My earlier contribution to the PF Blog, expressing scepticism about proposals to restructure local government in Wales, produced a flurry of comments and responses.
These echoed a wider debate across Wales following the publication of the report from the Commission on Public Service Governance and Delivery under Sir Paul Williams. He proposed that the number of unitary local authorities fall from 22 to 12.
One of the key themes of the debate was the financial implications of such a major restructuring, with various numbers flying about. The Williams Commission itself suggested that restructuring could save £100m, while a report by Deloitte for the Welsh Local Government Association estimated that restructuring could cost £200m.
The cost and savings figures are vitally important for three reasons. Firstly, this would be the first local government reorganisation in Wales to take place during a period of austerity. Previous restructures have taken place in an environment of growth in resources, but Welsh councils can only expect significant reductions in real-terms funding.
They are already ‘under the cosh’ as a consequence of these funding reductions. Referring to a recent report from the Wales Audit Office, the Auditor General for Wales commented that despite coping with considerable pressures up to now, ‘cracks are beginning to show’ for some authorities. ‘Too many councils are falling short and running out of time,’ Huw Vaughan Thomas said.
Secondly, local government in Wales, like the rest of the UK, is having to cope with the pressures of an ageing population and the impact on service demands, particularly for social care.
Thirdly, there are major problems with key local authority services in Wales. Nearly a third of Welsh local education authorities are in special measures. To this we can add a number of individual schools in special measures, plus another few councils who came pretty close to being placed in this situation (and probably would have been if there hadn’t already been an unacceptable number). Also, some local authorities have been in special measures for social services with others coming close.
Taking these three themes together, it should be obvious that if local government restructuring resulted in a higher cost base this could prove disastrous. Try to explain to the parents of children in a failing school or elderly persons whose day-care centre is closing that this is happening while at the same time major costs are being incurred in reorganising local government and abolishing their local council.
When you get a range of impacts from £100m savings to £200m extra costs it is clear that the people doing these calculations are making fundamentally different assumptions about what will happen. Based on my experience of local government reorganisations in Wales and extensive experience of mergers in other parts of the public sector, I am strongly of the view that costs will increase, at least in the short term and possibly in the longer term as well.
Why do I say this? Well having also observed mergers and other sorts of changes in the private sector, it is clear to me that such mergers are much more speedy and brutal than anything that takes place in the public sector. I once observed a situation where a major private sector organisation, in order to improve its business position, shed 8% of its workforce overnight though compulsory redundancies.
In the public sector we have a process that is much slower, more consultative and more employee friendly than what might be seen in the private sector. This is not to suggest that the public sector approach is wrong, but that it is very different and adds to costs.
So what are the sorts of events that will probably take place in local government reorganisation in Wales that will force up the costs? Some examples are discussed below:
- Redundancy – in merger situations, local authorities will probably utilise a process of voluntary redundancy. This will result in a considerable number of people in their fifties taking a generous severance package and leaving the authority. However, because of their experience, these are often the very people that the council can’t afford to lose and they have been paid large sums to leave. They are often of such importance that the local authority may try and entice them back into employment in some sort of paid consultancy role.
- Harmonisation – when two or three local authorities are brought together in a merger it is quite common to find variations between the authorities in employee remuneration and conditions of employment, and in the standards of public services being delivered. It is untenable to retain such differentials for long periods of time, and attempts may be made to harmonise. However, it is probably politically impossible to harmonise downwards to the level of the lowest, and so upward harmonisation takes place leading to higher costs.
- Salary creep – because of increases in responsibility, new post-holders in the merged organisation are likely to expect, and receive, a substantially higher salary than that received in the same post in one of the constituent (to merger) local authorities. Such ‘salary creep’ is likely to take place in relation to a wide range of management posts. It is also true that this should be offset by savings in the numbers of posts involved, but there are still the costs of severance payments or protected salaries. Consider the chief executive post of a new authority formed from the merger of three existing authorities. Possibly, one of the existing chief execs will be appointed to the CE position in the new authority but at a higher salary. The other two CE posts would be technically redundant and the post-holders may take redundancy or be slotted in somewhere in the new organisation but with a protected salary both generating high levels of cost.
- Redundant facilities - It is likely that following reorganisation there will be certain facilities that are no longer needed but will still be kept in operation because of a lack of political will to do otherwise. One example of this concerns civic buildings and town halls. The merger of three authorities will mean that two of these civic centres and town halls will become redundant but a lack of political will to divest themselves of these assets means that running costs of these buildings will continue to be incurred. No doubt these surplus buildings will not be left empty and some use will be found for them but this is essentially a fig-leaf to disguise the fact that they are no longer needed.
- Transitional costs – there are a number of costs that may only be incurred once or for a limited period of time but will not go on indefinitely. However, these costs are likely to be substantial and include: the costs of severance payments; travel costs, for several years, consequent on staff relocation; the costs of integrating disparate IT systems; and merger facilitation costs (eg consultancy and overtime).
These are just some examples of potential cost pressures associated with mergers in the local government sector and there may be others. These additional costs must be considered alongside the pressures for resources discussed earlier.
One important point to note is that we will probably never know the true costs associated with such a reorganisation because there will be no attempt made to keep a track of the additional costs involved.
