PublicFinance
The business monthly of the public sector
publicďŹ nance.co.uk
Issue 10 October 2014
OCTOBER 2014
Clacton factor
Just let go
Wage wars
Can pay, will pay
How the EU got so toxic for Cameron
Nick Clegg on Treasury control
Public sector staff ballot for action
Kate Barker’s plan for social care
Will George Osborne deliver the funding to get northern economies back on track?
p001_PFIoct14_cover.indd 1
17/09/2014 18:03
insight, guidance and inspiration CIPFA Conferences this Autumn Our conferences this autumn offer help, best practice and commentary for finance professionals across the public services. CIPFA Academies Conference 9 October, London CIPFA Procurement Summit 14 October, London CIPFA Better Governance Summit 16 October, London CIPFA Treasury Management Conference 16 October, London CIPFA Police Conference 4 November, London CIPFA Local Government Accounting and Finance Conferences 4 November, London 19 November, Manchester CIPFA Audit Update 27 November, London
To book, view programmes or contact us: T: 020 7543 5600 E: customerliaison@cipfa.org www.cipfa.org/autumnconferences
®
p02_PFIOct14.indd 14
12/09/2014 14:29
PublicFinance
CONTENTS
October 2014
Features
‘THE CHANCELLOR HAS PROMISED TO MAKE NORTHERN INFRASTRUCTURE THE CENTREPIECE OF HIS AUTUMN STATEMENT AND HE NEEDS TO BE HELD ACCOUNTABLE TO THAT ’
24 COVER STORY Look North Will the chancellor make good on his warm words of support for the One North initiative and deliver £15bn in the Autumn Statement, asks Mark Hellowell
30 Change at the chalkface Getting a grip on academies and free schools is just one of many challenges facing the new Education Secretary, Nicky Morgan, suggests Conor Ryan
34 Zero pay intolerance NHS staff are balloting on industrial action and discontent is brewing across the public sector after years of severe pay restraint, writes Ken Mulkearn
24
38 Whole numbers Data from nearly 4,000 public bodies is consolidated in the Whole of Government Accounts. The Treasury WGA team explains how and why
Regulars 4
Leader The prospect of devo-everywhere
5
Second thoughts Dan Corry on the power of Europe to shake up UK politics
30 Need to Know
6 News Nick Clegg backs town hall freedoms; cash for the Care Act; and blue light mergers predicted
38 44
42
On Account CIPFA on the search for a better way of organising local goverment finance
8 News Analysis Kate Barker’s radical medicine for health and social care funding 10 Opinon Rob Whiteman on making tough choices; Joe Cosma on Africa rising 14 Letters Us too for devolved powers, say the shires; neighbourly fracking industry; and realism on the Better Care Fund
43 Smart Thinking? We’re collecting huge amounts of data. The challenge is to make sense of it all
16
44
Watchdog Watch
Management Development The tweet has replaced the watercooler moment for swapping workplace news
18 Voice of the Nations CIPFA to advise on Welsh budget
46
22
Numbers Game
PublicFinance p003_PFIoct14_contents.indd 3
Subscribe today for the latest expert comment on public policy and finance
Risk Review
Scan here to subscribe to the leading magazine in public finance...
17/09/2014 18:35
CONTACTS
Leader Northern exposure
L
et’s have a heated debate, as Mrs Merton used to say. And heated the Scottish independence debate has certainly been. Politicians who moan about the apathy of the electorate have been shaken by the passions expressed in the referendum campaign. As PF goes to press, the final outcome is too close to call. But one thing is clear. The devolution genie is well and truly out of the bottle, with wide-ranging fiscal implications, far to the south of Hadrian’s Wall. Everyone it seems – from city-regions to county councils – wants a piece of the devo-max action. Party leaders are engaged in a Dutch auction to prove who can give away the most tax-raising powers to what’s left of the UK’s regions. Fiscal decentralisation across England has received the personal endorsement of the deputy prime minister. He told PF (p6) he wants local funding freed up from the ‘dank vaults’ of the Treasury. The Conservativelinked ResPublica think-tank goes further, calling for full fiscal UDI (‘DevoManc’) for Manchester and other cities. So why this new enthusiasm for turbo-charged localism? The blowback from Scotland has exposed the depth of resentment at Westminster’s over-centralised, over-privileged political system. It has also has created a receptive climate for localists to stake their claim. The One North bloc of northern city leaders, for example, are demanding major public investment – some £15bn worth – for their transport systems and other infrastructure. The chancellor claims he’s all for it. A ‘Northern Powerhouse’ that challenges London is, he says, exactly what the country needs. There’s even talk of One North forming the centrepiece of his Autumn Statement. But we could be forgiven for being sceptical. As Mark Hellowell points out (p24-29), the Treasury’s National Infrastructure Pipeline is skewed to a remarkable degree – 62% of planned expenditure – in favour of London. Hardly a ringing endorsement for decentralisation. With Communities Secretary Eric Pickles dead set against devolving significant powers from Whitehall – and those bravehearts at the Treasury too timid even to relinquish borrowing rights for local housebuilding – how seriously should we take the government’s rhetoric? A bigger question is, how desirable is an increasingly fragmented tax and spend landscape anyway? Would it pitch richer against poorer areas – or cities against shires – deepening already profound inequalities? Current debates over the fate of the Barnett formula – and proposals for an equalisation funding mechanism – indicate the fine line between localism and parochialism. And just how complex devo-everywhere could be.
■ Judy Hirst DEPUTY EDITOR letterstoeditor@publicfinance.co.uk
4
REDACTIVE PUBLISHING LTD 17-18 Britton Street London EC1M 5TP 020 7880 6200 www.publicfinance.co.uk Deputy editor Judy Hirst 020 7324 2769 judy.hirst@publicfinance.co.uk News editor Vivienne Russell 020 7324 2788 vivienne.russell@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 Business development manager Chris Dooley 020 7880 8545 chris.dooley@redactive.co.uk Sales manager Katy Eggleton 020 7324 2762 katy.eggleton@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 Advertising production 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
ISSN 1352-9250
Average circulation 16,127 (Jul 12–Jun 13)
Tel 020 7543 5600 Fax 020 7543 5700 Email corporate@cipfa.org Address CIPFA, 3 Robert Street London, WC2N 6RL
PublicFinance OCTOBER SEPTEMBER 2014 2011
p004_PFIoct14_leader.indd 4
17/09/2014 18:33
Second thoughts pfOpinion
■ Dan Corry
The spectre haunting politics It’s called Europe and, despite David Cameron’s best efforts, the issue is proving toxic for the Conservatives and wider Westminster politics The defection of Tory MP Douglas Carswell to Ukip has brought to life once again the power of Europe to shake up politics in the UK. The issue has convulsed Labour over many years. But in recent decades Europe has caused far more problems for the Conservatives. That looks set to continue. Of course, what has been going on in Clacton is not just about Europe. Ukip is partly about wanting to go back 20 or 30 years in time to a period when things were ‘better’: kids stood up in class, there were fewer foreign accents around, Britain sent in gunboats and people cared. That’s why it’s a threat to Labour too. Ed Miliband has tried to end suspicions that Labour is soft on immigration, risking schisms on his own side in the process. But we can expect Conservative election guru Lynton Crosby to up the ante as May 2015 looms.
David Cameron has tried to keep the Tories away from the toxic issue of Europe because, historically, all they have ever got out of it is intra-party warfare and the image of a split party. And this on an issue that never comes high up the list of public concerns. He has failed because it is the issue on which deep divisions on the Tory side about what kind of country and economic policies they want all come together. The Conservative party these days is a very broad church indeed. The out-and-out free marketeers hate what is essentially the Christian Democrat approach to government that prevails in most of Europe – one that likes consensus, social protection and elements of corporatism. For them, the creation of a single market with no trade barriers is not enough of a prize. The times when they were willing to try to work within the EU to influence its agenda, and get ‘our’ people into key positions, have long gone. Even the surprisingly powerful job that Cameron nominee Lord Hill has been given by EU Commission boss Jean-Claude Junker is unlikely to
DOUGLAS CARSWELL’S DEFECTION HAS BROUGHT TO LIFE THE POWER OF EUROPE TO SHAKE UP UK POLITICS Photo: Rex Features
p005_PFIoct14_2nd_thoughts.indd 5
appease them. They prefer the rawer capitalism and energy of the US or Hong Kong and China to the complex world of negotiation with 27 partners. The more one-nation Conservatism that people like Kenneth Clarke, Michael Heseltine or Damien Green represent, is warmer towards Europe per se – but also believes in industrial policy, a social side to the single market and sees a powerful EU bloc as being crucial to Britain’s future strength on the international stage. Keeping these factions quiet has been a great achievement of Cameron’s. But it has failed to last the rigours of government. For a while the proEuropean stance of their Liberal Democrat coalition partners meant that the antis just had to swallow it. Then they got more uppity and forced Cameron into increasingly anti-European moves, including promising a referendum in 2017. Now, with the additional threat from Ukip to some MPs’ continued presence in the Commons, many are not prepared to keep quiet any more. Will this be costly at the polls? At the time of writing the Clacton byelection result still awaits us. And the Scotland debate has certainly upped the profile of sovereignty issues. All of which raises doubts about the direction of Tory policy and Cameron’s ability to keep the party together. Any more anti EU-speak to keep backbenchers happy will also start to alienate business, a real risk. Cameron must hope that the nearness of the general election will instil party discipline. But if the increasingly awkward squad know he is rattled, they will demand more. There’s much more trouble to come. Dan Corry is the chief executive of New Philanthropy Capital and a former adviser to No 10 and the Treasury OCTOBER 2014
PublicFinance 5
17/09/2014 18:07
Power shift: Nick Clegg speaking in Sheffield at the launch of IPPR North’s report calling for more devolution in England
News Devolution
Clegg backs town hall ‘freedom from dank vaults’ of Treasury BY RICHARD JOHNSTONE
Deputy Prime Minister Nick Clegg has indicated he would back a new constitutional settlement between central and local government that would lead to greater fiscal decentralisation across England. Speaking to Public Finance, Clegg said the coalition government had taken steps to free local areas from what he called the ‘dank vaults’ of the Treasury, and it was now time to go further by developing cross-party devolution plans. Coalition achievements include localising 50% of business rate growth to town halls and introducing Tax Increment Finance provisions, Clegg told PF at the launch of think-tank IPPR North’s Decentralisation decade report in Sheffield. Other freedoms had been given to councils through reforms to the Housing Revenue Account subsidy system, he said. ‘All of that is happening at a time of unprecedented stringency and restraint in the public finances, which of course is a hugely difficult job for local authorities up and down the country. But it is a start,’ he said. Many of these changes had been introduced despite opposition from the Treasury, he revealed. ‘The Treasury doesn’t like it. I mean no offence to the people of the Treasury, but it’s the DNA of the Treasury to control everything that moves across the country as far as finance is concerned. They have a legitimate concern about the stability of finances – if a local area messes up does the central government have to bail it out, those kinds of issues.’ 6
However, he insisted that further changes to devolve power to local government could be implemented after the next general election. ‘It is clear to me now that the cat’s out of the bag. We’ve broken the spell that says that everything needs to be run financially by the Treasury.’ The proposal in the report for an independent review of the funding relationship between central and local government after next May’s election was something he was ‘attracted’ to. IPPR North recommended this should lead to a 10-year plan for devolution of powers to English local government. An independent body for local fiscal management should also be created with responsibility for overseeing centrallocal relationships, as well as reviewing the arrangements for equalisation and redistribution purposes. Clegg told PF: ‘I think the next step to have an independent commission – to build a consensus around what the flightpath is over the next two parliaments towards much greater fiscal decentralisation – is crucial.’ The deputy prime minister said he was also interested in recommendations that included localisation of property taxes, which would incorporate full control of business rates revenue. However, such reforms would need to be accompanied by a mechanism to equalise funding between areas. ‘We do live in a country which is profoundly unequal in all sorts of respects [so] of course you need a continued mechanism by which the better-off parts of the country help out the less-better-off parts.’
He insisted such wide-ranging reforms ‘can be done’, adding: ‘If it can be done through the suggestion of the IPPR report, that would be a fantastic breakthrough after the next general election.’ IPPR North director Ed Cox said decentralisation of fiscal powers was urgently needed in England to help cities like Sheffield to grow. Although he agreed with Clegg that the coalition had taken ‘small steps forward’, they had been too piecemeal and more powers were needed over economic development and public services. He told PF that decentralisation in England was ‘an issue whose moment has finally come’. He added: ‘It is absolutely critical that political and administrative decentralisation is backed by a long-term plan for fiscal devolution. ‘I think all of the political parties need to set out in greater detail the steps that they would take for English decentralisation. ‘Each of them has said in principle they are committed to devolution in England, but none has set out the kind of programme that we are recommending in our report, and they need to do that.’ Responding to Clegg’s comments, a CIPFA spokesman said it was
PublicFinance OCTOBER 2014
p006_007_PFIoct14_news.indd 6
17/09/2014 18:34
publicfinance.co.uk/news
EmergencyServices Richard Johnstone
Blue light integration ‘may lead to police mergers’
encouraging he had recognised many of the issues that both local government and the regions are facing and that there was a need for serious long-term change. ‘CIPFA has long recognised this need which is why, with the LGA, we set up the independent commission on local government finance. It is good that Westminster is starting to heed our call for reform in local government finance,’ he added. Social care
Councils ‘have the cash for Care Act’ BY RICHARD JOHNSTONE
Health minister Dan Poulter has insisted implementation of a host of reforms to social care will not place undue pressure on local authority budgets at a time of funding constraints in town halls. Speaking to Public Finance, Poulter said the Care Act – which will introduce increased personalisation of care and a national eligibility threshold based on ‘substantial’ need from next April – represented an opportunity for local government. Concerns had been raised by the Local Government Association that councils Photos: IPPR North/Rex Features
p006_007_PFIoct14_news.indd 7
A former policing minister has said plans to further integrate emergency services could eventually lead to force mergers, but insisted these would be determined locally rather than imposed by Westminster. Speaking to Public Finance, Damian Green, who was policing minster from September 2012 until July’s ministerial reshuffle, said more integration across blue light services ‘needs to happen’. He was speaking after Home Secretary Theresa May indicated further integration would be needed after the next election to deal with the continuing spending squeeze. In a speech to the Reform think-tank on September 3, May said, ‘I believe we will need to work towards the integration of the three emergency services’. Green said many areas were already keen to go further in areas such as co-location and joint working in response to road traffic accidents. Existing integration initiatives such as the Joint Emergency Services Interoperability Programme (JESIP), which is intended to improve cooperation around major incidents, had only ‘scratched the surface’ of what can be achieved. ‘I think for the moment the role of government is to encourage particularly police and crime commissioners, but also fire chiefs, to say there are obvious synergies you can get from going together,’ he said.
Siren call: Austerity is driving integration of emergency services There were creative ways to improve efficiency within the current boundaries of 46 fire services in England and 43 police services across England and Wales. Two police forces – Warwickshire and West Mercia – had already ‘all but merged’, such was the extent of their joint working. Green acknowledged that such steps may lead to local merger plans. ‘As long as it’s agreed at ground level, as it were, in the locality, and provides better services, then that seems to me a perfectly good solution. ‘The position has always been that this government doesn’t want to impose a top-down central solution and say, here are now eight police forces in England and Wales. But it is
have not been given the resources needed to implement these changes. An LGA survey in August found 134 of 152 areas with social care responsibilities felt a lack of funding could jeopardise the reforms. Asked by PF if he thought there was enough funding in the system to meet the cost of the changes, Poulter said: ‘I do. The Care Act is a tremendous opportunity for local authorities to make long-term financial efficiencies both through the delivery of more joined-up care for people with long-term conditions like diabetes, dementia and heart disease and people with long-term disabilities.’
quite happy to encourage not just collaboration but something more than that.’ Another leading figure in the sector told PF that the merger of police and fire services in England could represent a ‘logical conclusion’. Roy Wilsher, the chief fire officer for Hertfordshire who is also chief executive to the county’s police and crime commissioner, said ongoing initiatives were ‘more at the collaboration end of the spectrum than the merger end of the spectrum’. Wilsher, who chairs the strategic board of JESIP, said: ‘I think there’s a question – and it’s come up more and more – about how many fire and rescue and police services we have in England.’
In addition, the reforms create the potential to improve the financial outlook of councils by reducing the repetition of work across the NHS and social care, he added. ‘One of the main areas where we will strip out cost is reducing the duplication that sometimes gets in the way of delivering good patient care and costs those organisations money. ‘Longer term, there are tremendous efficiencies that can be made, which will benefit local government from a financial point of view and also from the point of view of improving patient care.’ OCTOBER 2014
PublicFinance 7
17/09/2014 18:34
News
Analysis Funding social care
Barker offers radical prescripton for care All but the poorest pensioners could be asked to contribute more under proposals for the biggest shake-up to the way health and social care is paid for since the NHS was founded, writes Vivienne Russell The debate on how we pay for social care continues to evolve. It’s now more than three years since economist Andrew Dilnot delivered a highly praised report on how social care might be funded. His conclusions attracted significant consensus, and many have been taken forward in the Care Act, most of which kicks in next year. However, Dilnot is not the end of the story. The King’s Fund think-tank has also been working on this area. In June last year it established an independent expert commission chaired by Dame Kate Barker, a former member of the Bank of England’s Monetary Policy Committee. It was charged with looking again at the postwar settlement for health and social care, to consider whether it remains fit for purpose and how it might be remodelled to meet future needs. The Commission on the Future of Health and Social Care in England’s conclusions were published in early September and called for a ‘radical reshaping’ of the two parallel systems so they focus more on the needs of users and provide a simpler and clearer pathway through the system. ‘We have concluded, as others have before us, that our system is not fit to provide the kind of care we need and want,’ said Barker at the report’s launch. ‘We proposed radical change, greater 8
PublicFinance OCTOBER 2014
p008_009_PFIoct14_analysis.indd 8
than any since 1948, that would bring immense benefit to people who fall into the cracks between means-tested social care and a free NHS. This includes people at the end of life and those with dementia or other conditions where too often there is a conflict about who pays at the expense of what people need.’ Among the report’s specific recommendations is the call to move to a single ringfenced budget for health and social care, with a single commissioner determining local spending priorities. People with ‘critical’ social care needs should have these met by services that are free at the point of use. Over time, this should be extended to people with ‘substantial’ needs and, by 2025, to those with ‘moderate’ needs. Extra funds would be generated by taking away free TV licenses and the winter fuel payments from all but the poorest pensioners, and requiring people working past state pension age to pay National Insurance at a rate of 6%. As the more generous elements of the new care settlement were phased in, a 1% increase in NI should be imposed on people over the age of 40 and on those earning more than £42,000 a year. Charging should also be extended to the accommodation costs of people in receipt of NHS continuing care, although charging more widely was ruled out.
The removal of pensioner benefits, a rise in NI for certain groups, the introduction of an element of charging for some NHS services – some might say the commission’s recommendations are politically toxic. Indeed, the charity Age UK – while broadly welcoming the commission’s recommendations – also sounded a note of caution. ‘We feel bound to point out that taken together, the commission’s proposals would constitute quite a big hit on the incomes of many older people,’ said charity director Caroline Abrahams. ‘We worry especially about the potential impact on older people with modest means, who sit just above the poverty line. ‘In addition, we think many older people will question how good a deal it is to be asked to exchange the certainty of Photo: iStock
17/09/2014 18:25
publicfinance.co.uk/news
QuoteUnquote
Needs must: The Barker commission considered the needs of users for a simpler care pathway
‘It is a scandal in this country that if you have cancer all of your care and support needs are met et by the state and if you have dementia then they’re e not.’ Lord Michael Bichard, member, Commission on the Future of Health and Social Care in England
‘We feel fe bound to point out that taken together, the commission’s proposals togeth would constitute quite a big hit on the incomes of many older people.’ incom Caroline Abrahams, charity director, Age UK Caroli
‘WE DON’T THINK THERE’S MUCH SCOPE FOR INCREASED CHARGING FOR NHS CARE AND WE DON’T THINK THE ARGUMENT HAS BEEN MADE’ Professor Julian Le Grand, LSE
more money today for the possibility of better care tomorrow.’ The commissioners themselves acknowledge that their deliberations have been difficult, and will require some political courage to implement. ‘We came to the conclusion that there are quite a lot of pensioners now who are better off than they were 20 or 30 years ago,’ Lord Michael Bichard, chair of the Social Care Institute, tells Public Finance. ‘In a difficult financial climate you’ve got to start looking at that and we want to protect poor pensioners, but we think there are some pensioners who could be making more of a contribution to this sort of change. ‘This is also an issue of intergenerational equity, the question about whether younger people are being asked to carry too much of a burden in terms of public services, and there ought to be a bit of a rebalancing. I don’t think anyone on the commission found it easy to defend winter fuel payments for very wealthy people.’ Increases in NI contributions for older workers are also ‘politically difficult’, he agrees, but adds: ‘Again, it’s that equity between generations and we wouldn’t be the only country that’s imposed some additional charge on people past 40 for the additional care that will be required.’ His fellow commissioner, Julian Le Grand, professor of social policy at the London School of Economics, says the plan for charging is not that radical. He also dismisses suggestions that the recommendations would usher in charges for other NHS services. ‘We don’t think there’s much scope for increased charging for NHS care and we don’t think the argument has been made. ‘When you look at NHS continuing care, which is the extreme version of care,
people don’t have to pay for [their] accommodation costs, but do for residential social care costs, we thought [equalising the charging] would be the sensible way to go.’ Commissioners are hopeful that, given their systematic and costed recommendations, the Barker commission will be taken seriously by ministers, even in the current austerity climate. Austerity is ‘clearly a worry’, Le Grand admits, but he notes that the commission is recommending its proposals are phased in as the economy improves. He adds: ‘We are now coming to the end of the austerity period. Had we proposed this in 2009 or 2010 I think it would have been knocked out of court, but now I think it’s more realistic.’ Bichard says the tough fiscal climate doesn’t obviate the need for the reform, or change the fact that elderly social care costs already exist and need to be met by someone. ‘What we’re saying is “yes, there will be hard choices to make”, but if you look at the prudent projections of the growth of gross domestic product then there will be money available during the next 15 years to make available to public services. ‘The money will be spent, the question is where is it spent. We think that it should be making more social care free at the point of delivery. It is a scandal in this country that if you have cancer all of your care and support needs are met by the state and if you have dementia then they’re not.’ The commission is clear that its recommendations do not represent the only way forward for the government and that other choices could be just as valid. But doing nothing, the commissioners say, is not an option. OCTOBER 2014
p008_009_PFIoct14_analysis.indd 9
PublicFinance 9
17/09/2014 18:25
We're avoiding the tough choices, by Rob Whiteman
Africa on the move, by Joe Cosma
Opinion Rob Whiteman
We're avoiding the tough choices Failure to plan for the long-term harms national interests. But a looming election encourages politicians to defer hard decisions on tax, pensions and health I recently heard about a senior journalist who, stepping into a new role analysing Westminster politics, said they had no time for the usual political gossip. While many colleagues might still be obsessed with the comings and goings of politics, there was just too much real news to bother with the usual game of who is in or out of favour. Any survey of the papers or news websites shows that there is indeed a lot going on in the world. From Ebola and Isis to the Scottish independence question or the conflict in Ukraine, this summer has been a busy time for 'proper' news and, with the last party conference season before the general election underway, it seems unlikely the pace will slow down. Yet what strikes me, and indeed many in the finance profession, is that amid all this there is a lot going on that is not being reported. The lack of coverage of certain issues tells us less about the media and more about the choices that political leaders make and what they talk about to voters and reporters. Take, for example, the long-term demographic, economic and fiscal prospects of the UK and the resulting challenges for the public services. I believe that this is the most significant issue the UK faces and it is telling that it is not being addressed in any meaningful way by politicians in the UK as a whole or its constituent governments and parties. An incongruous debate between now and 10
PublicFinance OCTOBER 2014
p010_011_PFIoct14_opinion_whiteman.indd 10
May 2015 will be characterised by both specific populist ‘giveaways’ and the vague resolve of further fiscal restraint. It’s more jam today and a promise of fair rations tomorrow. As things stand, tax yield is falling as a share of GDP without a transparent discussion by the main parties about how this is fuelling the need for further public spending cuts. Relatively flat spending on health means that its share of GDP will fall by 2% by 2020, even though this is clearly not deliverable and the next government will be forced to put in more money. Social care and health integration is stalled with both the health and local government sectors under pressure. Intergenerational inequality means that the 'older wealthy’ are being subsidised by the economically active, who, in the absence of a sustainable funding model for long-term care, are paying for the state. Whatever the academic or governance benefits of academies and free schools, in England we are often creating school places where they are
We have more than half of the coalition's budget cuts still to come, while the unintended consequences of the over 40% that have already been made are yet to fully emerge
not most needed and so afford poor value for money. This lack of realism in political discourse is deeply regrettable. In our frenetic short-term system of policy announcements, claims and counterclaims, none of the parties has made any meaningful attempt to set out how they will deal with the Gordian knot of unaffordable pensions, rising health and social care costs, and eliminating the deficit. This creates a real risk that, while voters expect business as usual the other side of May 2015, the absence of sustainable planned solutions will mean that public financial management becomes prone to shocks and crisis management. We have more than half of the coalition's budget cuts still to come, while the unintended consequences of the over 40% that have already been made are yet to fully emerge. An example of short-termism is the triple lock on pensions, introduced in 2010. It means that no matter what the state of the real economy, or the public finances, pensioners will continue to see above-inflation increases. All the parties know the fiscal challenges the country faces and, in persisting with the triple lock, they are trading shortterm electoral success for the long-term affordability and containment of Annually Managed Expenditure – the half of the exchequer that budget holders cannot easily control. If you look beyond the election you see the point of the old joke that AME 'is neither managed nor annual'. With the controllable half of budgets, called Departmental Expenditure Limits, due to fall yet further, AME is set to continue to grow both in size and in the Photos: Alamy
17/09/2014 18:18
publicfinance.co.uk/opinion
Out of step? The triple lock means that no matter what the state of the public finances, pensioners will still see above-inflation increases
proportion of public spending, not least on debt repayment when rates rise. The government proposes to cap AME by constraining non-pensioner welfare benefits if required. But this demonstrates the nub of the problem. Our national accounts do not plan future expenditure with the same precision that they report past expenditure. The cap may be deliverable but, given scant information and in the absence of 'accounts quality' plans to deal with AME pressures, CIPFA scores the next government’s finances as high risk. As we see the party manifestos emerging, we will continue to apply rigorous tests to each of them, because we think a failure to plan for the longterm is harming national interests. Put bluntly, the parties and the next government must give sound 'accounts
quality' plans and move away from the vague 'economic estimates' of their fiscal measures. The debate on the Scottish independence referendum has raised important questions about the democratic deficit of our UK-wide system of governance. I am not convinced that our parties have as yet understood 'the English problem' – where Westminster feels as remote to parts of England as it does to many Scots. An English parliament will not be enough to meet regions’ concerns that government in England is too centralised in London. Beyond the referendum outcome, CIPFA argues that substantial reforms are needed to ensure that through greater transparency and higher quality financial planning, we refocus on difficult public financial management
decisions. These include conerning taxes, inter-generational equity and spending options; the present balance between public spending by government and the personal responsibility of citizens is not affordable in the long term. Too many significant issues such as tax, pensions and health are being deferred for political expediency. This is destabilising many public services. Some areas, such as English local government or defence, are being cut significantly – but without addressing issues that raise questions about the next government’s ability to balance the books. In my view, with over half of the fiscal consolidation still to be made, the present debate on the public finances is hollow. It avoids issues and tough choices we all know need addressing. Rob Whiteman is the chief executive of CIPFA OCTOBER 2014
p010_011_PFIoct14_opinion_whiteman.indd 11
PublicFinance 11
17/09/2014 18:18
Opinion Cash nexus A busy marketplace in Kigali, Rwanda
Joe Cosma
Africa on the move Africa’s accelerated growth is creating optimism throughout the continent. This month, ministers, civil servants and bankers will gather in Washington to consider how to boost development and improve public financial management still further Cape Town’s Victoria and Alfred Waterfront or Zanzibar packed with tourists, a bustling marketplace in Kigali, thousands of oil and gas workers arriving at Lagos International Airport in Nigeria. Such images – positive, vibrant and energising – offer not only a snapshot of life in Africa today, but also showcase the economic growth, diversifying economies, democratisation and vast potential of the continent. Africa’s recent accelerated growth has been underpinned by a process of economic and regulatory reform since the end of the cold war; a period during which inflation has been brought under control, foreign debt and budget deficits reduced, state-owned enterprises privatised, regulatory and legal systems strengthened, and many African economies opened up to international trade and investment. At the same time, the region has continued to suffer from some
traditional problems: poverty, unemployment, erratic food harvests resulting from adverse weather conditions and high inflation, driven by higher food and fuel prices. And events such as the recent Ebola outbreak underline that Africa’s health care systems remain some way behind those in the developed world. It is against this backdrop that finance ministers, central bank governors and permanent secretaries from eastern and southern Africa will gather in Washington next month. This annual forum — organised by the Macroeconomic and Financial Management Institute of Eastern and Southern Africa (MEFMI) — is designed to boost collaboration and solve common problems. Participants this year will consider how to stimulate growth and development. There is much to discuss. Africa’s story is replete with
Vital signs: The bustling V&A Waterfront is on the tourist itinerary for Cape Town, South Africa
12
PublicFinance OCTOBER 2014
p012_013_PFIoct14_opinion_NEFMI.indd 12
opportunity. Perhaps this is inevitable. The sheer size and diversity of the continent means there will always be good news and bad, some progress and some regression. In recent years, however, there is little doubt that African countries have made huge progress. Democratisation, economic growth and (slowly) improving infrastructure are all testament to a continent on the rise. But there is always scope for improvement — a point highlighted by EY’s 2014 Africa attractiveness survey. We found that in 2013, Africa’s share of global Foreign Direct Investment projects reached 5.7%, its highest level in a decade. The number of new FDI projects in sub-Saharan Africa increased by 4.7%. The prime factors behind the subSaharan African growth story are strong macroeconomic growth and outlook, an improving business environment, a rising consumer class, abundant natural resources, the democratic dividend and infrastructure development. African investors nearly tripled their share of FDI projects over the last decade, and intra-African investment has also driven job creation on the continent. This growth is fuelled by the need for improved regional value chains and strengthened regional integration. It’s not all good news. The total number of new FDI projects declined by 3.1% due to political uncertainty in north Africa, and our survey also found that the perception gap between those already doing business on the continent, and those with no presence, remains striking. More specifically, although those already active on the continent rank it as by far the most attractive destination in the world today, those who are yet to invest are far less enthusiastic, ranking Africa as least attractive. This year’s MEFMI forum will discuss, among other things, crossborder infrastructure development and re-orienting public spending priorities. Infrastructure gaps, particularly relating to logistics and electricity, have consistently been cited as the biggest challenges by those doing business in Africa. The flipside of this challenge, though, is that strong growth has Photos: Reuters/AP
17/09/2014 18:11
publicfinance.co.uk/opinion
Increased government spending in Africa highlights the need to strengthen institutional capacity and implement spending reforms to strengthen public service delivery occurred despite such infrastructure constraints — consider the potential not only to sustain, but to accelerate growth as the gap narrows. African policymakers — much like their counterparts around the world — also need to maximise their revenues. A critical component of this is designing a tax system that raises revenue in both the long- and short-term, without harming the business environment or making it harder to secure investment. Similarly, the application of clear and consistent policies, controls and procedures is now recognised as crucial to ensuring wiser spending and the efficient deployment of resources — particularly important given that the public sector wage bill is expanding. That government spending in Africa is increasing highlights the need to strengthen institutional capacity and implement spending reforms to
strengthen public service delivery. Potential public financial management changes include strengthening the processes for appraisal, selection, implementation and audit of investment projects. There could also be improved ministerial coordination in the budgeting process, a clearer promotion of fiscal transparency and enhanced fiscal policy frameworks. These reforms will be underpinned by the same networks and technologies that are transforming society at large — why should governments be exempt from changing the way they work and engage with citizens? Finance professionals need to bring a global mindset: to understand what is going on around the world and know what solutions are being applied to longstanding issues — with first-hand, evidence-based knowledge. This approach will enable government
finance professionals to look beyond electoral cycles, national borders and outmoded organisational boundaries. The focus in looking ahead is often on the challenges we still face. But it is also important to emphasise the abundant potential. While Africa’s uncertainty, complexity and volatility may test even the best-laid strategies, the rewards are very real. The creation of an enabling environment, together with the continent’s huge endowment in natural resources, its large and growing labour force and low labour costs, mean that Africa’s policymakers – including those at October’s meeting in Washington – have much to be grateful for.
Joe Cosma is EY’s government & public sector leader in Africa The annual MEFMI combined forum takes place in Washington on October 6 OCTOBER 2014
p012_013_PFIoct14_opinion_NEFMI.indd 13
PublicFinance 13
17/09/2014 18:11
OpinionLetters Shires will pay the price for focus on cities ‘New money, new infrastructure, new transport, and real new civic power too’. Sounds great! And, according to George Osborne, that’s what’s on offer in this year’s Autumn Statement. But only, it seems, if you are one of the selfselecting “core” cities (Core Cities call for 10-year funding deal, Public Finance, p6, September). I don’t begrudge the cities getting real devolved power. They have done a great PR job on ministers. With their own think-tank and lobbying effort, they have hoodwinked Whitehall into thinking that only cities matter. But that has led to some puzzling policy decisions – on youth unemployment funding, university enterprise zones, infrastructure spending and more – that have consequences for county areas. I don’t accept the premise that a boutique hotel or branch of Harvey Nichols means you’re better suited for devolution than a place like Essex. I don’t believe that Manchester or Birmingham are more innovative or agile than their Lancashire and Staffordshire near-neighbours. Devolution, with long-term funding deals and new powers, needs to happen in big places with big ideas and the appetite to see them through. We have that, as do some other counties. So why not us, too? It would be less frustrating if we didn’t share the same characteristics that government values in cities, but we do. A strong commitment to skills reform, the need to rebalance infrastructure spending (per capita spend on transport in the East of England is lower than many areas in the Northwest), and a focus on public service reform building on Essex’s Community Budgets programme. And I would argue the challenges we face are more acute, challenges that devolved powers and funding could help fix: demand and inflation-driven cost growth; an ageing population and a large geography. Essex has more young 14
PublicFinance OCTOBER 2014
p014_015_PFIoct14_letters.indd 14
Rural routes: Saffron Walden in Essex. The county maintains 5,000 miles of roads, three times more than Birmingham
people than Manchester or Leeds and 5,000 miles of roads to maintain, three times more than Birmingham. Betting the house on cities could work. But, like football’s unhealthy focus on an elite ‘big four’, it will come with a price and that price will be paid in the shires. The chancellor would do well to remember that in the last Autumn Statement before the general election. CLLR DAVID FINCH Leader Essex County Council
Onshore oil is a good neighbour I was interested to see that Jonathan Owen, chief executive of the National Association of Local Councils, has said parishes must be included in any funding agreements reached after the government’s 14th licensing round for onshore oil and gas (Parishes join LGA demand for ‘fracking benefit’, Public Finance, p7, September). The oil and gas under our feet is effectively owned by all of us, administered by the government on behalf of the Crown, which is one of the reasons that – even with short-term
incentives – our tax rate is almost double that of other companies in the UK, therefore creating a significant benefit to the country as a whole. That being said, we are committed to ensuring that local communities benefit directly too. That is why we launched, last year, schemes that will enable community benefits to be delivered and owned by local communities, for local communities, reacting to locally defined needs and addressing local priorities. These schemes could be worth between £5m and £10m per site in production and £100,000 per well in exploration phases. We are currently piloting a number of schemes administered by UK Community Foundations, which works through a UK-wide network of community foundations and, critically, is independent of the industry. The UK needs urgently to exploit the large resource of oil and gas below our feet, not only so that we can continue to heat and light our homes and power our businesses without having to become heavily dependent on imports, but also so that we can replace the lost tax revenues from the North Sea and provide new opportunities for local businesses in our supply chain and up to 60,000 jobs. Photos: Alamy/Getty
17/09/2014 17:32
publicfinance.co.uk/opinion 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
pfBlogs
A DIGEST FROM THE WEB What is needed is an energy mix that includes gas, nuclear and renewables in order to combat climate change issues economically and safely. We, as an industry, have a long record of working with local communities. We have drilled over 2,000 onshore wells in the UK, 10% of which have been hydraulically fracked, and have been, and will continue to be, good neighbours to our local communities.
Rail infrastructure has passed back into public ownership … solely because the Office for National Statistics decided it was too close to the public sector to be classified outside it. So the attempts to privatise the rail network have finally run into the ground
KEN CRONIN Chief executive UK Onshore Oil and Gas
Tom Gash, research director, Institute for Government
We need realism on Better Care Fund Last month Public Finance revealed that the number of Better Care Fund pilot areas has been cut to six, despite an announcement in July that 14 areas would be fast-tracking their local plans (Eight out of 14 areas fall off Better Care Fund fast track, p7, September). Though appreciating why this decision was made, I am disappointed that more sites are not being progressed. There will be learning and best practice shared from these six sites. However, there would have been real benefit if more sites had been piloted. This is because the more areas that contribute, the more we can learn. It is also important to understand challenges to the implementation of BCF, as well as the successes. As the voice of finance managers in the NHS, we know that integration is
Fracking test: Exploration triggers £100,000 payouts
John Perry, adviser, Chartered Institute of Housing
Politicians should avoid making promises – like the Liberal Democrats did over tuition fees – without knowing how they will pay for them. Instead, they should prepare for running Whitehall’s spending review and budget processes differently Public services need to change. But we should end the unfortunate, lazy and ideological conflation of reform with a greater role for the business sector. What matters is improving outcomes, user experience, accountability, social value and value for money John Tizard, public sector strategic adviser
Detroit’s bankruptcy is seen as a potential model for other American cities now teetering on the edge. It is also a model for how wealthier and whiter Americans escape the costs of public goods they’d otherwise share with poorer and darker Americans Robert Reich, former US Secretary of Labor
absolutely vital – services should be seamless for patients – and while the BCF can help to deliver this, there needs to be a great deal of realism about what can be delivered and when, and the financial impact on providers. This is echoed by our members in the NHS Financial Temperature Check report. The views of finance directors across England were gathered on issues including the BCF, and showed that there was concern about the immediacy of its impact. While supporting the move to integrate services, only 2% of provider trust financial directors and 11% of CCG chief financial officers believe the fund will help improve their services to patients in year one. This rises to 25% and 62% respectively after three years. There is a bigger mountain to climb for those more financially challenged organisations implementing the BCF. They face trying to find a way to
shoulder the increased running costs needed to get schemes underway before any benefits are seen. It is crucial therefore, to ensure all areas get the financial and governance arrangements for pooled budgets right from the outset. To this end HFMA, working with CIPFA, has developed guidance on the new arrangements, to be published in the autumn. Despite the support available, finance directors continue to have significant concerns about the extent to which the BCF will work. We need to tackle the seeming lack of engagement between health and social care on getting plans agreed in order to hit the BCF submission date. There are complex and difficult challenges ahead. PAUL BRIDDOCK Director of Policy Healthcare Financial Management Association OCTOBER 2014
p014_015_PFIoct14_letters.indd 15
PublicFinance 15
17/09/2014 17:38
Watchdog
Watch WHAT’S GOING ON IN THE WORLD OF REGULATION AND INSPECTION National Audit Office The government still has a long way to go before it has proper control of the £40bn it spends annually on contracts with the private sector, the National Audit Office has said. Auditors found there had been progress since it was revealed in July 2013 that G4S and Serco overcharged the Ministry of Justice for some electronic tagging services. However, the NAO concluded in the Transforming government’s contract management report, that there was still a need for sweeping changes in the culture of the civil service and its capability to procure and manage commercial contracts. In most of the contracts reviewed across government, auditors said there were weaknesses in management, with problems including poor governance and record keeping, and capacity issues. Auditor general Amyas Morse said there was a need to build up the commercial skills of contract management staff, both in departments and at the centre, and enhance the status and profile of their role. Auditors also found that the government is getting better value for the £7bn spent each year on education for 16- to 18-year-olds, but is not clear about exactly how this is being achieved. The percentage of young people in this age-group in education and training has increased, even as the money spent by the Department for Education was reduced, its examination found. Overall, only 7.6% were classified as NEET – not in education, employment 16
Pricey tags: Controls on £40bn in government contracts with the private sector remain weak, the NAO says
or training. This was compared with 9.2% at the end of 2012. Morse said better information was needed about the effectiveness of reforms introduced by the government so that it can decide which to keep and which to change.
Ofsted The academy chain where David Hoare, the new chair of Ofsted, has been a trustee since January has been judged to not be performing well enough by school inspectors. The Academies Enterprise Trust, the UK’s largest school chain with 77 academies, was criticised last year by Ofsted for its poor standards. Hoare, an experienced businessman, was drafted in as a trustee to help improve performance. However, a re-inspection by Ofsted in June this year has found
many areas of continuing concern. Of the 12 academies inspected in June, one was judged to be inadequate and five to ‘require improvement’. The remaining six were judged to be good, with none rated as outstanding. According to the update, only five of the 12 academies inspected had improved since their previous inspection. One had declined since its previous inspection. In a letter to the trust, Ofsted chief operating officer Matthew Coffey said: ‘Half the academies in the trust are not yet good. As a result, too many pupils in the trust are not receiving a good enough education.’ An AET spokeswoman said that the group was acting to ensure a rapid and sustained improvement in these academies.
Audit Commission Councils’ spending on looked-after children rose by 4% in the four years to the end of 2012/13, despite a 12% increase in the number of children for whom they are responsible over the same period, Audit Commission figures have revealed. The commission found there were large regional variations in the spending changes, from a 15% rise in the Northeast to a 7% reduction in London. The number of children in the care of councils in England rose by 7,210 to 68,110 over the four years to March 31 2013, according to a commission briefing. Councils in England spent a total of £3.4bn in 2012/13 caring for these vulnerable young people, who represent 0.6% of all children in England under
PublicFinance OCTOBER 2014
p016_017_PFIoct14_watchdog.indd 16
17/09/2014 17:17
publicfinance.co.uk/news
COMINGUP… Peelers: Police forces will be given ratings from oustanding to inadequate, HM Inspectorate of Constabulary proposes
POLICE REVIEW HM Inspectorate of Constabulary will give final details of changes to performance measurement for police forces later this year. The watchdog has proposed a programme of inspections, known as PEEL, to examine police efficiency, effectiveness and legitimacy. Each of the 43 forces in England and Wales will be given an Ofsted-style rating of outstanding, good, requires improvement or inadequate. A HMIC spokesman told Public Finance that details of the regime would be set out towards the end of the year after a consultation.
the age of 18, the analysis stated. It also found there was significant variation in the amount councils spend on each looked-after child across England – with 21 councils spending less than £40,000 per child, while 32 spent more than £60,000. Commission chair Jeremy Newman said: ‘We encourage all councils to review their spending and, in particular, urge higher spending councils to understand the reasons for this and to consider whether they can secure more cost-effective placements without compromising on the quality of care.’
Local Government Ombudsman Complaints about schools admissions appeals to the Local Government Ombudsman have fallen by half over the past four years, the watchdog has reported. However, the reduction in the number of parents bringing their complaints to the ombudsman coincided with the increase in the number of academies and free schools being established, over which the ombudsman has no jurisdiction. In the 2013/14 financial year, the ombudsman considered 747 complaints and inquiries about schools admissions appeals, compared to 1,499 received in 2010/11. Over the same period, the number of academies and free schools has grown from 462 to 3,688. Last year, the LGO upheld a quarter of all complaints about schools admissions that were investigated in detail. Ombudsman Jane Martin said: ‘In the vast majority of appeals, parents have no cause to complain to us, but in the stories in this report we have Photos: Alamy/PA/Alamy
p016_017_PFIoct14_watchdog.indd 17
STUDYING SKILLS Following on from its examination of post-16 education, the National Audit
Office is set to report on reforms to the further education and skills sector. The study will examine work done by the Department for Business, Innovation and Skills to simplify the way in which the sector is funded and overseen, and provide more information on the reforms after the Public Accounts Committee raised a number of issues in its 2012 report, Reducing bureaucracy in further education in England.
HEADCOUNT CHECK The National Audit Office is to examine the impact of the planned 23% reduction in civil service headcount over the current parliament. The spending watchdog will assess whether departments are developing strategic workforce
highlighted faults that could have been avoided. ‘Parents have a statutory right to appeal for a place and they need to feel assured that those appeals are carried out fairly.’
Charity Commission Charities in England and Wales have been urged to report all frauds and thefts to the Charity Commission so the true scale and nature of risks facing the sector can be understood. Although the number of incidents reported to the commission rose by 24% last year, the regulator believes that serious incidents – those defined as involving a significant loss of a charity’s money or assets or the risk of one – are
Flagged up: The Charity Commission believes fraud and theft from charities is being under-reported
plans to make further efficiencies in the future. It will also examine how the centre of government is influencing the speed and direction of change in the context of Whitehall departments being employers.
PUBLIC VIEWS A consultation on the Local Government Ombudsman’s draft corporate strategy for 2015-2018 closes on October 3. The public has been invited to express views on whether the watchdog’s funding model is fit for the future, and whether options such as charging case fees to bodies in jurisdictions should be considered. Suggestions are also sought on what steps the LGO could take to make its service easier to find and use.
under-reported. This means that the survival of some charities could be put at risk if the trustees do not get the assistance required. Serious incidents also include damage to a charity’s property or harm to a charity’s work, beneficiaries or reputation. The most common include fraud, theft and safeguarding issues. In 2013/14, charities reported 1,280 serious incidents to the commission. While this represents a 24% increase on the previous year, the regulator says its casework continues to find serious incidents that should have been reported but were not. The watchdog also announced that CIPFA has been appointed to support updates to the Statement of Recommended Practice that applies across the third sector. The commission and the Office of the Scottish Charity Regulator are the joint SORP-making body for charities and currently provide the secretariat services involved in developing the code of practice, including the preparation of technical briefing papers for a committee that advises on changes and the drafting of revised guidance. As a result of reductions in funding, it was decided to sub-contract the secretariat and publication of the new SORPs. CIPFA will take over the secretariat from next month for three years, with an option to extend the contract for a further two. OCTOBER 2014
PublicFinance 17
17/09/2014 17:17