline processes. It remains to be seen whether this will involve merging some of England's 181 district and 24 County Councils or redesigning Local Enterprise Partnerships. 

Given how important the Levelling Up agenda is for this Government, we anticipate that Michael Gove will have a high profile during 2022.  Change is rarely universally popular and Public Sector officials are likely to have to adapt to new structures and ways of working as a result of the Levelling Up White Paper.

UK Shared Prosperity Fund

The UK Shared Prosperity Fund is scheduled to launch in April 2022 and has been promoted as the Government's main regeneration fund of the decade.  Given this, it is surprising how little information is currently in the public domain about the focus and delivery processes of the fund.

We do know that the value of the UK Shared Prosperity Fund is currently less than the EU Funds it was designed to replace (although this issue can be rectified by increasing the allocation in later years).  The fund is likely to be overseen by the Cities and Local Growth Unit (a team featuring officials from both the Department for Levelling Up, Housing and Communities and the Department for Business, Energy and Industrial Strategy).  UK Shared Prosperity Fund awards are expected to be made by Mayoral Combined Authorities and other Local Government administrations, with monitoring conducted by Central Government.  

The Subsidy Control Act 2022

The Subsidy Control Act 2022 will regulate awards of financial assistance made using public funding to organisations engaged in economic activities.  This will build on the new UK regime which replaced EU State aid control and which was put into place from 1 January 2021 following the EU/UK trade & Cooperation Agreement. The legislation has yet to be finalised with the Subsidy Control Bill being considered by the House of Lords in early 2022.  Public Sector officials will need to adapt to the new rules and procedures.

Greater focus on using public funding to drive innovation

British spaceflight is likely to become reality in 2022.  As satellites and rockets are launched from Cornwall and Scotland, there is likely to be a focus on how public funding can unlock innovation across the board.  We would hope the Subsidy Control Act and the UK Shared Prosperity Fund will complement this and other national objectives. 

New Procurement Regulations?

In October 2021, the Cabinet Office circulated an update on public procurement reform following consultation on the Transforming Public Procurement Green Paper.  This stated that a Procurement Bill will be introduced when Parliamentary time allows, and the passage of the Bill through Parliament will likely take several months, but is not expected to come into force before 2023.  Public Sector officials will be eager to shape the rules so they meet their purchasing needs.

Further Free Trade Agreements

The UK Government is expected to continue to seek to agree new free trade agreements with third countries as it continues to establish itself as an independent trading nation outside the EU.  In the immediate aftermath of departure from the EU the primary focus was in seeking to "roll-over" existing benefits that the UK had enjoyed through EU trade agreements, and finally in late 2021 the UK concluded its first incremental free trade agreement with Australia, with whom the EU has no agreement.  2022 will see this start to take shape while (for example) UK manufacturers weigh up the benefits of increased ability to export while at the same time absorbing an increased level of access to the UK domestic market for Australian exporters.  The UK is expected to continue to look for further incremental deals to offer access beyond EU levels and reportedly India is a key target, albeit this will almost certainly require immigration concessions to India. 

Back from the brink - the UK Economy predicted to thrive

The UK economy is predicted to make the fastest recovery from the pandemic amongst G7 countries, returning to where it was before Covid by the spring.  GDP in 2022 could hit 4.6 per cent, in many ways vindicating the use of public funds to mitigate the impact of Covid-19 and the related lockdowns on many parts of the economy.  This good news ought to alleviate some of the immediate pressure on public finances, albeit there will be a push to balance the books by identifying savings. 

Conclusion

There are plenty of reasons for public sector officials to be optimistic as we move into 2022.  The economy appears to be improving after two very challenging years, new rules are coming into force that should reduce bureaucracy and the Government will be bringing forward new policies to level up the UK.  That said, there are immediate challenges which need to be resolved, including high energy prices and a spike in the number of Covid-19 cases, with potential further variants still around the corner.  Public Sector officials will once again be at the forefront of many initiatives to address such challenges, playing a vital role in the recovery of the UK.

Further Reading