Tough times, tough choices, by Andrew Jepp

18 Nov 10
Local authority managers must take a long-term approach to cuts. Otherwise, they will create problems and costs in the future, warns Zurich's Andrew Jepp

Local authority managers must take a long-term approach to cuts. Otherwise, they will create problems and costs in the future, warns Zurich’s Andrew Jepp

The wait for the Comprehensive Spending Review is over – now it is time for councils to begin implementing their efficiency programmes and cost-cutting measures. Although these are vital to achieve savings, many bring with them a plethora of risks, from potential redundancies to the prospect of major service failure. So how should managers prioritise where and what to cut, and which are the biggest risks to bear in mind?

This dual conundrum was central to a report, Tough choices, published by Zurich earlier this month. Working with Ipsos Mori pollsters, we spoke to local authority chief executives, our in-house risk experts and consumers up and down the country to gauge their views on the biggest risks facing public services.

Consumers and public sector leaders differ in their levels of confidence in the future resilience of public services. But the research revealed a broad consensus that the sector must look to the long term if it is to survive the cuts. Two-thirds (64%) of the public sector leaders we spoke to admitted that short-term budget challenges will prevent them from effectively addressing longer-term risks.

A further half (49%) fear that budget cuts could impair their organisation’s ability to provide public services. But while the vast majority of chief executives are confident about their ability to withstand those challenges, less than half (47%) of the public are.

Funding is not the only challenge facing the sector. In researching the big risks on the horizon, we uncovered a ‘triple front’ of challenges. In addition to budget cuts, increased demand for services and uncertainty about implementing reforms such as the Big Society could trouble public service provision over the next five years.

And it doesn’t end there. For councils in particular, the public’s biggest concern is that the quality of services will decline and, with it, the reputations of the authorities themselves.
This potentially significant – and lasting – reputational damage to councils might stem from any number of causes: voter or constituent anger sparked in the wake of cuts; loss of public trust and confidence; or service failure.

Particular risks exist around regional variations – if service provision fails in some areas, media and public scrutiny of ‘postcode lotteries’ could be devastating for authorities. All three of these risks are linked and all can cause expensive direct or indirect costs to an organisation. These can range from decreased workforce morale and productivity, to legal action by or against the authority.

So, local authority leaders need to streamline the services they provide, cut staff and resources, and responsibly devolve control to the community and partnership organisations. But they need to do all of that without compromising standards or sacrificing public trust. There is no magic bullet answer on how to do that, but there are clear steps local authorities can – and should – take to prevent short-term cost-cutting from becoming a long-term false economy.

The starting point must be to map out every possible cut, as well as each and every associated risk. Only then can the process of informed, balanced and risk-aware decision-making take place. And, throughout the process, it is vital not to lose sight of longer-term objectives and, given the government’s timescale, potential future costs.

It is also important to remember that none of the potential risks is insurmountable. It is possible for nimble and well-managed local authorities to adequately prepare for and monitor these risks and, in doing so, make themselves more resilient. But this will require new management techniques and a different set of skills from those needed during the relative comfort of recent years. Most importantly, it will take good leadership and a creative and sensible approach to risk management, led from the top down.

We don’t know all the risks that the austerity drive will produce, but what we do know is that it won’t be easy to prepare for them, however strategic the approach.

Our report was called Tough choices for good reason. But in the midst of the immediate budgetary pressures of today and the glare of public scrutiny, public service providers absolutely must maintain a longer-term view. Only by taking a considered approach to efficiency savings can local authorities be sure they fully prevent (rather than potentially create) problems and costs in the future.

Andrew Jepp is director of public services at Zurich Municipal

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