Pf june 2013

PublicFinance

The business monthly of the public sector

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Issue 06 June 2013

PublicFinance JUNE 2013

Osborne’s challenge

Long time coming

Jane’s defence

The chancellor tells PF about his tax crackdown

Lord Sutherland hails care’s great leap forward

Wales’ finance minister on fiscal battlegrounds

David Walker on living in a three-speed world

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21/05/2013 17:27

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17/05/2013 13:03

PublicFinance

CONTENTS

June 2013

‘IT’S A THREE-SPEED RECOVERY, WITH CHINA IN TOP GEAR, THE US IN SECOND AND THE UK LUMBERING ALONG IN FIRST’

Features 22 COVER STORY Race for recovery Throw out your economics textbooks. ‘Speedonomics’ is the new world order, as nations’ growth prospects put them in the fast, middle or slow lane. The UK and the eurozone are stuck in first gear. David Walker reports

28 Better apart?

The Treasury is attempting to slash the DWP’s soaring welfare bill. But its strategy fails to address the main cause – an ageing population, which needs its own government department, argues James Lloyd

34 The western front Wales is taking a very different approach to spending than the UK government. In an exclusive interview with PF, Finance Minister Jane Hutt talks to Vivienne Russell about the challenges and priorities ahead

22

34

Regulars 4

Leader And finally some good news

5

Second thoughts Melissa Benn is worried about Michael Gove’s tin ear

6

News Sir Bob Kerslake hints at further Whitehall finance reforms; Swedish expert urges progress on bonds; Paul Burstow calls for action on care

28

8

News Analysis Vivienne Russell asks whether the government will accept the London Finance Commission’s call for more financial autonomy for the capital

Need to Know 40 43

10

On Account A year on from the Housing Revenue Account changes

Opinion Chancellor George Osborne on his international fight against tax avoidance; Lord Sutherland on the Care Bill; plus readers’ views

44

14

Cipfa Events

Management Development Phil Anderson explains how to run meetings properly

47

Smart Thinking ‘Data mining’ would help the NHS

48

Numbers Game

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Restless Nation Scots have no truck with Ukip

10 Subscribe today for the latest expert comment on public policy and finance

16 18 41

Voice of the Nations Watchdog Watch Risk Review

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21/5/13 20:45:37

CONTACTS

Leader Every little helps

A

fter five years of downbeat and depressing press conferences, Sir Mervyn King actually sounded quite chirpy in his last hurrah as Bank of England governor.

Giving his 82nd – and final – inflation report, King highlighted a ‘welcome change’ in the economic outlook.

For the first time in five years, he was able to predict stronger growth and weaker inflation.

Some of the economic data back up this optimistic assessment. Inflation fell significantly in April, while unemployment, though rising, remains almost 100,000 lower than a year ago. And, of course, the UK has avoided a triple-dip recession.

But not everybody sees things this way. Prominent among the doubters is the International Monetary Fund, which has placed the UK in the thirdspeed group when it comes to economic recovery.

As David Walker points out in this month’s cover feature (pages 22–26), the UK is ‘down among the dead men’ when it comes to growth. The IMF expects the UK to grow by 1.5% in 2014, whereas the US should expand by 3% and China by a whopping 8.2%.

Meanwhile, austerity continues apace at home despite earlier IMF suggestions that Chancellor George Osborne should change course.

Osborne has put more emphasis on spending cuts than tax increases in his three years guarding the country’s coffers. But he might have reached the limit of what is acceptable and achievable in a civilised country.

All the more important then for him to consider tax-raising alternatives as he prepares for the June 26 Spending Review. One option – discussed by the chancellor in our opinion section (pages 10–11) – is a clampdown on tax avoidance by multinational companies.

This is an issue about which there is considerable public concern. Any money raised might not be huge, but every little helps, and it would send out an important signal.

Progress has been made already – following agreements with the British Overseas Territories and European Union finance ministers – and more could be done. However, as Osborne writes in PF, ‘acting alone has its limits’. International co-operation is vital to avoid companies exploiting loopholes elsewhere.

Fortunately, the UK has an opportunity to press the issue as part of its presidency of the G8. Prime Minister David Cameron has already said that fair taxes will be one of the three themes of our presidency.

With G8 leaders gathering in Northern Ireland on June 17–18, we won’t have long to wait to find out if he has been successful.

■ Mike Thatcher EDITOR letterstoeditor@publicfinance.co.uk

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PublicFinance JUNE 2013 2011 SEPTEMBER

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Second thoughts pfOpinion

■ Melissa Benn

Why Mr Always Right is wrong For Education Secretary Michael Gove, every critic of his reforms is an ‘enemy of promise’. But there’s a reason he can’t carry the profession with him.

It’s a puzzling paradox that within Conservative Westminster and media bubbles, Michael Gove is rated one of the most dynamic education secretaries ever, yet among those working in state schools, he is one of the most derided. The ‘no confidence’ vote head teachers passed on Gove at their annual May conference indicates a rising professional rebellion against the pace and tone of change.

The current clashes go back to the original, damaging national split between a privately educated elite and a stateeducated majority. It’s a sad but salient fact that most of the Tory front bench – plus our newspaper editors, leading broadcasters and columnists – are privately educated, and educate their children the same way. They neither know nor understand the state system.

So they cheer when Mr Gove lectures state schools about their appalling low standards, citing everything from George Eliot’s Middlemarch (a book that apparently every 17-year-old girl should be expected to read) to Mr Men, a

children’s book series Gove believes should never be used to teach history.

They cheer loudly when Gove claims it is he who is the true progressive, since only his reforms will transform the educational chances of poorer children.

‘High standards for all’ is a powerful mantra: who could possibly oppose it?

However, what those who work in and actually use state schools easily grasp is that the private – or ‘elite’ state grammar model – can’t, by definition, be transferred wholesale to a system that must successfully educate children with a range of talents and abilities, and from varying social backgrounds.

Rising to this challenge requires a different approach. First, it requires a recognition that far from being broken – the irresponsible Gove-ian mantra – state schools have improved remarkably in the past 15 years, thanks to investment, increased collaboration, and incremental improvement in teaching and leadership.

Second, many of the reforms that have been introduced since 2010 are an increasingly toxic combination of a narrowing, prescriptive curriculum; unrealistic targets; and a punitive and inconsistent inspection regime. These risk damaging rather than enhancing the achievements of our schools, and the

MANY CHILDREN ARE SIMPLY NOT SERVED

BY THIS ‘ELITE-LITE’ STRATEGY Photo: PA, Illustrations: Thea Brine

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wellbeing of both staff and pupils.

Then there is the gross unfairness (as recently confirmed by the Public Accounts Committee) of a strategy of shifting billions from schools run by local authorities serving poor children in the maintained sector in order to support a widespread ‘conversion’ (of already ‘good’ or ‘outstanding’ schools) to academies. The forced academisation of primary schools and increasingly divisive free schools are also hugely unpopular.

This rapid structural change has been justified on the grounds that ‘academies raise results’. But the facts simply do not bear this out. A Local Schools Network comparison shows that, like for like, nonacademies marginally outperform academies on a range of markers.

It’s no surprise education professionals are desperate for a new direction. They want a clear, broad definition of national educational aims that would include not only those heading for a top university, but also those children with special needs who are simply not served by this ‘elitelite’ strategy. Classroom teachers want a balanced, flexible curriculum that allows them both vital professional freedom and a chance to inspire, as well as a less rigid exam and accountability system.

If Gove were one of Roger Hargreaves’ Mr Men characters, he would surely be Mr Always Right. To him, every opponent is an ‘enemy of promise’; any critic, a closet Marxist. But he must know that the greatest reformers carry people with them – they inspire, not deride; they consult, not command.

In fact, to improve Gove’s selfawareness and public effectiveness, I prescribe a closer reading of the superb George Eliot for the minister over his surely much-needed summer break.

Melissa Benn is an award-winning writer, journalist and campaigner JUNE 2013

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News Civil service shake-up

Kerslake signals finance reform

Modernising mandarin: Civil service head Sir Bob Kerslake says Whitehall’s finance function could undergo further reforms

BY RICHARD JOHNSTONE

Whitehall’s finance function could undergo further reform as part of coalition efforts to modernise the civil service, Sir Bob Kerslake has revealed.

The civil service head told Public Finance an evaluation of the Whitehall reform plan would be published in July to review the progress made so far.

In an exclusive interview, Kerslake said this paper would also indicate areas for further action.

He admitted the government had made ‘a bit of a slow start’ when the Civil Service Reform Plan was first launched in June 2012, but insisted ‘it is now moving forward at pace’. Progress has been made on ‘foundation’ areas of the reform plan, such as determining which skills and capabilities need to be developed across Whitehall, and steps have been taken to improve the commercial skills of civil servants.

However, implementation of other aspects needed to quicken, Kerslake 6

added. ‘We know we’ve got other things to focus on, and there’s no room at all for complacency – we’ve a lot more to do.’

Part of the plan being considered for further changes is the role of the finance function across Whitehall, he told PF. The initial reform plan states that financial management across government would be strengthened, with the Finance Transformation Programme intended to give finance functions in departments and agencies greater authority.

However, Kerslake indicated that this was being re-examined: ‘We’re looking at the core functions across the piece, not just finance, but also HR and other areas.

‘Is there an argument for changing the way they’re done in government?

‘That’s definitely one of the areas we’re exploring at the moment.’

Although he could not yet say which changes would result from this, Kerslake indicated that programme and process management were among the areas being looked at.

His comments follow the Institute for Government’s review of finance skills in the Financial leadership for government report, published in April. It concluded that the finance function could do more to inform performance management, with the Treasury given a wider role to support value-for-money initiatives across Whitehall.

Responding to Kerslake’s comments, IfG deputy director and report author Julian McCrae told PF that examining reforms ‘in a wider context of the functional elements of government was very sensible’. He added: ‘I would really encourage them to look at how you can better run government in a way that actually helps, like the provision of management information, and how the strategic role finance plays can help improve management information.

‘What I hope they’re doing is asking, “What are the recurring problems across departments, and how could the Treasury and Cabinet Office really help them improve across the piece? How do they link inputs to outputs and outcomes in ways that are more meaningful than just how much they’re spending?” There’s a whole set of issues that the Treasury has not historically focused on, and we think there’s a case they should look at this.’

Kerslake also told PF that the government would expand its sharedservices initiative across more departments in the coming year.

The first of a ‘next generation’ of shared-service centres – where the Department for Transport and its agencies currently share functions such as finance transactions, payroll, HR and some IT services – would be expanded to allow additional departments to join.

Examinations of previous crossgovernment sharing programmes by the National Audit Office have found they

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publicfinance.co.uk/news

LocalFinance ■ Richard Johnstone

Council bonds ‘will offer cheaper borrowing’ were often more expensive than predicted, leading to increased costs.

However, a new round of mergers is intended to save as much as £600m.

As Kerslake explained, ‘the main criticism in the past is that they haven’t really happened properly’, with each department still demanding a tailored specification. But there’s now ‘a very big determination to make these happen’. To ensure the programme is successful, the Cabinet Office’s Efficiency and Reform Group will devise ‘a properly resourced management approach’.

Eventually, departments will be able to choose from a number of centres, Kerslake added, with a second – initially focused around the Department for Work and Pensions and its agencies currently being developed.

‘I would expect us to see savings over the next couple of years, and I think there will be.’

Social care funding

Time to fund ‘poor relation’ Former care minister Paul Burstow has urged the government to set out a clear plan for the future of adult social care funding in the June 26 Spending Review.

Speaking to Public Finance, Burstow said the Spending Review, which will set out departmental budgets for 2015/16, needed to maintain cash transfers from the NHS to councils to boost social care funding.

In 2013/14, around £859m was transferred from the NHS to fund social care in local authorities.

However, Burstow said it was also vital that the review ‘send a clear signal that the government does understand – and will settle in the 2015 Spending Review – that funding for social care has very much been the poor relation of the NHS for decades’.

Photo: Akin Falope/PA

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Plans to establish a municipal bonds agency for local government could provide cheaper borrowing for councils than the Public Works Loan Board, an international expert has told Public Finance.

Lars Andersson founded Sweden’s Kommuninvest agency, and is now helping the French government to create a similar body to issue bonds and lend to local councils.

He has urged the UK Local Government Association to press ahead with establishing the scheme in England and Wales, and to seek government backing later.

Andersson predicted that demand for highly rated public sector bonds meant agencies would be able to borrow as cheaply as 60 basis points over government gilts – 20 basis points cheaper than the PWLB. He said the LGA’s proposal, which has been in development since the government increased the PWLB rate in the 2010 Spending Review, ‘must be cheaper’ to be viable. ‘Local authorities must choose the best solution, and that is the cheapest solution,’ he added.

Other local government lending agencies, such as Kommuninvest, get a ‘very

good’ rate in the market, Andersson said, so it should be possible to better existing borrowing costs for town halls.

‘When we’ve looked at this in France, we’ve done some very cautious calculations, and come to 60 [points over gilts] – but I think that could be bettered.’

The LGA has said the bonds agency could be established by next year. Andersson said the association could press ahead with its development without official Whitehall backing.

Sweden’s central government provides some support to the agency, but this was not in place when it was initially launched in 1986, Andersson noted.

‘We launched it, then started the discussion with the Ministry of Finance. To us, it was obvious local authorities should be able to co-operate in such matters, but my experience in France and Britain is that it is almost impossible to wait for approval.

You have to do something to create political pressure.’

The LGA has asked the Treasury to join a shared examination of the business case for a bond agency.

However, in a letter to LGA chair Sir Merrick Cockell, Chief Secretary to the Treasury Danny Alexander said it was down to

Burstow, who chaired the joint committee that undertook prelegislative scrutiny of the Care Bill, said there was evidence that funding problems in the system were ‘chronic’.

He added: ‘I hope that will be addressed, because if it isn’t, you just wind up with costs being shunted into the NHS.’ He also said there was a need for Chancellor George Osborne to provide ‘transition’ funding to local authorities ahead of the cap on adult social care costs, to be set at £72,000 in 2016.

Around 450,000 people who are currently paying for all of their social care will need to be assessed before being included in the council-run payment systems to calculate contributions to the cap.

See Lord Sutherland on social care reform on p12.

councils ‘to determine whether a local authority bond agency could be delivered on a sustainable footing’.

In the letter, Alexander added: ‘It is consistent with the localism agenda that the autonomous local government sector considers whether it is able to deliver and sustain alternative financing models.’

Chris Hearn, head of education and government at Barclays Corporate Bank, which has worked with authorities over bond issues, told PF that ‘capital markets are definitely open to local authorities’.

He added: ‘There’s appetite to invest in local authorities if they came into the market with either individual bond issuance or collective bond issuance.

‘The principle of what’s being proposed by local authorities makes absolute sense.’

Hearn highlighted Barclays’ involvement in recent bond issues by Transport for London that were cheaper than the PWLB. This shows it was possible for bonds to be less expensive, he added.

‘Councils are different [from TfL], but it does at least show the LGA and all the treasurers at local authorities what the bond market can do,’ said Hearn.

Tax take: Chancellor George Osborne writes in Public Finance (Opinion, p10) about stepping up the international campaign against corporate tax avoidance

JUNE 2013

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News

Analysis London Finance Commission

Capital welcomes tax powers call London Mayor Boris Johnson has embraced the Travers commission proposals for increased financial autonomy for the capital. But will Whitehall? Vivienne Russell reports Boris Johnson greeted the London Finance Commission’s recommendations with great enthusiasm and his characteristically quirky rhetorical flourish. ‘For too long, London has been an economic giant, but a fiscal infant,’ said the city mayor. ‘Babes unborn will lisp the name of the Travers commission!’

Johnson’s ad-lib reflected the mood of excitement and optimism with which the LFC’s report, Raising the capital, was welcomed at the launch event at City Hall in mid-May. Commissioned by Johnson last year and chaired by academic Tony Travers, the commission spent nine months examining how local government finances in the capital could be reformed.

The 17-member commission included former Labour local government minister Nick Raysnford, CIPFA chief executive Steve Freer and Jules Pipe, the directly elected mayor of Hackney and chair of London Councils. Representatives from outside the capital were also included, namely Stephen Hughes, chief executive of Birmingham City Council, and Mike Emmerich of New Economy Manchester.

The LFC’s 80-page report recommended devolution of five property taxes to London government: council tax, stamp duty land tax, business rates, the new annual tax on enveloped dwellings and capital gains property development tax. The commission has also endorsed 8

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the idea of City Hall being allowed to levy new minor taxes, such as tourism or environment duties. Borrowing powers should also be boosted, while remaining within the Prudential Code. It was also stressed that this was not just a report for London, but could be a blueprint for city government across England.

Johnson could not have been more committed to its conclusions. ‘This will not join the long list of reports that have been filed vertically by the Treasury,’ he promised. ‘What the commission is proposing is not a revolution; it is not an attempt to create a city-state out of London. It’s a sensible and moderate attempt, an evolutionary attempt, to face the challenges that London has.’

Underpinning these challenges are rapid population-growth projections.

Johnson noted that since he took office in 2008, London’s population had grown by 600,000 – and is set to hit 9 million by 2020 and 10 million by 2030. This exerts significant pressure on everything from housing supply and school places to rail services and waste disposal.

Yet the requirement for London to, as Johnson says, engage in ‘endless hand-tomouth negotiations with central government about penny packets of finance’ frustrates efforts to plan for the future. There’s also a blow to London’s pride when it looks at comparable world

cities and sees how much control they have over their finances. New York, for instance, receives just 31% of its funding in central grants. In Berlin, it is 25%, and in Tokyo, just 8%. By contrast, London depends on Whitehall for 74% of its public spending.

Even some of England’s provincial cities are scoring rather better.

Manchester, it can be argued, through its City Deal, enjoys more autonomy than London does at present.

But Johnson is not the first to carp at such constraints. Complaints about local government’s very limited tax setting and raising powers have been a feature of the debate for decades. Earlier calls for reform, such as Sir Frank Layfield’s 1976 report and Sir Michael Lyons’ 2007 review, failed to cut much ice with ministers; so what’s different this time?

There has already been a noncommittal response from local government minister Brandon Lewis, who said: ‘While there is clearly scope for more decentralisation, there are no immediate plans to devolve additional powers specifically to the mayor of London. The mayor has considerable financial power already.’

Despite this, Travers shares Johnson’s Photo: Solo Syndication

22/5/13 12:19:51

publicfinance.co.uk/news

QuoteUnquote ‘While there is clearly scope for more decentralisation, n, there are no immediate plans to devolve additional powers specifically to the mayor of London’ Brandon Lewis, local government minister

‘The challenges are more vivid when you’re talking about one place; it is harder to turn down. The report does stack o up intellectually as a very strong set of arguments’ u Steve Freer, CIPFA chief executive S

London calling: Tony Travers, chair of the London Finance Commission (left), listens to Boris Johnson at the launch of the Raising the capital report

‘WHAT THE COMMISSION IS PROPOSING IS NOT A REVOLUTION; IT’S A SENSIBLE AND EVOLUTIONARY ATTEMPT TO FACE THE CHALLENGES THAT LONDON HAS’ Boris Johnson, London Mayor

optimism that the LFC stands more of a chance of being taken seriously in Whitehall. He points to the modest business-rate reforms already enacted by Communities Secretary Eric Pickles, which allow councils to retain 50% of business rate growth.

‘The government itself believes that if you devolve tax-raising powers or tax bases to local government, it will increase economic output, because they commissioned research that said so,’ Travers tells Public Finance. ‘There are economic benefits from giving local government control of part of the tax bases because they then have a vested interest in building up that tax base.’

He adds that the success of devolution to Scotland, Wales and Northern Ireland has shown that catastrophes don’t occur when Whitehall lets go of some powers.

‘If you add all this together, I think the terms of debate are very different, certainly from the time of the Layfield report or even when Lyons reported.’

Freer observes that the report’s focus on growth in general and London in particular could make it more palatable to Whitehall. ‘All the challenges are more vivid when you’re talking about one place than when you’re talking about the whole country; it is harder to turn down. For me, the report does stack up intellectually as a very strong set of arguments.’

Sources close to the commission also highlight the opportunity presented by Johnson’s status as a powerful player on the national political stage; he is frequently talked up as a potential rival to David Cameron for leadership of the Conservative Party. Having such a senior Tory champion, the report makes its prospects of success that bit more buoyant, it is suggested. ‘He can get a lot further [with Cameron and Chancellor George Osborne] than other people.’

Johnson has pledged to remain a

‘passionate’ defender of its proposals, even if he finds himself back in central government. Indeed, his hope is that the LFC’s recommendations will be in place before he leaves City Hall – although when that might be is currently unclear.

Despite the favourable policy climate and Johnson’s personal pull, the report faces considerable obstacles. For example, it made no suggestions about how City Hall and the 32 London boroughs could jointly administer these new taxes or how they might split the proceeds.

Freer suggests that the parties sit down and negotiate a settlement. ‘It’s going to be difficult, but the scale of the prize will be a great motivator,’ he says. ‘I don’t think it’s going to be any more difficult than when they put the combined authority together in Greater Manchester.

Where there’s a will, there’s a way.’

Travers also highlights London MPs’ poor track record in setting aside political differences and working together to win gains for their city. ‘It’s one of the abiding oddities of modern political life,’ he says.

‘MPs from other parts of the country are happy to work together and across party lines, whereas London MPs are much more tentative and fragmented.’

There’s a risk the LFC report could also fall through this gap, but despite this challenge, Travers is determined to carry the LFC report forward. He tells PF that he intends to champion it at this autumn’s party conferences and promote it to shadow chancellor Ed Balls and shadow local government secretary Hilary Benn.

Travers also stresses the modesty of the proposals. Following this year’s businessrate reforms, about 7% of the taxes paid in London will be raised and spent by London government, he says. ‘After these reforms, it would go to 11% or 12%, so this is not exactly Sweden or Germany. This is a very baby step in a very centralised democracy.’

JUNE 2013

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■ Nowhere to hide, by George Osborne ■ The great care divide, by Lord Sutherland

Opinion ■ George Osborne

Nowhere to hide The chancellor of the exchequer explains why the UK is using its presidency of the G8 to push for a global clampdown on tax avoidance by multinationals

The UK’s presidency of the Group of Eight nations is an opportunity to drive international action on tax evasion and avoidance.

In the UK, the government has been reforming its tax system to make it more competitive. We’re cutting corporation tax from 28% to 20% – the lowest in the G20 – to show that Britain is open for business and attract global companies.

As a result, instead of leaving the UK, global companies are coming here and creating jobs. But I am clear that those corporate taxes, low as they are, must be paid.

All countries have national tax systems, and we should keep it that way.

But companies trade internationally, and new technology and the internet

Meeting of minds? In May, the UK and 16 other EU countries agreed to support a global standard for information sharing

10

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have removed barriers to economic activity. This has been a huge boost to growth and jobs, but it has also left our twentieth-century corporate tax rules struggling to catch up. Research from the Organisation for Economic Co-operation and Development shows that some corporates can use perfectly legal loopholes in the global tax rules to avoid almost any tax in any jurisdiction.

And it’s a system that disadvantages smaller companies. Some large multinationals are exploiting the rules by getting profits out of high-tax countries and into tax havens, allowing them to pay as little as 5% in corporate taxes, while smaller businesses are paying up to 30%. This distorts competition, giving larger companies an advantage over smaller domestic companies.

The UK government is cracking down on avoidance and evasion at home.

Prosecutions for tax evasion are up by 80%; we’re introducing the first ever General Anti-Abuse Rule, something campaigners have demanded for over a decade; and, as a result of this government’s investment, we expect to raise £22bn more a year from tackling evasion and avoidance by the end of the Parliament.

But acting alone has its limits. Clamp down in one country and it is easy for those companies to move elsewhere.

The public in many countries are rightly asking that something be done. That’s why Britain has been making the case for change in the international community.

We are already making progress.

In April, the UK reached agreement with France, Germany, Italy and Spain to develop and pilot multilateral tax information exchange. Under this deal, a wide range of financial information will Photos: Rex/Getty

21/5/13 19:55:59

publicfinance.co.uk/opinion

Clear waters: all the British Overseas Territories, including the Cayman Islands (above), have agreed to share tax information with the UK and other countries

be automatically exchanged between the five countries.

The opportunity provided by this pilot, and the momentum behind a single global standard based on agreements with the US, will help catch and deter tax evaders as well as provide a template for wider multilateral automatic tax information exchange.

It’s an important step in the fight against tax evasion. It builds on the firm public commitments by all the British Overseas Territories and the Isle of Man to join and share information with other jurisdictions also in the pilot.

And at a meeting of European Union finance ministers in May, the UK and

16 other European countries agreed to support the development of a single global standard for automatic exchange of information covering a wide scope of income and entities.

As the prime minister has made clear, the UK will use its presidency of the G8 to explore options for greater levels of tax information exchange, particularly on a multilateral basis. Tax evasion and avoidance is an issue that affects both developed and developing countries. It is often the case that the poorer a nation is, the more it needs the tax revenues, but also the weaker its capacity to tackle tax avoidance effectively. So we’re seeing what collectively we can do to improve

‘Some large multinationals are exploiting the rules by getting profits out of high-tax countries and into tax havens, allowing them to pay as little as 5% in corporate taxes’

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the international corporate tax rules, including better global reporting to tax authorities in both the developed and developing world.

Improving transparency of company ownership will help tackle tax evasion.

It also has a key role to play in combating money laundering and illicit finance flows. That is why we are pressing all G8 countries to publish action plans setting out the steps that they will take.

Information on the beneficial owner of companies must be freely available to law enforcement and tax collection agencies, for example through a central registry.

This is an issue whose time has come.

The public in countries around the world are demanding change. This year, as the G8 leaders gather at Lough Erne in Northern Ireland, the UK has an opportunity to turn that public concern into a catalyst for change, creating a competitive tax system that supports businesses, but where everyone pays their fair share.

George Osborne is the chancellor of the exchequer JUNE 2013 PublicFinance 11

21/5/13 19:56:06

Opinion ■ Lord Sutherland

The great care divide The Care Bill is a good start when it comes to reforming long-term care funding. But joining up health and social care budgets is the next vital step The postwar creation of the modern welfare state set up two structures that still define our current situation. The first is the National Health Service which, in principle, offers health care free at point of delivery. The second is the provision of other relevant benefits, including care services deemed to fall outside health care. This care is not free at point of delivery and is constrained by the fact that it is means-tested and, being provided by local authorities, is not a national service.

Within this structure, there has been a huge demographic shift in the shape of the population. Governments have ducked this issue for the past 15 years. It is clear that ‘something must be done’.

And at last, with the Care Bill, which had its second reading in the Lords on May 21, something is being done. But it is no more than a good start. It is good that there is a commitment to having a national strategy and policy and that the government has started to face up to demographic change.

The Bill draws on the 2011 reports of the Law Commission, Adult social care, and the Commission on Funding of Care and Support, chaired by Andrew Dilnot.

The fundamental recommendation of the Dilnot Report, that a cap be put on the cost of care for any one individual, has been accepted. All credit to the government, and therefore also the Treasury, for accepting that the risks involved in the frailties of old age should be shared. By the standards of the past 15 years, this is revolutionary stuff.

Of course, the fears of the Treasury are already being realised. There is inevitably a chorus of voices pointing out that there is less to this than meets the eye. Dilnot’s proposal included the possibility that the cap might even be set as low as £35,000. In the event, the cap will initially be set at £72,000, with the possibility of payment deferred until the 12

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Helping hand: the artificial division between social and health care needs to be ended and budgets integrated

eventual sale of the recipient’s house.

Councils also point out vigorously that there is already a shortfall in funds.

They estimate that current cuts to the adult care budget amounts to £2.68bn – or 20% of previous provision. Care home owners often subsidise councilsponsored residents from charges on those who are self-financing.

Of course, we are in the worst financial crisis in living memory, and account has to be taken of that. But that has perhaps created false expectations in this sector of the population. Equally important is the implicit bet that a cap on care costs will stimulate a strong insurance market.

The government must accept that when we stabilise our national financial prospects, the only rational response to the huge demographic change will be a reordering of priorities.

One change that cannot wait till then is the need to gain maximum efficiency and effectiveness from the huge sums already

There is a legal, financial and administrative fissure running through our society’s attitude to provision of care

being spent. There have been two major Bills relevant to this in successive parliamentary sessions. The first, now the Health & Social Care Act, was, despite its title, almost wholly concerned with health care. The second current Bill is largely concerned with social care.

There’s the rub. There is a legal, financial and administrative fissure running through our society’s attitude to provision of care. Yet, for the individual frail elderly and their carers, there is no such gulf. The 1999 report of the Royal Commission on Long Term Care for the Elderly, which I chaired, quoted the standing joke about how to distinguish between a ‘health bath’ and a ‘social bath’.

As both that commission and its successor under Andrew Dilnot pointed out very firmly, a bringing together of health and social care budgets is essential if we are to maximise value for money in this massive and increasing spend. There are some good pilots taking place. The message is clear: combining budgets improves administration; it improves the effectiveness of spend: but most importantly it has potential to vastly improve the quality of care.

Lord Sutherland chaired the Royal Commission on Long Term Care for the Elderly. He is speaking on redesigning the welfare state at the CIPFA conference on July 9–11 Photos: Alamy

22/5/13 11:52:34

publicfinance.co.uk/opinion

OpinionLetters You can e-mail your letters to letterstoeditor@publicfinance. co.uk. Please include your name and address and a daytime phone number. The editor reserves the right to edit letters

Brass neck I read Michael Ware’s opinion piece, ‘Where there’s muck, there’s brass’, with growing incredulity (PF May). The writer seems to be putting all the blame for poor recycling rates on local government.

He gave no consideration to the need to educate the public about recycling nor to requiring the private sector to reduce packaging and to use only recyclable materials. I grow tired of the strange looks I get when I say I don’t need yet another plastic bag, or when I read disposal instructions on packaging that states ‘not currently recyclable’.

You read news items about the volume of food that is thrown away. Perhaps if there were fewer ‘Buy one, get one free’ offers, consumers would take less home from the supermarket.

As for the implication that councils do

not recognise the economics of waste, I recall visiting a waste recycling sorting centre run by Greater Manchester County Council in 1975.

Where I live now, the council introduced separate waste and recycling more than a decade ago and the civic amenities site records recycling rates of over 65%. I recently visited a major site in another part of the country where rates were as high.

Admittedly, we could achieve more but let’s give credit for what local government has achieved so far.

As for the suggestion that we should purchase our own service direct from waste collection companies, has the author given any thought to how industry and commerce could reduce waste in the first place – or to how the public could be induced to change its habits? Has he considered the environmental cost of a larger number of firms touring the streets on different days, causing more than the weekly disruption and pollution from the current council collection vehicles?

I like to think of myself as environmentally aware but if the writer really wants to change the current situation, I suggest he takes a more balanced approach that takes all the relevant facts into account.

BRIAN WARWICK Redditch, Worcestershire

pfObituary David Chynoweth It is with great sadness that I record that past CIPFA president David Chynoweth passed away on May 9, aged 72. David will be sadly missed by his wife Margaret and three children.

Having obtained a first-class honours degree in economics, he started his career in the fast lane as a trainee accountant with Derbyshire County Council. By the time he was 27, David was deputy county treasurer at West Suffolk County Council and by the old age of 33 was county treasurer of the newly created South Yorkshire Metropolitan County Council. As I was city treasurer of Sheffield during this period, we shared the stormy experiences of the rate capping and bus fares policies.

In 1985, David was appointed director of finance at Lothian Regional Council and became actively involved in CIPFA in Scotland.

He joined the institute council on the same day as me in 1982. I remember that together with Ian Wood we had to sit round the corner of the old L-shaped table at HQ, ie, not to be seen or heard. But David soon made his views known and played a central role in the development of CIPFA’s professional training scheme, becoming president in 1992.

His other passion (apart from Margaret) was investments and he became chief executive of the Universities Superannuation Scheme Ltd and served on many national bodies.

David, you were a true professional and you will be sadly missed by both your old colleagues and family. I feel like I have just lost my best work mate.

Gren Folwell Ian Doig adds: David was very supportive in setting up the CIPFA Scotland Office in 1986, in conjunction with Noel Hepworth & CIPFA Scottish Branch, which led to my appointment by the institute to the new post of director of CIPFA in Scotland. The institute and the Scottish Branch owe David a great debt of gratitude for his support in that critical period.

Alec Fagg Alec Fagg of Shanklin has died after a short illness. He devoted his life to public service, professionally and in many voluntary and charitable organisations.

Born the sixth of nine children of a farm worker in Deal, Kent, he gained a scholarship to Sir Roger Manwood’s School in Sandwich.

Alec proved to be an able scholar but left aged 16 for employment in the accounts department of the Coal Board. He then worked for Deal Borough Council, where he met Marjorie, who he married in 1955. He completed two years of National Service in (appropriately) the Pay Corps, which largely seemed to involve riding around East Anglia on a motorbike.

After that, he worked his way up through local government, studying for his professional qualifications in the evenings. When he was appointed Stamford borough treasurer in 1962, he was the youngest local government official in the country to hold a senior appointment.

Alec went to the Isle of Wight in 1969, taking up the post of treasurer to the SandownShanklin Urban District Council and later South Wight Borough. He immediately began attending St Paul’s Church, Shanklin, where he soon became treasurer of the parochial church council – a post he held until his death.

Alec was also a member of the choir at St Paul’s for the entire 44 years and an active member of Shanklin Rotary Club. His financial skills were also put to good use in other organisations, including the Leonard Cheshire Home and the Abbeyfield Society.

Alec is survived by his wife, Marjorie, four children, ten grandchildren and two great grandchildren.

Vivienne Fulda

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publicfinance.co.uk/voice of the nations

Restless nation A VIEW FROM NO RTH OF THE BORDER

■ Iain Macwhirter

pfOpinion

The referendum conundrum Nationalists don’t want a European Union referendum to distract from their referendum on leaving the UK; unionists aren’t happy either UK Independence Party leader Nigel Farage’s chaotic visit to Scotland has emphasised the growing divergence of political culture north and south of the border. Farage wasn’t booed because he was English, but because of his policies on immigration, gay marriage and Europe – hence the cries of ‘racist’ and ‘homophobic scum’.

There is no excuse in a democracy for shouting at or threatening people just because you disagree with them. But Farage’s claim that he was a victim of racial abuse because of his English nationality is not justified, as the demo’s organisers, Radical Scotland, clarified.

The Scottish National Party does not tolerate racial abuse, whether Asian, Irish, English or Polish. Scotland has welcomed immigration from countries in Eastern Europe and beyond because its ageing population means there is a shortage of young workers. Both the

SNP First Minister, Alex Salmond, and his Labour predecessor, Jack McConnell, argued for more immigration, not less. It is the same with Europe, which is supported by all the main Scottish parties except the Conservatives and Ukip, both of which are largely irrelevant in Scotland because of their minimal representation.

But Europe is set to dominate Scottish politics in the referendum year, as the European elections of May 2014 will be held only four months before the Scottish independence referendum.

Ukip is expected to do well in the Euro elections in England, which emboldens Conservative Eurosceptics in their demands for a cast-iron guarantee of a referendum on withdrawal from Europe. Prime Minister David Cameron has promised to ratify his renegotiation of the terms of British membership.

Labour’s Ed Miliband and the Liberal Democrats have also promised a referendum if there are any substantial changes in Britain’s relations with Europe, and they will be under equal pressure to guarantee an in/out vote in the 2015 UK general election.

SOME SCOTS WILL VOTE YES BECAUSE THEY DON’T WISH TO LIVE IN A UK THAT IS DANCING TO THE TUNE OF NIGEL FARAGE 14

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How will this affect the independence referendum? Well, the truth is, no one really knows. The nationalists don’t want a referendum on leaving the European Union distracting attention from their referendum on leaving the UK. The unionists aren’t happy either. They’ve been warning Scots not to vote Yes to independence in case an independent Scotland is forced to leave the EU. Now it looks as if staying in the UK could lead to Scotland leaving Europe.

Some Scots will vote Yes because they no longer wish to live in a UK that is dancing to the tune of Nigel Farage.

Others might decide they can’t make a sensible decision on Europe if they don’t know whether the UK will still be there in a few years’ time. It is also not clear that Scots have a choice of staying in the EU if the UK leaves because the SNP say they want to remain in the single-UK currency zone, not the eurozone.

The constitutional expert, Alan Trench, has even suggested there may be a case for postponing the Scottish referendum until the issue of British EU membership is resolved. But no one wants to do that.

There are always reasons to postpone referendums, and the Scottish one has already been delayed for two and a half years since the SNP’s election victory in 2011. Ironically, the very people who were demanding an early independence referendum – such as Cameron – are now arguing for a delay in the Europe referendum, which Tory backbenchers want right away.

What a situation. You wait for years for a referendum, and suddenly two come at once. But pity the voters who have to make sense of them.

Iain Macwhirter is political commentator on the Sunday Herald Photo: PA

21/5/13 21:05:06

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Voice of the

Nations NEWS FROM THE DEVOLVED ADMINISTRATIONS Scotland

Scots to set up own-brand OBR

BY KEITH AITKEN IN EDINBURGH

The Scottish Government is to set up its own version of the Office for Budget Responsibility when it takes on new tax powers under the 2012 Scotland Act. The move follows MSPs’ concerns that poor OBR forecasting could leave Scotland out of pocket.

Finance Secretary John Swinney revealed the plan at a May meeting of Holyrood’s finance committee, where he described some of the OBR’s tax-yield projections as ‘inexplicable’. Ministers have also been angered by downbeat OBR forecasts of future North Sea revenues.

Swinney said: ‘My view is that Scotland requires an independent forecasting body to provide assessments to both the government and Parliament about what we will generate as a result of these taxes. I’m considering how that would be established.’

He added that he wanted the new body in place by the time the tax powers transfer.

The Scotland Act transfers control over UK stamp duty and landfill taxes from April 1, 2015, and power to set a Scottish Rate of

Income Tax from April 2016. The SRIT will be offset by a reduction in Scotland’s block grant from Westminster, equivalent to 10p in the pound of revenues from standard ratepayers in Scotland.

Kenny Gibson, convener of the finance committee, told Public Finance that implementing the new arrangements would depend on both reliable revenue forecasting and equitable indexing that will take account of inflation and changes in the tax base.

‘We can’t just settle for a percentage of what’s happening in the UK, because we’re not going to get accurate forecasting, and that’s clearly an issue for us,’ Gibson said.

In the case of stamp duty, where the Scottish Government plans a more progressive tax regime – the Land and Buildings Transaction Tax – revenue projections relied on future property market activity.

The committee’s belief, Gibson said, is that the OBR’s assumptions were heavily skewed towards market conditions in Southeast England.

‘The OBR takes the rather stubborn view

Kenny Gibson: ‘We can’t just settle for a percentage of what’s happening in the UK, because we’re not going to get accurate forecasting, and that’s clearly an issue for us’

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that people will move house as often in the future as they have in the past, which seems unlikely given the state of the housing market,’ he said.

Similarly, the OBR was projecting a steady rise in landfill tax revenues, even though increased recycling is reducing the amount of material sent to landfill.

More importantly, the reduction in Holyrood’s block grant once the SRIT comes into force will be driven by a calculation of Scotland’s notional income tax yield.

The OBR, Gibson contended, had been ‘wildly over-optimistic’ about future earnings levels. His committee has also protested that the £40m–£45m bill for new Revenue & Customs systems to run SRIT is falling on Holyrood when the Act is UK legislation.

There seems little prospect of Westminster yielding on that grievance, although there might be scope to negotiate costs down.

Gibson acknowledged a general will in both London and Edinburgh to make the new arrangements work, but said his committee was increasingly reconciled to working full-time on the reforms.

Meanwhile, Holyrood’s audit committee’s concerns about financial accountability under the Scotland Act reforms have eased, convener Iain Gray told PF. The committee had voiced fears that Audit Scotland would be unable to scrutinise HMRC’s performance in collecting the SRIT, or to summon senior officials to appear before it.

But HMRC permanent secretary Edward Troup, who is accountable for the SRIT, has now agreed to appear regularly before the Holyrood committee, and there were indications this would be given statutory force in next year’s Finance Bill, said Gray.

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publicfinance.co.uk/news

InBrief SHARING CARING Charities urged to share resources The Welsh Government is reviewing how it works with and funds the third sector.

Communities minister Huw Lewis said the government wanted to hear from charities how they could work in partnership in the current economic climate. He said the relationship had not been reviewed for five years, there had since been ‘significant changes’, and it was now ‘even more important’ to co-ordinate resources.

LAWS OF ATTRACTION UK pensions to help fund housing Scottish ministers are campaigning to

get UK pension funds to invest in building houses. Deputy First Minister Nicola Sturgeon has agreed to work with Homes for Scotland to attract additional finance for housing investment. A project team will work on a government-funded study to identify barriers to attracting funds.

REMUNERATION REVIEWS Councillor allowances scrutinised A review of councillor allowances has been established by the Northern Ireland Executive ahead of local government reorganisation in two years’ time.

Environment minister Alex Attwood said the Councillors’ Remuneration Panel for

Wilson warns of ‘hard choices’ for rates rebate

Photos: Demotix/Rex

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SCRUTINY SCRAMBLE Councils urged to grab funding Welsh local government minister Lesley Griffiths has urged councils to ‘make the most’ of the £660,000 Scrutiny Development Fund available for improving scrutiny regimes. The fund is supported by the Centre for Public Scrutiny, and is intended to help members and officers to share good practice.

or acceptable in the longer term, given the scale of the public sector cuts that are yet to come.’

The commission is expected to consider reorganising Welsh local government as part of its work, following calls from councillors to reduce the number substantially from the current 22 unitaries.

Northern Ireland

Finance Minister Sammy Wilson has ruled out providing extra money to fill the funding gap in Northern Ireland’s new rates rebate scheme once it is in situ next year.

The coalition government has localised the money spent on the rate-rebate element of Housing Benefit to Stormont as part of the localisation of Council Tax Benefit to councils in England, and to Scottish and Welsh governments.

However, the available funding has been cut by 10%, and the Northern Ireland Executive agreed to maintain present levels of support in the current year until new eligibility criteria are put in place.

Following a preliminary consultation on the basis for the replacement support programme from April 2014, Wilson said the ‘main message’ was that funding should not be diverted to maintain current eligibility over the long term. This means the available support will have to be slimmed down, he said.

‘None of the responses from the consultation suggested we should divert public expenditure from elsewhere’.

Wilson added that the main consultation on the new scheme will be launched in the coming months.

‘Doing nothing is not an option – the change has already been imposed on us.

Hard choices will have to be made by the executive, and this will inevitably involve negotiations and some redefining of priorities.’

Northern Ireland would examine what financial support would be available when the number of councils falls from 26 to 11 in April 2015. An annual allowance of £9,738 is currently paid to each councillor.

Scotland

Funds swap to boost housing Capacity concern: Welsh First Minister Carwyn Jones said current public service provisions are ‘unsustainable’ Wales

Review of public sector launched The Welsh Government has set up a wideranging review of public services in Wales to propose reforms in light of current and upcoming budget cuts.

Announcing the Commission on Public Service Governance and Delivery, First Minister Carwyn Jones said it would assess current arrangements and the capacity to meet future demand, and would put forward alternative structures.

Sir Paul Williams, former chief executive of NHS Wales, will chair the group, which also includes former Assembly members Nick Bourne and Nerys Evans.

Jones said current resources for services were ‘limited at best’, despite the need for them continuing to grow.

‘Increasingly, public service organisations are struggling to meet the challenges this presents,’ he said. ‘This is not sustainable

Scottish Finance Secretary John Swinney has announced a £291m boost for housing, alongside a plan to shift funds from colleges and police to compensate for central budget cuts.

Following Chancellor George Osborne’s 2012 Autumn Statement and 2013 March Budget, the Scottish Government is to receive £290.8m in ‘Barnett consequentials’.

The money, allocated under the Barnett Formula, adjusts Scottish funding in line with Whitehall spending changes. All monies will now be allocated to housing, Swinney announced in a Holyrood written answer.

The other effect of the UK Budget on Scotland was a reduction of £54.8m in Holyrood’s resource budget. To offset this, Swinney will claw back a £10m underspend

by Scotland’s further education colleges, and around £30m from reserves of police forces following the merger of eight regional constabularies into a national force.

Also, £12m will be transferred out of the housing capital budget, which will be replaced by a similar amount in loan finance.

These changes will almost fully offset the additional cut without existing spending plans being affected, Swinney said.

JUNE 2013

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Watchdog

Watch WHAT’S GOING ON IN THE WORLD OF REGULATION AND INSPECTION Audit Commission Legislation to formally abolish the Audit Commission has been published. The Local Audit and Accountability Bill was issued shortly after the state opening of Parliament and the Queen’s Speech on May 8.

It will bring in a new audit regime for local bodies, allowing them to appoint their own auditors.

Ministers said abolition of the commission would save £1.2bn over ten years.

The Bill also clarifies the role and powers of the National Audit Office in the new regime. Under the changes, the NAO will prepare and maintain a Code of Audit Practice, setting out the framework under which local auditors will work.

The auditor general will also be able to examine individual authorities’ use of resources and provide ‘evaluation, commentary and advice’ to councils on their use of funding.

However, the NAO will not be entitled to question ‘the merits of the policy objectives’ of either councils or Whitehall.

Auditor general Amyas Morse said much work remained to ensure the new system worked well and government received the necessary assurances.

to the inspection framework were needed to ensure progress.

Ofsted wants to replace the ‘satisfactory’ rating for providers with ‘requires improvement’. ‘Satisfactory’ is currently the third of four ratings in Ofsted’s inspection regime. The others are ‘outstanding’, ‘good’ and ‘inadequate’.

Nurseries and pre-schools judged to require improvement will now face more frequent inspections by the watchdog, including a full re-inspection within two years compared with the current four-year period. Providers will also be given four years to improve their rating to ‘good’. If they fail, Ofsted will take steps to remove the provider’s registration.

The changes are likely to come into force from September this year and mirror those already announced for school and college inspections.

Meanwhile, Demos has called

Ofsted Almost a quarter of a million children are in nurseries that need to improve, Ofsted warned as it announced tougher inspections for the early-years sector.

Chief inspector Sir Michael Wilshaw said early years provision was not improving quickly enough, and changes 18

Child benefit: Ofsted plans to replace ‘satisfactory’ ratings for nurseries and pre-schools to ‘requires improvement’

for external Ofsted inspections to be scrapped. In Detoxifying school accountability, the think-tank said annual ‘multi-perspective’ inspections should be introduced, bringing in the views of teachers, pupils and parents.

Labels such as ‘good’ or ‘outstanding’ should be replaced by an ‘honest account’ of a school’s strengths and limitations.

National Audit Office Some of the Whitehall savings identified by the Cabinet Office’s Efficiency and Reform Group are unlikely to be sustainable, the National Audit Office has warned.

The watchdog said it was confident that the £5.5bn of savings for 2011/12 attributed to the work of the ERG would be achieved. But it noted that those reported so far had different degrees of sustainability, with some showing diminishing returns. For example, the level of savings from commercial renegotiations with major suppliers and from the moratorium on government advertising were lower than in the previous year.

Auditors said it was ‘not clear’ how the ERG would secure the £20bn of annual savings it has been charged with finding over the current Spending Review period. Its strategies did not always match its ambitions, the NAO noted.

In particular, the watchdog was concerned by the group’s staff turnover rate, which it said was too high at 25%.

It also criticised the frequent changes of personnel at senior level.

In a separate report, the Treasury’s administration of the Equitable Life

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publicfinance.co.uk/news

COMINGUP… Walk the line: the NAO is checking how well Britain’s prisons are run and whether the buildings are fit for the purpose

PRISON TRIALS The National Audit Office is examining how well the National Offender Management Service manages prison. Its report will consider whether Noms’ strategy is likely to improve value for money and whether the current estate allows Noms to meet its objectives of holding prisoners securely and safely while giving them useful things to do and reducing the likelihood of reoffending.

BORDER CROSSING

Payment Scheme came under fire.

The scheme was set up to compensate some 1.46 million members of the failed Equitable Life pensions and life insurance company. But an NAO investigation found there were problems obtaining up-to-date data and, consequently, payments had been severely delayed. By March 2013, only 35% of the planned payments had been made.

NAO head Amyas Morse called for a ‘realistic plan’ indicating how and when the remaining amounts would be paid.

Northern Ireland Audit Office The number of sick days taken in the Northern Ireland public sector fell in 2010/11 but still cost an estimated £149m, according to the Northern Ireland Audit Office.

The auditors’ annual examination of sickness found that days taken off for illness in the civil service, for example, fell from an average of 13.4 per staff member in 2005/06 to 10.7 days.

But NIAO head Kieran Donnelly said sickness absence remained a significant cost and further improvements should be made. ‘If absence levels could be reduced to match those in Great Britain, savings of £37m are possible.’

Care Quality Commission Pressure on hospital accident & emergency departments is ‘totally unsustainable’, the chair of the Care Quality Commission has warned.

David Prior said that, in some parts of the country, hospital admissions via the A&E department were out of control. He called for widespread Photos: Shutterstock/Alamy/PA

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A separate NAO study will examine the UK Border Force, particularly its integration back into the Home Office. The force polices the UK border at 138 ports and airports. Last year,

concerns about its effectiveness led to it being removed from the UK Border Agency and put under the supervision of the Home Office. The watchdog will consider whether this change has created a robust new institution that is able to both secure the border and improve the passenger experience.

finally settled in July 2011 for £17.2m. The Northern Ireland Audit Office study will consider how effectively the Roads Service sought to minimise the occurrence and consequences of a dispute over ‘unforeseeable archaeology’ and how it managed the dispute resolution process.

ROAD ROW

Health sector regulator Monitor is asking for views on improving the payment-by-results system of funding hospitals. Monitor, together with NHS England, has issued a discussion paper setting out some early thoughts on making the system more patient-focused and integrated.

The deadline for responses is July 19.

In Northern Ireland, auditors are preparing a report on a £219m Roads Service contract to construct, operate and maintain 78 miles of motorway and trunk road. The discovery of archaeological features on the route led to a dispute between the Roads Service and the contractor over who should pick up the costs,

closure of hospital beds and more investment in community care to counter some of the stress the hospital network was under.

Speaking at a King’s Fund conference, Prior said: ‘If we don’t start closing acute beds, the system is going to fall over.’

He blamed the problem partly on the lack of a local market in health care, which often meant patients had no option but to go to their local hospital for treatment, regardless of its quality.

‘The patient or resident is the weakest voice in the system. It is a classic market failure – the user doesn’t know nearly as much as the professionals, even with the internet,’ said Prior.

MAKE IT BETTER

Feel the force: the police would be more effective if they worked together more, says new chief inspector Tom Winsor

Inspectorate of Constabulary Tom Winsor, the new chief inspector of constabulary, has called on the police to become more efficient and effective by looking at how other public services have reorganised themselves.

In his first speech in the role, Winsor said changes should include forces sharing intelligence and aligning their operational practices as far as possible.

‘Interoperability and the absolute minimum of interfaces are essential to efficiency and effectiveness, and it is my view that a police force which takes an isolationist stance is not operating efficiently,’ he said.

Winsor, who is a former rail regulator, said the police could also learn from the energy and transport sectors, which had to establish a network of common standards before they were privatised.

He said the watchdog should focus on the public interest and examine policing from the perspective of the public.

The inspectorate will place a renewed emphasis on crime prevention, assessing forces on their work in this area, he added.

The inspectorate also joined with the chief inspector of prisons to examine the Border Force’s customs custody suites across England and Scotland. These are used to detain people suspected of smuggling drugs and other goods, and include cells and interview rooms.

Inspectors warned that the standards of health services available varied widely and found instances of staff with little or no training working in the suites during busy periods.

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C OV E R F E AT U RE

World economies

RACE RACE FOR FOR RECOVERY RECOVERY The global economy has been turned on its head and the old orthodoxies replaced as developing countries overtake the traditional front-runners. The world is growing at different speeds, with some nations, including the UK, stuck in the slow lane Words: David Walker

the global economic crisis is that more cranes are mounted above London than in the rest of England put together. You don’t need to count the number of big swinging jibs to see that the UK economy is running at more than one speed. House prices are rising at £27 an hour in the capital’s plush purlieus – the sort of places that accommodated the International Monetary Fund team last month when they came to town to run George Osborne’s numbers through their spreadsheets.

Knightsbridge is, of course, a world away from public sectordependent Humberside or Lancashire. There, growth prospects are dire and worsening. National divergence is now endemic, says Karel Williams of the Centre for Research on Socio-Cultural Change at Manchester University. ‘This country is a pleasant, prosperous place for some social groups, but it’s a depressed hole of shuttered shops for others. What we’re heading for is a two-speed UK.’ Actually, the gearbox is a bit more complicated than that. Recent robust data from Scotland on jobs and growth suggest relative prosperity is not just a Southeast England phenomenon. But for the UK there’s no question that variable geometry applies, as in other countries – look at the buoyant Basques in Spain, for example. Call it A FACTOID FROM

New World Order: IMF head Christine Lagarde said the IMF was needed ‘because emerging and developing market economies are accelerating and advanced economies are moving more slowly’ 22

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Photo: Getty

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publicfinance.co.uk/features

Going it alone: the fastest growing country, China, has little in common with the other ‘Brics’

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C OV E R F E AT U RE

World economies

diversification, the end of convergence or, if you like, a demonstration of the nature of spatial inequality in the twenty-first century – for this pattern of pulling apart within nation states shows up in the world economy, too.

In a recent report, the IMF discerned a ‘three-speed recovery’. China is motoring in top gear, the US is in second, the UK and most of the rest of the European Union are lumbering along in first, with Japan making that dreadful noise you get from a manual gearbox when the cogs aren’t quite engaging.

The IMF categories are not watertight but the differences in speed are glaring. Next year, Chinese growth is projected at 8.2% and India’s at 6.2%. Sub-saharan Africa comes in at 6.1%.

Russia, Brazil and Mexico are all expected to grow at between 3.5% and 4%.

In the middle lane, the US, with 3% projected for 2014, is grouped with Canada on 2.4% and the other advanced economies outside the eurozone, including Australia, New Zealand and Norway, which together will average 3.4%.

Down among the dead men, the euro area projection is 1.1%, with Germany – the strong man of Europe – barely mustering 1.5%. Spain and Italy are recovering from recession but are only just growing at under 1%. Japan should reach 1.4%, just shy of the UK’s 1.5%.

Such large and growing variations in speed pose searching questions about the nature or even existence of a ‘global’ economy. They explain growing tensions around capital flows from the low interest, monetary-eased north (Brazil has imposed capital controls), currencies and trade. Globalisation, perhaps, ends not with a bang but with the baaing of countries sorted into separate pens for sheep and goats.

The economics textbooks are clear that we IMF PROJECTED YEAR-ON-YEAR GDP PERCENTAGE GROWTH FOR 2014

Emerging andd Developing Economiess Russiaa Chinaa Indiaa Brazilil Mexicoo Sub-Saharan Africaa United Statess Canadaa Advanced Economiess South Africaa

Top Gear Cruising First gear

Euro areaa Japann United Kingdom m Source: IMF

24

0

1

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2

3

4

5

6

7

8

9

should all quickly get to the same speed. Recession in one country cuts prices and the logic of markets ramps up its exports and attracts in another country’s capital.

Look, optimists might say, at the interest being shown in the old Royal Albert Dock in east London by Advanced Business Park, a Chinese developer. But the model only works if the Chinese appetite for Londonproduced services is growing (which doesn’t fit with the Chinese economy rebalancing away from low-cost manufacturing). The model breaks down entirely if the Chinese don’t revalue their currency, and that’s barely happening.

The path to unified global recovery was never going to be smooth. This is not just because economics textbooks have little to say about diplomacy, military might or great power rivalry. It might be permanently blocked.

Globalisation was meant to hack away at the obstructions to trade and capital movement, but this spring the institutions carrying ‘world economic governance’ are starting to look careworn and sometimes downright marginal. The IMF’s Christine Lagarde might be stylish and stately, the very opposite of her predecessor, Dominique StraussKahn, but she’s struggling, even if the IMF thinks the world economy will start climbing out of the trough during this year.

A phrase repeated in the IMF World Economic Outlook is ‘different speeds’, and it is paralleled by differences inside the organisation about what is actually happening, and how it should respond.

Senior official José Viñals has gone on record with his fears about quantitative easing and cheap money destabilising emerging markets. ‘We are in uncharted territory,’ he says.

Or we’re going back to the future, unwinding globalisation in a world where variation in growth prospects, bringing rivalry and friction, is the new norm.

The IMF’s French contingent are more bullish – which is ironic, given the travails at home, as President Hollande presides over a disintegrating government and an economy slipping back into recession again. Olivier Blanchard, the chief economist, is convinced there remains room not just for more monetary easing, but more public spending, too.

He is the man who ticked off George Osborne, telling him the UK was ‘playing with fire’ by refusing to reconsider austerity. Osborne should ease fiscal policy, he said, calculating that by 2015 Photo: SuperStock

21/5/13 19:28:37

publicfinance.co.uk/features

the Treasury will have cut demand by £76bn more than it planned.

That’s remarkable medicine from the former bastion of neo-liberalism and vanguard of global convergence. But the stands taken by some top IMF people illustrate how the financial and banking crisis is now playing out in economics. It’s losing its discipline and professors are retreating into hardline and semi-partisan positions. Empirical evidence is downgraded. This was the problem in the recent Reinhardt-Rogoff affair, where a dogmatic assertion of a causal relationship between government debt levels and GDP growth was found to be based not just on dodgy data but a narrow reading of the historical record.

Now, at one moment the IMF sounds ultra-Keynesian, insisting the ‘multipliers’ linking government spending levels to aggregate demand are higher than others acknowledge, including our own Office for Budget Responsibility. At the next moment, it seems to be taking its cue from William Gladstone, joining the eurozone and European Central Bank in demanding fiscal rectitude from the likes of Greece even at the cost of huge reductions in employment and growth.

The IMF now pins its hopes on deepening economic and financial co-operation within the eurozone, including a banking union. This aspiration flies in the face of public opinion in most member states – since co-operation comes with a German flag on it.

The IMF isn’t alone in not quite understanding what is going on. For example, the great monetarist

experiment now taking place in Tokyo as Prime Minister Shinzo Abe unleashes – let’s beware inappropriate metaphors here – gushes of central bank money in an effort to stimulate growth. One result looks like depreciation of the yen, fuelling concern about currency protectionism – something the Chinese have self-evidently practised for years, while the IMF and World Trade Organisation looked the other way.

Lagarde said in New York in April that the IMF is needed precisely because ‘emerging and developing market economies are accelerating and moving fast and advanced economies moving more slowly’. As would-be mechanic of this misfiring engine, she diagnoses ‘customised’ responses appropriate to those doing well, those on the mend and ‘those that will have quite a distance to travel’– a suitably diplomatic term for the EU and Japan.

But what if ‘world economic governance’ has a bigger problem ahead with her first group than with the slowcoaches who, by the IMF’s own analysis, could do a lot more to help themselves?

How does China avoid ‘financial excess’ when its reserves total $3 trillion and trade, at 53% of GDP, has depended on self-interested exchange rate manipulation. Some commentators say China faces either or both inflation or pernicious and politically destabilising effects on income distribution and social peace.

And how do the middle rankers synchronise trade and currencies (and indebtedness) with both the tigers and the donkeys? Signs are that

Capital attractions: You don’t need to count the number of big swinging jibs in London to see that the UK economy itself is running at more than one speed

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C OV E R F E AT U RE

World economies

Facing the facts: the multispeed world is here to stay and the UK and US are not going to get back into the fast lane

the US economy is picking up, reporting good data on housing, employment and tax revenues.

But a precondition of US export success is diminished Chinese reliance on exports. How is that to be engineered at the same time as the Pacific power balance moves to accommodate Chinese military and diplomatic strength?

Once, the World Trade Organisation, along with the World Bank, IMF and Organisation for Economic Co-operation and Development, were the consensus. They preached an orthodoxy of small government, low taxes, deregulation and privatisation – all necessary conditions for convergence on a growth model that delivered, worldwide. Now, things fall apart.

The WTO has just appointed Brazilian Roberto Azevêdo as its new head, prompting some to hail a shift of power to the south and the Brics. But this acronym for Brazil, Russia, India, China is a journalistic phantom. How much does the wheezing Russian economy, utterly dependent on gas and oil exports, have in common with Brazil, whose own recent growth record is distinctly less impressive than China’s? Such disparities, let alone profound differences of national and corporate interest over climate change or the regulation of the internet and digital trade, help explain the WTO’s decline. The Financial Times quotes a WTO official, harking back to the massive 1999 Seattle protests against the organisation’s neo-liberal model, admitting that ‘these days we can’t even incite a good riot’.

In 2012, world trade grew by less than global GDP. Few are hopeful that the Bali trade talks planned for December will see some great new push for trade liberalisation, notably in agriculture. Ahead lies, at best, regional trade deals.

Gary Hufbauer of the Peterson Institute for International Economics in Washington DC

warns: ‘The negotiating aspect of the WTO could fade into irrelevance.’

As for the head of the OECD, Angel Gurría, he has started to sound like Richard Murphy, the indefatigable pursuer of tax avoiders and evaders, preaching against havens and urging tax increases to combat inequality. Releasing a report in May that showed income inequality on the increase and the harsh effect of the crisis on the young, Gurría praised welfare states, saying: ‘Policies to boost jobs and growth must be designed to ensure fairness, efficiency and inclusiveness… reforming tax systems is essential to ensure everyone pays their fair share.’ That did not used to be on the globalisation script.

And the World Bank? The growth of developing countries relative to Europe and Japan – they now account for half of global growth – subverts its function. The Brics, under Chinese leadership, are planting their flag on its lawn, launching their own development bank, aimed at Africa. When Jim Yong Kim, the Obama administration’s nominee for its head, says he has ‘no doubt about our continued relevance for a very long time,’ there’s a plaintive note in the air.

What’s missing is the elemental confidence in a global direction of travel that so marked the ‘golden years’ before the crash. The crisis has killed off the end-of-history view once preached

by Francis Fukuyama, that global growth was full speed ahead.

Instead, we can predict burgeoning conflict over trade and resources. The chorus of workers and corporate boards calling for protectionism – across stagnant Europe but also in Brazil – is both louder and has new intellectual respectability.

And, of course, some economies, notably China and India, never embraced free trade anyway.

The Cassandras argue that another internet and IT boom is not going to come along and rescue US growth. But look at Sweden, Canada and other IMF middle-rankers, and you could take a much more positive view. So how fixed are the differences in environment, resources, policies and culture that create such divergent economic prospects? Hard to say, but there is a growing sense that a multispeed world is here to stay, that ‘speedonomics’ is the new normal.

Which is bad news for Europe and the UK. Sir Mervyn King, taking a curtain call as governor of the Bank of England, pulled a positive projection out of his hat. The UK economy, he said last month, is set to grow by 0.5% in the second half of this year, giving George Osborne cover to keep on cutting. That’s an also-ran growth rate for 2013 of 0.7%, which is half of Canada’s, a quarter of Brazil’s and a twelfth of China’s. In other words, not much to cheer about for the foreseeable future.

David Walker is a writer and commentator on public policy and management 26

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Photo: Getty

21/5/13 19:28:42

recognised, specialised and accredited Essential skills and learning from autumn 2013 CIPFA’s programme of specialised training for the autumn offers focused continuing professional development that helps to ensure staff are fully skilled with a recognised professional award.

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FE ATURE

Welfare reform

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publicfinance.co.uk/features

BETTER APART?

The Treasury is clamping down on annually managed expenditure to cut the welfare bill. A far better strategy would be to split the DWP into two, with a ministry for working-age benefits and a separate department for ageing

Words: James Lloyd

THE TREASURY HAS long disliked those bits of entitlement-driven public spending

it finds hard to control – known in Whitehall jargon as ‘annual managed expenditure’ or AME. Having cut to the bone the more controllable bits of government spending subject to a ‘Departmental Expenditure Limit’ (DEL), the Treasury now wants to beef up its ability to cut away at AME, which makes up around half of government expenditure and includes welfare, debt interest and European Union contributions.

This, in a nutshell, is what lies behind the announcement in Budget 2013 that: ‘The government will strengthen the spending framework by introducing a firm limit on a significant proportion of AME, including areas of welfare expenditure. This will be designed in a way that allows the automatic stabilisers to operate to support the economy. Action to improve control over AME spending will support the delivery of fiscal consolidation.’

Some commentators see this move in purely political terms: the tactician George Osborne wants to define whole-of-government spending limits, thereby compelling Labour to sign up to them or be accused of planning to pile on more government borrowing.

However, the wider view is that the proposed AME limit is purely a device for fiscal consolidation, which the Treasury is reaching for because it has cut as much as it can from DEL expenditure. In particular, the Treasury wants to slap a cap on Iain Duncan Smith’s welfare budget, and leave it up to stakeholders, MPs Photo: Dave Eastbury

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FE ATURE

Welfare reform

THE MOVE TO PUT LIMITS ON AME SPENDING REFLECTS DESPERATION AT 1 HORSE GUARDS ROAD – MORE OF A PANIC MEASURE THAN A STRATEGY

Treasury target?

Some people believe the AME limit is designed to cut the State Pension or go after other universal pensioner entitlements

30

and the Department for Work & Pensions to slug it out over whose benefits will be cut. Rather like Gordon’s Brown so-called ‘Golden Rule’, the AME limit is about creating fiscal rules and targets that will shape public debate – a political device to help achieve fiscal sustainability.

As others have noted, it’s important not to get over-excited about fundamental changes taking place to the UK welfare state. The Treasury has already highlighted that flexibility will be necessary when the economy contracts and the ‘automatic stabilisers’ of working-age welfare become more expensive. Just as with the ‘Golden Rule’, any rules or limits inserted into fiscal decision-making usually leave scope to be adjusted when convenient, and structural trends can always be presented as cyclical phenomena. Nevertheless, as a device to tackle structural growth in welfare spending, it’s worth asking how the AME limit will apply and what the result will be.

So, if the AME limit comes into force on welfare expenditure, where does the Treasury think it will apply pressure? To identify the real target, the timing of the move is significant: the government could have introduced an AME limit in 2010 alongside the Budget for Office Responsibility, and used it to drive cuts to spending on DWP working-age benefits. Instead, the AME limit is being unsheathed as part of the June Spending Review after many working-age welfare cuts have already been pushed through.

This has led some to suggest that the real purpose of the AME limit is to foist cuts on those bits of universal welfare spending unaffected by austerity. These include the State Pension, older people’s disability benefits and entitlements such as Winter Fuel Payments and TV licences for the over-75s.

But if this is the Treasury’s logic, it’s pretty unfathomable in light of some recent policy decisions. Remember, having pocketed savings from switching the State Pension uprating from the Retail Prices Index to the Consumer Prices Index, the Treasury then signed off the annual ‘triple lock’

increase in its value – whichever is the highest of the rise in average UK earnings, the CPI or 2.5%.

As a result, public spending on the State Pension will, in 2013 prices, increase from £77bn in 2011 to £91bn in 2017, according to the DWP. If the Treasury now wants to use an AME limit on DWP welfare spending to unpick the ‘triple-lock’ guarantee, it poses the question: why did the Treasury sign this guarantee off in the first place?

If the AME limit is not about reducing the State Pension back to a means-tested rump, is it – as some think – a device to go after other universal pensioner entitlements?

This seems unlikely. Consider the numbers: the State Pension costs around £77bn per year, with meanstested Pension Credit costing a further £8bn. Winter Fuel Payments and TV licences cost around £3bn.

In fact, scrapping Winter Fuel Payments would – besides boosting the excess winter death rate and the cost of cold-related illness to the NHS – pay for only between one and two years of the annual increase in cost to the Exchequer of the State Pension.

Similarly, if the AME limit were used to push through means testing of pensioner entitlements by linking eligibility to receipt of means-tested Pension Credit, it is a lot of trouble just to raise rather small bits of money. It would also amplify all the longstanding problems of means testing older people: additional complexity; administrative costs; the failure of the Pension Credit system to reach some 1.3 million pensioners living in poverty; and the effect of means testing older people on incentives to save for retirement at a time when the government is nudging millions of low-paid workers into pension saving for the first time.

The fact is that this government has done more to bring about a universal, predictable, basic income offer to all pensioners in the UK than any other government has for years. It is a bold vision of support to older people, but one entirely inconsistent with a rigorous AME limit bearing down on DWP welfare expenditure.

All of this suggests the move to put limits on AME spending reflects desperation at 1 Horse Guards Road in response to sluggish gross domestic product and tax revenue: more of a panic measure than a strategy. But given the fiscal outlook and the nature and drivers of AME welfare spending in coming years, are there other approaches that would be more effective at achieving the Treasury’s ultimate aim of fiscal sustainability?

An AME limit is undeniably a blunt, arbitrary tool for making decisions affecting millions of people.

Applying it to DWP welfare budgets will set up contrived trade-offs between working-age income and disability support on the one hand, and universal pensioner spending on the other, just because these happen to be located in the same department.

The truth is that the real, structural drivers behind the DWP’s welfare-spending growth is population ageing, and it is far from clear that imposing forced, arbitrary limits on welfare budgets represents the best strategic response by policymakers.

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publicfinance.co.uk/features

This points to an obvious, if rather radical, alternative: split up the DWP. Aside from the DWP being specialists in processing payments, why exactly does the UK lump together the automatic stabilisers and safety net of working-age benefits together with universal pensioner entitlements and support?

In what way is it logical to cast a single AME limit around all of this welfare expenditure?

Instead, a department for working-age benefits, free of a contrived AME limit, could provide the automatic stabilisers required by the economy, and focus on policy areas like getting the unemployed back into work and supporting disabled working-age adults.

A separate department for ageing could be responsible for centrally determined, universal spending on the retired population, such as the State Pension and pensioner ‘nudges’ such as the Winter Fuel Payment. Rather than a contrived AME limit, it could operate under the advice of a quasi-independent body responsible for monitoring longevity trends, and making recommendations on the State Pension Age, the value of the State Pension and other entitlements.

This sort of ‘standing commission’ has long been suggested in policy debates on ageing, including by the Turner commission on pensions. In fact, in the 2011 Budget, George Osborne himself announced a body to monitor longevity and make recommendations on State Pension Age changes, although it has not been heard of since.

The point is that in the face of an ageing population and rising demand, such a body could propose transparent changes to entitlements that balance fiscal sustainability and age-related rising demand. By always keeping an eye on affordability, it would also have a clear political role: shaping public expectations and attitudes (a bit like an AME limit) and recommending changes to the State Pension Age, which is still the most direct lever for bringing down age-related welfare spending.

But there are other benefits to a department for ageing. It could be the co-ordinator of all age-related policy and spending, which is currently hopelessly – and expensively – lacking in joined-up thinking or practice.

Photo: Alamy/Rex

PFjune13.028_031.indd 4

As the Strategic Society Centre argued in its report last year, Paying for ageing: decision time for households and the state, what is really required is a cross-departmental ‘holistic review’ of all public spending on older people. It would consider what outcomes such interdependent spending is trying to achieve in people’s lives, how value-for-money could be enhanced, and if older cohorts are to be expected to make additional contributions, what should this be and how?

As the centre’s report noted: ‘Fiscal policy-making must not be allowed to crowd out sensible policies on ageing.’ Unfortunately, it appears the proposed AME limit for welfare expenditure will do just this. It also smacks of the ‘draw a line on a graph’ Whitehall cliché about Treasury economists attempting to do policy analysis.

Instead, creating the institutional framework in Whitehall for rationally evaluating and setting all age-related spending would represent an effective, thought-through strategic response to an ageing society. This approach, not an arbitrary AME limit, would represent the best hope for reconciling fiscal sustainability with the structural drivers to growth in welfare spending in coming years.

Cutting edge: Iain Duncan Smith’s Department for Work & Pensions will bear the brunt of any AME limit

James Lloyd is director of the Strategic Society Centre. The centre’s report can be downloaded from www.strategicsociety.org.uk

DWP FORECAST EXPENDITURE ON KEY BENEFITS, £m, REAL TERMS (2013/14 PRICES)

Attendance Allowance

2013/14 2014/15 2015/16 2016/17 2017/18

Carer's Allowance Disability Living Allowance Employment and Support Allowance Housing Benefit Jobseeker's Allowance Over 75 TV Licences Pension Credit Personal Independence Payment State Pension Winter Fuel Payments Source: DWP

0

10,000

20,000

30,000

40,000

50,000

60,000

JUNE 2013

70,000

80,000

90,000

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FE ATURE

Welfare reform

THE MOVE TO PUT LIMITS ON AME SPENDING REFLECTS DESPERATION AT 1 HORSE GUARDS ROAD – MORE OF A PANIC MEASURE THAN A STRATEGY

Treasury target?

Some people believe the AME limit is designed to cut the State Pension or go after other universal pensioner entitlements

30

and the Department for Work & Pensions to slug it out over whose benefits will be cut. Rather like Gordon’s Brown so-called ‘Golden Rule’, the AME limit is about creating fiscal rules and targets that will shape public debate – a political device to help achieve fiscal sustainability.

As others have noted, it’s important not to get over-excited about fundamental changes taking place to the UK welfare state. The Treasury has already highlighted that flexibility will be necessary when the economy contracts and the ‘automatic stabilisers’ of working-age welfare become more expensive. Just as with the ‘Golden Rule’, any rules or limits inserted into fiscal decision-making usually leave scope to be adjusted when convenient, and structural trends can always be presented as cyclical phenomena. Nevertheless, as a device to tackle structural growth in welfare spending, it’s worth asking how the AME limit will apply and what the result will be.

So, if the AME limit comes into force on welfare expenditure, where does the Treasury think it will apply pressure? To identify the real target, the timing of the move is significant: the government could have introduced an AME limit in 2010 alongside the Budget for Office Responsibility, and used it to drive cuts to spending on DWP working-age benefits. Instead, the AME limit is being unsheathed as part of the June Spending Review after many working-age welfare cuts have already been pushed through.

This has led some to suggest that the real purpose of the AME limit is to foist cuts on those bits of universal welfare spending unaffected by austerity. These include the State Pension, older people’s disability benefits and entitlements such as Winter Fuel Payments and TV licences for the over-75s.

But if this is the Treasury’s logic, it’s pretty unfathomable in light of some recent policy decisions. Remember, having pocketed savings from switching the State Pension uprating from the Retail Prices Index to the Consumer Prices Index, the Treasury then signed off the annual ‘triple lock’

increase in its value – whichever is the highest of the rise in average UK earnings, the CPI or 2.5%.

As a result, public spending on the State Pension will, in 2013 prices, increase from £77bn in 2011 to £91bn in 2017, according to the DWP. If the Treasury now wants to use an AME limit on DWP welfare spending to unpick the ‘triple-lock’ guarantee, it poses the question: why did the Treasury sign this guarantee off in the first place?

If the AME limit is not about reducing the State Pension back to a means-tested rump, is it – as some think – a device to go after other universal pensioner entitlements?

This seems unlikely. Consider the numbers: the State Pension costs around £77bn per year, with meanstested Pension Credit costing a further £8bn. Winter Fuel Payments and TV licences cost around £3bn.

In fact, scrapping Winter Fuel Payments would – besides boosting the excess winter death rate and the cost of cold-related illness to the NHS – pay for only between one and two years of the annual increase in cost to the Exchequer of the State Pension.

Similarly, if the AME limit were used to push through means testing of pensioner entitlements by linking eligibility to receipt of means-tested Pension Credit, it is a lot of trouble just to raise rather small bits of money. It would also amplify all the longstanding problems of means testing older people: additional complexity; administrative costs; the failure of the Pension Credit system to reach some 1.3 million pensioners living in poverty; and the effect of means testing older people on incentives to save for retirement at a time when the government is nudging millions of low-paid workers into pension saving for the first time.

The fact is that this government has done more to bring about a universal, predictable, basic income offer to all pensioners in the UK than any other government has for years. It is a bold vision of support to older people, but one entirely inconsistent with a rigorous AME limit bearing down on DWP welfare expenditure.

All of this suggests the move to put limits on AME spending reflects desperation at 1 Horse Guards Road in response to sluggish gross domestic product and tax revenue: more of a panic measure than a strategy. But given the fiscal outlook and the nature and drivers of AME welfare spending in coming years, are there other approaches that would be more effective at achieving the Treasury’s ultimate aim of fiscal sustainability?

An AME limit is undeniably a blunt, arbitrary tool for making decisions affecting millions of people.

Applying it to DWP welfare budgets will set up contrived trade-offs between working-age income and disability support on the one hand, and universal pensioner spending on the other, just because these happen to be located in the same department.

The truth is that the real, structural drivers behind the DWP’s welfare-spending growth is population ageing, and it is far from clear that imposing forced, arbitrary limits on welfare budgets represents the best strategic response by policymakers.

PublicFinance JUNE 2013

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21/5/13 18:33:53

publicfinance.co.uk/features

This points to an obvious, if rather radical, alternative: split up the DWP. Aside from the DWP being specialists in processing payments, why exactly does the UK lump together the automatic stabilisers and safety net of working-age benefits together with universal pensioner entitlements and support?

In what way is it logical to cast a single AME limit around all of this welfare expenditure?

Instead, a department for working-age benefits, free of a contrived AME limit, could provide the automatic stabilisers required by the economy, and focus on policy areas like getting the unemployed back into work and supporting disabled working-age adults.

A separate department for ageing could be responsible for centrally determined, universal spending on the retired population, such as the State Pension and pensioner ‘nudges’ such as the Winter Fuel Payment. Rather than a contrived AME limit, it could operate under the advice of a quasi-independent body responsible for monitoring longevity trends, and making recommendations on the State Pension Age, the value of the State Pension and other entitlements.

This sort of ‘standing commission’ has long been suggested in policy debates on ageing, including by the Turner commission on pensions. In fact, in the 2011 Budget, George Osborne himself announced a body to monitor longevity and make recommendations on State Pension Age changes, although it has not been heard of since.

The point is that in the face of an ageing population and rising demand, such a body could propose transparent changes to entitlements that balance fiscal sustainability and age-related rising demand. By always keeping an eye on affordability, it would also have a clear political role: shaping public expectations and attitudes (a bit like an AME limit) and recommending changes to the State Pension Age, which is still the most direct lever for bringing down age-related welfare spending.

But there are other benefits to a department for ageing. It could be the co-ordinator of all age-related policy and spending, which is currently hopelessly – and expensively – lacking in joined-up thinking or practice.

Photo: Alamy/Rex

PFjune13.028_031.indd 4

As the Strategic Society Centre argued in its report last year, Paying for ageing: decision time for households and the state, what is really required is a cross-departmental ‘holistic review’ of all public spending on older people. It would consider what outcomes such interdependent spending is trying to achieve in people’s lives, how value-for-money could be enhanced, and if older cohorts are to be expected to make additional contributions, what should this be and how?

As the centre’s report noted: ‘Fiscal policy-making must not be allowed to crowd out sensible policies on ageing.’ Unfortunately, it appears the proposed AME limit for welfare expenditure will do just this. It also smacks of the ‘draw a line on a graph’ Whitehall cliché about Treasury economists attempting to do policy analysis.

Instead, creating the institutional framework in Whitehall for rationally evaluating and setting all age-related spending would represent an effective, thought-through strategic response to an ageing society. This approach, not an arbitrary AME limit, would represent the best hope for reconciling fiscal sustainability with the structural drivers to growth in welfare spending in coming years.

Cutting edge: Iain Duncan Smith’s Department for Work & Pensions will bear the brunt of any AME limit

James Lloyd is director of the Strategic Society Centre. The centre’s report can be downloaded from www.strategicsociety.org.uk

DWP FORECAST EXPENDITURE ON KEY BENEFITS, £m, REAL TERMS (2013/14 PRICES)

Attendance Allowance

2013/14 2014/15 2015/16 2016/17 2017/18

Carer's Allowance Disability Living Allowance Employment and Support Allowance Housing Benefit Jobseeker's Allowance Over 75 TV Licences Pension Credit Personal Independence Payment State Pension Winter Fuel Payments Source: DWP

0

10,000

20,000

30,000

40,000

50,000

60,000

JUNE 2013

70,000

80,000

90,000

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PF I N T E RV I E W

Jane Hutt

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THE WESTERN

FRONT

Finance Minister Jane Hutt is marshalling Wales’ response to austerity.

She talks to Public Finance about the Labour-led nation’s battle for new fiscal powers, and why she’s not afraid to pursue some very different spending strategies Words: Vivienne Russell | Photography: UNP

in charge at this time, it’s all about priorities,’ says Jane Hutt, giving a frank assessment of the challenges she’s grappling with as finance minister for Wales. ‘It’s all about making tough decisions – having to be clear what your priorities are, what the needs are and how you balance those against a reducing budget.’

Hutt is a seasoned veteran of Welsh government, having served as Cabinet minister since the earliest days of devolution in 1999, where she took charge of two of the biggest portfolios, health and education. But her current post is the biggest challenge of all, as it involves finding finances to support Wales’ Programme for Government in the most difficult fiscal climate in living memory.

In a vibrant red jacket, the colour of both Wales and the Labour Party, she is unafraid to criticise what she sees as the mistakes of the coalition government in Westminster.

‘We recognise we have to play our part in terms of addressing the debt and fiscal deficit reduction, but we feel [the UK government’s approach] is too fast and too deep.

We’ve said that since 2010,’ Hutt tells PF. Hutt goes on to point out that the 2010 UK Spending Review gave Wales its most ‘IF YOU ARE

difficult settlement since devolution: ‘We have been cut by £1.7bn in real terms since 2009/10, and had a 40% cut in our capital grant from the UK government.

‘We have had to manage in terms of this austere budget in the most innovative way we can.’

Observers can’t have failed to notice that Wales has made some strikingly different policy choices from its larger sibling on the other side of Offa’s Dyke. While the devolution settlement allows such deviations from the path pursued in England, the differences have become even more marked since the coalition government took office in 2010 and embarked on its programme of rapid fiscal retrenchment.

Welsh ministers’ choices suggest more of a sense of continuity with the previous government’s priorities, and Hutt is keen to stress the Welsh Government’s commitment to social justice, which underscores many of the policy differentials. An early example was the ‘emergency’ Budget of June 2010, which ramped up spending cut requirements from the 20% originally planned by Labour to 25%. The Welsh Government’s response was not to pass this extra cut on to public services.

‘We chose to take that money out of

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PF I N T E RV I E W

Jane Hutt

our reserves rather than make the cuts because we felt we needed to continue with the expenditure that was planned, both revenue and capital,’ says Hutt. ‘So we didn’t stop our school-building programme – we protected our revenue and our public services.

‘We’ve obviously had to do what we’ve got to do based on the budget we get from Westminster, but we’ve made different decisions based on what Welsh needs are.’

In addition to the continued investment in school buildings, the last government’s flagship Education Maintenance Allowance, which encourages young people to remain in college, has been retained in Wales. More recently, the Welsh Government found £22m, again from reserves, to fund the 10% cut in council tax support passed on following devolution of the benefit.

This was a ‘very difficult’ decision, Hutt acknowledges, but she brings it back to priorities, citing the Welsh Government’s commitment to tackling poverty and supporting vulnerable people. The expansion of food banks, the impact of the UK government’s other welfare changes and the dwindling sources of support for the working poor are all concerns it is keen to mitigate.

‘Wales and Welsh people, and the economy here, are particularly adversely affected by all these [benefit] changes. So we decided that this year, we would meet that 10% cut in the [council tax support] transfer to help people… it was a decision we felt was right.’

Cardiff insiders describe Hutt as a principled politician, highlighting her background in the voluntary sector and on the equalities front. Before her election as an Assembly Member, she was the first chief executive of Welsh Women’s Aid, and also led the equal opportunities charity Chwarae Teg (Fair Play).

But they point out that she matches this with the pragmatism necessary to steer a legislative programme through the Welsh Assembly – the electoral system designed for the assembly makes majority government unusual and fairly difficult to achieve.

With 30 of the assembly’s 60 seats, Labour is currently in minority government, and deals need to be struck in 36

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Devolution evolution: Secretary of State for Wales David Jones [left] with Paul Silk [right], chair of the Silk Commission. The commission made 33 recommendations for further devolution

order yo get business done. That Hutt has successfully seen two budgets through in the current term is testament to the respect she commands across the political spectrum. Relations with both John Swinney and Sammy Wilson, her opposite numbers in Scotland and Northern Ireland, are reportedly excellent.

Led by Wales, last year the devolved nations succeeded in blocking fledgling plans to introduce regional public sector pay rates. Again, Hutt’s inclusive approach bore fruit. She commissioned a report from the Welsh Government’s chief economist dismantling the Treasury’s arguments, secured the backing of not just Scotland and Northern Ireland, but all the parties represented in the assembly, and then took her concerns to UK ministers.

The plans have been quietly dropped. But has the formation of the Conservative–LibDem coalition at Westminster changed the dynamic of the relationship – particularly as Labour roots run deep in Wales?

‘If you believe in devolution, as I do, then there has to be a respect agenda,’ Hutt replies, observing that she’s also worked with other parties in government – Labour Photo: Alamy/UNP

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‘THERE HAS TO BE A RESPECT AGENDA… WE NEED RECOGNITION FROM THE UK THAT WE HAVE THE LEVERS TO FUNCTION EFFECTIVELY WITHIN THE UNION’

Silk road: Progress on the M4 project (to widen the motorway through Wales) signals that Westminster is likely to respond positively to the Silk Commission’s recommendations

in Wales has been in coalition with both Plaid Cymru and the Liberal Democrats at various points in the past 14 years.

Relations with the LibDem Chief Secretary to the Treasury Danny Alexander are also said to be good. Evidence of this can be seen in recent Treasury backing for a project to widen the M4 motorway (much of which runs through Wales), which is a key infrastructure priority for the nation as well as the wider UK. Hutt singles this out as one of the few positives to emerge from the March Budget, which she otherwise criticises as short on ideas to stimulate growth.

Progress on the M4 project raises the issue of greater borrowing powers for Wales, and signals that UK ministers are likely to respond positively to recommendations from the Silk Commission on further devolution.

Chaired by Paul Silk, former clerk to the National Assembly for Wales, the commission made 33 recommendations to boost Cardiff’s tax and borrowing powers.

These included including control over stamp duty and landfill taxes, and power to vary income taxes.

If enacted, about a quarter of devolved

spending would be funded by taxes set in Wales.

While the Welsh Government awaits the UK government’s formal response, the mood has been lifted by remarks made by Alexander at the LibDem spring conference in April. Alexander pledged he would ‘work tirelessly’ to bring the Silk recommendations to fruition – perhaps a signal of those good relations paying off again.

Hutt says she is optimistic that Whitehall will respond positively. Insiders add that it’s in the UK government’s best interests to see a devolved nation working well within it as a counter to the independence ambitions of the Scottish nationalists. As much as Hutt would like a more empowered Welsh Government, she remains firmly pro-union.

Whitehall’s response to the Silk recommendations will be an important test of the relationship between England and Wales, says Hutt, and is a good indicator of how ministers see the UK itself evolving.

‘There needs to be recognition from the UK government that we have the maturity and the confidence and the levers we need to function effectively within the union.’

One suspects she may get her way.

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NEED TO KNOW

CIPFA Events CIPFA hosts events around the UK for members and non-members alike. These events range from small workshops for local CIPFA members through to large conferences, and are directed towards professionals across most disciplines in the public sector.

CIPFA REGIONS Regional events developed by CIPFA volunteers allow members and students to share best practice, network and explore how strategic issues apply locally. Many are free or at a nominal cost. For more info on the regions visit www.cipfa. org/regions

June 5 June 10 June 12

Cardiff London Edinburgh

CCAB/IIRC workshop This workshop will look at the International Integrated Reporting Framework following the consultation document launched in April. A series of events is taking place around the country during June and July. www.cipfa.org/events

June 13

yourself at this free event. There will be opportunities to draw on advice from professionals and the experience of those who have already made the leap. You will have a chance to ask them questions as well as network with others in the same position.

This seminar, sponsored by Ernst & Young, will explore some of the options to alleviate the pressure on London’s transport infrastructure.

It will include insight into three different modes of transport that will help keep the capital on the move.

www.cipfa.org/events

www.cipfa.org/events

June 19 September 18

July 5

Birmingham Birmingham

CIPFA in the Midlands ‘Question Time’ style debate The series of popular ‘Question Time’ style debates continues with insight, debate and commentary from speakers in the public and private sectors. The topic and panel will be announced nearer to the time – make sure to check the events page online.

CIPFA in the South West evening event – Going solo: how to make the transition to working for yourself Explore what it’s like to work for

CONFERENCES

CIPFA holds conferences across a range of areas in the field of public finance. The events include technical guidance and debate provided by leading experts and commentators. Search under ‘conferences’ at www.cipfa. org/events for our full listings

All CIPFA students in the Midlands are invited to the AGM to network and hear speakers including CIPFA President Sir Tony Redmond, Guy Clifton from Grant Thornton and Steve Charlesworth from Leicester City Council. www.cipfa.org/events

September 20

June 21

CIPFA South East summer school

Edinburgh

CIPFA Scotland annual general meeting The AGM will be held at the CIPFA Scotland office in Edinburgh.

Members are urged to make a special effort to attend. Tea and coffee will be served from 9.30am and the AGM begins at 10am.

June 26

London

CIPFA London division – Trains, boats and planes: London’s transport infrastructure into the future

June 19

Birmingham

CIPFA IT audit and information security seminar This seminar will feature a range of speakers to help IT specialists identify the challenges facing their organisations and direct IT audit towards the areas of greatest value. The seminar will address the risks that arise from cloud computing, the strategies required to manage those risks and the IT audit implications of the government’s broadband delivery project.

Rikki Ellsmore rikki.ellsmore@cipfa.org

Wellingborough

Instead of the usual residential conference, this 2013 summer school will be a one-day event. The detailed course programme will be announced shortly. www.cipfa.org/events

October 18-19

Warwick

CIPFA Regions conference 2013 – ‘2020 Vision’ This conference will help shape the future of CIPFA Regions. The event will include financial management, tax avoidance and networking oportunities. www.cipfa.org/events

July 9–11

Birmingham

Local authority accounting conference This seminar will highlight strategic issues arising from recent developments in local authority accounting and financial reporting within the public sector. Speakers include Karen Sanderson, the Treasury’s deputy director for government financial reporting, who will be discussing Whole of Government Accounts, and Lynn Pamment, chair of the CIPFA/ LASAAC Local Authority Code Board. Further details and booking will be available online shortly.

Rikki Ellsmore rikki.ellsmore@cipfa.org

September 11 September 18

Liverpool London

Central government conference

www.cipfa.org/events

cipfa.scotland@cipfa.org.uk 0131 550 7530 Bristol

Birmingham

CIPFA in the Midlands student society AGM

July 18

London

CIPFA annual conference – ‘Beyond austerity: designing the future state’ For the first time in many years, CIPFA’s flagship event is to be held in London. It will include many high-profile speakers including Lord Heseltine, Tony Travers, Stephanie Flanders, John Pienaar and Owen Jones. There will also be practical workshops, an ever-expanding exhibition and the always popular networking sessions. www.cipfaannualconference.org Juliette.bond@redactive.co.uk

These two conferences will cover the latest developments in central government such as the Finance Transformation Programme, what it means to finance professionals working across government.

Deligates will also get the opportunity to hear from senior central government leaders.

Rikki Ellsmore rikki.ellsmore@cipfa.org

September 17

London

Social care conference This conference will provide finance practitioners with updates on the latest policy developments within the social care sector and the opportunity to learn about best practice from examples presented by experts in the field.

Rikki Ellsmore rikki.ellsmore@cipfa.org

September 25

Belfast

CIPFA Northern Ireland annual conference Get an analysis of the current issues and priorities in the public sector and gain insight into what needs to be done for the Northern Ireland reforms to succeed. The event intends to provoke debate, inspire fresh thinking and provide practical tips on current issues facing finance professionals in the public sector.

Event onsite shortly, e-mail kate. mckay@cipfa.org for more details

40 PublicFinance PublicFinanceJUNE JUNE 2013 40 2011

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S P O N S O RE D C O LU M N : RI S K RE V I E W

Supported by

■ Andrew Jepp

Running to catch up As residents increasingly turn to the internet for information, communication and transactions, councils need to keep up. As ever, there are benefits and risks PEOPLE ARE INCREASINGLY living their lives

online. According to the National Audit Office, 83% of the UK population is connected to the internet. Some 31 million UK web users have an active Facebook account, with each receiving an average of 36 posts every month, according to social media analysts Socialbakers.

As individuals change the way they communicate, it is encouraging that local authorities are following suit. Many have notably increased their use of internet platforms. Last year, a study carried out

by Ashford Borough Council found that 96% of councils used social media to communicate with residents.

While any deviation from the norm inevitably brings risks, there are also clear benefits for local authorities that can navigate this new landscape for communication and engagement.

One of the obvious gains is financial, with research suggesting councils could chop as much as 25% off their communications budgets.

However, the potential goes further than communications. As councils struggle with radically reduced funding, social media can help them provide services in different ways and communicate with local community groups taking on activities. A well-planned and managed social media approach at a local level can foster an empowered population working alongside a connected local government.

Northumberland County Council provided a good example of the successful use of this new medium during last year’s Olympic Torch relay. Believing the relay could help to boost wider use of social media among the community, the council promoted a Twitter hash tag to encourage people to ‘help tweet the torch through Northumberland’. The campaign attracted more than 31,000 followers, achieved 420,000 viewings of an online digital magazine, and positioned the council as a social leader.

Photo: PA

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The ‘tweet the torch through Northumberland’ campaign attracted more than 31,000 followers and positioned the council as a social leader Most importantly, the campaign achieved more than just a temporary online ‘buzz’. Social media now takes a central role in all activity for the council.

Evidence suggests that people feel more involved in the community by being able to access useful information in a way that suits them.

Using social media does, however, also open up potential reputational risks for local authorities. The recent arrest of a local resident in Wales for refusing to stop filming a council meeting shows that social media cannot be turned off and on.

They can create platforms for disgruntled residents to direct criticism with the expectation of immediate response, which can catch out councils that are unprepared.

What might appear to be a trivial incident in a town hall has the potential to spread uncontrollably online. As the

World Economic Forum Global Risks 2013 report highlighted earlier this year, in a hyper-connected world it doesn’t take long for ‘digital wildfires’ to break out.

While there are many examples of effective social media use, there is clearly a need to promote this form of communication higher up the agendas of local authorities before emulating Northumberland’s success.

There are risks using social media and these tools present new challenges to the working practices of local authorities.

But councils must keep developing their capabilities to be at the forefront of local conversations.

If they don’t, residents will do it for them and bypass the councils entirely.

Andrew Jepp is director of public sector at Zurich Municipal JUNE 2013 PublicFinance 41

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widen your horizons Become CIPFA qualified, quicker At CIPFA, we recognise that experience and professionalism can go a long way – that is why we have developed two routes that will let you become CIPFA qualified, quicker.

Accelerated route for senior professionals Senior executives working in roles with substantial financial responsibility who do not hold a professional accountancy qualification can take the accelerated route to CIPFA membership and become CIPFA qualified in just two years.

What are the benefits?

Fast track to chartered accountancy status and the designatory letters CPFA Demonstrate your commitment to a career in public finance In these challenging times, effective public finance skills are vital

www.cipfa.org/accelerated

Increase your networking and learning opportunities Access CIPFA’s member support with our events, publications and much, much more

Fast track route for qualified accountants*

Strengthen your knowledge and skills Gain the skills to be a leader in public finance.

If you are qualified with another accountancy institute, why not take the fast track route to CIPFA membership and become CIPFA qualified in just two papers? www.cipfa.org/fasttrack

‘Becoming CIPFA qualified will present career opportunities for me in the future that aren’t open to me without the qualification.

It is improving my performance in my current finance-facing role, so my Department gains too.’

Phill Wells, current Accelerated route student, DWP

To find out more: T: 020 7543 5656 E: students@cipfa.org Ref: MA13E48PA7 *Terms and conditions apply

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NEED TO KNOW

On account Taking stock of HRA A year on from the start of housing self-financing and most elements are working well. But the move to full depreciation accounting needs a bit more time IT IS A year since local authorities gained control of their Housing Revenue Accounts, moving from the centralised pooling system to keeping their own rents. So what has happened since then and what still needs to be done?

Much of the work before April 1 2012 concentrated on the one-off payments made to and from councils as the historic national housing debt was distributed among them as part of the arrangements. Most councils making payments to the Department for Communities and Local Government had to take on equivalent additional borrowing to cover this – but the £13bn worth of transactions eventually went through without a hitch.

Given the work involved, it is not surprising that since then housing and finance colleagues have taken some breathing space to allow the new system to bed in. Feedback suggests that few councils are currently intending to borrow more to spend on housing at this stage. This is partly to do with the debt profile, which peaks after the first few years of the transfer. But it is also because of the housing borrowing caps set by the government, particularly as there is uncertainty over changes to

welfare payments and the ability to use receipts from tenants’ right to buy.

CIPFA argued throughout the lead-up to self-financing that the debt cap was unnecessary, and behaviour during this initial year supports that view. Removal of the cap would allow housing authorities to choose the most costeffective capital/revenue expenditure splits as their business and capital plans improve along with their understanding and experience of self-financing.

A side effect of self-financing has been to put HRA accounting under the spotlight. The intensity of this spotlight has been increased by the ending of the Major Repairs Allowance, which the previous government set up to charge to the HRA revenue budget for capital assets. The decision was taken to move the HRA toward full depreciation accounting following CIPFA’s research on the impact of valuation methodology and componentisation in pilot authorities. This work suggested that where componentisation and asset lives accurately reflected asset management assumptions, sensible charges could be achieved, provided that the asset management plan itself was affordable.

There were two key concerns. The first was about authorities still using the MRA as a proxy for depreciation and the second was the impact of revaluations and, more importantly, impairments.

While all local authorities should have been applying componentisation to their housing stock for some time, it was recognised that some had not sufficiently developed this approach to be able to make a non-reversible Windows of opportunity: councils need to make the most of self-financing charge to the revenue

Photo: Shutterstock

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account. They might benefit from being given some time to develop their componentisation sufficiently.

The impact of revaluation and impairments was more problematic.

Although some stability could be achieved by varying the basis of valuation, concern over impairments led the government to introduce transitional arrangements to mitigate this risk. A major issue was insufficient balances in the revaluation reserve to offset impairment losses against. With this in mind, the government allowed the MRA to continue to be used for a period of up to five years. However, this applies only to housing assets.

When these arrangements were first discussed, it was felt that five years would be enough time to allow authorities to build up their revaluation reserves. With hindsight, the recession has been longer and deeper than was projected then and the five-year period might now be too short. Given that the MRA will become increasingly out of date, extending the transition period would not be a long-term solution.

CIPFA is therefore beginning to look at alternative scenarios for the end of the transitional period and at how full depreciation could still be implemented in an affordable way. To give time for possible solutions to be assessed and consulted on as widely as possible, it is important that this work starts now. The institute wants to encourage as many local authorities as possible to be involved so that the arrangements can be firmed up in time to give councils as long a run-up to implementation as possible.

To prepare for the end of the transition period and, more importantly, make the most of the opportunities of self-financing, councils need to look closely at both their asset management planning, and their valuation and componentisation policies to ensure that these reflect a realistic and affordable plan for the HRA. Ultimately, the success of self-financing will depend on how well authorities use their property and finance skills to manage their assets.

Alison Scott is assistant policy and technical director at CIPFA JUNE 2013 PublicFinance 43

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NEED TO KNOW

Management development How to run effective meetings Public sector managers have to hold a lot of meetings but too few achieve their intended purpose – making good decisions based on the opinions of those present. Many lack structure and discipline and end up wasting everyone’s time. Phil Anderson explains how to ensure your meetings are productive Meetings can be the bane of everyone’s lives. The public sector is full of them. Is this because some organisations have a culture of meetings for the sake of it? How often do you step out of one and exclaim that it was a waste of time? You might even ask, what is the point of having them at all?

But productive meetings should be at the core of the decision-making process. They should make the organisation more effective by motivating those who attend and making them feel like their voices have been heard.

Among the essential requirements for a good meeting are: the points made should not have been laboured unnecessarily; a clear action plan should have been developed; and each agenda item took the expected amount of time.

If a meeting is poorly run and lacking structure and discipline, it is just a waste of time. It will also make vital participants reluctant to attend future meetings or be less inclined to contribute their valuable opinions.

The solution is simple. Meetings need a purpose, discipline and structure to make them run effectively.

They require a carefully prepared agenda, well-managed timekeeping, a reporting structure and an overall awareness of how meetings should be run.

If managers get a reputation for running meetings well, achieving worthwhile decisions and resolutions, and finishing on time or early, then they’ll achieve what we’re all looking for – productive meetings.

The following ten tips should help you become one of those managers.

1

ESTABLISH AN OBJECTIVE

Have a clear reason for the meeting. Is it keeping up to date on the key performance indicators, or is it to discuss new ideas and approaches?

What is the nature of the meeting? Make sure that the discussion and decisions being made could not be handled effectively outside the meeting. Avoid the temptation to meet just because it is Tuesday morning and you always have a meeting on Tuesday morning. Avoid those that don’t have a clear objective.

They will not be productive.

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2

AGREE AN AGENDA

All meetings need some form of agenda. Build it by asking those who will be at the meeting to offer items for discussion.

Determine what they want to achieve.

Provide all the supporting information needed in advance to give people time to prepare. Also, make sure that the supporting information is as brief as possible, so people have a chance of reading it. Providing long papers during the meeting could waste valuable time as people won’t be able to digest them and concentrate on the meeting.

3

ASSIGN TIMINGS TO AGENDA ITEMS

On the agenda, assign the name of the person to the subject they are bringing to the meeting and how much time they are going to need.

Ensure the meeting starts and finishes on time and that every participant is punctual. This will give your meetings an enhanced sense of efficiency. It might be difficult at first to estimate how long an item needs, but this will get easier. Some organisations in the private sector have a ticker tape running showing what the meeting is costing in people hours.

Illustration: Natalie Wood

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DO

1. Have an objective 2. Let everyone have their say

DON’T

3. Create ground rules

4

NOMINATE A TIME-KEEPER

5

USE A ONE-MINUTE WARNING

6

GIVE EVERYONE A VOICE

The role of the time-keeper or ‘meeting czar’ is to keep everyone on time and the conversation on track. This doesn’t need to be the same person as the chair and the role can rotate at each meeting. Delegate the position if no-one volunteers.

Use a xylophone or other fun alarm to alert each participant that they have one minute left of the allotted time on a particular agenda item. When the time is up, a tune could be played. If more time is needed, the meeting will then have to agree whether to take time away from later items on the agenda or shift that item to another day. Everyone needs to understand the reason for such timing interventions.

Being productive requires discipline.

Make sure that the discussion and decisions being made could not be handled effectively outside the meeting

Use an item to indicate who is controlling the meeting.

Whoever holds the pen, toy or whichever item happens to have been chosen, is the one who holds the floor.

This gives everyone an opportunity to speak uninterrupted. Often, it is the loudest who get heard most clearly. This way everyone gets a chance. If someone else wants to speak they can ask for the pen – at which point the speaker will stop talking, or the chair may direct for the item to be passed on. Encourage participation in the discussion and decision-making process. It is a waste of time and resources to have people in a meeting if they do not contribute.

7

ENSURE FOLLOW-UP ACTION

Have a quick and easy-tocomplete form that can be entered as the meeting progresses, so that when everyone returns to their desk they will find a list of actions. This simple action list need have only three columns ‘next steps’, ‘by whom’ and

1. Allow the meeting to overrun 2. Deviate from the agenda 3. Forget to record a list of actions

‘by when’. This needs to be done at the time, in the room and sent out once the meeting is over. If there is friction at the end of the meeting it might not be politic to send it out immediately, but try to do so very soon after. This will help to ensure that the effective meeting is followed by effective action.

8

LEAVE TIME AT THE END TO SUM UP

9

STAND UP AND FINISH QUICKER

Allocate ten minutes at the end of the agenda to discuss benefits and concerns arising from the meeting. This is important. It does not have to be done at every meeting but should certainly be done periodically.

Everyone should be able to offer a benefit and concern over the process of the meeting in terms of what went well and what didn’t. This is not about the decisions that were made, but about how they were made. This will result in continuous development of the meetings process which will be adapted to suit the people involved.

Have a stand-up meeting. Some organisations use this to get the business done more efficiently This removes the traditional comfort zone of the chair and table, making it more likely that people will talk less and get to the point quicker.

10

SET OUT THE GROUND RULES

A key factor in ensuring that meetings are a success is to maintain discipline throughout – all the way from the purpose, objectives and agenda to the way the way the meeting runs to time.

These rules need to be discussed and agreed up-front and referred to when behaviour deviates from the norm.

Phil Anderson is a faculty member of Ashridge Business School specialising in leadership, and delivers a module, Effective Meetings, on the Management Development Programme JUNE 2013

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CIPFA Property Services

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At CIPFA Property we deliver an integrated, comprehensive service across asset management – including software, knowledge sharing and advisory services.

Find out more about how we can help you at www.cipfa.org/property We use our insight and expertise to help you deliver change.

Find out about our other smart solutions – visit www.cipfa.org/smartsolutions or call our Business Development team on 020 7543 5891.

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NEED TO KNOW

Smart thinking?

▪

John Thornton

Data protection ‘Data mining’ in the NHS could allow spending to be targeted on preventative treatments that take account of lifestyles and genetic make-up ACCORDING TO THE World Health Organisation, health care represents only about 10% of the activities that determine your health. Environmental influences and human biology account for about 20% each and lifestyle (smoking, obesity, stress, alcohol consumption, etc) has a whopping 50% influence.

In 2012, the UK spent £104bn on health care and a lot of this was for drugs to treat and manage conditions such as hypertension, depression, high cholesterol and asthma.

In many cases, however, the effectiveness of these drugs has been shown to be below 50%. That means they have a positive effect on less than half of the people taking them, and in some cases on less than 30%.

This problem and its effects were debated at a recent Healthcare Advisory Forum event. Joel Haspel, director of Oracle Global Health Sciences, told delegates that the NHS and many other health care systems were focusing a lot of money on factors that had only a

10% influence on overall health. Many of the treatments we were financing were either ineffective or had a negative impact on the health of more than 50% of the recipients, he said.

This is simplifying a lot of complex research but it helps to explain one of the biggest challenges facing the NHS today. The biggest risk to human life is not infection but largely preventable illnesses, according to former Labour health minister Lord Darzi and academic Christopher Exeter, senior fellow of the Institute of Global Health Innovation at Imperial College.

In a recent PF opinion piece they argued that health policy and resources must shift from hospital-based treatment to early intervention and prevention (‘The price of inactivity,’ November 2012).

The key question is how to do this – particularly in times when the NHS is under immense pressure and funding is heavily constrained.

Part of the solution is that we all need to take greater ownership of our own

In this brave new world, we would be advised on treatment and lifestyle changes to combat inherited health problems – and prescribed drugs that counter the way illnesses affect our genetic make-up Illustration: Angus Greig

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health. But to do this we need to be better informed about lifestyle choices, diet and preventative strategies. This requires much better information to be made available and shared with the wider population, coupled with the availability of ‘trusted advisers’, real or virtual, to help guide us through a maze of perhaps conflicting and sometimes partial advice.

We all know that if you smoke, have a poor diet, exercise little and drink alcohol excessively it will have a detrimental effect on your health. What is needed is something much more sophisticated.

We are now beginning to see the convergence of genomics, the understanding and mapping of human genomes, personalised medicine and what has been termed ‘big data’, the ability to collect and analyse huge amounts of information.

This should eventually mean that we could all be given personalised advice on treatment and lifestyle changes to counter our ‘inherited’ health problems.

And we would be prescribed only drugs that had been proven to work best in countering the way particular illnesses affected our genetic makeup.

The other half of this brave new world is that there needs to be a culture change in the NHS and care systems, with greater recognition of the importance and value of information and data mining.

Phil Koczan, chief clinical information officer at UCL Partners, speaking at the same Healthcare Advisory Forum event, said the aim should be to: capture consistent data once, as near to the point of care as possible; enable the safe and secure sharing of information; and join up clinical data to support patient care across organisational boundaries, including social care. In addition, patients should be given access to their own health care information.

This does also assume that most of us will want to become ‘informed’ patients who will act wisely on the information we are given.

John Thornton is an independent adviser and writer on business transformation, financial management and innovation JUNE 2013 PublicFinance 47

21/5/13 18:34:50

NEED TO KNOW

Statistics

Numbers game PF’s monthly roundup of statistics covering the public finances, economic growth, unemployment and more

STATE OF THE PUBLIC FINANCES 2012/13: NET DEBT*

1179.6

70

65 May 2012

Jun 2012

Jul 2012

Aug 2012

Sep 2012

Oct 2012

-0.2% 48

Nov 2012

Dec 2012

Jan 2013

Feb 2013

*excludes the cost of financial interventions to bail out the banks

Mar 2013

Apr 2013

Source: ONS

STATE OF THE PUBLIC FINANCES 2012/13: NET BORROWING* (£bn)

16.2

15.8

14.0 12.0

15.4

14.7

12.7

£ bn

8.5 6.3

5.2 July 2012 May 2012

June 2012

-0.8

Jan 2013 Aug 2012

Sep 2012

Oct 2012

Nov 2012

Feb 2013

Dec 2012

–9.4

*excludes the cost of financial interventions to bail out the banks

Mar 2013

Apr 2013

Source: ONS

EUROPEAN GROWTH RATES Q1 2013 (%)

-0.2

Euro Area

-0.1

EU 27

-1.3

Cyprus

-0.2

France

Germany

EURO AREA GROWTH, Q1 2013

1158.9 1161.2

% of GDP

The doom and gloom of recent months appears to have been tempered by small signs of positivity in the UK’s economic performance.

Sir Mervyn King, fronting his final press conference for the Bank of England’s Quarterly inflation report, claimed there had been a ‘welcome change’ in the economic outlook.

Growth projections were a ‘little stronger’ and inflation a ‘little weaker’ than the governor had predicted three months earlier.

King said growth would be around 1.2% for 2013, as the economy built on the 0.3% expansion registered in the first quarter. This compares favourably with the rest of Europe, where euro area growth was –0.2% in Q1.

Inflation would reach the official Consumer Prices Index target of 2% within two years, King suggested. April’s figures produced a step in the right direction, with both CPI and the Retail Prices Index falling by 0.4 percentage points to 2.4% and 2.9% respectively.

Unemployment produced a less impressive performance as the number of people out of work grew by 15,000 in the three months to March 2013. However, this is still 92,000 lower than a year ago and is a better outcome than generally expected given the flat-lining economy.

King predicted a ‘modest and sustained recovery’ but warned against complacency. ‘We must press on to ensure recovery and to bring down unemployment,’ he said.

Chancellor George Osborne will welcome the governor’s positive message on the economy. He may be less pleased with King’s warnings over the £12bn Help to Buy housing scheme.

King expressed concern that Help to Buy could create another housing bubble. He said the UK should learn from the US and ensure that the scheme does not become permanent.

It’s another headache for the chancellor as he ponders his limited options ahead of the June 26 Spending Review.

1115.7 1108.7 1116.4

1154.3

75

£ bn

1093.0.0

1136.4 1139.8

1186.0 118 1185.3

-0.5

0.1 Italy

1.2

Latvia

1.3

Lithuania

-0.3

Portugal

-0.5

Spain UK

0.3 Source: Eurostat

PublicFinance JUNE 2013

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22/5/13 11:39:13

Jan – Mar 2012

2,518

2,503

2,514

2,610

2,564

UK UNEMPLOYMENT (000s)

Oct – Dec 2012

July – Sep 2012

Apr – Jun 2012

Jan – Mar 2013

The number of people unemployed grew by 15,000 to stand at 2,518,000 in the three months to March 2013. However, Jobseekers Allowance claimants fell by 43,000 to reach 1,520,800 LABOUR DISPUTES – WORKING DAYS LOST (000s)* Private sector

AVERAGE WEEKLY EARNINGS – TOTAL PAY 2012/13 (£) 495

Public sector

Source: ONS

Public sector

Whole economy

Oct 2012

Dec 2012

Private sector

490

Total 100%

39

289

13%

485 480 475

250 87%

*Total to March 2013

470 465 460 455 Apr 2012

Source: ONS

May 2012

Jun 2012

Jul 2012

Aug 2012

Sep 2012

Nov 2012

Jan 2013

Feb 2013

Mar 2013

Source: ONS

INFLATION 2012/2013

2.4%

Consumer Prices Index (%)

2.8

3.2

3.1

2.8 2.4

2.6

3.2

2.9 2.5

2.6 2.7

2.7

3.0

Retail Prices Index (%)

3.3

3.1 2.7

2.7

2.2

3.3

3.2 2.8

2.9

2.8 2.4

CPI inflation, April 2013

May 12 Jun 12

Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 13

Source: ONS

JUNE 2013

PFjune13.048_049.indd 2

PublicFinance 49

22/5/13 11:39:13

Recruitment To advertise in Public Finance or pfjobs.co.uk please call 020 7324 2762

LONDON BOROUGH OF HARINGEY The London Borough of Haringey is home to a dynamic and culturally diverse community, with a council committed to economic development, regeneration and community wellbeing.

Two new key roles have been created to ensure the Council’s financial systems and controls can respond to changing requirements in meeting its ambitions for achieving technical excellence.

Chief Accountant

up to £70,100 pa

You will be required to lead the corporate accountancy team and manage the Council’s annual closure of accounts process.

As a senior Finance Manager you should be highly technically competent and confident in the management of resources.

Your experience and advice will be relied upon by Directors and other senior managers, particularly in ensuring that statutory processes are delivered.

Chief Technical Officer

up to £51,400 pa

Your focus will be on producing and maintaining the Council’s Medium Term Financial Plan and associated processes. You will need to be fully informed about any emerging financial issues affecting the Council and in particular the annual Local Government financial settlement and Spending Review. You will ensure that financial information for making key decisions is reliable and responsive to changing needs.

Candidates for both positions should have the ability to lead and drive change in a complex environment, coupled with the capacity to think creatively and contribute ideas that benefit the Council.

The London Borough of Haringey is committed to continuous performance improvement and the successful candidates will be expected to lead by example in creating positive and strong working relationships to enable the Council to meet its aims and aspirations for the future.

If you would like to play a vital part in helping us achieve our vision for Haringey’s future, please contact Gill Kelly at CIPFA Recruitment Services on 020 8667 1144 or visit www.cipfa.org/haringey Closing date: 12 noon Monday 17 June, 2013

50

PublicFinance JUNE 2013

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www.pfjobs.co.uk

21/05/2013 10:05

Finance Director London | £70,000 - £85,000

The Jesuits in Britain are part of an international religious order within the Catholic Church. We run a range of pastoral, educational, social justice and spirituality work in England, Wales, Scotland, South Africa and Guyana.

This is a new role which offers an exciting opportunity to execute the strategic objectives of the Jesuits in Britain in a manner consistent with our mission and ethos. As the Finance Director reporting to the Province Treasurer and Trustees your main responsibilities will include: • • • • • • • •

Maintenance and development of efficient financial systems and processes to assist with the effective management of the charity’s assets Involvement in developing and formulating key business strategies with the senior management Managing and developing month-end and year-end reporting Facilitate the preparation of the annual budget Leading the Finance Department, creating a team that is capable of responding to the increased activity of the charity Present the yearly written report on the economic status of the Province Effectively manage property sales, leases and acquisitions Develop and maintain HR systems and IT infrastructure

The successful candidate will be a proactive, flexible and adaptable CCAB qualified accountant with a proven experience in the preparation of statutory accounts and with a detailed knowledge of Charities’ SORP. It is a prerequisite that coupled with excellent communication and man-management skills you empathise with the Jesuit mission and values and are able to deliver a first class service to both internal and external stakeholders.

All third party applications will be forwarded to Pro-Finance Please email your CV to Andrew Clark at andrew.clark@pro-finance.co.uk If you wish to discuss the role in confidence, please contact Andrew on 020 7269 6351.

Closing date: Tuesday 18th June 2013

Jesuits-ProFinanceHPH.indd 1

20/05/2013 16:34

Do you have a track record for driving excellence and innovation across financial services?

Director of Resources: £80,316 - £89,240 In response to our local and the national financial challenges Wirral Council has embarked upon a period of unprecedented change, improvement and transformation. Excellent services, a new senior management team, ambitious improvement plan and globally significant regeneration projects make this Council one of the most exciting to work for in the UK. We are seeking a proven leader, with a track record for driving and delivering improvement, innovation, and excellence across financial services at a strategic level, preferably within the public sector. Working to the Strategic Director for Transformation and Resources, you will be accountable for all financial services and play a key role on the Executive Team and the transformation and improvement agenda.

For more information about this unique opportunity please visit www.leadwirral.co.uk or call Jonathan Swain at Penna on 07500961727

www.pfjobs.co.uk

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JUNE 2013

PublicFinance 51

21/05/2013 10:04

UNLOCK THE POTENTIAL IN YOUR PEOPLE From consumer goods to heavy machinery, CSX transports over six million carloads and containers every year. To ensure CSX can access integrated, real-time customer data from sales to marketing to operations, Director of CRM Vicki Burton chose proactive, easy-to-use Microsoft Dynamics business solutions. Now CSX can anticipate customer needs and make informed decisions from the ďŹ rst mile to the last. CSX is building stronger customer relationships today and ready for what’s around the corner for shipping tomorrow. microsoft.com/uk/dynamics

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16/05/2013 13:58