PublicFinance
The business monthly of the public sector
publicfinance.co.uk
Issue 1/2 January/February 2015
JANUARY/FEBRUARY 2015
BREADLINE BRITAIN The unwholesome impact of low pay in the public sector
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Dear Perm Sec Rob Whiteman’s message to DCLG’s new chief
Euro fighters The parties changing European politics
Grant gripes Councils chew over the finance settlement
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PublicFinance
CONTENTS
january/february 2015
Features 24 COVER STORY Public penury George Osborne wants continued pay curbs on public sector workers to deal with the deficit. What does the squeeze mean for services, asks Heather Wakefield
29 Low pay-off More than one in five workers in the UK is low-paid, a statistic shaping the general election battleground
34 University funding challenge Controversial trebling of tuition fees is unlikely to deliver predicted savings for the Exchequer
38 The year of austerity elections The experience of austerity is shaping elections in Greece, Portugal and Spain
22 Christmas quiz results 23 Top 50 Trailblazers preview
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‘Inequality and poverty pay within the public sector needs to be recognised and tackled. As things stand, thousands of school and council workers would be better off working for Aldi or Lidl’
Regulars 4
Leader From hero to zero
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Second thoughts Colin Talbot says voters need a clearer idea of their choices on May 7
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8 News Analysis Town halls argue with the arithmetic behind Whitehall’s grant settlement
Need to Know
10 Opinion Rob Whiteman’s open letter to Melanie Dawes; John Tizard on Circle; and Joe Anderson on balancing the economy
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On Account CIPFA on how to account for different types of school
43 Smart Thinking? Why appeals to the heart may be more effective than the carrot and stick
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46 48
Numbers Game Cipfa Events
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Watchdog Watch
16
Voice of the Nations Alex Neil’s drive for social justice
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Management Development Get in shape to be a champion mentor
6 News Barriers lifted to more ‘super councils’; CIPFA consults on governance; and charities ready to ease hospitals’ crisis
43 Subscribe today for the latest expert comment on public policy and finance
18 CIPFA Scotland Debate Reform of public bodies wins backing 20
Restless Nation
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CONTACTS
Leader From hero to zero
L
ow pay is rapidly rising up the public policy agenda, with all the main parties seeking to ‘own’ the living standards debate ahead of the general election. The chancellor says he is committed to an above-inflation increase in the minimum wage – and ministers have been naming and shaming firms that fail to pay the current rate. More than one in five British employees is defined as low-paid – a proportion that has not improved in 20 years. And this is not just a private sector issue, either. Local government workers in particular depend heavily on in-work benefits for survival (pages 24-28). Half a million are on pay levels that fall far short of Living Wage standards. The latest National Joint Council settlement does little to change things. The situation is still more stark for around a quarter of a million homecare employees, most of them female, outsourced and often on zero-hours contracts. This critically important workforce – lauded as unsung heroes by politicians – subsists on sub-minimum wage levels, with travel times between care visits going unpaid. The human and social costs are all too evident, not least for the frail and elderly people who depend on social care services. But there is a direct economic cost too. Breadline level wages impact on the public finances in myriad ways. Most obviously in relation to the shortfall in tax receipts that has compounded George Osborne’s deficit problems. But also when it comes to the prospects for recovery. As the Resolution Foundation argues in this issue (pages 29-33), the Office for Budget Responsibility’s projections for consumption-led growth rely on improved earnings. Without them, debt-to-income ratios look set to rise beyond pre-crisis levels. So what can be done to boost the pay – and purchasing power – of the worst off workers in our society? The hands of public sector employers are tied to a greater extent than their private sector counterparts; not least by a local government settlement (pages 8-9) that CIPFA estimates will cut 6% of councils’ spending power. But there is still scope for action. Giving the Low Pay Commission some teeth would help enforce pay progression across the most problematic sectors. And some leadership from the Treasury when it comes to honouring low-pay commitments would send a message about the value of our most vital public servants. Funding an enhanced minimum wage for the lowest NJC grades would be a worthwhile start.
■ Judy Hirst ASSOCIATE EDITOR letterstoeditor@publicfinance.co.uk
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REDACTIVE PUBLISHING LTD 17-18 Britton Street London EC1M 5TP 020 7880 6200 www.publicfinance.co.uk Associate editor Judy Hirst 020 7324 2769 judy.hirst@publicfinance.co.uk Managing editor Vivienne Russell 020 7324 2788 vivienne.russell@publicfinance.co.uk Content development director Lem Bingley 020 7324 2768 lem.bingley@publicfinance.co.uk Senior reporter Richard Johnstone 020 7324 2796 richard.johnstone@publicfinance.co.uk Reporter Judith Ugwumadu 020 7324 2794 judith@publicfinance.co.uk Contributors Paul Nettleton, Keith Aitken Senior designer Gene Cornelius 020 7880 6227 gene.cornelius@redactive.co.uk Picture editor Akin Falope 020 7324 2713 akin.falope@redactive.co.uk Editorial assistant Tania Forrester 020 7324 2793 tania.forrester@publicfinance.co.uk Digital content manager Harriet Patience 020 7324 2733 harriet.patience@redactive.co.uk Sales manager James Condley 020 7324 2750 james.condley@redactive.co.uk Display Sales executive Vlad Harmanescu 020 7324 2726 vlad@redactive.co.uk Sponsorship sales manager James Brunt 020 7880 6230 james.brunt@redactive.co.uk Recruitment sales executive Emmanuel Nettey 020 7324 6234 emmanuel.nettey@redactive.co.uk Senior production executive Aysha Miah 020 7880 6241 aysha.miah@redactive.co.uk Printing Polestar Stones, Banbury, Oxon To subscribe to Public Finance at the annual UK cost of £100, call 020 8950 7010 or email publicfinance@alliance-media.co.uk. International annual subscription rates range from £130 - £205. Public Finance is editorially autonomous and the opinions expressed are not those of CIPFA or of contributors’ employing organisations, unless expressly stated. Public Finance reserves the copyright in all published articles, which may not be reproduced in whole or in part without permission. Public Finance is published for CIPFA by Redactive Publishing Ltd. Public Finance 17–18 Britton Street, London EC1M 5TP Tel 020 7880 6200 Fax 020 7324 2790
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PublicFinance JANUARY/FEBRUARY SEPTEMBER 2011 2015
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16/01/2015 13:50
Second thoughts pfOpinion
■ Colin Talbot
A democratic deficit The most challenging election of modern times lies ahead, but the main parties are not spelling out what their policies mean to voters Everyone seems to agree that we are heading for one of the least predictable general elections of modern times (although that seems to stop few pundits trying to call it). But are we also heading for one of the least democratic? Democracy is a lot more than merely voting every four or five years. It involves many things, not least that the parties standing for election give us a reasonably clear idea of what our choices are. On this front, things do not look good. Although we are getting some idea of the main parties’ policies on what is fairly unanimously agreed to be the central issue – public finances – we are getting these in headlines only. As best we can decipher, there’s about £50bn a year difference between the spending plans of the Conservatives and Labour by 2020, although even this is uncertain. Both main parties have committed to delivering ‘balanced budgets’ by the end of the next parliament, although with
different definitions of what that means. Why we need a balanced budget neither really explains, which is odd given that we haven’t had balanced budget politics in the UK for most of the past century. Labour has said it will cut less, the Tories promise to cut more. The Tories are also promising £7bn of tax cuts, although it’s unclear where these will come from. What neither has said is where they will cut spending and, crucially, what the impact will be. Both keep pretending that you can carry on hacking away at spending on services and welfare with no consequences. The Tories occasionally let the mask slip and admit that what they are after is a permanently smaller state – more like the United States than Europe. But there is a deeper problem with the upcoming election. In the five elections between 1945 and 1959 the winning party took an average of 48% of the vote. For the five elections between 1964 and 1974 and 1979 and 1997 that had dropped to just under 43% in both cases. In the last three elections it was down to just over 37% (excluding the Liberal Democrats’ vote in 2010).
NEITHER MAIN PARTY IS SAYING ANYTHING ABOUT THEIR ‘RED LINES’. THEY ARE STILL LOCKED INTO A MAJORITY GOVERNMENT MINDSET Photo: Eyevine
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There is a definite possibility, given the vagaries of the first-past-the-post system, that we could get a majority single party government with close to 35% of those voting in May. We could even get a majority government with fewer popular votes than the defeated party. The last time this happened was 1951, when the Tories won with 48.0% to Labour’s 48.8%. (Compare this to the Tory proposal that strike ballots would need at least 40% of those eligible to vote to be legitimate. No government since 1945 has been elected with 40% of the electorate backing it – the average is 32%. The Tories managed 23.5% in 2010). It’s unclear where the ‘tipping point’ is for public acceptance of the legitimacy of a single party majority government, but 35% of the vote must surely be very close to the edge. The alternative is, and is increasingly likely to be, a coalition of some sort. The current two parties in government took 59% of the votes between them, but still only 39% of the electorate. Whatever the make-up of a coalition in 2015, its policies will be an amalgam of its constituent parties’ programmes. But neither main party is saying anything about who they will, or will not, go into coalition with or what their ‘red lines’ will be on policy. This means voters have no idea what will happen in reality after May 7. In countries with regular coalition governments, parties are more open about who and what sort of coalition they might form – but our main parties are still locked into a majority government mindset. So our choices in May will be more uncertain than at any point in my lifetime. Good luck making your decision, voters. Colin Talbot is professor of government at the University of Manchester JANUARY/FEBRUARY 2015
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16/01/2015 17:07
News Devolution
DCLG lifts barriers to creation of more ‘super councils’ BY RICHARD JOHNSTONE
Relaxing the rules governing the formation of combined authorities will remove barriers to fiscal devolution across England, the chair of the Commons communities and local government select committee has told Public Finance. Clive Betts, Labour MP for Sheffield Southeast, said plans for greater flexibility in membership of combined authorities – ending the need for member councils to share boundaries and allowing different functions to operate in different areas – matched the committee’s view of how they could reflect local priorities. Under Department for Communities and Local Government plans, county councils will be able to join combined authorities and delegate powers over services such as transport, even if not all districts are represented. ‘Both of these particular recommendations – allowing councils to join that don’t have a physical link to other authorities and sorting out the problem of transport arrangements in two-tier areas – we made [in the committee’s report on devolution in England last July],’ Betts said. ‘I’m pleased the government has acted on both those issues.’ The committee wanted these restrictions removed to ensure authorities match functional economic areas. As these are formed, they should then become the level to which powers could be devolved from Whitehall. The so-called ‘super councils’ – which currently exist in the Northeast, West 6
Yorkshire, Sheffield and Liverpool city regions – show the way forward as they reflect ‘economic realities’, Betts said. With others now being planned in Derbyshire, Nottinghamshire, Cambridgeshire and the West Midlands, the new flexibility will ensure they match functional economic areas. ‘The issue of an authority that isn’t attached to another authority in a combined authority area is particularly related to York, and their desire to join the Leeds city region,’ he added. ‘In the end, these boundaries should be local decisions. It shouldn’t be for central government to say what the boundaries of combined authorities are. That is what government has listened to.’ The decision to loosen the regulations around combined authorities could help more be created as a staging post to further devolution across the country, Betts said. ‘We’ve still got to convince politicians in the centre that devolution is anything more than allowing people to spend money in a slightly more flexible way. I think there is degree of change of attitude that we still need to achieve.’ So far, deals to increase local control over transport, skills and housing have been agreed with Manchester and Sheffield, with Manchester also creating an elected mayor. The next step is to convince Whitehall politicians to devolve revenue-raising powers, Betts said. ‘The prime minister and the chancellor have completely ruled out this government doing any fiscal devolution, while Labour is committed to a bit but not a lot,’ he said. ‘There is still some way to go to recognise that you
can’t get real devolution unless you also have the ability to decide on taxes at a local level, as well as spending.’ Paul Watson, leader of Sunderland City Council and chair of the Key Cities group of 24 ‘mid-sized’ English cities, told PF the DCLG’s changes will allow authorities that share economic interest, such as tourism, to work together on economic development plans. ‘We understand that in the 21st century, governance for certain things on a bigger geographical footprint is sensible and the way to go.’ CIPFA
CIPFA consults on governance plans BY VIVIENNE RUSSELL
CIPFA members are being asked for their views on proposed changes to the institute’s governance structure, intended to reflect its increasingly global outlook. Under the changes, CIPFA council members will be elected on a regional
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publicfinance.co.uk/news Minster merger: The new flexibility over the boundaries of combined authorities will allow York to join the Leeds city region
HealthCrisis Richard Johnstone
Charities can step in to relieve hospital pressures ‘if NHS pays’ A senior charity leader has revealed that third sector organisations are ready to help the NHS tackle current pressures in hospitals, but only if the health service foots the bill. Plans were submitted to a Cabinet subcommittee on January 19 setting out how charities can help alleviate demand on accident and emergency departments and hospital admissions. They were drawn up by Sir Stephen Bubb, chief executive of the Association of Chief Executives of Voluntary Organisations, at the request of Cabinet Secretary Sir Jeremy Heywood and health department permanent secretary Una O’Brien. Bubb told Public Finance the sector was ready to assist with helping elderly people out of hospital and into care settings in the short term – but charities cannot be expected to prop up NHS finances.
basis, not a sectoral one. This will include international regions to give a voice to the institute’s growing overseas membership. A CIPFA board will also be set up, chaired by the president and including the past president, vice president, a new junior vice president (replacing the treasurer) alongside the institute’s executive team – chief executive Rob Whiteman and his directors. The CIPFA council remains and will continue to decide on the budget, but also take on a greater thought leadership and strategic role, with the board assuming a more executive role. The board will advise and provide information to the council. The governance review is being led by a working party chaired by Sir Tony Redmond, a former institute president. He told Public Finance the review is ‘opportune and timely’ given changes to CIPFA’s membership profile and the increasingly competitive environment in the accountancy profession. CIPFA’s governance arrangements have not been reviewed for some years, he noted. Redmond urged CIPFA members to Photo: Shutterstock
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Hospitals have faced record levels of demand this winter, leading to waiting time targets being missed. Figures from NHS England revealed that from October to December last year, 92.6% of patients attending A&E departments were seen within four hours – below the 95% target and the worst quarterly result since the target was introduced at the end of 2004. Bubb said these pressures show the business model that supports hospitals is ‘bust’. ‘We all know that if you put more resources into community and prevention you’ll cut the number of admissions to A&E, you’ll cut the number of admissions from A&E into hospital beds and you can secure earlier discharge, but the commissioning and the financial arrangements don’t support that,’ he said. Charities are ready to ‘move quite quickly’ to help, he added. ‘I was asked to do this piece of work on what the sector could
take the consultation seriously and said they have a ‘genuine opportunity’ to comment on the proposals. ‘This is critically important information that members should be aware of. Please give us your thoughts and ideas on what you think, because we want the member endorsement
Governance guru: Sir Tony Redmond said the consultation reflects CIPFA’s changing role
do to ramp up its offering in the next 12 weeks, and one of the points I’m going to make in the paper I’m doing for a Cabinet subcommittee … is that we can absolutely make an intervention in the next 12 weeks. ‘You couldn’t possibility set up new projects or new schemes in 12 weeks, it is unrealistic to do so, but you could increase the support that is already being provided if those services were commissioned straight away. ‘I will be saying this needs to be commissioned, you will have to find money to pay for it, and they’re going to have to pay for it.’ Wider changes are needed, he said. ‘Our long-term vision is that there will be a third sector presence in triage in every casualty department, there will be a third sector presence in every early discharge team, there will be a third sector presence in frail and elderly wards,’ he added.
before we take proposals to the annual general meeting for final confirmation, one would hope, in July. ‘Sometimes people think governance is a rather stuffy subject. It certainly isn’t in this case. It’s an extremely important feature of the developing and changing role of CIPFA nationally and internationally.’ On international representation, Redmond told PF that it is likely that four international representatives will be elected to the council, although this could change in time. He added: ‘We do want to reassure members that, although we do see an increasingly international dimension to CIPFA’s activities, the UK and Ireland remain the core business of CIPFA and therefore we will be doing everything we can to make sure that that element and part of our membership is properly resourced and supported.’ The consultation runs until March 13. Further information appears on CIPFA’s website and member discussions will be hosted on CIPFA’s social media pages. JANUARY/FEBRUARY 2015
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News
Analysis Local government finance
Life is tough, town halls tell minister The minister says local authority funding is only being cut by an average 1.8%. But, reports Richard Johnstone, this includes ring-fenced money that makes it harder for councils to find savings Just one week before Christmas, councils found out how much money they will receive from Whitehall in the next financial year. Local government minister Kris Hopkins set out the funding settlement for 2015/16 containing an average cut of 1.8% in spending power, calculated using government grants, revenue from the council tax and locally retained business rates. This cut is a necessary part of the deficit-reduction effort, Hopkins said. No councils will face a loss in spending power of more than 6.4%, the lowest of the parliament, he added. ‘English local government is expected to spend over £114bn this year – around a quarter of all public spending. This settlement therefore recognises that local authorities continue to make a vital contribution to helping pay off the deficit,’ Hopkins told MPs on December 18. ‘As planned, we have kept the overall reduction to 1.8% – lower than last year and one of the lowest levels of reduction under this government. If we include the funds that government has provided to support local transformation, the overall reduction is even lower at 1.6%.’ Ahead of the confirmation of the figures, expected in the week leading up to the parliamentary recess on February 12, the settlement has promoted debate on both the extent of the reductions and how to deal with them. 8
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At the Local Government Association’s annual finance conference on January 6, Hopkins insisted that, as a former councillor himself, he recognised the difficulties imposed on authorities by the reduction. ‘I’m not standing here from a position of ignorance, I know the challenges you face,’ he said. He noted, though, that the sector is making varying degrees of progress on reforms to services so they can deal with the reductions. ‘Not all authorities have made that journey, and some are quite early on in that process,’ Hopkins said. ‘But there isn’t time for a Manchester-style evolution over 10 years or so [which led to a devolution deal being agreed with government last November] – we need to get to an accelerated position as soon as possible to make sure that we can make the transformations that are needed for services.’ However, Hopkins faced criticism for the 1.6% figure as the settlement includes both ring-fenced grants from Whitehall that are essentially passported to councils and Better Care Fund spending, which is being pooled with the NHS. An analysis by CIPFA found councils’ ‘unfenced’ spending power is reduced by 6% once allocated money and pooled resources are excluded, while the LGA said it could be as high as an 11.8% average cut if locally-raised council tax and money
to cover new burdens is removed. Dick Tonge, Conservative cabinet member for finance at Wiltshire County Council, said the government’s spending power calculation had undermined councils. ‘We’re saying that we have to cut services locally or manage things differently in order to get our costs down, and you’re going about saying there is only a cut of 1.6%,’ he told Hopkins. ‘But there is ring-fenced money included in that. You’re making our life extremely difficult, because if someone comes up and says, “Eric [Pickles] says it’s 1.6%, you’re lying to us”, then you get into a complicated argument that some of that is the Better Photo: Alamy
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SpendingPower Percentage change to Whitehall grants by type of local authority DCLG spending power change
‘Unfenced’ spending power change
1 0 -1 -2 -3 -4 -5 -6 -7 -8
England
London boroughs
Unitary authorities
Shire counties
Shire districts
Source: DCLG Provisional Local Government Finance Settlement 2015/16, and CIPFA's calculation of unfenced spending power, in association with Pixel Financial Management
Out with the old: Kris Hopkins says councils must look beyond grant cuts to rethink how they provide services
Care Fund, which is ringfenced, we can’t use it for other things. It’s made it very difficult for us to explain the cuts we’re going to have to make.’ Responding to the comments, Hopkins acknowledged that councils have to make difficult decisions, which will continue regardless of the general election result. ‘It’s not just about 1.8% being taken away – it is about rethinking the way you think about public services. You’ve got to find a way of doing it, and some authorities are finding a new way of doing it.’
Among possible reforms, he highlighted devolution as a ‘massive opportunity’. The agreement to devolve funding to support business growth and skills to Manchester’s combined authority shows the potential for authorities to make changes to boost local economies, he said. ‘For places like Manchester, it’s not just about having a mayor, it’s about being able to show the thread that runs through local services – it’s the mission of everyone there to make sure that people all became positive economic contributors to the economy.’ Echoing Chancellor George Osborne’s words at the Autumn Statement that his door is open to discussions on powers, Hopkins urged councils not to wait for devolution to simply happen and solve funding dilemmas. ‘You’ve got to get on a train and you’ve got to have a plan, and you’ve got to be sure about what you want to do and justify it,’ he said. ‘I think that’s what Manchester has done and is what Sheffield and Leeds are attempting to put together. There is a really positive conversation to be had.’ Despite this, those involved in the Manchester deal are already warning that these very changes could be undermined by the reductions in funding that have already taken place, and those that are still to come. Ian Duncan, the director of finance at Trafford Council – one of 10 councils that make up the Greater Manchester Combined Authority that reached the flagship agreement – said reductions hit authorities dependent on government
grant harder: ‘What is clear is that the metropolitan authorities have been on the thick end of some of this.’ He highlighted the National Audit Office’s Financial sustainability of local authorities report, which found that auditors of single-tier and county councils said 16% had difficulties in delivering their 2013/14 budget, including 22% of metropolitan districts. ‘It will be interesting to see how that changes going forward,’ he said. ‘My own authority, where we have a very good record of delivering within budget … we are reporting for the first time difficulties in achieving all of the savings.’ Although moves towards place-based funding agreements through devolution presented a possible boost, he indicated that funding reductions themselves could hinder progress. ‘Greater Manchester had the announcement back in November, but is that enough?’ he asked. ‘Certainly in our budget plan, we’re not going to do anything in devolution until it makes significant contributions.’ It perhaps captures the mood of local government as it prepares for the fifth full year of lower funding that even policies long seen as opportunities now seem to carry costs. LGA chair David Sparks summed up this view: ‘We have to make the funding that we do have go further through devolved powers, so we can make better decisions at a local level – not from Whitehall. Unless we protect councils’ budgets in the short term, there will be nothing to devolve powers to in the long term.’ JANUARY/FEBRUARY 2015
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16/01/2015 17:34
Dear Melanie … by Rob Whiteman Folly exposed by Circle’s failure,, by John Tizard Don’t build our economy around London’s needs, by Joe Anderson
Opinion Rob Whiteman
Dear Melanie … In this open letter to Melanie Dawes, new permanent secretary at DCLG, CIPFA’s chief executive says mature debate should replace rhetoric and spin Congratulations on your appointment as permanent secretary at the Department for Communities and Local Government. Your career across government gives you the best possible experience on which to draw, and you have the best wishes of the local government sector as you come into the job. As you enter the department, I’m sure you are aware that there is no magic bullet or easy solution to the many challenges that it faces. After five years of deficit reduction and austerity many local government functions have been cut to such a degree that DCLG often seems to have little to do other than observe the reduction in activity. This means that now more than ever we need realism, transparency and pragmatism to be the watchwords of the department. Councils are facing more significant cuts than most other public bodies and this has limited their capacity to act on a wide a range of issues. They need support and encouragement for what they are being asked to deliver by government as part of the national effort to balance the books. It is unfortunate that this call for greater clarity stands in opposition to the rhetoric and spin that has too often characterised the presentation of the numbers by DCLG and others over the past few years. There is a very serious point here about ethics in government. As head of a politically neutral civil service in your department of state, we ask that you ensure that it presents 10
accurate and transparent information. In the view of finance professionals, a line has been crossed by the department in recent years, which means the public are being misinformed about official information and data. For example, describing transferred resources that still must be spent on the NHS as increasing councils’ ‘spending power’ in a way that under-reports their loss of DCLG grant is disingenuous. We expect that under your tenure, and bearing in mind your provenance in Treasury, HMRC and Cabinet Office, the government will more accurately report the degree to which it is cutting grant to councils. CIPFA is highly focused on making the best use of public finances to deliver services. It is challenging, but services can be improved while resources are reduced, through effective prioritisation, medium-term planning, focused investment, sound appraisal techniques and good delivery
The public are being misinformed about official information and data. We expect that under your tenure the government will more accurately report the degree to which it is cutting grant to councils
skills. Of course, some councils are better run than others and there should be a mature debate about promoting good practice and learning from what works. The government should keep out of claiming credit for what councils are achieving and instead promote the importance of local democracy, saying ‘well done and thanks’ to councils on a cross-party basis. It should desist from trite claims that reducing reserves, abolishing the role of chief executive or sharing support roles mean that services to vulnerable children and adults do not need to be cut to compensate for the loss of grant. For the avoidance of doubt, CIPFA’s guidance to chief financial officers is clear that at a time of increasing financial risk, a council making cuts should also increase reserves to reflect the greater volatility of its budget. If it wishes to be taken seriously as an authoritative non-partisan voice, DCLG should promote prudence and not claim that one-off spending of reserves could solve ongoing budget pressures. Your new department is not regarded as a big hitter in Whitehall and your appointment brings an opportunity to reposition it at the ‘centre of government’. If it simply continues solely as the department overseeing local government, with other departments setting their own policies on English devolution and localism, I hope you would consider whether the department is needed at all. The Cabinet Office and Treasury have failed to coordinate a whole-of-government policy for English devolution encompassing local government, schools, skills, health, and policing. Perhaps with your unique background you can help DCLG put local
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Renaissance woman: Melanie Dawes is the new permanent secretary in the DCLG's Marsham Street headquarters
government at the heart, rather than the periphery, of Whitehall’s thinking? I would also encourage you to think about local government design. Finance directors and chief executives privately believe that reorganisation plays a part in the long-term sustainability of council finances. London, for example, does not need anything like 32 boroughs to be effectively represented or organised. The department you inherit often comments on the frequency of bin collection or parking charges – both matters for local electors and none of the business of the secretary of state – while avoiding a strategic policy debate on the form and function of local government. We hope the general election provides a watershed moment to explore change. As finance professionals we welcome the de-ringfencing of recent years and the scaling back of wasteful over-regulation. Photo: Civil Service
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So our plea to you is not to roll the clock back, but to move the hands forward to a new period of honest, sensible and strategic debate. As our local government members scan the post-election horizon, they know that there are many more cuts and efficiencies to come. This should not mean the opaque funding system remains. We implore you to ensure that local authorities have the certainty and clarity they need about their funding now and into the future, whatever the decisions of your political masters. I hope you will take the time to consider the recommendations of CIPFA and the LGA’s independent commission on local government finance. Most of all, I hope that by the end of your tenure we see a whole swathe of areas and regions in England able to set much of their own policy and raise their own taxes. If we are serious about
devolving power this should include many of the tax raising and spending powers that Scotland, Northern Ireland and Wales are increasingly enjoying. Finally, I hope that we will be able to work with you as honestly and without rancour as we have with your predecessors. Sir Bob Kerslake is not an easy act to follow as permanent secretary, but if anyone can bring about a renaissance in the department, I believe you can. Managers and staff there will want to put some difficult years behind them now they are settled in Marsham Street. I’m sure they will get right behind you in your work; and collectively we hope you will stand squarely alongside councils. Yours sincerely, Rob Whiteman Rob Whiteman is the chief executive of CIPFA JANUARY/FEBRUARY 2015
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16/01/2015 15:23
Opinion John Tizard
Folly exposed by Circle’s failure The private contractor’s decision to pull out of the running of Hinchingbrooke Hospital underlines the need for an inquiry into public service outsourcing
Costly opportunity Circle claims to have put more than £5m into Hinchingbrooke Hospital
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The media and political furore that has followed the announcement by Circle that it is withdrawing from what was already a controversial contract to manage Hinchingbrooke Hospital in Huntingdon was to be expected. Now it is important that we dive below the headlines to discover the lessons that government, the NHS, the wider public sector and contractors need to learn. Circle claims to have put in more than £5m into the hospital and this was, understandably, unsustainable. So why did it bid for this opportunity? What did it expect to happen and why has it been so disappointed? And why did the NHS not expect this to be the outcome when it let the contract? There are many questions to be answered. The government remains committed to an ever-greater role for the business
sector in the management and operation of NHS services. But it would be folly to pursue such a policy without understanding what has happened and what might have been done better. The government would be well advised either to press the stop or the pause button until there has been a full independent inquiry and review of the Circle-Hinchingbrooke saga. Such an inquiry should, in my view, have a wide remit – starting with an examination of the last government’s policy programme and finishing by looking at the options available to the NHS to sustain the hospital and ensure patients have access to quality services. I would expect the inquiry to want to understand how a public service contract was let that allowed a provider to bear the risk of fluctuations in demand to the degree that appears to
Photo: Shutterstock
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Joe Anderson have been the case and which also allowed the contractor to walk away, seemingly without any financial penalties. An inquiry into Hinchingbrooke would also have implications and lessons for wider public sector outsourcing and franchising involving the business sector (and possibly largescale contracts with the third sector as well). This is not the first major public service contract or franchise arrangement to fail. It probably won’t be the last, especially if the lessons are not understood and new approaches are not adopted. Areas that an inquiry should question and probe include: ● The basis on which a competitive tendering policy for hospital management was developed. ● The particular challenges and prudence of contracting (and franchising) in areas where there are so many external influences on the level of demand and performance and where public opinion is very sensitive to ethos, performance and profit. ● Why there was such a low level of market interest when the invitation to tender was issued and what pre-market research the NHS and Department of Health had undertaken. ● The capacity and competency in the NHS and wider public sector to procure and contract manage large complex public service contracts including assessing the proposed business and financing models of bidders. ● Local accountability and transparency of financial and operational performance in complex and critical public service contracts. For too long politicians have avoided an examination of public service outsourcing and related policies and practices. The Hinchingbrooke case could surely be the catalyst for the government, and indeed all political parties, to commit to such a comprehensive inquiry. The worst possible government response would be to continue to contract out, outsource and franchise without any lessons being learned from events in Huntingdon. John Tizard is an independent strategic adviser and commentator on public policy and services
Don’t build our economy around London’s needs A multi-speed economy means the UK needs a balanced approach to how big economic decisions are made, as well as more aggressive regional policy The argument against Britain joining the single European currency was always that it was impossible to set a single monetary policy to suit a diverse range of national economies. Yet, the irony is this is exactly what now looks like happening within the UK. Certainly if a recent poll of leading economists in The Times is to be believed, 59% of them predict a rise in rates through 2015. This may make sense seen through the lens of the London property bubble, where house prices have risen by 17.8% in the last year alone, but here in the Northwest, they rose by just 3.8%. The UK now has a multi-speed economy and we therefore need a balanced approach to how big decisions about economic policy are made, reflecting the needs of the overall economy, not just one part of it, however important London remains. The current approach sums up the detached and blinkered focus on the capital and the immediate surrounding areas. Government and other national institutions simply view everything through this prism. Yet without countermeasures in place, any rise in interest rates will see the economy in places like Liverpool suffer, choking off a recovery that becomes more fragile the further north you travel up the M6. This is not just an argument about fairness (although it is manifestly unfair to penalise home buyers in Liverpool because of the lunacy of the London property market). We also need to realise the potential of Liverpool and the other core cities, ensuring they are motoring to the full for the good of the national economy. Yet, as the Centre for Cities has
Capital interest A rate rise only makes sense seen through the lens of the London property bubble
pointed out, eight out of 10 private sector jobs created between 2010 and 2012 were in London. This is madness and a damning indictment of how unbalanced our national economy has become. For good measure, it is also socially divisive and politically unsustainable. 2015 must be the year where we see a much more aggressive regional economic policy to narrow the gap between London and the rest of the country. The regional growth fund, enterprise zones and local enterprise partnerships are simply not equal to this task; not when the government has slashed regional growth funding by two-thirds. Not to mention the 58% cut to Liverpool’s budget since 2010. So we need talk of a ‘Northern Powerhouse’ to move beyond rhetoric and lead to hard political commitments, genuine devolution of decision-making power and real cash. As for the Bank of England, it needs a stronger focus on what is going on beyond the precincts of Threadneedle Street. If it would help ground the Monetary Policy Committee’s decisions in the needs of the real economy, then with more listed buildings than anywhere outside London, I’m sure we could find Mark Carney a home here in Liverpool. Joe Anderson is Mayor of Liverpool
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Watchdog
Watch WHAT’S GOING ON IN THE WORLD OF REGULATION AND INSPECTION National Audit Office Removing the ring-fence from the local government public health grant could harm Public Health England’s ability to influence outcomes, the National Audit Office has warned. PHE was established in April 2013 as part of the government’s NHS reforms to distribute a £2.7bn public health grant to councils and provide advice and evidence about approaches that work. Reviewing its work to date, the NAO found PHE made a good start but has encountered problems with the accuracy of local authority records of spending on public health. Questions over whether the ring-fence will remain beyond 2015/16 will also have a knock-on effect on its effectiveness. The NAO urged the agency to identify and support authorities where there is poor alignment between spending plans and local needs. Auditor general Amyas Morse has given a clear audit opinion to the financial statement of the Courts and Tribunals Service for the first time, after significant improvements in its reporting of fines, penalties and confiscation orders. More than £518m was collected in 2013/14. Accounting improvements include providing sufficient evidence of all reported cash flows and balances, and clearing backlogs in the legacy fixed penalty systems. New systems also allowed the service to report accruals based-balances.
Tower Hamlets Sir Ken Knight, former chief fire and rescue adviser for England, will lead the 14
Hot seat: Sir Ken Knight, the government’s former fire adviser, has been sent into Tower Hamlets council
team of three commissioners that has been sent into Tower Hamlets council. Local Government Secretary Eric Pickles confirmed in December that the commissioners would be responsible for all grant-making decisions in the London borough until March 2017. His decision follows a report by PricewaterhouseCoopers, which raised concerns that Tower Hamlets was failing to comply with Best Value duties, specifically in relation to grant awards and in three property transactions. Knight will be joined by Max Caller, chair of the Local Government Boundary Commission and former London borough of Hackney chief executive. A third commissioner will be appointed in due course. The council is required to draw up a strategy to meet Best Value duties and recruit three statutory officers – a head
of paid service, chief finance officer and monitoring officer. But Tower Hamlets’ directly elected mayor, Lutfur Rahman, has protested that the intervention is unreasonable and disproportionate.
Audit Commission Financial reporting in councils and other principal local government bodies remained strong in 2013/14, but performance dipped in smaller bodies, according to the Audit Commission’s final Auditing the accounts report. There are 74 parish councils where auditors have qualified their opinions for three years in a row, suggesting systemic problems with financial management and governance, the watchdog said. Overall, 506 of 512 principal bodies (98%) met the publication requirements
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COMINGUP… HELP FOR THE OVER 55S The Wales Audit Office is asking people aged over 55 how well local councils are doing in helping them to retain independence. Older residents are being asked to participate in a survey on access to information, advice and support for healthy living, social activities and leisure services. The auditor general for Wales, Huw Vaughan Thomas, said it was vital that local authorities prioritise services for older people. Once collected, the data will inform a WAO report to be published later this year.
OPEN BOOK UNDER SCRUTINY The National Audit Office is turning its attention to Open Book Accounting, which provides greater financial visibility on suppliers. A baseline survey of the government’s current use of open book is
for accounts, while there were only nine (2%) where the auditor was unable to issue an opinion on the 2013/14 accounts by 30 September 2014. The commission raised concerns about two bodies – Hampshire Fire and Rescue Authority and the London Borough of Lambeth – that did not publish accounts by 30 September. ‘For these two bodies, I am concerned by this lack of transparency,’ said controller of audit Marcine Waterman. Scotland’s auditor general, Caroline Gardner, has been appointed one of three new non-executive directors of Public Sector Audit Appointments, the body that will oversee local audit contracts from next April. Gardner will be joined on the board by Clive Grace, former deputy auditor general for Wales, and solicitor Stephen Sellers, who has an advisory role with Wragge Lawrence Graham & Co. Former CIPFA chief executive Steve Freer was announced as chair of the PSAA board in October. Wales Audit Office The ‘bedroom tax’ has affected a greater proportion of tenants in Wales than in Scotland or England, the Wales Audit Office found. Government welfare reforms have had ‘a significant impact’ on social housing providers and tenants, the watchdog said in a report on the changes. Councils and housing associations were struggling to devise ways to deal with the impact of the policies, it added. The report also highlighted increasing poverty and debt among some social housing tenants and rising rent arrears. Photos: Rex
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scheduled to be published in the summer. Case studies will examine how public and private sector organisations can use it and other techniques to better understand their supply chain. The auditors will also make recommendations on how the government can improve its own practices.
this was banned in 2003. Earlier efforts to restore the reefs were unsuccessful and the departments risked a European Commission fine, although the commission has since accepted a revised plan, which the Northern Ireland Audit Office is examining. Publication is expected in the spring.
RESTORING MUSSEL REEFS
CQC CHANGES APPROACH
In Northern Ireland, auditors are looking at action taken by the Departments of Environment and Agriculture and Rural Development to protect and restore the rare horse mussel reefs on the seabed of Strangford Lough. Strangford is the largest sea lough in the UK and Ireland and of international importance because of the diversity and abundance of its wildlife. The reefs have been badly damaged by commercial fishing, although
The Care Quality Commission has been consulting on how it regulates dental, NHS and independent ambulance providers and independent acute providers. Changes that the CQC has made in its inspections of other services would extend to these areas. Chief inspectors will lead more specialist inspection teams, which will also include members of the public. The consultation closed on January 23.
Ofsted The performance of secondary schools in England has stalled in the last year, with poor and inconsistent leadership hindering improvements, Ofsted chief Sir Michael Wilshaw said. Publishing the watchdog’s 2014 annual report, the chief inspector said primary school standards have continued on an upward trajectory, with more than eight in 10 schools now rated at least good. This rate of improvement was not matched in the secondary sector lat year, despite it being made clear what was needed to improve. Of the secondary schools inspected in the last year, a similar number declined as improved. Overall, 50 more secondaries are in special measures compared with a year ago, and more than 170,000 pupils attend secondary schools that are rated as inadequate. In its first examination of child sexual exploitation, Ofsted said in a separate report that councils have been slow to ‘face up to their responsibilities’.
Consequences: The ‘bedroom tax’ is having its greatest impact in Wales, where poverty and rent arrears are rising
The report said plans were underdeveloped and leadership frequently lacking. Care planning was often inconsistent, data collection ineffective and training, while good, was not reaching enough professionals.
Monitor Health service watchdog Monitor will consider failure by foundation trusts to meet the government’s new waiting time targets for mental health treatment as a possible breach of licence conditions. Foundation trusts will be required to report quarterly whether they meet the standards. If a trust fails these targets for three quarters in a year, Monitor said it would treat this as a possible indication of wider problems. The watchdog will then consider whether the trust may be in breach of its licence. This could lead to further action in the same way as when patients are consistently kept waiting too long for treatment in accident and emergency departments. Monitor has also urged NHS foundation trusts to improve control of their contract and agency staffing costs after finding that they spent double the amount planned between April and September. The regulator said the sector as a whole was projecting a deficit of £271m at the end of the current financial year. This comprises a gross deficit of £531m at 60 trusts (£115m worse than planned), offset by a £260m surplus at 87 trusts (£136m worse than planned). Spending on contract and agency staff was £831m, more than double the £377m initially projected. JANUARY/FEBRUARY 2015
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Nations Scotland
Neil: ‘My drive for social justice’ NEWS FROM THE DEVOLVED ADMINISTRATIONS BY KEITH AITKEN IN EDINBURGH
Scotland’s new local government minister has mapped out ambitious plans for a broad-based assault on inequality and measures to strengthen public participation in policy-making. Alex Neil was made Cabinet Secretary for Social Justice, Communities and Pensioners’ Rights in November by the newly installed first minister, Nicola Sturgeon. In one of his first interviews in the job, Neil told Public Finance that social justice will be an ‘overarching’ policy theme. A big shift in Sturgeon’s reshuffle was to decouple local government from Deputy First Minister John Swinney’s finance remit. Swinney is still responsible for the National Performance Framework, budgetary monitoring, public service reform, efficiency, and public sector pay and pensions. ‘John’s got finance and the wider public sector performance issues. But all the other issues are now transferred to me,’ Neil said. ‘The coherence is in the
Holyrood challenge Alex Neil wants to build on the level of public engagement with politics seen during Scotland’s independence referendum
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title. What it’s doing is bringing together the key areas that determine the quality of social justice in Scotland.’ He added: ‘To have a socially just Scotland, you’ve got to have people not living in fuel poverty, you’ve got to have people living in decent housing, you’ve got to have an equalities policy that gives women a far bigger role than they’ve had.’ Neil made clear that he sees both local authorities and the third sector as primary partners in the drive to reduce inequality. He said he is eager to devolve more powers from Holyrood to councils and beyond, to the communities they serve, wherever doing so advances the cause of social justice. ‘Fifty years ago, the attitude to social justice – and it was right at the time – was about introducing universal child benefit, nationalising the coal industry, creating the National Health Service,’ Neil said. ‘They had to start from scratch in all of that. But in today’s society, although it’s very important to make sure that we provide a range of benefits, it’s not
enough. People won’t accept things being done to them. They want things done for them, but they want to determine themselves what those are.’ Scotland’s councils have been pressing, through the Commission on Strengthening Local Democracy, for greater autonomy. Neil said he supports their push, but also wants powers further decentralised through community empowerment and self-directed support services, giving ‘more power to tenants, not to local authorities’. ‘Community empowerment is extremely important, because we now know from 50 years of different antipoverty programmes that if the programmes are not engineered by, created by and run by the people we’re trying to take out of poverty, they fail automatically,’ Neil said. Similarly, broader consultation is needed on bigger issues, according to Neil. ‘Obviously, I want to see all the reserved powers eventually come to the Scottish Parliament. But, concomitant and parallel with that, there’s now got to be a big debate in Scotland about how we govern Scotland internally, how we strengthen our internal democracy, how we improve the management of our own resources.’ He said the independence referendum, with its high turnout, has led to democratic renewal in Scotland. ‘We’re now the most politicised nation, probably, in the world. You’ve got people who previously would never have watched a TV programme on politics who can now tell you all about the public sector borrowing requirement. That’s a great thing.’ The challenge is now to build on that level of engagement, Neil argued. ‘What
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InBrief FREE LUNCH Meals for 135,000 primary pupils Younger primary-level pupils in Scotland’s schools are now entitled to a free school lunch, under a Scottish Government scheme that ministers say will remove the stigma of subsidised meals, and deliver better nutrition, health and academic achievement. Ministers claim that the provision, covering 135,000 children in years Primary 1-3, will save an average family upwards of £330 a year.
BOOM TIME Minister hails inward investment Welsh Secretary Stephen Crabbe has said
we’ve got to try to do is get people much more involved in running resident associations, or involved in running their local schools, or in more participation in the health service. And how do we, as part of that, strengthen all aspects of local government, to make it more local? A lot of the power we need to push down through subsidiarity is [to] below local government level.’ The SNP government, he said, remains committed to subsidiarity, and more powers for councils form part of that: ‘We want to push power down to individuals and to communities as far as it will go. It has to be appropriate – there are some things that have to be done at a national level, and there are some things that have to be done by local authorities. But there are a lot of things that are better done by the third sector, by housing associations, by school boards.’ Neil said he sees the third sector as vital in shaping and delivering policy, though he added: ‘The challenge for the third sector – and this is why I’m very keen that we develop the third sector interfaces approach – is that very often they don’t speak with one voice, particularly at local level. I think the sector itself needs to look at how it can speak with a more unified voice.’ Northern Ireland
Villiers offers tax carrot for budget deal Northern Ireland’s politicians have been told they will be given control of corporation tax before May’s general election if they push on with agreeing Photos: PA/Alamy
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the Welsh economy is growing faster than any other part of the UK. ‘Last year Wales attracted its highest number of inward investment projects for nearly a quarter of a century. And the number of people claiming unemployment benefits is at a six-year low,’ he said in a speech. Wales now needs a ‘21st century vision’ for skills and infrastructure investment, he said.
IN THE BAG 5p levy extended to reusables The Northern Ireland Executive has extended the 5p carrier bag levy to all bags priced at less than 20p. While the levy has reducd the prevalence of single-
use bags, sales of cheap re-usable bags have increased. As well as plastic, the levy covers bags made from paper, plant-based materials and natural starch.
SAFE HARBOUR £700,000 for Saundersfoot revival A project to redevelop Saundersfoot harbour in southwest Wales has received almost £500,000 in European Regional Development Funding, plus £200,000 from the Tourism Infrastructure Support Scheme. ‘Tourism is a vital employer in Pembrokeshire, sustaining the local economy and culture,’ said First Minister Carwyn Jones.
Simon Hamilton, welcomed publication of the Corporation Tax (Northern Ireland) Bill on January 8. It would secure corporation tax rate setting powers for Northern Ireland. ‘These are powers that the Northern Ireland Executive has been seeking to secure for a considerable period of time. This will provide the executive with a powerful lever to transform the Northern Ireland economy and place it on a significantly higher growth path.’ Currently, corporation tax in the UK is 21% compared to 12.5% in the Republic. Wales Economic lever: Stormont control of corporation tax will drive growth, said finance minister Simon Hamilton
the budget and implementing welfare reforms. Theresa Villiers was setting out details of the Stormont House Agreement, which was struck on December 23 after weeks of talks. It paves the way for legislation to devolve corporation tax to Northern Ireland, as announced in the Autumn Statement. ‘If the Stormont parties press ahead on agreeing their final budget and on delivering welfare reform legislation, the government will use all its best endeavours to get the legislation onto the statute book before dissolution,’ the Northern Ireland Secretary said in a Commons statement on January 7. ‘The parties in Northern Ireland believe that corporation tax devolution can help them to rebalance the economy and attract investment because of Northern Ireland’s unique position of having a land border with the Republic of Ireland,’ she added. Northern Ireland’s finance minister,
£20,000 ‘to teach priority subjects’ Top graduates will be offered incentives of up to £20,000 to train to teach the priority subjects of maths, physics, chemistry and Welsh at secondary school level, Welsh education minister Huw Lewis has announced. The maximum funding of £20,000 will be available during the 2015/16 academic year to students with a 1st class honours degree. Students with a 2.1 degree will be able to claim £10,000 to train and those with a 2.2 can claim £6,000. Slightly smaller incentives are available for graduates training to teach modern languages and computer science. ‘It is vital we attract high quality, committed and highly talented students into the teaching profession,’ said Lewis. ‘Ultimately this is about providing our learners with the best possible education and start in life and I am confident these incentives will continue to strengthen the quality of initial teaching training in Wales.’ JANUARY/FEBRUARY 2015 PublicFinance 17
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