We've seen the future_2

14 May 09
The Treasury's Operational Efficiency Programme reads like a Soviet five-year plan; and is probably about as achievable. Tony Travers wades through Whitehall's radical blueprint for public sector performance management and cost-cutting

By Tony Travers

15 May 2009

We've seen the future… and it’s looking grim. The Treasury’s Operational Efficiency Programme reads like a Soviet five-year plan – and is probably about as achievable. Tony Travers wades through Whitehall’s radical blueprint for public sector performance management and cost-cutting

Can efficiency save the day for Britain’s public services? This question will inevitably be asked in the years ahead as the country attempts to reduce the scale of its public expenditure. Whatever the future of the wider economy, it now seems certain that public spending will have to fall as a share of gross domestic product for the whole of the period from 2011/12 to 2020, and possibly beyond. The years of plenty are well and truly over.

Yet if the benefits promised by efficiency programmes, Private Finance Initiative projects and outsourcing prove to be as effective as the Treasury has long suggested, it should be possible to manoeuvre through the difficult years ahead without compromising the level of service provided. By using resources more productively, additional provision could be bought with the same or less money. Magically, the books would balance and the public would receive the services they need.

But it is never that easy. Between the silkily convincing words in official reports and the provision of lower-cost services, huge changes in performance will be needed. This is a Stakhanovite approach; one that imagines productivity improvements cascading down from Whitehall to town halls, hospitals and police stations, with eager officials over-fulfilling their targets. Inevitably, the policy-makers who churn out proposals for more efficient government will hardly ever be the managers who must implement the restructuring, contracting out and collaboration necessary to cut costs. It is in this gap between Whitehall initiative and local delivery that optimism fades.

Just before the recent ‘Black Wednesday’ Budget, the Treasury published its latest great work on efficiency and effectiveness in the public sector, the final report of the Operational Efficiency Programme. The work was signed off by five separate authors, each of whom had undertaken their own element of the overall publication. They were: Sir Michael Bichard, ex-local authority chief executive and permanent secretary and now executive director of the Institute for Government (covering local incentives and empowerment); Lord Carter of Coles, founder of a health care business (property); Gerry Grimstone, chair of Standard Life (asset management and sales); Martin Jay, chair of Invensys (collaborative procurement); and Martin Read, chief executive of Logica (back-office operations and IT).

The report is, as is traditional for Whitehall output, sufficiently long to put off all but the most dedicated reader. It can be summarised as follows. First, the cost of back-office operations could be cut by 20%–25%, or about £4bn, within three years. These savings would be achieved by different public sector agencies getting together to outsource their routine activities. Spending on IT could also be cut by 20% through benchmarking and comparing best practice. The total savings would be £7.2bn per year after three years.

Second, there should be far more joint procurement of goods, services and IT. The total savings from this would be £7.7bn per year by 2013/14.

Third, there should be a regular review within government of what assets could be sold off. In the first instance, bodies such as the Royal Mint, the Met Office and the Land Registry should be privatised. No figures were given for total savings.

Fourth, government property should be better managed. A new central property agency should be created to collect data and set objectives. Councils should encourage Local Strategic Partnerships to work jointly across service boundaries to use property more efficiently. The total savings would be £20bn in asset sales over ten years, plus £5bn per annum through reduced running costs.

Fifth, a programme – ‘Total Place’ – should be introduced to map all the different flows of central and local government spending on services within a locality and then remove barriers to joint working. This would be used to identify how public money could be used more effectively, including opportunities for partnerships. Financial ring fences between public spending programmes should be abolished and high-level groupings of officials should be set up to help remove any barriers to joint working. The total savings would be 20%–30% ‘in many areas’. The £15bn of additional savings announced by the chancellor just before the Budget are ‘netted off’ the OEP numbers. But, as ever, it is hard to reconcile all the efficiency totals announced at different times.

The authors put down innumerable markers for improved management information, audit trails and benchmarking data. Indeed, to provide the data and research proposed would be a substantial exercise involving the creation of new public bodies. In preparing the report, its authors have realised they are involved in an effort to bring about efficiencies within a vast, top-down, bureaucracy. Yet they have to make proposals that do not, themselves, appear to be centralising. One way of gaining authority is to suggest that the savings proposed in the report should be taken into account in future public spending settlements. That is, the Treasury would cut back allocations to departments, quangos and local government pound-for-pound in line with expected savings.

The report can be seen as implied criticism of the government’s previous efficiency regimes. Many parts of it suggest that these earlier efforts, notably following Sir Peter Gershon’s efficiency review, were transient and ineffective. The authors believe that billions of pounds can still be saved from all parts of the state – despite the five Gershon years and innumerable value-for-money audits. Either Gershon and co were ineffective or new inefficiencies have been constantly emerging.

The OEP report suggests that the government has been wasting billions of pounds a year in the recent past. Indeed, if the report is read in the context of countless National Audit Office reports about defence procurement, NHS computer systems, the London Underground public-private partnership and other Whitehall spending disasters, it has an even more threatening tone. The government has, it would appear, failed to provide efficient public services.

On the other hand, the report is more than slightly naïve about the difficulty of pushing through reforms in the public sector. Paragraph 4.64 states: ‘Despite the clear benefits, organisations often fail to overcome the barriers to collaboration. The causes can be as simple as the lack of common systems for IT and security, but also arise from a lack of information about the opportunities available or, at a deeper level, resistance to the sharing of property.’

There is no mention at all of the often blatant unwillingness within Whitehall departments to play ball, or, for that matter, of the inevitable health and safety barriers to joint use of buildings.

Sir Michael Bichard’s part of the report is more realistic about the dismal record of central government when it comes to allowing their sponsored local bodies to work together. However, even here the language is vague to the point of not making it clear what the problem is. Paragraph 5.18 says: ‘[Central] government must ensure that it better applies its vertical national frameworks in ways that support local flexibility and collaboration rather than hindering it.’

This mild statement falls well short of unravelling the real difficulty. Despite good intentions within the Department for Communities and Local Government, Hazel Blears has very little influence when it comes to getting service departments, notably the Home Office and the Department of Health, to do anything they do not want to do. Faced with a hostile media demanding action about, say, child protection or knife crime, central departments will always resist pooling their resources within local initiatives. By far the largest proportion of the cash resources put into existing Local Area Agreement projects is provided by local government.

Looking at the OEP report as a whole, it is a mixture of very different approaches to money-saving, some of which will be seen by many observers as having an ideological implication. Proposing that back-office services be contracted out is a polite way of saying ‘privatisation’, with all the challenges this brings. Selling off the Met Office or the Royal Mint might well generate the kind of opposition currently surrounding the government’s efforts to reform the Post Office. Sell-offs make a one-off contribution to the Exchequer but might not increase efficiency in government.

Improving the management of property has been the subject of earlier government attention, notably a report by Sir Michael Lyons in 2004. The clear implication of the OEP findings is that little was achieved. The demand for joint working is not new either, having featured heavily in a white paper, published in October 2006, which advocated working across service and geographical boundaries.

Doubtless the authors hope that by bringing together five work-streams into the OEP publication they will gain traction. In reality, the dire condition of the public finances is more likely to ensure the proposals are taken more seriously than similar ones in the past. Some local authorities, notably Essex and Barnet, are already discussing contracting out much of their provision. If either or both of these councils can be seen to make significant savings by doing so, others will follow them. In the years ahead, all public authorities will seek real savings.

But there will be difficulties in making the changes proposed within the OEP report, however they are brought about. Contracting out services provided by councils, health authorities, the police and other providers would mean a reduction in overall employment. It is by cutting the numbers of people employed that efficiencies will be made. Back-office jobs will migrate to large, central locations. Councils and other public service providers could save money by exporting jobs. Although efficiency savings sound good when outlined in Treasury reports, the reality will be more awkward to explain.

Similarly, joint provision of services is also likely to be encouraged by the squeeze on public spending. The NHS, local government and schools might find ways of saving money by making formal agreements to work together, as might the police and local councils. But if such efficiencies are to be real, there will be radical changes in the provision of services. The private sector’s willingness to push call centre work overseas and to centralise office functions would be a model for, say, regional consortiums or companies administering housing or council tax benefits. The line between ‘public’ and ‘private’ provision would be finally rubbed out.

This is not to say any or all of the above reforms would be wrong. However, making such radical changes would provoke a major debate about privatisation, sell-offs and a possible loss of local control over the detail of provision. Councillors, NHS managers, chief constables, the managers of Jobcentre Plus offices and others responsible for services would not only need to think and act very differently, they would also have to confront powerful interests opposed to such reforms. As the prime minister has recently discovered with the vexed issue of MPs’ expenses, people do not easily acquiesce in the removal of their current livelihood, pay or conditions.

Regardless of whether the OEP report will herald radical medium-term reforms, its publication is also yet another indicator of the centralised nature of the state in Britain. At its simplest, the report is a top-down effort to squeeze the public sector. Its publication by the Treasury carries the clear message that efficiencies won’t happen otherwise. Yet it is surely impossible to drive detailed efficiencies from the core of Whitehall. Because of this problem, the report’s authors have proposed a major increase in the use of data, benchmarking and incentives. For example, in paragraph 4.56, the argument for a government-wide property assessment exercise reads like a Soviet administrative initiative.

During the first decade of the Blair-Brown years, efficiency exercises were harmless diversions designed to convince the electorate that the post-1997 Labour government was different to earlier ones. There would be no return to the economic failures of Harold Wilson or James Callaghan. Prime Minister Gordon Brown is now in a very different place. Projections for public spending after 2010/11 are clear. There will either have to be a radical change in the way services are provided, as suggested in the OEP report, or something else will have to happen.

‘Something else’ could include the abandonment of some public provision altogether, means tested benefits and/or charging for many more parts of the state. None of these options would be easy. Real efficiency savings might now be forced upon government. If such savings are to be real and ‘cashable’, it will mean privatisations, contracting out and the shedding of public sector staff. There will be a political cost in making such radical changes. But, even if these are successful, improved productivity will not be sufficient. Other, even more difficult, steps will be required. Efficiency alone will not save the public services.

Tony Travers is the director of the Greater London Group at the London School of Economics

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