A drama, not a crisis?

3 Dec 09
Ahead of next week’s Pre-Budget Report, Public Finance convened a round table to debate the risks and possibilities in trying to deliver more from less public spending. Judy Hirst reports on the good news, and the bad
3 December 2009

By Judy Hirst

Ahead of next week’s Pre-Budget Report,
Public Finance convened a round table to debate the risks and possibilities in trying to deliver more from less public spending. Judy Hirst reports on the good news, and the bad

Be afraid. But not that afraid. This, it seems, is the slightly counter-intuitive message of the moment, as managers and policy makers weigh up the recession’s impact on public services.

On the one hand, as Alistair Darling will no doubt confirm in his December 9 Pre-Budget report, there is still a long rocky road ahead to the nirvana of ­economic ­recovery. The chancellor is likely to admit that the economy shrank by at least a percentage point more than forecast in the March Budget, with all-too-obvious implications for the public finances. And although he is confident that we are shortly going to turn a corner, there will be intense debate, up to the general election and beyond, about how best to ­manage the convalescence period.

That discussion has become more nuanced of late, with the Conservatives arguing simultaneously for both austerity and growth, the International Monetary Fund warning about ‘exiting too early’ from fiscal stimulus policies, and reported tensions between Numbers 10 and 11 over just how upfront the government should be about spending cuts.

But whatever the subtleties in approach, there is a consensus that the next government will have to confront the public with some unpleasant choices.

On the other hand, away from the ­political arm-wrestling – in the less rarefied atmosphere of town hall and Whitehall budget-making – some are saying that perhaps the news is not all bad. Perhaps the level of cuts to frontline services will not be so draconian after all?

Maybe, it is whispered, the harsh fiscal climate could even offer a chance to do things better – to innovate, work smarter, and reconfigure services in ways that are long overdue. So, is the recession – in the words of the classic management mantra – a threat or an opportunity for the public sector?

That, in a nutshell, was the exam ­question for participants at the latest in Public Finance’s series of high-level round table discussions, held on November 26 at One Great George Street, in Westminster. Billed as a debate on ‘More for less? Risk and innovation in the recession’, and hosted in association with Zurich Municipal, the event brought together major players from across the public sector. Among the 20-plus participants were: Audit Commission chief executive Steve Bundred; local government ombudsman Tony Redmond; assistant auditor general Ed Humpherson; CIPFA chief executive Steve Freer; Zurich Municipal head of local government Andrew Jepp; Hammersmith & Fulham council leader Stephen Greenhalgh; and Young Foundation director Geoff Mulgan. The lively and far-ranging debate was chaired by local government expert Tony Travers.

Under the watchful gaze of the nineteenth-century engineer Joseph Bazalgette – creator of possibly the earliest example of smart government, London’s sewage system – the panel analysed, dissected and reframed the question: can we really deliver more for less?

From the chair, Travers kicked off by claiming that national politicians were largely ‘in denial’ about the service implications of the level of public sector deficit, and that a degree of self-delusion extended to some councils too.

‘I’ve been astonished at how entirely relaxed some local authorities are,’ he said. ‘They talk about likely 20% budget cuts as if they were merely 1% or 2%.’

The round table was invited to consider how to avoid IT and supply change failures, social services tragedies and health scandals in a climate of shrinking resources – a timely challenge in a week when news of serious NHS patient safety failures hit the headlines.

However, the Audit Commission’s Steve Bundred took a more sanguine view. He warned against ‘over-dramatising’ the situation. The challenges facing the public sector were ‘severe but perfectly manageable’, he insisted. The structural budget deficit could be absorbed across the sector. ‘Unlike in the 1990s recession, we start from an extraordinarily high base, thanks to ten years of well-funded services. If you have to go on a diet, the best time is when you’ve been extremely well fed.’

Bundred, who has previously warned of ‘Armageddon’ scenarios for public spending, tempered his more benign view with some warnings about how to minimise the risks. Innovation was all well and good, but don’t ignore the basics, he said. ‘The experience of past recessions is that the role of the finance director and sound cost structures are fundamental.’ Overall though, the silver lining to the present fiscal cloud was that it made decisive leadership easier. ‘It’s not so difficult to persuade colleagues and stakeholders about the need for change when it’s ­blindingly obvious,’ he said.

Julian McCrae, a fellow at the ­Institute for Government, developed this theme by focusing on the organisational and institutional obstacles in the way of radical reform. Comparative work on fiscal retrenchment in other countries had highlighted that, although the UK had a strong central finance ministry, synergy across departmental silos was weak. Above all, he stressed, the next government is going to need ‘a strong political mandate’ to make the necessary changes.  This ‘should not get confused with a ­technocratic exercise’, he warned.

This argument was later picked up by Stephen Greenhalgh, Conservative leader of the London Borough of Hammersmith & Fulham – a self-styled ‘more for less’ council. ‘Nothing is more inhibiting to innovation than the lack of a mandate,’ he argued. ‘We did get a popular mandate. We stood on a platform to cut council tax and crime.’

Greenhalgh, an avowed localist, who says he is ‘writing the Magna Carta for local government’, was unsparing in his criticisms of national politicians – ­including the current shadow Cabinet.

In comments that were subsequently widely reported in the national media, he contrasted the experience of local and national politics. ‘My mates are all in the shadow Cabinet, waiting to get those [ministerial] boxes, being terribly excited. I went to university with them, they haven’t run a piss-up in a brewery,’ he claimed. ‘They’re going to get a ­department of state, in one case running the finances of the nation.’

Greenhalgh pointed to other countries where government members typically served at a regional level earlier in their careers. ‘If you’re going to fail, fail running Alabama, fail running Texas, fail running the city of Paris – don’t just take over the country.’

Colin Talbot, public policy professor at Manchester Business School, broadly agreed, adding: ‘It’s not just the politicians – it’s the civil service. Despite 30 years of civil service reform, the vast majority of senior civil servants still have no experience of running anything outside public services.’

The level of experience of the cadre that is meant to be leading change concerned a number of speakers. Geoff Mulgan, for example, a former head of the Number 10 Strategy Unit, spoke of ‘the tendency to do political apprenticeships at the Cabinet table’. But there were other obstacles standing in the way of ­innovation and reform.

CIPFA’s Steve Freer pointed to ‘the power of the status quo’. Things were rather messier than Bundred’s analysis suggested, he said, when it came to managing the transition to lower levels of spending. ‘It’s not just a question of the size of meal we’ve had, but the constituencies of support for the level of service we’ve got.’ Marginal change – ‘those awkward few million pounds’ – could hit services very hard. The quality of an organisation’s relationship with its workforce and the ability of government to maintain the right ‘mood music’ would be critically important, argued Freer.

Local government ombudsman Tony Redmond continued the ‘we are where we are’ theme by talking about stakeholder expectations of services, and stressing the importance of communicating honestly with the public about the impact of cutbacks. ‘Otherwise, it will lead to high levels of disillusionment,’ he warned. ‘In recessions, I always get more complaints.’

Other participants took issue with Bundred’s not-too-bad scenario. Matthew Sinclair, of the Taxpayers’ Alliance, argued that it was too optimistic; much more radical action was needed. ‘I don’t see anyone recommending abolishing anything, just top-slicing’, he noted.

Meanwhile, John Seddon, of Vanguard Consulting, blamed inspectorates such as the Audit Commission, and poor systems design, for holding back innovation – or, in the case of child protection, actually increasing levels of risk.

Nick Walkley, chief executive of the London Borough of Barnet – a so-called ‘easyBorough’ – also questioned whether the systems in place were appropriate for the challenges ahead, citing vast regional differences when it came to dependency on public sector employment. He also ­assured the chair that he was not relaxed about Barnet’s financial settlement.

Responding to comments, Bundred denied that inspection stood in the way of innovation. But he did admit that the ‘risk-reward ratio’ could make public sector managers afraid of doing things differently. This, he believed, was about to change: ‘The risk of doing nothing becomes much higher in a period of ­dwindling resources.’

Returning to the theme of having a mandate and telling it like it is, Bundred said that national politicians were ‘a lot further forward than even six months ago. Then we were in a completely phoney war period. I expect to see something much more detailed and realistic about the government’s plans in the PBR, and in the months leading up to the election.’

Having set the scene strategically for the risks public services face, the round table turned its attention to practical matters: how exactly public services were meant to perform the supreme trick of delivering more and better services, with fewer resources.

Geoff Mulgan noted that productivity improvements had been poor in the public sector compared with the private sector, but offered an upbeat analysis of the possibilities. Traditional methods of raising productivity and achieving economies, including asking ‘what can we stop doing without the sky falling in?’, all have their place, he said.

But there were also economies to be made from incentivising one part of the public sector to help another – for example, to reduce recidivism or hospital readmissions – and encouraging greater responsibility on the part of citizens, for instance, to clean parts of their own streets.

Health had been taking the innovation agenda more seriously than other sectors, he argued. But generally the UK was very weak on this front. Commenting on the government’s ‘whole area’
initiative, Total Place, he expressed some scepticism about whether the right methods and leadership were in place for it to work. ‘Innovation has to be holistic. After all, 50% of public sector activity is cross-boundary. But can we really get a mandate to reshape services, for example, across health and local authority organisations? Or is this just tinkering around the edges?’

With both Chief Secretary to the Treasury Liam Byrne and his shadow Philip Hammond currently rolling out their prospectuses for smarter government,  including Whitehall culls, mergers and ­relocations, these were highly relevant questions.

Some of the participants were positive about the more-for-less potential of Total Place. Ed Humpherson, of the National Audit Office, was worried that, ‘as we go into this fiscally challenging period, there is a failure of basic numeracy at central government level’. He stressed ‘the importance of allocative efficiency, putting resources in the right place. The beauty of Total Place is that it focuses on this,’ he said.

Nick Bell, deputy chief executive at Essex County Council, also approved of the whole systems, outcomes-driven approach represented by Total Place. He emphasised the importance of avoiding cost shunting and said authorities also needed to get a lot better at some basic things, such as commercial structures.
For Gary Sturgess, executive director of the Serco Institute, many of the things being proposed were not new – they’d been known for a long time. But now there was greater potential to extend them across government, through, for example, commissioning for outcomes and extending the approach represented by Flexible New Deal.

John Thornton, executive director of e-ssential Resources, pointed out that ‘the only big scale innovation initiative on the table is Total Place. The question is how to put in place performance management frameworks to make it work?’

A different dimension was added to the debate by Sonia Sodha, head of the capabilities programme at the think-tank Demos. She outlined some of the thinking behind ‘progressive austerity’ – namely, ‘how to do fiscal consolidation without disproportionately hitting the most disadvantaged, including those most ­dependent on the state’.

Sodha suggested how central government might work more thematically, and how to achieve better incentive systems. ‘How to spend less while achieving the same or better outcomes? That’s a very difficult question, but one way to look at it is through a centre-local lens. Politicians talk as if they can control everything from Westminster, when of course they can’t.’ The Total Place initiative was a good one, she said, but there was the risk of it just being seen as a quick fix.

Colin Talbot, leading off a final session on ‘going forward’, said there were ‘huge opportunities for Total Place, but they’ve got to be made at the local level. At present it’s being run by the Department for Communities and Local Government.’ What the Treasury had not understood, he said, is that innovation was ‘neither costless nor frictionless’.

‘The boundaries and structures issue has now come right to the fore, and there may need to be a fundamental shift towards doing things at a more local level.’ Talbot queried, however, the trend towards making ever more back-office and service mergers – ‘the fashion of the ­moment’ – without any serious evaluation of where they worked. And strategically, we needed to be ‘a lot clearer about what proportion of national income we want going into public services’ – something national politicians are not prepared to spell out.’

As the discussion came full circle, John Jackson, representing the Association of Directors of Adult Social Services, rallied to the defence of at least some top-down change agencies.

‘Inspection on the whole has helped challenge appallingly bad practice over the past 15 years, as well as encouraging innovation and good practice,’ he maintained.

Meanwhile Charlotte Alldritt, from the 2020 Public Services Trust, urged ­participants to think about taking a longer view. ‘What time horizon should we be working to?’ she asked.

‘The short-term focus on cutting costs and reducing the borrowing requirement can sometimes lead to increased social costs in the long run.’

A salutary reminder perhaps for a forum focused largely on the threats, opportunities and other exigencies of the moment. And one of which old ­Bazalgette, whose marvellous example of public ­sector innovation still serves us so efficiently today, would surely have approved.

Did you enjoy this article?