It is clear that the long-awaited public sector recession has now started with a bang. It may not feel like it, but today’s Emergency Budget could have been even tougher. The decision by the chancellor to look at benefits as one source of spending reductions, and his willingness to countenance tax rises, means that Departmental Expenditure Limits (DEL) will not be under quite such severe pressure as seemed possible a month or so ago.
But cumulative DEL cuts for the so-called ‘unprotected’ departments of 25% in real terms over four years will still be a shock to the system. It will inevitably mean that some services will be scrapped altogether - we will know which ones when the outcome of the spending review is announced on 20 October. There is still, however, a real opportunity for public sector managers to lessen these consequences by making sure that they deliver as much as possible with less money.
I make three proposals, which will be applicable across the public sector:
- Managers should exploit the shock that their organisation will be experiencing to introduce a turnaround programme. Rather than thinking in terms of incremental change, think about how to restructure the way the organisation delivers its services. And do so with real urgency.
- Apply this sense of urgency, in particular, to transforming the back-office functions. The potential prize is enormous. Analysis by PwC suggests that if all public sector organisations ran their finance, HR and procurement functions as efficiently as the top quartile, staff savings alone would amount to around £4bn per annum. These savings can be harvested by simplifying and standardising processes, and then by sharing support functions with other bodies to get economies of scale.
- With pressure on the public sector pay bill, public sector bodies must make sure that they are employing the right people and performance managing them firmly and fairly. Staff numbers are bound to reduce; the challenge is to make sure that this leads to an improvement in the average quality and performance of those who remain.
None of this will be easy, or much fun. But those mangers and organisations that take the initiative now will have a better future than those who wait for cuts to happen to them.
