As delegates gather in Dundee, the ‘City of Discovery’, for the CIPFA in Scotland annual conference, they will be greeted by an agenda that reflects a fast-changing horizon for the public sector north of the border.
For the first time in a decade, Scotland’s councils are anticipating real cuts in government funding. With a UK general election less than two months away, the lack of certainty in terms of policy direction adds a further complexity to the mix. And adding to the strain, future funding challenges for the public sector will see it targeted with making savings of up to 20%, compared to previous annual savings of 4-6% per annum.
This level of savings is quite unlike anything seen in the past and it is vital that a radical and strategic approach to support cost reduction is employed. The dilemma for the public sector is that, with it accounting for over 50% of jobs in Scotland, any reduction in public sector employment will impact not only the local but national economy....and could even prolong the recession in Scotland.
It is not unusual for the public sector to feel the impact of recession later than other parts of the economy. Is there a way in which local government can benefit from this phenomenon? Can real advantage be gained by applying the lessons learned in the private sector? The answer is ‘yes’.
There is evidence that councils across Scotland are taking the opportunity to reconsider the way they do business and seek new ways of working, to ensure that they are able to sustain essential public services with reduced resources.
Services are also being evaluated to determine if they are really necessary and delivered in the most effective way. In order to ensure it aligns with agreed outcomes and priorities, however, this exercise needs to take place at a corporate level, rather than within services.
We are also seeing some signs of councils moving quickly to outsource services, as a solution to the cost-cutting challenges. Although this may indeed be one option, it is not the silver bullet. In fact, in my experience, it is not usual for organisations to consider the costs of implementing these initiatives.
In addition, outsourcing will inevitably mean local jobs being moved both elsewhere in the UK and globally, which doesn’t sit well with the expectation that jobs will be kept locally. Councils should seek to right-size their organisations, in line with the actual demand for services, and then make them fit for purpose and as efficient as possible. Otherwise, they will find that all parts of a service are outsourced, regardless of whether it is seen as core and helping to deliver particular outcomes.
When addressing significant cost reductions, the successful organisations are those that manage them as a programme, with a combination of shorter-term and longer-term initiatives. Ideally the shorter-term savings help fund the longer-term transformational changes. At the same time, if organisations are serious about tackling this challenge, they will need to identify and free up individuals within the organisation to drive and implement the change.
Councils have started to recognise the need to move their very traditional budgeting away from the annual incremental approach and move towards a budget that first and foremost addresses the key outcomes and priorities.
Despite the challenges it faces, the public sector has a huge part to play in helping to stabilise the Scottish economy. The voyage will not be all plain sailing but with the right planning and direction the waters will eventually become calmer.
Paula Speirs is a director in Ernst & Young’s Government Services team in Scotland and is presenting at the CIPFA in Scotland conference on how to develop a strategic approach to support cost reduction challenges
