23 October 2009
By Alison Moore
Forget the bonfire of the quangos, it’s managers and back-office staff who are in politicians’ line of fire now. But can layers of ‘bureaucrats’ really be taken out without harming services on the front line? Alison Moore reports
As the public finances become sicker by the minute, politicians’ focus has shifted to opportunities for savings. Both main parties are committed to slashing government debt, which will require substantial cuts in public spending.
At the Conservative party conference, leader David Cameron proclaimed big government had reached ‘the end of the road’, adding: ‘It is more government that got us into this mess.’ Shadow chancellor George Osborne wants to cut the civil service by a third, while shadow health secretary Andrew Lansley intends to save £1.5bn a year by cutting ‘bureaucracy’ in the NHS. Public sector pensions are also in the line of fire from the Tories, as are senior civil servants who earn more than the prime minister.
Labour, meanwhile, is looking for pay rises of under 1% for many public servants and a pay freeze for higher earners – a move instantly trumped by Osborne, who said a year‘s pay freeze across the board for those earning more than £18,000 could save the equivalent of 100,000 jobs. Education Secretary Ed Balls has talked of reducing managerial jobs and saving £2bn by setting up confederations of comprehensives. And the Liberal Democrats envisage cutting 10,000 desk jobs at the Ministry of Defence.
In this bidding war of cuts, politicians say they want to keep ‘frontline workers’ in their jobs – especially nurses and teachers, whose roles the public understand. ‘Bureaucrats, back-office and fat cat’ jobs, however, are seen as fair game for politicians; managers, it seems, will bear the brunt of any job cuts.
But there is scepticism that this cull of the managerial classes will produce anything like the level of savings required. Most public sector organisations face growing demand and static – if not declining – income. The NHS expects to have to save £20bn over three years and some councils predict they need to make savings of 15%–20%.
Steve Barnett, chief executive of the NHS Confederation, says that only 3% of the NHS’s £110bn budget goes on management costs. Even if every last penny of this were saved, it still would not yield the savings needed. Nor is the distinction between management and frontline workers always clear-cut: ward sisters, for example, have a management role. ‘I would not suggest that managers should be outside any attempt at financial savings but it would be a complete fallacy to suggest you can run the NHS without a cadre of managers,’ says Barnett.
Tony Travers, an expert in local government at the London School of Economics, points out that even if every council in England got rid of its chief executive, the savings would be far less than £100m a year.
Joan Munro, national workforce advisor at the Improvement and Development Agency, agrees about the risks and rewards involved.
‘The cuts can’t all be funded by getting rid of managers, and there is a danger of saying that managers are not important,’ she says.
There is, in fact, far more scope for saving money in staff costs at the point of delivery of services – simply because many more people are employed there. In the civil service, for example, the majority of posts are in frontline positions. But as Jonathan Baume, general secretary of the FDA senior civil servants union, points out, some of this employment is demand-led, such as in the Department for Work and Pensions, where numbers have increased as a result of the recession.
Savings from senior management cuts would amount to ‘pennies and halfpennies’, could lead to extra early retirement and redundancy costs and would lose reservoirs of experience, according to Travers. The cost of such pay-offs can be substantial and can inhibit reorganisations.
Conservative shadow chief secretary to the Treasury Philip Hammond told the Financial Times he was looking at how departments could be ‘enabled’ to carry out restructuring, such as removing layers of management. Labour has said it would limit severance pay to two years’ salary and cut back on early retirement costs.
But public sector organisations undoubtedly feel under pressure to make efficiency savings and cut management jobs, however little that contributes. Norfolk County Council, for example, is looking at all 600 jobs paying more than £34,000. Tony Williams, Cabinet member for corporate and commercial resources, says the council will be looking for duplication and limited job spans and differentiation between layers of management. He won’t predict the level of savings from management – Norfolk wants to make £140m savings over four years, while protecting frontline services – but expects the ratio of managers to frontline staff to change as a result.
‘This is prompted by the financial constraints we see coming over the next two to three years,’ he says. The council has already made £72m efficiency savings over the past four years, but is now looking to make £14m this year and £19m next year; it also anticipates having to freeze council tax rates for two out of the next four years.
As well as examining management roles, the council will be looking at how it can share services and buildings with other public sector bodies, including the NHS.
So are there savings that could be made at management or back-office level that won’t affect services? Within the NHS there is increasing interest in strategic health authorities – which don’t provide many services but do have a relatively high level of senior managers – and, to a lesser extent, primary care trusts. A government health minister said recently that SHAs had to ‘justify their existence’. Job cuts in these authorities could be portrayed as cutting bureaucracy and senior jobs; but would any government be happy without a tier between it and the NHS?
And even making these savings might make the government change what it asks the NHS to do, and how it is regulated and performance-managed. Many management tasks are a response to government priorities, says Barnett.
With councils, the position is more complex. There are still wide variations in how they organise themselves, for example, between service delivery and back-office staff, and the layers of staff between senior management and the front line.
Munro says: ‘You could enhance good communication by taking some of those layers out. But it depends where you are starting from.’ However, recent surveys indicate widespread concern that switching resources from the back office to frontline services could rob councils of their ability to act strategically.
Julian McCrae, a fellow at the Institute for Government, argues that the way Sweden and Canada have managed their deficits shows the focus on savings must release real money. This can often be achieved by stopping doing something entirely, introducing tight and immovable budgets or by reducing transfer payments. Both countries ‘really focused on getting money out, with reforming the system as a secondary objective’, McCrae says. ‘The question is not just show me some accountancy efficiencies but show me a clear line of sight to actual money coming out.’
In fact, some councils are already accepting that efficiency savings alone won’t provide the money they need. They are beginning to look at services they are not obliged to provide or could provide at a lower level. This could lead to job losses at all levels. Kent has just announced a review of its children’s centre plans, for example. Leicestershire wants to make £70m savings over four years, around half of which it expects to come from services and increased charges. In Norfolk, Williams says that he will be ‘highlighting to members’ which services are discretionary.
Many councils are also considering the potential savings from merging services – either between councils or with other public bodies – with fewer senior management roles as a result. Munro says the current financial pressures are making councils take shared services seriously and overcome concerns about loss of control that have been prominent in earlier attempts.
In Dorset, a ‘pathfinder’ pilot, in which six district councils are looking at working in two clusters with shared services, plans to save around £4m–£5m a year. The details of which senior management jobs will go are not yet known. ‘Various options were available to councils to protect frontline services while making about 10% saving on their costs. They felt that the most palatable one was to reduce senior jobs, which are expensive,’ says Ali Henderson, pathfinder project manager for the councils. The pathfinder scheme predated councils’ current financial problems but has ‘undoubtedly’ been given impetus by them, she says.
Three Lincolnshire councils are planning to save £2.5m a year from setting up an arm’s-length organisation for customer services, finance, human resources, IT, revenues and benefits. Benefits include a ‘streamlined management structure’ and future possibilities of reducing the number of chief executives, directors and heads of services.
Two of the councils – East Lindsey and South Holland – want to take the idea further but Boston Borough Council has opted out, citing pushing forward on all five services as ‘too risky’.
This shows a common dilemma: merged services can, on paper, offer substantial savings and economies of scale in terms of senior jobs. But they require initial investment – £6m in Lincolnshire – and sometimes reductions in frontline staff and a more distant service, with staff often in one location rather than spread between councils. Trust is also important. Henderson says the pathfinder project has been running for two-and-a-half years and has already successfully established some joint services. ‘We can demonstrate to members that you don’t lose by having a shared service.’
In education, Balls has suggested that confederations of schools could share some senior managers. This has happened in some cases but is usually done to tackle failing schools rather than to cut costs. Vicki Paterson, who heads her own school and a previously struggling one in the London Borough of Lewisham, is a case in point.
Mick Brookes, general secretary of the National Association of Head Teachers, is critical of the idea that deputy heads could be shared but he thinks there could be benefits from schools sharing other staff. A number of primary schools could share a business manager, he suggests, who could both provide expertise and take some of the burden off head teachers. Although such a post could be cost-effective and could free staff for more frontline work, it would mean employing one more senior member of staff. Improved procurement could also save money, he suggests.
In the NHS, Barnett says: ‘There is no doubt that there is scope for looking at things like back-office functions. Can they be done on a shared basis? Would some of them be done better outside the NHS rather than inside? Is there scope for streamlining some of the functions? ‘There may be savings as a result of mergers, acquisitions and taking some services and provisions out of the NHS. But that also requires some political courage.’
But the most innovative developments are those looking at shared services between different organisations across the public sector. Waltham Forest Borough Council and NHS Waltham Forest are planning a joint director of finance, and have commissioned PricewaterhouseCoopers to look at other potential synergies.
A number of ‘back-office’ departments in the two organisations already work closely together.
The Total Place pilots – which look at how public sector agencies in a locality can work together to improve services – will also ensure overall public spending in an area is examined. Barnett points out that it is now the norm for PCTs and local authorities to make joint appointments of public health directors.
But how feasible is it to work across different types of organisations? In finance, a joint director needs understanding of both NHS and local authority funding. Even if such individuals can be found, it would be hard to replicate this knowledge throughout a finance system – would everyone require knowledge of both local authority and NHS revenue streams and payments? There are also cultural differences.
And not all joint appointments have proved sustainable: Tower Hamlets PCT and the borough council shared a human resources director for two and a half years, but have now decided to revert to individual ones. The local authority has cited the different agendas facing the two organisations, with potential NHS changes. The joint director, Deb Clarke, had spoken of a ‘steep learning curve’ because of her lack of experience of the NHS, although she will now continue working for the PCT. Baume points out that attempts to share services in the civil service have come up against problems – for example, in HR.
But if there aren’t sufficient savings in back-office efficiencies, shared services and cutting senior management roles, where will the savings come from? The answer seems to be from doing less. Baume says: ‘In the end, the only way to save significant amounts of money is by saying you are not going to do something or you are doing to change quite radically the way in which you do it.’
But if this chimes with the vision of smaller government, it also comes with a health warning. Moving to a situation where government departments do less will take time – simplifying the tax and welfare system, for example, could take most of the next Parliament. And planning and executing such significant steps will require lots of civil servants.
By Alison Moore
Forget the bonfire of the quangos, it’s managers and back-office staff who are in politicians’ line of fire now. But can layers of ‘bureaucrats’ really be taken out without harming services on the front line? Alison Moore reports
As the public finances become sicker by the minute, politicians’ focus has shifted to opportunities for savings. Both main parties are committed to slashing government debt, which will require substantial cuts in public spending.
At the Conservative party conference, leader David Cameron proclaimed big government had reached ‘the end of the road’, adding: ‘It is more government that got us into this mess.’ Shadow chancellor George Osborne wants to cut the civil service by a third, while shadow health secretary Andrew Lansley intends to save £1.5bn a year by cutting ‘bureaucracy’ in the NHS. Public sector pensions are also in the line of fire from the Tories, as are senior civil servants who earn more than the prime minister.
Labour, meanwhile, is looking for pay rises of under 1% for many public servants and a pay freeze for higher earners – a move instantly trumped by Osborne, who said a year‘s pay freeze across the board for those earning more than £18,000 could save the equivalent of 100,000 jobs. Education Secretary Ed Balls has talked of reducing managerial jobs and saving £2bn by setting up confederations of comprehensives. And the Liberal Democrats envisage cutting 10,000 desk jobs at the Ministry of Defence.
In this bidding war of cuts, politicians say they want to keep ‘frontline workers’ in their jobs – especially nurses and teachers, whose roles the public understand. ‘Bureaucrats, back-office and fat cat’ jobs, however, are seen as fair game for politicians; managers, it seems, will bear the brunt of any job cuts.
But there is scepticism that this cull of the managerial classes will produce anything like the level of savings required. Most public sector organisations face growing demand and static – if not declining – income. The NHS expects to have to save £20bn over three years and some councils predict they need to make savings of 15%–20%.
Steve Barnett, chief executive of the NHS Confederation, says that only 3% of the NHS’s £110bn budget goes on management costs. Even if every last penny of this were saved, it still would not yield the savings needed. Nor is the distinction between management and frontline workers always clear-cut: ward sisters, for example, have a management role. ‘I would not suggest that managers should be outside any attempt at financial savings but it would be a complete fallacy to suggest you can run the NHS without a cadre of managers,’ says Barnett.
Tony Travers, an expert in local government at the London School of Economics, points out that even if every council in England got rid of its chief executive, the savings would be far less than £100m a year.
Joan Munro, national workforce advisor at the Improvement and Development Agency, agrees about the risks and rewards involved.
‘The cuts can’t all be funded by getting rid of managers, and there is a danger of saying that managers are not important,’ she says.
There is, in fact, far more scope for saving money in staff costs at the point of delivery of services – simply because many more people are employed there. In the civil service, for example, the majority of posts are in frontline positions. But as Jonathan Baume, general secretary of the FDA senior civil servants union, points out, some of this employment is demand-led, such as in the Department for Work and Pensions, where numbers have increased as a result of the recession.
Savings from senior management cuts would amount to ‘pennies and halfpennies’, could lead to extra early retirement and redundancy costs and would lose reservoirs of experience, according to Travers. The cost of such pay-offs can be substantial and can inhibit reorganisations.
Conservative shadow chief secretary to the Treasury Philip Hammond told the Financial Times he was looking at how departments could be ‘enabled’ to carry out restructuring, such as removing layers of management. Labour has said it would limit severance pay to two years’ salary and cut back on early retirement costs.
But public sector organisations undoubtedly feel under pressure to make efficiency savings and cut management jobs, however little that contributes. Norfolk County Council, for example, is looking at all 600 jobs paying more than £34,000. Tony Williams, Cabinet member for corporate and commercial resources, says the council will be looking for duplication and limited job spans and differentiation between layers of management. He won’t predict the level of savings from management – Norfolk wants to make £140m savings over four years, while protecting frontline services – but expects the ratio of managers to frontline staff to change as a result.
‘This is prompted by the financial constraints we see coming over the next two to three years,’ he says. The council has already made £72m efficiency savings over the past four years, but is now looking to make £14m this year and £19m next year; it also anticipates having to freeze council tax rates for two out of the next four years.
As well as examining management roles, the council will be looking at how it can share services and buildings with other public sector bodies, including the NHS.
So are there savings that could be made at management or back-office level that won’t affect services? Within the NHS there is increasing interest in strategic health authorities – which don’t provide many services but do have a relatively high level of senior managers – and, to a lesser extent, primary care trusts. A government health minister said recently that SHAs had to ‘justify their existence’. Job cuts in these authorities could be portrayed as cutting bureaucracy and senior jobs; but would any government be happy without a tier between it and the NHS?
And even making these savings might make the government change what it asks the NHS to do, and how it is regulated and performance-managed. Many management tasks are a response to government priorities, says Barnett.
With councils, the position is more complex. There are still wide variations in how they organise themselves, for example, between service delivery and back-office staff, and the layers of staff between senior management and the front line.
Munro says: ‘You could enhance good communication by taking some of those layers out. But it depends where you are starting from.’ However, recent surveys indicate widespread concern that switching resources from the back office to frontline services could rob councils of their ability to act strategically.
Julian McCrae, a fellow at the Institute for Government, argues that the way Sweden and Canada have managed their deficits shows the focus on savings must release real money. This can often be achieved by stopping doing something entirely, introducing tight and immovable budgets or by reducing transfer payments. Both countries ‘really focused on getting money out, with reforming the system as a secondary objective’, McCrae says. ‘The question is not just show me some accountancy efficiencies but show me a clear line of sight to actual money coming out.’
In fact, some councils are already accepting that efficiency savings alone won’t provide the money they need. They are beginning to look at services they are not obliged to provide or could provide at a lower level. This could lead to job losses at all levels. Kent has just announced a review of its children’s centre plans, for example. Leicestershire wants to make £70m savings over four years, around half of which it expects to come from services and increased charges. In Norfolk, Williams says that he will be ‘highlighting to members’ which services are discretionary.
Many councils are also considering the potential savings from merging services – either between councils or with other public bodies – with fewer senior management roles as a result. Munro says the current financial pressures are making councils take shared services seriously and overcome concerns about loss of control that have been prominent in earlier attempts.
In Dorset, a ‘pathfinder’ pilot, in which six district councils are looking at working in two clusters with shared services, plans to save around £4m–£5m a year. The details of which senior management jobs will go are not yet known. ‘Various options were available to councils to protect frontline services while making about 10% saving on their costs. They felt that the most palatable one was to reduce senior jobs, which are expensive,’ says Ali Henderson, pathfinder project manager for the councils. The pathfinder scheme predated councils’ current financial problems but has ‘undoubtedly’ been given impetus by them, she says.
Three Lincolnshire councils are planning to save £2.5m a year from setting up an arm’s-length organisation for customer services, finance, human resources, IT, revenues and benefits. Benefits include a ‘streamlined management structure’ and future possibilities of reducing the number of chief executives, directors and heads of services.
Two of the councils – East Lindsey and South Holland – want to take the idea further but Boston Borough Council has opted out, citing pushing forward on all five services as ‘too risky’.
This shows a common dilemma: merged services can, on paper, offer substantial savings and economies of scale in terms of senior jobs. But they require initial investment – £6m in Lincolnshire – and sometimes reductions in frontline staff and a more distant service, with staff often in one location rather than spread between councils. Trust is also important. Henderson says the pathfinder project has been running for two-and-a-half years and has already successfully established some joint services. ‘We can demonstrate to members that you don’t lose by having a shared service.’
In education, Balls has suggested that confederations of schools could share some senior managers. This has happened in some cases but is usually done to tackle failing schools rather than to cut costs. Vicki Paterson, who heads her own school and a previously struggling one in the London Borough of Lewisham, is a case in point.
Mick Brookes, general secretary of the National Association of Head Teachers, is critical of the idea that deputy heads could be shared but he thinks there could be benefits from schools sharing other staff. A number of primary schools could share a business manager, he suggests, who could both provide expertise and take some of the burden off head teachers. Although such a post could be cost-effective and could free staff for more frontline work, it would mean employing one more senior member of staff. Improved procurement could also save money, he suggests.
In the NHS, Barnett says: ‘There is no doubt that there is scope for looking at things like back-office functions. Can they be done on a shared basis? Would some of them be done better outside the NHS rather than inside? Is there scope for streamlining some of the functions? ‘There may be savings as a result of mergers, acquisitions and taking some services and provisions out of the NHS. But that also requires some political courage.’
But the most innovative developments are those looking at shared services between different organisations across the public sector. Waltham Forest Borough Council and NHS Waltham Forest are planning a joint director of finance, and have commissioned PricewaterhouseCoopers to look at other potential synergies.
A number of ‘back-office’ departments in the two organisations already work closely together.
The Total Place pilots – which look at how public sector agencies in a locality can work together to improve services – will also ensure overall public spending in an area is examined. Barnett points out that it is now the norm for PCTs and local authorities to make joint appointments of public health directors.
But how feasible is it to work across different types of organisations? In finance, a joint director needs understanding of both NHS and local authority funding. Even if such individuals can be found, it would be hard to replicate this knowledge throughout a finance system – would everyone require knowledge of both local authority and NHS revenue streams and payments? There are also cultural differences.
And not all joint appointments have proved sustainable: Tower Hamlets PCT and the borough council shared a human resources director for two and a half years, but have now decided to revert to individual ones. The local authority has cited the different agendas facing the two organisations, with potential NHS changes. The joint director, Deb Clarke, had spoken of a ‘steep learning curve’ because of her lack of experience of the NHS, although she will now continue working for the PCT. Baume points out that attempts to share services in the civil service have come up against problems – for example, in HR.
But if there aren’t sufficient savings in back-office efficiencies, shared services and cutting senior management roles, where will the savings come from? The answer seems to be from doing less. Baume says: ‘In the end, the only way to save significant amounts of money is by saying you are not going to do something or you are doing to change quite radically the way in which you do it.’
But if this chimes with the vision of smaller government, it also comes with a health warning. Moving to a situation where government departments do less will take time – simplifying the tax and welfare system, for example, could take most of the next Parliament. And planning and executing such significant steps will require lots of civil servants.
