Public Finance March 2018 (Taster Edition)

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Issue 03 March 2018

SOURCE CODE

TA ST E R E D I T I O N

Back to basics on public service outsourcing HOME TRUTHS

Sir Michael Lyons surveys the housing crisis DATA DAY

MARCH 2018 • ISSUE № 03

Get set for the GDPR deadline

What’s happening to councils’ rainy day reserves?

Student finance to be reviewed

Oxfam puts public cash bids on hold

Prime minister Theresa May has ordered a review of student finance, noting that the system is one of the most expensive in the world. May warned against “outdated attitudes” that view academic achievement as better than technical education. The review panel will be chaired by financial services expert Philip Augar.

Oxfam agreed not to bid for any more UK government funding until it has tackled issues around sexual misconduct by aid workers. International development secretary Penny Mordaunt said the charity would get no more public money until her department was satisfied it “can meet the high standards” expected of its partners.

Union calls for windfall tax on PFI profits Unison has called for private finance initiative companies to pay a windfall tax to help fund UK public services.

PFI companies “just keep on hitting the jackpot” as corporation tax has gone down from 30% in 2008-09 to 19% this year, the trade union’s general secretary Dave Prentis argued.

Many PFI deals were signed by the Treasury 10 years ago before the rate was cut, he said, so were making more profit than expected.

“Crippling PFI debts are pushing local services to the brink and costing taxpayers dear,” Prentis said.

“It’s time for a windfall tax on the companies cashing in at our expense.”

Outsourcing has not failed, debate hears The public sector needs to be a more ‘intelligent customer’ and understand better what it is trying to achieve, CIPFA round table event is told

By Vivienne Russell The collapse of Carillion at the start of the year should not be interpreted as a broader failure of public sector outsourcing, a CIPFA round table debate has heard.

Kerry Hallard, chief executive of the Global Sourcing Association, which represents outsourcing firms, told the event that Carillion represented the “failure of a single company, not an outsourcing failure”.

She stressed that there was “much the private sector can bring in terms of innovation” and argued the public sector needed to be a more “intelligent customer”. She urged public sector commissioners to “understand what you’re trying to achieve”.

Hallard highlighted GSA standards, which she said if followed would greatly improve all parties’ experience of public sector outsourcing.

“I am all for improved transparency,” she added.

Hallard was one of several participants who attended the discussion convened to consider the future of public sector outsourcing. Others included Matt Dykes, senior policy officer at the Trades Union Congress, Peter Unwin, chief executive of the Whitehall & Industry Group, and Kathy Evans, chief executive of Children the �Carillion: collapse of the

firm does not mean oursourcing in itself is flawed, says contractor organisation

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England, which represents voluntary organisations working with children.

There was widespread agreement that a central register or “Domesday Book” of outsourcing contracts could be good way of sharing information and help improve value for money, although there was scepticism that this could be created quickly.

The idea of a “Domesday Book” was set out in the Out of Contract report, published in January, which argued for a rethink of outsourcing policy.

Its authors David Walker and John Tizard also attended the CIPFA debate, arguing that publicly available information on contracts would shed light on individual companies’ market share.

Highlighting the example of Southern Cross, a social care provider that collapsed in 2011, Tizard said: “There’s a high risk if you don’t know how much you’re relying on one supplier.”

He also said there was a need for greater “commercial understanding and nous” among public sector commissioners and procurers.

Nick Davies, associate director at the Institute for Government, told the debate that it was not a case of “public good, private bad” but suggested that commissioning behaviour was making both companies and charities delivering public services act against the public interest.

An extended write up of the CIPFA’s round table debate on the future outsourcing post-Carillion will be published in the next edition of PF. See feature, page 38

6 PUBLICFINANCE MARCH 2018

ISTOCK / GETTY

news

Consultant use inefficient

Costs and beds

NHS trusts each spend £1.2m a year on average on management consultancy, which could pay for 20 managers, 10 consultant doctors or 35 senior nurses, a study led by the University of Bristol has found. The researchers, who looked at 120 trusts over four years, said was not efficient.

The NHS improves its agency spend but delayed discharge remains a problem

NHS in figures

on �Pressures emergency care have made it harder to deliver planned long-term efficiency savings

NHS deficit rises higher than £1bn Providers maintained A&E performance despite winter pressures, but were left with a deficit higher than forecast

PA

By Vivienne Russell The total deficit of NHS providers had risen above £1bn by the end of 2017 following additional demand on accident and emergency services over the winter months, according to official figures.

Quarter 3 data released by NHS Improvement showed that providers coped well with the extra pressures and maintained A&E performance levels, after four years of decline.

However, providers have been left with a total deficit of £1.28bn over the financial year to date, £365m higher that the £916m forecast for that point in the year.

For the end of 2017-18, the acute sector is now predicting an overall deficit of £931m, which is £435m worse than planned.

This financial decline against plan is concentrated in a minority of providers, NHS Improvement said.

“Some providers appear to have managed the financial pressures better than others,” said NHS Improvement chief executive Ian Dalton.

“We are working closely with those providers whose financial position has

deteriorated seriously to ensure that they grip their problems while delivering the best possible care for their patients.”

Dalton added that it would be “unrealistic” to assume demand on the NHS would start to reverse and urged local health systems to work together.

Richard Murray, director of policy at the King’s Fund, said: “It is alarming that NHS providers now forecast a £931m deficit for this financial year, a deterioration of over £300m in three months.

“This reflects the dramatic decline in the finances of a number of individual trusts, and raises serious questions about how reasonable the financial targets were in the first place.”

He added that there was a risk the Department for Health & Social Care could breach its own budget, despite additional funds from the Treasury.

Anita Charlesworth, director of research and economics at the Health Foundation, commented: “The serious pressures on emergency care have not only affected patients and increased costs, but also made it harder to deliver planned longterm efficiency savings.”

Saffron Cordery, NHS Providers’ director of policy and strategy, said the health service had been “pushed to the limit” and trusts were not able to close the gap between what they were

➊ ➋ ➌ ➍ ➎

Deficit nears £1bn The NHS providers deficit for the end of 2017-18 is now forecast to be £931m – this is £435m worse than planned.

Visits up There were 250,000 more A&E visits than in the same period in 2016.

Agency costs down Agency costs continued to fall.

Providers spent £108m less than planned and £441m less than the same period last year.

Staff numbers There were 1.1 million whole time equivalent staff working in the NHS but also 100,000 vacancies.

Delayed discharge There were 470,000 bed days occupied by patients who were well but unable to go home, equivalent to 4.6% of all beds.

being asked to do and the funding available.

The figures showed there were 5.6 million A&E visits over the quarter, a quarter of a million more than over the same period last year.

Performance held up, with 89.5% of patients being seen within four hours, virtually unchanged on the rate recorded in 2016.

NHS Improvement said this showed operational planning for the winter www.publicfinance.co.uk/subscribe had been better and paid tribute to the hard work of NHS staff.

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► Watchdog Watch

WHAT’S GOING ON IN AUDIT AND REGULATION —

⦁ Social care in England is a “Cinderella service” in danger of collapse because of workforce problems, the head of the National Audit Office has said.

The adult social care workforce was undervalued, understaffed and lacking in investment, its February report said.

NAO head Amyas Morse said: “Without a valued and rewarded workforce, adult social care cannot fulfil its crucial role.”

The NAO cited high staff turnover fuelled by low pay, poor working conditions and a lack of career progress.

The vacancy rate for social care jobs was 6.6% – well above the national average of 2.5%-2.7%, it noted.

Meanwhile, the NAO has revealed that unprocessed correspondence could cost NHS England up to £2.4m.

The watchdog released the figures from an ongoing NHS England review – due to be completed at the end of March – that identified 374,000 items of unprocessed clinical correspondence. Of these, 1,811 were “high priority”, such as items relating to screening or urgent test results.

Confusion over where GPs should direct their correspondence began when outsourcing firm Capita took over responsibility for NHS primary care support services in September 2015.

Some GPs had not been complying with guidance and were erroneously sending correspondence to decommissioned service centres. Mail was not redirected and correspondence continues to be a www.publicfinance.co.uk/subscribe problem.

NHS England said it did not believe any

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10 PUBLICFINANCE MARCH 2018

home but little has been invested in the caring workforce

£4.2bn Amount the Ministry of Defence could have lost in homes deal

patient has been harmed as a result.

Separately, the Ministry of Defence has lost out on up to £4.2bn after it sold 55,000 homes to a private company.

Had the MoD retained the housing stock, it could have gained between £2.2bn and £4.2bn, thanks to rising prices.

The MoD sold the homes, used for armed forces personnel, to Annington Property, in a deal worth £1.6bn in 1996.

Since then, the MoD has been renting the homes back from Annington in a deal that is due to be renegotiated in 2021.

The sale-and leaseback deal with Annington has cost the public sector a “great deal in capital growth”, Morse said.

ACCOUNTS COMMISSION

“Without a valued and rewarded workforce, adult social care cannot fulfil its crucial role” DOIN G T H E J OB: AM YAS M O R S E O N CAR E STAF F

⦁ Urgent action is required by Clackmannanshire Council to address “serious concerns” in its financial position, according to the Accounts Commission.

Describing the council’s difficulties as “acute”, the local government spending watchdog said Clackmannanshire had to find savings of £29m over the next three years out of an annual budget of £118m.

Although the council had made significant savings in recent years, it had failed to bring about the transformational changes needed to secure its position. To date, it had relied on reserves, but these would run out in the next two to three

ALAMY

NATI ON AL AU D IT O F F I C E

help �Carers people stay

opinion ► Julia Goldsworthy

Showing the way We need to see some clear signposts for public services along the road to Brexit if they are to benefit from reforms when the UK leaves the EU

A

Light on detail: Boris Johnson sets out his vision of Brexit

s we approach the first anniversary of the triggering of article 50, the government is deploying a series of ministerial speeches that will map out the “road to Brexit”. It’s a programme that will have to achieve a lot to be considered a success. There are many outstanding questions on the future relationship between the EU and UK to be resolved, and transition details need to be both set out and agreed in just a few weeks to keep the negotiation timetable on track.

But the past 18 months have been light on both detail and decisions from government.

Some of the most difficult issues, particularly around the customs union and immigration, remain unclear. And it’s still far from obvious whether the spectrum of views within the Conservative Party can be held together as the process unfolds.

While recent speeches have sought to provide clarity on some of the big Brexit issues, what is still missing from the conversation is how Brexit will fit into a wider public services remit. If the public really is to see how a new relationship with the EU will benefit them and the communities they live in, we also need to know how the services they use and rely on fit into the equation. The Brexit Advisory Commission for Public Services, of which I am chair, has been working to fill this space by offering its perspective on how Brexit can be a transformative moment for the sector, if the opportunities are seized and the risks avoided.

For instance, controls over any replacement structural funding Late last year, the commission released a paper scheme could and should be devolved. examining the EU funding flows that are entering the UK But there are challenges to pursuing this policy programme. system, which amount to €3.4bn each year, and explored There is a consensus that pulling off meaningful fiscal devolution how these could be reworked once the UK has left the EU to is no mean feat and there is much to work out on how best it maximise their impact. It found that the current UK model could be supported. For example, the policy questions of whether of funding distribution poses significant barriers to a more federalised UK is required to bolster the role of regions, repatriating EU resources in a way that can prioritise both whether the model of mayoral combined authorities be expanded needs and outcomes. Modernising the funding system and what the most suitable governance model for rural areas is would create greater potential to amplify the benefits of all require serious consideration, but are difficult to both develop existing and planned policy programmes, such as the and deliver even without the added complication of Brexit. national prosperity fund and devolution.

To ensure Brexit is positive for public services, the UK has to be Increasing the scale of devolution and giving regions a ambitious. But, to be ambitious, there must be a commitment to genuine role is a priority that the commission shares with understanding the needs of the sector. This, of course, requires many public service leaders and resources and time. And Brexit is, as EU Council president Donald organisations. Indeed, during our Tusk, puts it, a “furious race” against the clock. The concern is regional events programme, we have there will not be enough capacity to examine the potential for Julia Goldsworthy is heard from key sector thinkers and public services, and reform will be put on the back burner. chair of the Brexit Advisory practitioners, who have argued that In the next few weeks we will learn more about the road to Commission for www.publicfinance.co.uk/subscribe there is an opportunity to repurpose Brexit.

It is imperative we see some clear signposts for public Public Services fiscal policy in a post-Brexit scenario. services set out along the way. ⦁ @jgoldsworthy

GETTY

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RUNNING OUT OF ROAD

GETTY

After a period of growth, are council reserves beginning to dip into the danger zone?

PF looks at where the pressures are and what is behind them

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F

cover feature

or those who would listen, alarms bells have been ringing over the past few months, sounding a warning that councils have been dipping dangerously into their rainy day savings.

The Institute for Government and CIPFA, in their Performance Tracker report last October, urged central government to “pay attention to any signs that local authorities are running down their reserves

By Emily Twinch to plug gaps in day-to-day spending”.

Any council that was spending its reserves on “regular activity would soon find themselves in significant financial distress”, the tracker warned.

It seemed it wouldn’t be long before one fell.

Then, on 2 February this year, Northamptonshire was compelled to issue a section 114 notice – the first of its kind in 20 years.

The section 151 officer took action and issued the notice, warning that the council had spent its reserves and would not be able to produce a balanced budget this year. Spending on all but safeguarding vulnerable people and statutory services was stopped.

Section 114 notices were introduced by the Local Government Finance Act 1988 and, after a few were issued in the 1990s, councils have balanced their books.

Indeed, since 2010 councils have been steadily building up reserves (see figure 2, page 26).

Former local government secretary Sir Eric Pickles famously criticised councils in 2013, accusing them of “hoarding billions” while “pleading poverty and raising council tax”.

But 2016-17 government figures and those projected for 2017-18 show councils in England have started to dip into unallocated and earmarked reserves.

Ringfenced reserves, such as those for public health and schools, cannot be used for other purposes.

On 1 April 2016, total unallocated and earmarked reserves for English councils stood at £22bn and, by the end of the financial year, had fallen to £21bn. By the end of the current financial year (2017-18), they are projected to have dipped to £17.2bn – a reduction of 18%.

The National Audit Office was due to produce a report on 2 March on the financial sustainability of local councils in England, which is expected to highlight concern over the use of reserves.

Report author Aileen Murphie, director of local government value for money at the NAO, tells PF: “The sector is under increasing financial pressure. There’s a lot of uncertainty. It’s hard for an individual authority to see what their financial future might be without seeing what effect the new [local government finance] systems might have.

“The concern is that, if local authorities are continually dipping into their reserves, particularly to cover regular ongoing spending, it’s not a position that can carry on indefinitely.” ►

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feature

KEEPING CHILDREN SAFE

Demand for children’s services is rising and need is getting sharper. How can councils meet this?

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I

t is one of the most critical local authority services and has never been in greater demand.

But after a decade that has seen some high-profile child neglect cases as well as growing awareness of grooming and sexual exploitation, children’s social care is buckling under austerity cuts.

While school budgets in England have in theory been protected since 2010, spending on wider children’s services, including social services, has fallen by 9%. Yet the number of children looked after by local authorities in England under care orders has risen by 26% over the past three years and stood at 50,470 in March 2017.

In addition, the number of child protection plans produced by councils because they believe there is a serious risk of abuse or neglect increased by more than a third to 66,410 between 2010-11 and 2016-17.

All this follows a sharp rise in referrals from the police and other agencies. Members of the public are also showing greater awareness following sexual exploitation cases in Rochdale, Rotherham and other areas, while the fallout from the Jimmy Savile revelations continues to focus interest on the sexual abuse of minors.

By Neil Merrick “People are more aware of the neglect of children. They are also listening to children more,” says Ian Hudspeth, leader of Oxfordshire County Council, which employs one third more social workers than it did in 2010 (see panel, page 41).

Seven years ago, there were 430 looked after children in Oxfordshire. By December, the number for 2017-18 had reached 704, with three months of the financial year to go. Most live in residential homes or with foster families.

So how can Oxfordshire and other local authorities afford this? Simple. By spending less on preventive measures, especially those focused on early years. Figures published by the Department for Education show spending on looked after children and children in need (a wider definition that covers children or families receiving other support) accounted for 69% of total children’s services expenditure in 2015-16. This compares with 57% at the start of the decade. Meanwhile, spending on Sure Start and other early years programmes is falling.

Child abuse is happening in every part of the community

GILLIAN BLEASE / IKON

Tim Loughton, MP

Ian Thomas, director of children’s services in Rotherham, says councils are concerned by the amount they spend on acute or high-end services rather than prevention. But, as these are statutory functions, they don’t really have a choice.

Local authorities began cutting wider children’s services, he says, because they were regarded as “low-hanging fruit”. Seven years on, councils recognise prevention and early intervention programmes would be a sounder investment – if only the money were available.

“Children-in-care costs are rising when we have seen a cut in children’s services budgets because they are not protected from austerity,” says Thomas, who is chair of the Association of Directors of Children’s Services policy committee. “When systems are broken, councils will end up spending more. It’s more cost effective to get it right in the first place.”

A survey of chief finance officers undertaken last year by CIPFA showed children’s social care is the number one area of concern across local government. Nearly six out 10 (58%) of those polled cited children’s social care as a priority, with adult social care identified by 51% www.publicfinance.co.uk/subscribe and housing by 36%. This was echoed in the Local Government Information Unit’s recent annual finance survey, which found that, for the first time in three years, children’s ►

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perspectives essay

UNFINISHED BUSINESS

I

N A MODERN, relatively wealthy society, everyone should have the right to a safe and secure home. Yet all the evidence – not least the dramatic increase in people sleeping rough on our streets – demonstrates that this need is still a long way from being met.

The horror of the Grenfell Tower disaster and the difficulties experienced in rehousing the survivors are a further graphic illustration of why we need to focus on providing housing for all. We must separate the widespread aspiration for home ownership from the more compelling need to ensure everyone has access to reasonable housing choices.

The problem extends beyond these basic issues. Ever since Charles Booth began mapping poverty in London in 1886, we have understood the link between poor housing, ill health and weaker public health. Raising educational standards requires secure homes in stable communities. And economic prosperity is threatened if young, talented people cannot find suitable, affordable homes. Promising affordable home ownership for all – when we have no way of providing the quantity required – also risks alienating our children and grandchildren.

These concerns underpin the heightened debate about housing in recent years.

Unfortunately, that debate has too often seemed preoccupied with the failing ambition to extend home ownership and getting on the property ladder. This, for me, focuses too much on homes as assets rather than as the centre of family life – whatever shape that might take. It’s time to get back to ensuring everyone has access to a decent home.

So how might that be done? During a recent Today programme, John Humphrys mused over whether the appointment of a cabinet minister for housing in the www.publicfinance.co.uk/subscribe prime minister’s reshuffle would make any difference to an apparently intractable problem. I doubt he is alone in having those doubts. Ministerial claims over

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34 PUBLICFINANCE MARCH 2018

By SIR MICHAEL LYONS

The government claims it wants to create sufficient homes for all. It’s time to turn these words into deeds

Top tips…

Do ➊ Work out where your data is through a data audit

➋ Train your staff – and make ➌

courses interesting and relevant Make sure you have all the policies in place you need

Don’t ➊ Write long-winded privacy notices

➋ Overlook contractor

➐

➎ ➏ ➐

Can you remember the last time you read a privacy notice?

Me neither. GDPR expects more from us. If we are to engage people, we should make our notices clear, plain and concise.

Notices should be kept as brief as possible, have short sentences, avoid jargon and be set out in a clear, well structured way.

Sort out your organisation policies A big part of GDPR is being able to “demonstrate compliance” (article 5) – in other words, showing you comply with the new regulation in all that you do with personal data.

To do that you are going to need to make sure you have staff policies in place to ensure your employees are educated on their responsibilities regarding data processing across your operations. You may need to bring in some new policies such as a data breach incident plan, a human resources data protection policy and bring your own device policy. See where your policy gaps are and fill them.

Train up your staff Public bodies often underestimate the importance of staff training. One recent study found that human error is the leading cause of data breaches in organisations, featuring in 37% of cases.

Make sure you deliver basic data protection training to all staff and work out who needs further face-to-face training – eg the legal department, HR etc. Make training engaging and

fine – have systems set up to report breaches

relevant, with lots of examples of how data affects employees’ everyday lives and their jobs. Record all the training – useful if a regulator ever comes knocking.

adequate cybersecurity is in place including breach prevention, software patches, penetration testing and encryption.

Stop using painful privacy notices

compliance

➌ Assume everything will be

➑ ➒ 10

Draft a privacy impact risk assessment template Under articles 35-36 of GDPR, privacy impact assessments need to be completed for higher risk data projects. A PIA is a form that must be used on new projects that use “new technologies” and where the “processing is likely to result in a high risk to the rights and freedoms of individuals”. You need to put a process in place to ensure these PIA forms are used because failure to do this can attract heavy fines.

Ensure data breaches are reported Under the GDPR, you have to notify the regulator within 72 hours of more serious data breaches. You must also communicate certain data breaches to the people affected without undue delay. Failing to report these breaches, or failing to report them in time, can attract major fines.

Educate your staff on their new responsibilities to report data breaches and put a process in place to so that breaches can be reported to regulators and ordinary people efficiently.

Deal with contracts Under the GDPR, when we use a supplier and we entrust them with our data we must, by law, have certain clauses in the contracts with that supplier to ensure they keep our data safe. Ensure contracts with suppliers have all of the GDPR clauses set out in article 38 in place, decide which of your historic contracts need to be updated and do your homework on allwww.publicfinance.co.uk/subscribe the vendors you use so they provide you with “sufficient guarantees” on data safety.

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numbers game

bn

Everybody out The year 2025 is the earliest that MPs will vacate the Palace of Westminster to make way for a £5.6bn refurbishment. MPs voted narrowly for a “full and timely decant” and will move to nearby Richmond House on Whitehall until the works are completed.

PFI savings

Mean hourly wages across the life cycle by gender and education GCSEs

A levels

Degree

One third of the £1.6bn savings generated from private finance initiative schemes between 2011 and 2013 came from terminating the contracts, a National Audit Office study has found.

Other significant savings came from improved asset use, changes in the scope of contracts and the sale of surplus assets. The NAO noted that PFI structures tended to make it difficult to secure savings as savings have to be negotiated with the special purpose vehicle management, investors and debt providers rather than suppliers.

Hourly wage (£)

20

15

10

5 0 20 25

30 35

40

45 50

20 25

30

35

40 45 50

20 25

30

35

Age

Age

40 45 50

Age

Use of contract provisions

Wages are shown in 2016 constant-wage terms. Individuals in the bottom two and top one percentiles of the gender- and year-specific hourly wage distributions are excluded.

9%

Source: IFS

Gap years

18% Sale of surplus assets

People who are more well off

Would not help both groups equally

62

Increasing benefits for the unemployed Increasing the availability of free childcare

TO ACCESS THE FULL VERSION OF PUBLIC FINANCE Support for the first-time house buyers trying toMAGAZINE get a mortgage , Lowering the basic rate SUBSCRIBE HERE of income tax Scrapping university www.publicfinance.co.uk/subscribe

Don’t know

66

Reducing bus fares

19 8

49

tuition fees

40

Bringing down the cost of energy bills

40

11

16

13

31 5

13

49

26

9

12

48

27

84

12

8 6

12

47

10

34

Source: YouGov

48 PUBLICFINANCE MARCH 2018

34%

Source: National Audit Office

20% Change in scope

Improved asset use

Poor policies

For each of the following policies, please say which group you think they would help more (%)

Would help both groups equally

5%

34% of operational servings have been generated from terminating PFI contracts

Progressive policies: what policies do Britons think will benefit the less well off more than the affluent?

People who are less well off

Termination of contract

Split of £1.6bn signed savings from operational PFI deals

14%

The gender pay gap widens as women age and is also more stark among more educated cohorts, analysis by the Institute for Fiscal Studies has found. The gap is relatively small when people enter the labour market in their 20s but begins to open up as people move through their 20s and gets gradually wider over the next 20 years. For graduate women, average wages keep better pace with men during the early part of their careers, but growth tends to slacken off once they hit their 30s. The opening up of the gender pay gap when people reach their late 20s is related to arrival of children, the IFS said.

Other

Cutting bus fares would be one of the most effective ways the government could help poor people, according to YouGov polling. People were asked to rate 16 policies on how progressive they were – in other words, whether they were likely to benefit poorer people rather than their richer counterparts.

Increased unemployment benefits, extended free childcare and support for house buying were also rated as progressive measures. The creation of more grammar schools and cuts to inheritance tax were seen as more regressive than progressive.

SCOTT DE JONGE / SHUTTERSTOCK

25

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