New Zealand's Innovative Government Reforms

NEW ZEALAND’S INNOVATIVE GOVERNMENT REFORMS Case study This case study describes two recent reforms in New Zealand: the introduction of wellbeing budgeting, and the Public Service Act 2020. Both address issues important to the Commission’s work, including effective strategy-setting, financial planning, overcoming departmentalism, and a focus on citizens. These reforms are the latest phase in New Zealand’s public service reform journey, dating back to the 1980s.

November 2020

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The Commission for Smart Government The Commission for Smart Government is an independent initiative to consider how to make public administration more effective. The Commission is a project of GovernUp, which is an independent, non-party research initiative that offers evidenced-based solutions for all political parties to adopt. The Commission is conducting research across 12 workstreams: Assessment

What have been the standout successes and failures of recent public administrations, and what can we learn from them?

Best Practice

What are the examples of best practice in the UK and around the world from which we can learn?

Talent & Competence

How do we equip civil servants with better skills, recruit and remunerate to attract the best and incentivise success, and share knowledge?

Project Management

How do we ensure officials have sufficient commercial and project management experience to commission and manage big projects successfully?

How do we ensure stronger financial management, strip out cost and drive efficiency?

Finance Structures Devolution Accountability

How should we improve the current Whitehall structure, with its small yet overlapping centre and siloed departments, to make decision-making more effective and less bureaucratic?

To what extent should we devolve more power and decision-making to local bodies, and how can this be achieved while maintaining a proper role for the UK Government?

How can we make the system, including ministers and civil servants, as well as agencies, regulators and arms-length bodies, more accountable?

Technology

How can we deploy technology more effectively and rapidly to improve public services?

Data

How can we ensure that decisions are evidence-based and informed by data?

Ministers

How can we make ministers and advisers more effective in their jobs?

Appointments

How can we ensure that the appointments system attracts the best and aligns with the Government’s priorities?

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Commissioners Michael Bichard

Deborah Cadman Camilla Cavendish Suma Chakrabarti

Ian Cheshire Phaedra Chrousos Chris Deverell Simone Finn Jayne-Anne Gadhia Martin Gilbert Verity Harding Nick Herbert Margaret Hodge Husayn Kassai Daniel Korski Paul Marshall John Nash Mark Rowley Gisela Stuart Jacky Wright

Lord Bichard KCB is a crossbench peer in the House of Lords and chair of the National Audit Office. He was formerly Permanent Secretary at the Department for Education and the first Director of the Institute for Government.

Deborah Cadman OBE is Chief Executive of the West Midlands Combined Authority.

Baroness Cavendish of Little Venice is a former Head of the Number 10 Policy Unit.

Sir Suma Chakrabarti KCB was until recently the President of the European Bank for Reconstruction and Development. He was formerly Permanent Secretary at the Ministry of Justice and the Department for International Development.

Sir Ian Cheshire is the Chairman of Barclays UK plc. He was formerly the Government Lead Non-Executive Director.

Phaedra Chrousos is the Chief Strategy Officer for Libra Group and a former commissioner for the US Technology and Transformation Service.

General Sir Chris Deverell KCB MBE is the former Commander of UK Joint Forces Command.

Baroness Finn is a Non-Executive Director at the Cabinet Office and a former government adviser on civil service reform.

Dame Jayne-Anne Gadhia DBE FRSE is a businesswoman and the founder and Executive Chair of the start-up Snoop.

Martin Gilbert is the Chairman of Revolut and the co-founder and former CEO of Aberdeen Asset Management.

Verity Harding is a Visiting Fellow at the Bennett Institute for Public Policy, Cambridge University, where she is on secondment from her role as Global Head of Policy and Partnerships at DeepMind.

Lord Herbert of South Downs CBE PC (Chair) is a former Conservative minister.

Rt Hon Dame Margaret Hodge DBE MP is a Labour Member of Parliament, a former minister, and the former Chair of the House of Commons Public Accounts Committee.

Husayn Kassai is the co-founder and CEO of Onfido.

Daniel Korski is the co-founder and CEO of PUBLIC and a former Deputy Head of the Number 10 Policy Unit.

Sir Paul Marshall is Chair and Chief Investment Officer of Marshall Wace LLP and a former Lead Non-Executive Director at the Department for Education.

Lord Nash is a businessman and Government Lead Non-Executive Director. He is a former minister.

Sir Mark Rowley QPM is a former Assistant Commissioner of the Metropolitan Police.

Baroness Stuart of Edgbaston PC is Lead Non-Executive Director at the Cabinet Office and a former Labour MP and minister.

Jacky Wright is the Chief Digital Officer for Microsoft US.

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Contents Foreword ............................................................................................................................ 5 Reform in New Zealand since the 1980s......................................................................... 5 Wellbeing budgeting ......................................................................................................... 8 Addressing departmentalism through legislation: The Public Service Act 2020 ..... 11 Learning............................................................................................................................ 12 Author .............................................................................................................................. 12 Notes ................................................................................................................................ 13

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Foreword

By Nick Herbert Ever since its pioneering economic reforms in the 1980s New Zealand has interested students of government effectiveness. New Zealanders are the first to point out that theirs is a small country compared to the UK, with a different economy, grappling with problems, too. Yet our historic links and the similarities of a parliamentary democracy incline us to pay attention to their innovative reforms. Some of these, such as central bank independence, we have followed.

Others we have not: the commissioning of departments and the co-location of ministers in a single building (the “Beehive”) were ideas that raised eyebrows and remained firmly on the far side of the world.

This paper focuses on more recent reforms that should equally interest us: the introduction of wellbeing budgeting, and the Public Service Act 2020. Building on reforms under John Key’s National government, Jacinda Ardern’s Labour administration aims to tackle long-term social problems which cross departmental boundaries by radically changing the way budgets are allocated, and by creating new, legally-empowered vehicles to drive joint action.

New Zealand’s success in tackling COVID has renewed international attention on the effectiveness of its government. This achievement may well be a reflection, in large part, of its remote island status. Still, this country’s recent reforms are of great interest to the Commission for Smart Government as we consider how to improve strategic and financial planning, overcome entrenched departmentalism, and place a focus on citizens.

Reform in New Zealand since the 1980s The current phase of government reform is rooted in a long history of interest in government improvement. Alongside wider reforms to economic policy, including central bank independence and a free-market approach, New Zealand implemented a highly ambitious version of the New Public Management approach to government and public services. This responded to concerns that “the public service was seen as oversized and inefficient …

Customer service was poor, human talent was stifled and innovation was near zero.”1 Legislation in 1988 and 1989 (the State Sector Act and Public Finance Act) introduced something like a commissioning relationship between Ministers and agency chief executives (Figure 1). The main features were:

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• • • •

Defining expected performance clearly and holding agency chief executives to account; Giving chief executives corresponding delegated authority; Strong incentives for performance; High quality reporting mechanisms.2

There are parallels with reform approaches pursued in the UK around the same time – Margaret Thatcher’s emphasis on efficiency and financial management, and the Next Steps reforms started towards the end of her time in office, and continued under John Major.3 New Zealand’s were, however, pursued with more zeal and completeness.

Figure 1: Public Service reforms in New Zealand in the 1980s (from Spending without Reform: Interim report of the Commission on the reform of public services, Reform, June 2002).

The approach was recognised as having been successful in terms of achieving results and value for money as traditionally designed.4 But by the early part of the 2010s, New Zealand’s leaders were becoming concerned that the government was tending to focus too narrowly on outputs, as opposed to longer term outcomes, and was not good enough at addressing complex societal problems, which require combined interventions by a range of agencies. “In practice the current system prioritises the efficient delivery of outputs to such a degree that in some cases it comes at the expense of better outcomes.”5 This led to the introduction from 2012, under the Key government, of a set of reforms branded “Better Public Service” (PBS). The main elements were:

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•

• •

More emphasis on horizontal working, with the introduction of functional and professional leadership in key specialisms across the whole of government (broadly similar to changes started around the same time in the UK), alongside a stronger corporate centre.

Legislating to give chief executives responsibility for thinking beyond the short term and the confines of their own agencies – a concept of ‘stewarding’ the public service.

Shifting the performance management of chief executives to pay more attention to the good of the system as a whole.6

These reforms were only partly successful. Concern has persisted that promoting more collaboration across organisational boundaries is an uphill task - “it’s very much working against the grain.” 7 This is despite the fact that the country and its public administration, are much smaller than the UK. Ministers, famously, all work in one building, the Beehive, which may help with contact and communication at the political level. However, this has not been enough, by itself, to bring about the necessary level of collaboration.8 Towards the end of the last National phase in government, Bill English, as Finance Minister and then Prime Minister, promoted two aspects of reform: •

•

“Social investment”- reorienting public spending so it tackles the causes rather than the symptoms of social disadvantage, based on a perception that: “we have a system that does reasonably well in meeting the needs of 80 to 90 per cent… But it can struggle in dealing with the most vulnerable New Zealanders.”9 As well as trying to shift spending from tackling the consequences to tackling the causes of disadvantage, the approach emphasised empowering local activity and strong use of data.

Putting in place three Performance Improvement Frameworks, answering the questions “what is a high-performing policy team?”, “what skills do great policy advisers need?”, and “what is great quality policy advice?”10

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Wellbeing budgeting In the UK and elsewhere, government financial planning has tended to be based on the allocation of financial inputs to government departments and agencies. In the UK certainly, it has succeeded in ensuring that total planned spending is in line with the government’s intentions for public borrowing, and, during plan periods, departures from plans can be managed reasonably well.11 There are at least three weaknesses in the approach, however. First, it leads to a focus on ensuring spending is contained within planned totals over the immediate planning horizon (in the UK, 3-5 years), and the long-term impact of spending can receive insufficient consideration. Second, it is mostly about planned spending, not what it will achieve or whether it will be spent well.12 Third, governments’ ambitions, and the challenges they face, often do not fit neatly into departmental structures.13 For example, the current government’s ambition to level up the economies of parts of England which have experienced low growth over decades, is likely to require capital investment and improvements in public services by all domestic departments.

New Zealand’s first Wellbeing Budget, in May 2019, tried to improve on traditional public budgeting approaches, with similarities to Bill English’s social investment approach, by: •

•

•

Focusing on five priority goals: mental health, child wellbeing, supporting Maori and Pasifika aspirations, building a productive nation, and transforming the economy. All of these involve action well beyond any individual department involving the “use of a more collaborative approach by ministers with more joint programmes and initiatives”;14 Planning for the long term: the presentation of the budget emphasised the need for long term investment in the priorities – all of them challenging issues which cannot be overcome in a single budget cycle. The Finance Minister spoke of “tackling the long-term challenges facing New Zealand.”15 Making decisions on the basis of “evidence of what would make the greatest contribution”, on the basis of information about impact and “more scrutiny of initiatives than has been the case in the past.”16

Figure 2, from the 2019 Budget document, illustrates the difference in approach. Instead of a traditional presentation consisting of “x million for Ministry A, y million for Ministry B”, the Budget highlights are presented according to the five priority goals.

While the approach addresses frequent technocratic criticisms of public expenditure management in the UK and elsewhere – thinking about inputs only, weak use of evidence, short-termism and departmentalism – there is also an important political concept behind it. In his introduction to the Budget document, the Finance Minister makes clear that the new The Commission for Smart Government is powered by GovernUp, an initiative of The Project for Modern Democracy, a company limited by guarantee no. 8472163 and a registered charity in England and Wales no. 1154924. Privacy Notice.

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approach is intended to address how the public feel about governments. As we have seen in the UK too, many citizens do not feel that the government is acting on the things which matter to them, and that they are “left behind.” The Minister says: “This approach represents a significant departure from the status quo. Budgets have traditionally focused on a limited set of economic data. Success has been declared on the basis of a narrow range of indicators, like GDP growth. But New Zealanders have questioned that claim of success when they have seen other things that we hold dear – child wellbeing, a warm, dry home, or being able to swim in our rivers and lakes – getting steadily worse. The old ways have left too many people behind. It is time to change.”17 The Government presented its second Wellbeing Budget in May 2020. The pandemic meant that the circumstances of its preparation, and the challenges faced by the country, were completely different from those envisaged the previous year. The presentation of the budget is therefore more about managing the impact of the pandemic on the healthcare system, other public services and the economy. However, the budget document also restates the government’s commitment to pursuing the wellbeing approach over the timescales needed for it to be effective.18 It will only be possible to judge the success of the New Zealand approach conclusively over years, or even decades, because achieving results on many of the ambitions set out in the 2019 Budget would take a long time, even leaving aside the disruption caused by the pandemic. And as we know from the UK and elsewhere, the political transitions which are almost bound to occur over such timescales all too often result in changes of approach which undo such benefits as reform initiatives have achieved.19 What the approach does show, however, is that it is possible for a government to implement credibly and effectively a different way of managing its budgeting process.

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Figure 2: Summary presentation of New Zealand Wellbeing Budget 2019

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Addressing departmentalism through legislation: The Public Service Act 2020 In addition to budgeting reforms, New Zealand has also tried to address departmentalism through new legal structures for cross-government action on priority issues.

Building on the previous decade’s “Better Public Service” reforms, which sought to address barriers to co-operation across agency boundaries, a new phase of reform – centred on the Public Service Act 2020 – aims to change the way the role and operation of public services are defined in law, and reinforce changes in the mindset and behaviour of public service leaders.

The Public Service Act provides new legal structures for: • • • •

“Interdepartmental executive boards” whose purpose is “to align and co-ordinate policy, planning, and budgeting activities for two or more departments.”20 “Interdepartmental ventures”, to deliver services or regulatory functions on behalf of two or more departments.21 “Joint operational agreements” “to provide a formal structure for co-operative and collaborative working arrangements between public service agencies.”22 Functional leadership, similar to the UK functions, giving specific authority to certain chief executives to lead functions across government.23

The new approach is being used to tackle family violence and sexual violence – a classic “wicked issue” demanding action by justice, health, education and welfare. The main features of the new arrangements are: • •

• • •

A Ministerial group, led by a Justice Minister, with representation from the ministries of Social Development, Māori Development, Children and Seniors; Governance by the Chief Executives who currently sit on the Social Wellbeing Board: the Department of Prime Minister and Cabinet, Children and Families, Health, Maori Development, Social Development, Education and Justice; Support for the Chief Executives from a Director and dedicated business unit; A joint venture Budget allocation of over NZ$200m; Bespoke arrangements for advisory input from the Maori community and external experts.24

The Act also puts into place a new set of Public Service Principles for chief executives. In addition to stating principles, familiar in a UK context, such as political neutrality, giving free and frank advice, and merit-based appointments, they include openness and “stewardship” – actively The Commission for Smart Government is powered by GovernUp, an initiative of The Project for Modern Democracy, a company limited by guarantee no. 8472163 and a registered charity in England and Wales no. 1154924. Privacy Notice.

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working to promote strong capability, systems, knowledge management, and assets. In an interesting parallel to Michael Gove’s Ditchley speech which emphasised service to the community, the legislation states the responsibility of public service is to “preserve, protect, and nurture the spirit of service to the community.�25 As with the budgeting reforms, it will not be possible to judge for some time the impact of these legislative changes on strongly entrenched cultures and ways of working. However, by putting in place legal frameworks for collaboration between departments, they appear welldesigned to address the kinds of barriers, real or purported, which undermine crossdepartmental working in the UK, like the separate responsibility of accounting officers for spending.

Learning Problems in government, including lack of focus on value and impact, departmentalism, and short-termism, are deep-rooted and reflect political as well as bureaucratic incentives and dynamics. It remains to be seen how effective the New Zealand reforms described above will turn out to be. There is always a risk that they will not survive political transitions.

However, the way money is planned and allocated is one of the most powerful drivers a government has at its disposal to encourage and reward change. Legislating to promote and enable different ways of working, and a different mindset, is also a powerful tool. It both seeks to address some of the practical and accountability obstacles to different ways of working, and is powerful symbolically, especially if sustained over a long period by the decisions and actions of leaders.

Author The author of this Discussion Paper is Martin Wheatley. Martin is a former senior civil servant and local government professional, with experience on social policy, environment and housing including the Treasury, the Social Exclusion Unit, Croydon Council and the Local Government Association. An independent adviser and researcher since 2011, his published work on government reform includes reports on the centre of government and localism for GovernUp, and on government financial and performance management for the Institute for Government.

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Notes 1 Hughes, P and Smart, J (2012) You Say You Want a Revolution ... The Next Stage of Public Sector Reform in New Zealand, in Policy Quarterly – Volume 8, Issue 1 – February 2012, p4 2 Reform (2002) Spending without Reform: Interim report of the Commission on the reform of public services, p15-18.

3 Wheatley, M et al (2019) The Treasury’s responsibility for the results of public spending, Institute for Government, September 2019, p24-27 4 Hughes, P and Smart, J (2012), p4 5 Ibid 6 Davison, N (2016) Whole-of-government reforms in New Zealand: The case of the Policy Project, Institute for Government, p4 7 Hannah Cameron, Deputy Commissioner, New Zealand State Services Commission, quoted in Pointing the way forward on civil service reform, Matt Ross, Global Government Forum, 25 May 2020 https://www.globalgovernmentforum.com/pointing-the-way-forward-on-civil-service-reform/ 8 Davison, N (2016) Has New Zealand got all the answers to public service reform?, Institute for Government, p4; IPPR (2013) Accountability and Responsiveness in the Senior Civil Service: Lessons from Overseas, Cabinet Office, June 2013, p82.

9 English, B (2015) Speech to the Treasury Guest Lecture Series on Social Investment, https://www.beehive.govt.nz/speech/speech-treasury-guest-lecture-series-social-investment 10 Washington, S (2016) New Zealand's reforms to improve policymaking, Institute for Government https://www.instituteforgovernment.org.uk/blog/new-zealands-reforms-improve-policymaking 11 Wheatley, M et al (2018) The 2019 Spending Review: how to run it well, Institute for Government, September 2018, p12 12 Ibid, p17-25 13 Wheatley, M et al (2019), p13-14 14 Hon Grant Robertson, New Zealand’s first Wellbeing Budget, 30 May 2019 https://www.beehive.govt.nz/release/new-zealand%E2%80%99s-first-wellbeing-budget 15 Ibid 16 Ibid 17 New Zealand Government (2019), The Wellbeing Budget, May 2019, p3 18 New Zealand Treasury (2020), The Wellbeing Budget 2020: Rebuilding Together.

19 Wheatley, M et al (2019), p36 20 New Zealand Public Service Act 2020, s25 21 Ibid, s32 22 Ibid, s38 23 Ibid, s53 24 Family violence & sexual violence work programme, New Zealand Ministry of Justice, https://www.justice.govt.nz/justice-sector-policy/key-initiatives/reducing-family-and-sexualviolence/work-programme/ 25 New Zealand Public Service Act 2020, s11-13

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