Public Finance September 2018 Taster

PublicFinance P UBLICFINANCE.CO.UK

Issue 09 September 2018

TA ST E R E D I T I O N

SEPTEMBER 2018 • ISSUE № 09 DRAGONS’ DEN

Views from the heart of the Wales Audit Office AT THE CHALK FACE

Have school finances stopped adding up?

GETTING ALONG

How councils are advancing the cohesion agenda

SE FO E P D R MAG ET E AI OR 20 LS E

Firming up the ethical foundations of public finance

news Fair funding review to hit inner London

Virgin Care case highlights legal danger

Inner London councils are set to lose out from the fair funding review, according to the Institute for Fiscal Studies. Those that set low tax rates will be expected to “bear more of the cost themselves” as a result of the review, the IFS said. London councils receive generous grant funding but this could change, it predicted.

Healthcare bodies have raised concerns that clinical commissioning groups face a growing threat of legal action over procurement. The High Court had ordered six CCGs in Surrey to pay £2m to Virgin Care because it failed to win a £82m contract. King’s Fund head Sir Chris Ham told PF procurement rules were too complex.

The UK recorded its largest budget surplus for 18 years in July, according to figures released last month – although the Treasury warned against “complacency”.

Public sector net borrowing was in surplus by £2bn in July 2018 – with the Treasury receiving more money in tax than it spent on public services – data from the Office for National Statistics revealed.

This was greater than the £1bn surplus for the same month last year and also exceeded City economists’ forecasts.

Public sector net borrowing, excluding public sector banks, was also at a 16 year low in the second quarter of this year, being £8.5bn less in April to July this year (£12.8bn) than the same period in 2017.

However, a Treasury spokesperson said: “We cannot be complacent, and we must keep debt falling to build a stronger economy and secure a brighter future for the next generation.”

Prisons in ‘crisis’ after years of dramatic cuts Shocking conditions highlighted in inspector’s report led to contractor losing control of HMP Birmingham

By Emily Twinch Overcrowding, underfunding and a high staff turnover have left English prisons “in crisis”, with rising levels of violence, reform campaigners have told PF. Problems with the prison service were highlighted last month when the government dramatically took over the running of privately managed HMP Birmingham following a shocking inspector’s report.

Prisons chief inspector Peter Clarke wrote to justice secretary David Gauke about the “squalor, violence, prevalence of drugs and looming lack of control” at the men’s jail in Birmingham, run by outsourcing company G4S. This was the third “urgent notification” to the government raised by the watchdog this year; the others were for Nottingham and Exeter prisons.

In the same week as the Birmingham takeover, the Independent Monitoring Board for HMP Pentonville issued a report saying the prison was “overcrowded and crumbling” and “rife” with vermin.

The Institute for Government’s public sector Performance Tracker, done in association with CIPFA,

�Spending on prisons fell by 22% and staff numbers dropped by 26% between 2009-10 and 2016-17

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6 PUBLICFINANCE MONTH 2018

revealed the number of assaults on officers in prisons was 124% above 2009 levels in 2016-17.

Spending on prisons fell from £3.48bn in 2009-10 to £2.71bn in 2016-17 – a 22% drop, the tracker showed, while officer numbers fell by 26% (6,430).

Mark Day, head of policy and communications at the Prison Reform Trust charity, told PF: “Levels of violence and self-harm have risen exponentially since the impact of cuts to staffing and resources started to take effect in 2012. Birmingham shows a prison system in crisis.

“The responsibility lies with the government to match the resources in the system to the demands upon it.”

The charity suggested increasing investment and reducing prisoner numbers, including through the use of community rather than custodial sentences.

Andrew Neilson, director of campaigns at the Howard League for Penal Reform, agreed, saying: “Cramming more people into prisons than they were designed to hold is a recipe for violence, drug abuse and mental distress.”

Birmingham’s prison capacity will be reduced by 300 places while the government improves the service, initially for six months.

Neilson said this was “a tacit admission that prison overcrowding plays a key part in why our prison system fails more generally”.

Graham Atkins, researcher at the IfG, said the reduction in prison officers since 2012 played a big part.

Although the number of prison officers increased 2,819 between 2014-15 and 2017-18, mainly thanks to a £500m cash injection after the 2016 autumn statement, Atkins warned “retention issues still remain”.

Birmingham is one of 14 privately run, publicly owned prisons in England and Wales. The other 108 are run publicly.

Jim Hemmington, chair of outsourcing industry body the Global Sourcing Association, said: “We do not see this as a failure of outsourcing. By and large, a successful track record in this sector goes back over 20 years.”

However, outsourcing commentator John Tizard said the system “is clearly not working”. The prison’s takeover showed the government did not manage outsourced services well, he told PF. “The government is not good at being a responsible client,” he said.

ISTOCK / ALAMY

UK sees biggest budget surplus for 18 years

CIPFA conference 2018 It’s up to us to rebuild trust, says president CIPFA has a great opportunity to “flip the negative narrative” and rebuild trust in public services, president Sarah Howard said as she opened the conference. Noting there had been a “universal breakdown in trust”, she said the solutions were in the hands of public finance professionals who could help by more transparent reporting.

�Delegates at CIPFA’s

conference explore the links between political, economic and technological trends and effective, sustainable services

president �CIPFA Sarah Howard: public finance professionals could address a “universal breakdown in trust”, by more transparent reporting

Learn from scandal of Cambridge Analytica IfG economist: public spending will keep falling

RAFAEL BASTOS

Day-to-day spending on public services will fall by 0.6% in real terms between 2020-21 and 2022-23, Institute for Government chief economist Gemma Tetlow said.

Economists for and against Brexit were “fairly well aligned” on the view that the Brexit vote had slowed down growth in the UK, she told conference delegates.

She said there was increasing evidence that the economy had grown “less quickly” than it would have had the UK not voted to leave the EU.

Carole Cadwalladr warns that individuals can be identified if different sets of data are combined

By Simone Rensch

Conference news bites Boss not servant Public sector finance professionals should “stop flattering IT”, forecasting professor James Woudhuysen told the conference.

He said: “We’re better than the data. We invented that stuff. We shouldn’t deify and reify it – we’re the boss.”

Creative collaboration call

Overlaying multiple data sets can “de-anonymise” people, leaving There should be no “ideological them vulnerable to abuse, an award-winning journalist told the problem” with collaboration CIPFA conference. between the public and private Guardian and Observer journalist Carole Cadwalladr advised delegates sectors, Matthew Taylor, RSA chief the public sector should learn from the Cambridge Analytica scandal executive, told delegates. To – a story she broke earlier this year. exploit technology that can She won the Orwell journalism prize in June for her investigation. transform services, “we must have “We must learn the lesson that Cambridge Analytica is teaching a much more creative relationship us,” she said. “We know that if we take multiple data sets and overlay with the private sector”, he said. them, you totally de-anonymise people.”

Consider tax and charges Cadwalladr explained when you have people’s information, Politicians need to grapple with including purchasing history and voting records – “everything”– and questions of taxation and user this overlapped with their health data, there could be “brilliant and charging if public services are to wonderful things” drawn out but also the potential for abuse. be funded sustainably, former Ben Page, chief executive of Ipsos MORI, also spoke at the session. He home secretary Charles Clarke said there was “real anxiety” among the public when it came to said. If funding issues are not personal data, such as health records, being shared with third parties. faced, services could go into “Facebook has only been around for about 15 years and we are just long-term decline and exacerbate beginning to understand how to deal with this stuff. This is going to www.publicfinance.co.uk/subscribe social tensions, he warned. be a massive area for debate and scrutiny for the rest of this century.”

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�Queensferry Crossing: works

came in below budget – now the economic benefits need to be assessed

► Watchdog Watch

WHAT’S GOING ON IN AUDIT AND REGULATION —

N AT ION AL AU D IT O F F I C E

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12 PUBLICFINANCE SEPTEMBER 2018

£324m

Amount saved by the NHS by switching to cheaper medicines

Education and the Treasury measured the value of the student loans book differently, which raised the risk of the loans being sold too cheaply.

The loans had a face value of £3.5bn and UK Government Investments, which managed the transactions, sold them for £1.7bn. This meant the government received 48p for every £1 of loans sold.

Using a different methodology, the DfE calculated that the value of the loans was £2.6bn, meaning the government took a £900m loss.

AUD I T SCOTLAND

“These are some of the most disturbing prison conditions ever seen, which have no place in an advanced nation in the 21st century” GR IM J A ILS : PET E R C L AR K E , C H I E F I NS P E CTO R O F P R I S O NS

⦁ Transport Scotland needs a clearer plan to show how it will measure the benefits of the £1.34bn Queensferry Crossing opened a year ago, according to its auditor general.

Caroline Gardner found delivery of the project had been managed effectively and provided value for money.

However, more needed to be done to measure its wider benefits, such as cutting journey times and boosting economic growth, she said.

“Transport Scotland now needs to produce a clearer plan about how it will measure the success of the project’s wider benefits, including its contribution to economic growth and improved public transport links,” Gardner said.

ISTOCK / PA

⦁ The National Audit Office has again issued a qualified opinion on the latest set of Whole of Government Accounts, but with fewer qualifications.

These relate to the exclusion of Royal Bank of Scotland (regarded by the Office for National Statistics as being in the public sector) and ongoing accounting problems at the Ministry of Defence and in the academy sector.

The NAO also noted that the time taken to produce the WGA – around 13 months after the accounting year-end – limited their usefulness.

The watchdog pointed out that the WGA was of increasing importance to the management of public finances and used by external stakeholders such as the International Monetary Fund and the Institute for Fiscal Studies.

“The Treasury used the WGA to scope its balance sheet review … and identify initial opportunities to make more effective use of assets, improve the return from investments and reduce the cost of liabilities,” the NAO said.

The auditor urged the Treasury to draw up a plan for producing the WGA sooner and continue work to raise their profile.

Separately, the NAO reported that the sale of some 400,000 student loans was expected to result in a net loss of £600m.

Regarding the sale of the first batch of student loans to private investors, agreed in December 2017, the watchdog said it could not be reliably determined whether thewww.publicfinance.co.uk/subscribe process provided value for money.

This was because the Department of

voice of the nations

In brief…

PUBLIC HEALTH

Minimum alcohol price gets closer Legislation to introduce a minimum price for alcohol in Wales has been granted royal assent. Alcohol consumption is estimated to lead to nearly 55,000 hospital admissions a year in Wales. The minimum unit price will be specified after a consultation that will start in the autumn, and the regime is expected to come into force during the summer of 2019.

POLICE

Chief constable in Scotland appointed

GETTY

Iain Livingstone has been appointed chief constable

of Police Scotland. He has been Police Scotland’s deputy chief constable designate since May 2016.

Susan Deacon, chair of the Scottish Police Authority, said: “Iain Livingstone is an outstanding police leader who has made an exceptional contribution to policing in Scotland.”

Livingstone said: ‘It is my job now to … build on the values, ethos and traditions of policing in Scotland.”

RENEWABLE ENERGY

Tidal scheme for Swansea washed up The Welsh Local Government Association is “hugely disappointed” that the UK government has decided not to back the Swansea Bay Tidal Lagoon power project. Whitehall does not believe it provides value for money.

WLGA leader Debbie Wilcox said: “I am hugely disappointed. The lagoon

economic implications of Scotland leaving the UK single market, said McLaren. “The similarity between Brexit and Scottish independence is striking, and yet the report doesn’t address that at all,” he said.

On the currency is, he noted that the possibility of an independent Scotland joining the euro was also neglected by the commission. While the euro’s prospects looked poor around the time of the Greek crisis, he said, they now appeared much stronger, although basic flaws still existed.

One of these – sharing a monetary policy framework without a shared fiscal framework – would rear its head if sterling were to be kept, while a Scottish currency would need substantial reserves to protect it. Within the eurozone, Scotland would at least benefit from the defence mechanisms of the EU central banking system.

“If the UK leaves the EU but Scotland still wants to have strong connections with, or stay in, the EU, it would make sense to join the euro,” McLaren said.

was supported by independent experts …it therefore remains unclear how and why the UK government has come to this decision.”

ECONOMY

City deal to boost south-east Scotland First minister Nicola Sturgeon has formally signed off the Scottish Government’s investment in the Edinburgh and South East Scotland City Region Deal. The £1.3bn agreement is intended to deliver inclusive economic growth through housing, innovation, transport, skills and culture. The investment will contribute towards 41,000 new homes, 21,000 jobs and improve the skills of an estimated 14,700 people.

Sturgeon said: “Edinburgh and the South East of Scotland is an area of huge importance to the Scottish economy.”

N O RT H E R N I R E LAND

Devolve powers to councils, says NPI ⦁ Devolving powers from Stormont to Northern Ireland’s councils could help resolve its political paralysis, according to the New Policy Institute.

Unlike councils in England, Scotland, Wales and the Republic of Ireland, those in Northern Ireland have relatively little control over public spending. Most resides with the NI Executive or its agencies.

The NPI’s report suggested local

55thousand

government act as a “public services hub”, assuming responsibility for neighbourhood services such as highways, transport, cultural services, planning and skills.

Derek McCallan, chief executive of Northern Ireland Local Government Association, which commissioned the report, said: “To keep Northern Ireland moving forward, greater devolution of the responsibilities with proper financial resourcing must be put on the table, not just as the antidote to the current paralysis but to strengthen democratic input by local people in the longer term in how we spend £21bn per annum here.

“It’s the norm in all other places.”

WALES

Voluntary council mergers pushed ⦁ The 22 councils in Wales are to be encouraged to merge on a voluntary basis under Welsh Government plans.

Local government and public services secretary Alun Davies announced the next steps following a consultation on the green paper on local government reform.

This had put forward three options for council reorganisation: voluntary mergers; phased mergers; and comprehensive mergers at the earliest opportunity.

Davies said: “There was an appetite among local government to work together to progress voluntary mergers and increase and improve regional working.”

He added that he would introduce a local government bill “at the earliest opportunity” and establish an independent working group to take forward a shared approach with the Welsh Local Government Association.

The working group will be chaired

by Derek Vaughan, MEP for Wales, who was previously leader of the WLGA. It will have a majority of local government members as well as www.publicfinance.co.uk/subscribe representatives from trade unions, business and the third sector.

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Alcohol-related hospital admissions a year in Wales

WWW.PUBLICFINANCE.CO.UK 15

Ethics are the building blocks of professional practice. With financial probity hitting the headlines, CIPFA surveyed hundreds of staff, and found some alarming results

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As resources continue to reduce, the number of ethically challenging situations increases

There is a clear temptation to do the ‘pleasing’ thing rather than the right thing

Team leader, civil service

72%

57%

Miscellaneous

, local government

34%

Have you ever been put under pressure or felt under pressure to act in a professionally unethical way?

Yes answers

Audit and regulator

Civil service

NHS

All

Local government

57% 53%

58% 62% 58%

EITHER FULLY OR PARTIALLY CARRIED OUT THE UNETHICAL TASK

Miscellaneous includes: police, fire, not for profit, charities, housing, commercial, interims, further education, higher education, schools

Did you carry out the task?

ETHICS SURVEY RESPONDENTS SAID THEY HAD BEEN PUT UNDER PRESSURE TO ACT IN A PROFESSIONALLY UNETHICAL WAY

No or didn’t answer

Partially

Yes

Out of the 276 who were put under pressure

64%

64% 57%

56%

35%

57%

37%

28% 8% All

10% Local government

68%

14%

24%

7% NHS

Civil service

22%

TO ACCESS THE FULL 5% VERSION OF9%PUBLIC FINANCE 0% MAGAZINE, SUBSCRIBE HERE Audit and Misc www.publicfinance.co.uk/subscribe regulator

Source: CIPFA ethics survey, June-August 2018

WWW.PUBLICFINANCE.CO.UK 25

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With cuts to budgets and falling local authority support, schools are calling for more funding g in next year’ss spending review

it out: �Working schools face a

ALAMY / GETTY

combination of rising pupil numbers, rising staff costs and funding changes

with a 10-year plan, including a five-year funding settlement.

The short-term nature of the funding system does have perverse and wasteful outcomes. Take the teachers’ pay award.

Mulholland says it was so late that many schools had to plan based on last years’ costs and will now have to restructure again. At the LGA, Watts describes annual funding settlements as “ludicrous”.

He says: “Governments do have a habit of leaving things far too long and dropping people in it.” The LGA is pushing for a three-year settlement. “This is a pragmatic request. There should be as much certainty in the system as possible – three years is realistic. Governments are reluctant to make commitments across funding review periods,” he says.

Perera adds that any long-term funding deal for schools should come with caveats.

“If things were to change in terms of wider local services, if mental health or welfare were taking cuts, then that should be factored in,” she says. Dunkley agrees there must be flexibility to ensure that things that “turn out to be perverse incentives aren’t locked in”.

While pressure for reform grows, the Labour Party has just finished consulting on its own plan for education, which would see the creation of a national education service. This would mirror the inclusive, cradle-to-grave system of the NHS. While thin on detail, it does pledge to reverse spending cuts and introduce a “fairer” funding formula. The National Education Union has already endorsed it.

So far, the government’s response to calls for a long-term deal has been lukewarm. “Longer term visibility is helpful in every sector, and we are committed to securing the right deal for education in the spending review,” says schools standards minister Nick Gibb.

There is up to 10 months before the spending review – a long time in politics.

Whatever its shape, it potentially holds the future of tens of thousands of children and the long-term health of the economy. ●

►

NATIONAL FUNDING FORMULA

Central shift equals less local flexibility The national funding formula was introduced with the rationale of replacing 152 local authority formulas with one central one.

Despite a floor being included in the formula and a minimum increase of 0.5%, it has already had a detrimental effect on some schools nationally.

London Councils says 67% of schools in the capital will receive the minimum 0.5%, compared with 35% across England. Schools in Sheffield will receive £743 per pupil less than those in Manchester.

The reform is also half complete as councils are still distributing the funding. The government is reliant on councils “mirroring” its formula for it to work. The DfE says it remains “its ultimate intention” to have a single formula. But, in a technical note just before the summer recess, the department said councils would continue to distribute funding until 2021, an additional year.

Seventy-three have so far mirrored completely, although significantly only 62 have set the minimum funding guarantee.

Under the formula, the government has also capped the amount schools can transfer between blocks the TOfunding ACCESS THE inFULL dedicated schools grant. Councils say thisOF severely limits their VERSION PUBLIC FINANCE flexibility and how they can react to local need.

In London, MAGAZINE, authorities overspent by £100m in the SUBSCRIBE high-needs block HEREin 2016-17 but were able to balancewww.publicfinance.co.uk/subscribe the books through the other blocks in the DSG. This year, this will be severely curtailed.

WWW.PUBLICFINANCE.CO.UK 31

feature Huw Vaughan Thomas, former auditor general for Wales, talks to PF about how the Wales Audit Office has evolved and the implications of the country’s new fiscal powers

AUDIT THE DRAGON

www.publicfinance.co.uk/subscribe

MATT KENYON/ IKON

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Top tips…

Do ➊ Understand exactly how your ➋ ➌

staff could benefit from mentoring Encourage people to be honest about what they want and expect Watch out for matches failing or becoming managerial

Don’t ➊ Assume an expert with strong

➐ The role of the mentor is to provide the destination rather than the direction. Insisting that mentors use a particular model or approach is also not helpful and can be limiting.

Conversations are likely to be deeper and more insightful if mentors are allowed to find their own method and use an approach that works for them. The best mentors are those who can step back from their own experiences, provide an appropriate balance of support and challenge and help people find solutions that work for them.

➍

➎

Look at how to make a match Formally managed mentoring programmes often have structured matching processes. However, this is not essential – and it is important to recognise that what works well on paper doesn’t always work well in practice.

Of course, you want to match mentees with mentors who are equipped to guide them, but chemistry is just as important. That does not mean that people need to be of the same type. Putting a mentee with someone who has a different working and learning style can be highly effective, but the two parties do need to be able to build rapport and work comfortably together.

Include non-traditional pairings Mentoring does not have to be top down. Peer-to-peer mentoring, or reverse mentoring (where a more junior employee supports an older colleague in getting to grips with an area like social media, for example) can work well.

Do not be afraid to let mentoring relationships arise spontaneously and informally. Often, the best people to make decisions about who they will gel and work successfully with are the individuals themselves.

➏ ➐ ➑

➋ ➌

soft skills will naturally be a good mentor Insist mentors use a particular model or approach Fear arranging non-traditional pairings

Prepare for ‘divorce’ Sometimes, mentoring matches don’t work out, but people may not say so for fear of offending the other party.

Encourage people to be honest about how useful they are finding the relationship and let them know it is fine to have a “no fault” divorce. This is where being open at the outset about what both parties want and expect can help.

Watch out for management moves Look out for relationships where the mentee has become too reliant on their partner and it is slipping into a management relationship rather than a mentoring one. Often this occurs because expectations were not set out clearly enough at the start or the mentor is finding it difficult to be non-directive.

Checking in will allow you to assess whether matters are on the right track and provide additional support if needed.

Provide support and resources If people have not been mentors before, they will need some guidance on the principles and the dynamics of the mentoring relationship – even if they are highly experienced in their field and have the core soft skills.

Mentoring training is a good investment but,if there is no budget, a wealth of online resources and reading is available, or you could ask HR to run a workshop or lunchtime sessions.

Setting up a community of practice where mentors can come together to discuss their experiences and support each other in developing expertise will also be fundamental to the success of your mentoring activities.

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www.publicfinance.co.uk/subscribe World Class Mentoring programme: www.hult.edu/en/ executive-education/partnerships/

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numbers game

Camera shy?

Loans and deposits diverged last year Households’ accumulation of loans debt compared with deposits to UK banks, 1987-2017

150

Loans

Half of people (49%) either support or strongly support greater use of automated road traffic enforcement systems, such as speed cameras in Britain, according to Ipsos Mori research carried out for the RAC. The pollster tested attitudes to using cameras to monitor speed and driver behaviour at, for example, traffic lights and box junctions. It found two thirds (66%) believed they were a force for good.

The survey of over 2,000 British adults also revealed widespread scepticism about the deployment of cameras, with 62% saying they were used primarily to raise money rather than control traffic.

Just under half (47%) trusted the government and other authorities to use monitoring technology in the right way.

Deposits to UK banks

£ billion

125 100

£££

75 50 25 0 1987

1990

1993

1996

pupils

Botched timetable changes to the northern rail network had cost the economy £38m by the end of July, analysis by the Northern Powerhouse Partnership found. Passengers lost up to one million hours on Northern Rail trains alone, according to data recorded between 20 May and 30 June.

1999

2002

2005

2008

2011

2014 2017

Borrowing boom op po se

2% 4% 10% 7%

13%

Support for more use of automated control In principle, to what extent do you support or oppose more use being enforcement in Great Britain?

Base: 2,203 British adults aged 16-75, March 2018

28%

nor

Scotland

£10,651

Northern TO ACCESSIreland THE FULL VERSION OF PUBLIC FINANCE £11,042 MAGAZINE, Public SUBSCRIBE HERE spending per www.publicfinance.co.uk/subscribe head (£) UK nations 48 PUBLICFINANCE

Wales

£10,076

Source: Whole of Government Accounts, 2016-17

England

£8,898

39%

Source: Ipsos Mori

Neither /

Where percentages do not sum to 100, this is due to computer rounding, multiple responses or the exclusion of ‘don’t know’ categories.

Te n ort pp su to

Tend to

Don’t Strongly know support

d

UK households continue to borrow more than they save, Office for National Statistics data shows. Accumulation of loan debt has been climbing steadily for the past six years, while bank deposits dropped sharply since 2016.

In total, households in 2017 accumulated more debt than assets for the first time since records began in 1987, the ONS said. This has been partly driven by record low interest rates, which has encouraged more borrowing and less saving.

The Bank of England base rate was raised to 0.75% in August – the highest level since March 2009. By contrast, the base rate was almost 15% in 1990.

ly ng ro ose t S p op

National spending shares enjoys the highest public spending per head of the Northern Ireland Ire four nations of the UK, the latest set of Whole of Government shows. Per capita spending in the province comes in at Accounts sh £11,000. just over £11 and Wales also enjoy higher per capita spending than Scotland a the England average, at £10,651 and £10,076 respectively. Among regions, spending per head is highest in London (£10,192) English regio and lowest iin the South East (£8,111). terms, spending was lowest in Northern Ireland (£20.6bn) In cash te North East (£25.5bn), and highest in London (£89.6bn), and the N the South East (£73.2bn) and the North West (£68.1bn).

SHUTTERSTOCK

mil ion

No trains, no gravy

P UBLICFINANCE.CO.UK

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