As the political debate intensifies and the electoral battle commences, it is increasingly unclear how the result of the general election will affect our public services, what the impact will be and how quickly we shall feel it.
There is little doubt that all the major parties would reduce increases in public expenditure and for many if not most areas actually reduce real-term financial resources. Expenditure reduction or growth at rates lower than inflation or which do not match increases in demand which will result in fewer and/or poorer quality outputs unless there is some major re-design of the service.
Service redesign is often very necessary to improve productivity, the customer experience and transform outcomes. However, serious and effective service redesign and the subsequent re-engineering takes time and often require initial investment. Radical sustainable change requires the involvement of service users, staff and other stakeholders if the best designs are to be identified.
As Total Place is demonstrating, service redesign will need to be across agencies. This kind of service transformation will usually take longer than that in a single organisation though the long term benefits will be greater.
Changes to the way in which people work or use services – ones thinks of moves to greater co-production of services or the application of new technological solutions – have to allow time for people to adjust, to be re-skilled and to 'own' the new approach. This is not a plea for no change or for change to be slow. Indeed, the imperative is for swift and far reaching change across many areas of public service.
History shows rapid change has to be well planned and executed or it has a higher propensity to fail to realise the savings that it was meant to generate, and service outcomes can be damaged too. The business and public sector is littered with such failures.
There is much talk about achieving major savings through efficiency gains. Such savings undoubtedly are available. Again, the Total Place pilots have identified duplication between agencies, the opportunities to share staff, assets and systems to both improve outcomes and the customer experience as well as reducing costs in the longer term. These opportunities should be pursued with urgency. However, in almost all cases it will be very difficult to realise financial savings in their first year if service improvement is also to be achieved. In some cases the payback could take several years to turn positive.
The public sector and especially local government has been finding efficiencies for many years. This is not to argue that we should not seek more – more in terms of value and in terms of effectiveness – but it does mean that some caution is required about the ambition of the early prize. The easier wins have been banked. Therefore there should be some caution placed on an over-reliance on 'efficiency' savings to close the public deficit gap. The idea that massive additional savings can be found on those already identified in the current financial year is questionable.
All public sector bodies should be setting their financial horizons over the next Spending Review period. The current government’s public expenditure plans provide a year in which to plan and to commence reductions. Many public agencies have already started to do precisely this. Of course this must be a year for action and not just planning. The ambition can and should be bold.
Budget planning – up and down - should be strategic. The ideal starting point should be one of strategic commissioning. It will mean that some services are stopped or withdrawn that others may set new but lower standards of performance or quantity in some cases that service users will be encouraged or incentivised to co-produce and reduce their demand on public funds; and it may mean the adoption of shared service approaches with other public or business sector partners.
Of course, such strategic approaches should be complemented by good 'housekeeping' measures. Headcount reduction may be inevitable but often the initial question should be less about the number of staff but the processes and performance management regimes to which they work. A redesigned service may require fewer staff but to maintain outputs with less staff requires service redesign and/or new performance management arrangements, which take us back to the earlier part of this article.
Likewise salami slicing every budget risks over-stretching the services and reducing quality without any conscious and clear statement of intent. There should be no cuts by stealth but they should be subject to transparent debate and decisions.
There is a real risk that in the pursuit of savings, some public agencies will turn to a 1980s style of procurement and outsourcing – a new variant on CCT. Short term, price driven service contracts often lead to poorer quality, adverse changes to employee terms and conditions which in turn could undermine motivation and the quality of outputs, and a failure by providers to invest in business transformation, systems or people. Evidence shows that the public sector gets the best from working with the business and third sectors when there is genuine commitment from client and provider to long term success - which can often include productivity improvement and cost reduction, however, these are not short term fixes.
Much is being made currently of the opportunity for the public sector to renegotiate existing public service contracts with the private sector. A client should always be seeking to get the best possible deal – this means the best quality for the affordable payment and not simply the lowest possible payment. Every contract would need to be examined to identify the opportunity for the kind of adjustments that are being sought. Every supplier will need to take a long term commercial and market view of their response and financial room to accommodate such re-adjustments. They may agree to reduce charges in exchange for lower performance targets and/or financial penalty regimes, extensions of the length and/or scope of the contract or simply because of their longer term market interests. Public sector clients need to understand the commercial strength of their providers before entering renegotiations and to understand the rational and full consequences of the provider’s response. This will not be an easy means of reducing costs.
Usually cancellations of contracts will lead to providers being entitled to compensation for loss of future revenues and profit.
One must ask whether the public sector has the capacity to undertake these re-negotiations. And what the provider response will be?
For the third sector there could be real risk that the move towards securing 'full cost recovery' is set back.
The conclusion, therefore, is that over ambitious spending reductions enacted too speedily could too easily lead to longer term problems – a fall in the quality of services, a failure to secure long term service transformation and productive improvements, higher public sector unemployment, and a further weakening in public trust in public services and the political process.
It is not too late to be strategic. The politicians must show this strategic leadership between now and May 6 and then from May 7 onwards turn strategic intent into strategic action.
John Tizard is director of CPSP@LGiU
