By Ed Roddis | 04 October 2013
More for less has got to be the watchword if public services are to shape up in the years ahead. Mobile technology and improved data analytics are key ways to raise productivity
With signs of a recovery in the economy, many in the public services will hope that, in the medium term, pre-recession normality will resume and there will be a reversal of some of the past few years’ spending cuts.
Time will tell, but that may be wishful thinking. It seems that after decades of growth in public spending and pressure from the global financial crisis, government as we used to know it has become unaffordable. The level of this year’s public spending could well be the high watermark for the next five to ten years.
The good news is that the people leading the local public sector are alive to the need to be more creative using fewer resources, and many are enthused by that challenge.
Working with the think-tank Reform, Deloitte has combed through hundreds of data sets and government accounts, and spoken to public sector executives, senior civil servants, politicians and policy experts to arrive at a snapshot of the UK public sector. From this, we concluded in the recent The state of the state report that government needs to rethink its limits, not just because of the deficit, but also because of the demands an ageing society will make.
While the coalition government has reduced public spending in the short term, demand for health, long-term care and pensions will surely drive it up again unless spending cuts are matched by equally deep reform. Public sector productivity will have to rise substantially to enable us to do more with less.
Current patterns of demand alone would require public spending to rise by 4% of GDP over the next 50 years, equivalent to £61bn at today’s prices, according to figures from the Office for Budgetary Responsibility.
To put that in perspective, in 1963, the government spent £12bn, which is equivalent to 38.5% of GDP. Today, it spends £720bn – some 45.2% of GDP – which, after taking inflation into account, represents a fourfold increase in actual spending and a 17% increase in the proportion of GDP spent by government.
In the next 20 years, the number of people aged over 65 is expected to grow by half, and the number aged over 90 to treble. That is a welcome trend, but it creates a profound demographic shift set to place unpre-cedented demands on public spending in the medium and longer terms.
We already have some evidence of how this can drive up costs sharply. Scotland introduced free personal and nursing care in 2002, and the cost to local authorities there has more than doubled from £219m in 2003/04 to £458m in 2011/12. The government’s balance sheet shows structural pressures that make future increases in public spending seem improbable, with the state’s liabilities exceeding its assets by £1.3trn; public debt interest stands at £49.5bn and will rise to some £71.3bn by 2017/18.
All of this suggests that tackling long-term liabilities should be a priority for whichever government is elected at the next general election, due in 2015. The present government has taken some bold steps to tackle intransigent problems of pensions, welfare spending and the funding of social care, which have traditionally been considered too difficult for serious reform. But more radical change is needed to create an affordable model of state activity.
Improving productivity will be difficult, but it’s imperative if we are to make progress. This is not solely a public sector issue – UK productivity for both the public and private sectors languishes behind all but Japan in the G7 – but in the public sector, productivity has been relatively static for 15 years (see Figure 1).
Measuring productivity in the public services is a contentious topic in itself. But official methods suggest that public sector activity increases when public spending rises and falls when it diminishes. Breaking that link is vital because public spending is falling, and without change, activity levels could fall with it.
The productivity statistics used in Figure 1 are UK-wide, but there are considerable country and sector variations in key factors. For example, the Northern Ireland Civil Service reported a sickness absence rate of 10.7 days per staff year, compared to an average of 7.9 days across the rest of the UK public sector. The cost of that sickness absence in the public sector is estimated at £28.6m, while the average sickness absence rate across the entire UK workforce is 4.5 days. Figures from the Office for National Statistics show that public sector workers lost 2.6% of their working hours to sickness, compared with a total of 1.6% in the private sector.
Current approaches to productivity in public ser-vices have created a direct link between funding and activity. This points to a central challenge for public services: that of decoupling that relationship so that the public sector workforce can produce more output for the same – or less – input.
If output remains bound to inputs, with no improvements in productivity, levels of delivery in the public services could decline at the same rate as funding cuts. This presents a clear risk for the UK and our public services.
The Institute for Fiscal Studies estimates there will be an 18.6% fall in departmental spending between 2010/11 and 2017/18. To illustrate the scale of the productivity problem, if output fell by that amount – as it would on present productivity trends – then to maintain current levels of activity, the public sector would need the equivalent of an additional 42 working days per year for every employee, presuming all other factors remain constant.
As that is plainly impossible, it is clear that a mixture of workforce reform, more effective use of technology, focused performance management and more efficient ways of working will all be necessary. Measures to improve productivity will no doubt be controversial where they involve workforce arrangements, but not all need be. Better exploitation of mobile technology could make a huge difference to productivity.
To take a few examples, those out in the field – such as police officers and social workers – could be provided with technological aids that would allow them to make better use of their time. Mobile technology innovations can also allow citizens to interact with public bodies in less costly and time-consuming ways than at present, and there is also the potential for citizens to collaborate with government over how services are designed and delivered.
Government is sometimes thought slower to adopt new technologies than the private sector. Actually, it does not lack the will to innovate, but any major change in government can involve legislative and regulatory hurdles, and the scale of government operations may be vast, with a single department-wide IT project pos-
sibly being bigger than a comparable project for even a global company.
For example, the Department for Work and Pensions employs 105,000 people in the UK – which is some 12,000 people more than Coca-Cola employs worldwide.
Numerous opportunities exist to exploit technology, but one area on which reform could focus is data analytics. The coalition has begun publication of many of its datasets, but the use of data as a tool for better public services remains under-exploited. Public sector organisations have much to gain by harnessing their own data, as well as data from other sources.
Organisations should begin by assessing what data is available and how it relates to organisational priorities, and then start to make incremental investments in manageable projects while simultaneously developing a culture in which staff at all levels recognise how data can inform their decision-making.
While the sheer scale of financial challenges and the question of productivity might sound like a pessimistic message for the public sector, there is an alternative view: along with the problems, there are clear signs that local public sector leaders and the people who work for them are focused on opportunities, as well as the challenges.
Market researchers Ipsos Mori interviewed leading public servants while researching The state of the state, and found that they see the current climate as an opportunity to refocus services on citizens’ needs and outcomes, and to use creativity rather than resources to solve problems. One interviewee succinctly summed up this attitude by saying that rather than ‘chop bits off ’ as a result of cuts, they were now trying to change their fundamental approaches.
The interviews showed a striking trend emerging – that public sector executive leaders are focused on their staff and how they can be equipped to rise to their organisation’s challenges. Public value was mentioned by a notable number of them, with the quality of being ‘caring, fair and trusted’ seen as central to the public service ethos. A number of interviewees felt there were advantages in public sector partnerships delivering joined-up services, transferring knowledge and generating savings.
Most thought partnerships with the private and third sectors were also beneficial, bringing exposure to new ideas and delivery models. But there was some wariness that commissioning also brought new risks that needed to be managed.
The global financial crisis came after decades of rises in public spending, and the UK state will be shrinking by 10% in the coming five years to become more affordable. While the period since the 2010 general election has seen some very radical changes to public services and their budgets, it would be a mistake to think that these demands will recede when the economy recovers.There is a need for a move from the ‘ bold reform’ of the past three years to a post-2015 world of ‘deep reform’ in which the UK state’s balance sheet is improved by action to tackle its liabilities.
It was encouraging that interviewees recognised the need to apply their initiative and creativity to
provide services with fewer resources. While productivity improvements will be key to mitigating the spending cuts, those leading our local services
are responding not with hand-wringing, but with determination to deliver high-quality services in
this new environment.
Ed Roddis is head of government and public sector research at Deloitte. The state of the state report can be downloaded at www.deloitte.co.uk/stateofthestate
This feature was first published in the October edition of Public Finance magazine
