False economies?

3 Jun 10
The new government has already announced £6bn worth of cuts and more are on the way. In the run-up to this month's emergency Budget, Public Finance held a round table to assess the risks ahead. David Williams reports
By David Williams

03 June 2010

The new government has already announced £6bn worth of cuts and more are on the way. In the run-up to this month’s emergency Budget, Public Finance held a round table to assess the risks ahead. David Williams reports

If anyone with an interest in the business of government had somehow failed to appreciate the enormity of the changes facing the public sector, then the arrival of the coalition government must surely have made it impossible to ignore.

Spending cuts totalling £5.7bn have already been announced, but these amount to only the first shots in what is expected to be a bloody and prolonged siege on public spending. The cavalry will arrive in the form of an emergency Budget on June 22, and the campaign is set to reach its apex with the three-year Comprehensive Spending Review in the autumn.

We are certainly at ‘The turning point’, the theme of next week’s CIPFA conference. And this moment of relative calm is our last chance to try to understand the risks and opportunities ahead. As Tony Travers told Public Finance’s latest round table debate: ‘We have a new government, with the old government’s finance settlement – we’re just on the edge of the new world, and on the edge of ­discovering what the impact will be.’

The round table – False economies? – was convened to explore exactly that, with a series of discussions designed to assess how the terms of engagement have altered since the general election on May 6. The debate, held in association with Zurich Municipal, took place at Church House, in Westminster on May 17. Chaired by Travers, director of the Greater London Group at the London School of Economics, the panel comprised experts with experience of policy, services and staffing issues across the public sector. They included: Ben Lucas, director of the 2020 Public Services Commission; David Walker, the Audit Commission’s managing director for communications; Jonathan Baume, general secretary of the senior civil service union, the FDA; Lindsay Murray, director of policy and improvement for Gateshead Council; John Atkinson, managing director of the Leadership Centre; Julian McCrae, fellow of the Institute for Government; and Andy Sawford, chief executive of the Local ­Government Information Unit.

For Ben Lucas, the open-ended ­general election result had created uncertainty wherever you looked, but ‘for every downside there’s a potential upside’, he said. This period could prove to be comparable to the postwar age of austerity, and the social welfare settlement that came out of it. ‘It is possible to get moments of consensus that can bring about quite big change – maybe we’re in that now. I don’t think that since the 1970s we’ve been in a period where what happens depends on so many different ­factors – including the Opposition.’

For example, whether Labour chose to adapt to the new collaborative politics or slipped into ‘easy oppositionalism’ would make a vital difference, Lucas suggested.

Jonathan Baume added that the ­dialogue between the next Labour leader and the unions would do much to set the tone for how spending cuts were received. He also saw a parallel with the period following the Second World War. ‘Restructuring public services seems as central as how we deal with the fiscal crisis… or the economy,’ he said. ‘These are enormous questions. It feels like the post-Beveridge period, and like we’re back to that point where we will have to think about what the settlement will be for a number of years to come.’

That’s if everything goes according to plan. Julian McCrae noted the danger that the public sector as a whole would ‘throw away the opportunity to learn’, and that as a result, the transition to an era of lower spending would be fitful and inconsistent. ‘The learning aspect is really important,’ he said, ‘or we may find ourselves locked in this for a decade or more.’

Andy Sawford identified a dizzying range of potential gains and threats across the sector. Many were a direct result of not having a ‘swaggering incoming government’ with a large majority. For councils, the situation presented a rare chance of a ‘more humble Parliament’ committed to decentralisation. The attendant risk for councils was that power devolved away from Westminster could leapfrog them and land in residents’ laps. He cited as a potential example the coalition pledge for schools to be run by parents ­independently of local education authorities.

The plans for locally elected police chiefs risk a fragmentation of local democracy, Sawford added, potentially pitting two elected representatives with their own mandates but discrete areas of interest against each other.

On the flipside, the coalition arrangement allows both parties more wriggle room and the chance to abandon unpopular policies under political pressure. Sawford argued that this could allow local government to make the case that it should take on the responsibility itself.

John Tizard, director of the Centre for Public Service Partnerships, said it was a critical moment for localism. Whitehall might offer local authorities more freedom in return for smaller budgets, but the argument for local autonomy could be undermined if councils didn’t rise to the challenge. ‘There’s a risk that central government will say, “we gave them the chance but they didn’t deliver”, and then row back.’ Further, all this depends on central government accepting that there will be differences in services from one locality to another. For that to happen, it must learn to embrace the dreaded ­‘postcode lottery’.

As councils struggle with reduced budgets, one defining factor will be what Sawford termed the ‘mother of all ring-fences’ – the government’s guarantee on the NHS budget. It is bound to lead to severe restrictions on other departmental spending, and will surely distort any possible future funding arrangements for social care.

Towering over every other ­potential opportunity for the public sector, at least in the minds of many executives and policy­­makers, are the possible gains offered by Total Place, the initiative ­designed to produce more efficient local spending by pooling budgets and ending duplication.

Cat Parker, programme manager at Coventry City Council, lauded the scheme because it gives officials ‘a sense of guilty knowledge’ about waste, forcing new debates about efficiencies that would not have taken place otherwise.

And Chris Tambini, deputy head of strategic finance at Leicestershire City Council, said his area’s Total Place pilot showed local officials that it cost £135m to spend £176m on economic ­development in the region.

‘There are 44 separate funding streams with a value of under £1m,’ he said. ‘You don’t need to draw a conclusion – we need horizontal and vertical integration.’

Total Place has clearly proved useful and meaningful to officials across the public sector. But a threat emerged over the course of the debate. Despite all the column inches written about Total Place, and the untold hours officials have devoted to the scheme, no-one can seem to agree on what exactly it is.

Tizard understood the scheme as a ‘set of behaviours around working in partnership and becoming more customer-centric, rather than being a pre-ordained process’.

Sawford’s take was even more abstract: ‘Total Place is more a language, an idea, a concept we engage in all sorts of ­different ways.’

The flexibility of the Total Place ­approach has been one of its great strengths. But when budgets are being slashed as a matter of urgency, could this be perceived as woolliness, and consign it to irrelevance?

Walker said the initiative’s basic failing so far had been that it had not involved the public.  ‘It is fundamentally a ­technocratic exercise,’ he said. ‘We ­bureaucrats can have fascinating conversations, but at some point real people have to speak about this in terms that will grab their imagination... until that happens I fear the animal energy that would make this work just isn’t there.’

John Atkinson, managing director of the Leadership Centre, identified a tendency among officials to miss the point – seeing Total Place as an opportunity to run services better by gaining more ­control of their budgets.

There was disagreement around the table as to whether more than a few local politicians have grasped the potential of the initiative and are committed to it.

Robin Porter, assistant chief executive at Luton Borough Council, identified another disconnect: while the Treasury appears committed to Total Place, other areas of government seem stuck in the old ways of Whitehall.

He said a visit from the Government Office for the East of England highlighted the problem: ‘Their agenda was about how services were going to be improved. Our agenda is what are we actually going to be doing next year?’

He said the scale of savings needed could outweigh the total spent on support functions such as finance, human resources and IT, meaning ‘the distinction between back office and the front line is a bit of a nonsense’. He added: ‘Bottom-up initiatives rely on three things: time, money and expertise. All three are in scant supply.’

But Sawford cautioned against ‘British miserablism’, arguing that Total Place had a momentum of its own because it built on work that had been developed on a local level over a number of years. ‘It’s another manifestation of the drive towards giving local politicians more power,’ he said.

Lindsay Murray said her authority, Gateshead, was up for the challenge. ‘Those localities with a mature partnership won’t be scared,’ she said. ‘There are places that have been promised freedoms and flexibilities for a long time… it’s what we’ve been working towards for years.’

However, not every council performs as solidly as Gateshead. It’s the Doncasters of this world, suggested Travers, that spook central government and could cause Whitehall mandarins to think twice before committing to serious devolution of power.

PF’s deputy editor, Judy Hirst, ­questioned whether Total Place had a future given what we now know is in store. Whatever the future of the initiative, the coming cuts raise serious questions about the capacity of public bodies to manage the transition to smaller budgets. Tizard pointed out that many managers were too young to have been around the last time budgets shrank, and this only added to the uncertainty over the possible effect of significant public sector job losses.

Professor Malcolm Prowle, of ­Nottingham Trent University, and ­Andrew Bevan, director of finance and resources at Dyfed Powys Police, both highlighted the threat that shrivelling public expenditure poses for UK Plc. It is not just whether public bodies are resilient enough to cope with spending cuts, but is the economy as a whole?

Bevan said the cuts must be ­accompanied by a wealth creation ­strategy, while Prowle argued that public sector redundancies could have a huge impact on the retail and entertainment sectors in parts of the country where the government is a major employer.

It is worth bearing in mind that the ­‘majority of restructuring and cost-­cutting exercises fail’, said Duncan Brown, of the Institute for Employment Studies. Successful staff cuts must be implemented decisively, as part of a bigger strategy to restructure and reform the organisation, he said. ‘You can make people redundant in a positive way – there are plenty of examples.’

Andrew Jepp, head of local government at Zurich Municipal, agreed. His own organisation had recently experienced a 20% staff cut. ‘It was quick, extremely painful but a reasonably positive ­experience,’ he said.

But Paul O’Brien, chief executive of the Association for Public Service Excellence, was not so sure.
‘I’m struggling to understand that concept of positive redundancy,’ he said. ‘If you think about the average person who receives a pension of £4,000 a year, how’s that a positive ­redundancy experience for them?’

He also cautioned that while ministers might be able to afford a 5% pay cut, there are many for whom even a pay freeze would significantly affect their quality of life.

Baume agreed, saying: ‘We can all see scenarios where there would be major uproar.’ Later, he warned of a ‘slow talent drain’ of over-stressed executives bearing the brunt of staffing cost reductions.

Major backlashes could hold up reform, he said, and predicted: ‘Pensions will be the most sensitive issue at any level of the public sector – that’s the one that will unite the head teachers and care assistants, and FDA members would think about going out on strike over it. If the government mishandles it, it will have an enormous reaction on its hands.’

And yet, remarked Travers, many ­politicians and public executives are surprisingly sanguine about the challenges ahead. Some, he suggested, might be viewing the cuts as an excuse to implement reforms they have long wanted to bring about – some might even be relishing the opportunity to centre power within their organisation on themselves.

Tizard said that for those who simply are not acknowledging what’s about to hit them: ‘It’s wake up and smell the coffee time.’

He offered: ‘The hope is that it will turn those who have been hesitant into strategists’ but the risk was that it would turn them into ‘panickers,’ who, in their haste, would make short-term decisions and squander any chance the UK public ­sector had of managing the crisis effectively.

The turbulence in the financial markets, along with recent events in Greece and earlier unrest in Ireland, should serve as a grave warning of what could happen in the UK if the deficit reduction is mishandled.

As CIPFA convenes to reflect on the past year and look ahead at the immense challenges to come, the title of its annual conference feels ever more apt.

The unprecedented changes facing the public sector will be discussed in detail at the CIPFA annual conference, being held in Harrogate on June 8–10

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