PFNov12

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The business monthly of the public sector

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Issue 11 November 2012

PublicFinance NOVEMBER 2012

It doesn’t add up

Frances O’Grady

Public service envy

Tony Travers says government statistics aren’t what they seem

The new head of the TUC on strife and strikes ahead

Judy Hirst asks if the grass really is greener abroad

Steve Freer on the long, weary road to economic recovery

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PublicFinance

CONTENTS

November 2012

Features 22 COVER STORY No direction home?

The road is long and there’s no end in sight. Is recovery around the corner or have we taken a wrong turning?

Steve Freer reflects as the Autumn Statement looms

28 Things are not what they seem Political and economic policy arguments are won and lost with facts and figures. But many official statistics are too flawed to be meaningful, argues Tony Travers

32 Another country As the UK’s financial crisis deepens, ministers can be forgiven for escaping to far-flung places – if only to copy their civil service reforms. Judy Hirst investigates

36 Sister Frances The TUC’s incoming general secretary is armed and ready to use her diplomatic skills in the public sector battles ahead, Frances O’Grady tells Mike Thatcher

22

OF THE GOVERNMENT’S TWIN ENGINES OF RECOVERY, ONLY ONE, AUSTERITY, HAS FIRED

32

Regulars 4 Leader Fiscal multipliers and other errors 5 Second thoughts David Walker says the education secretary needs to wise up

28 Need to Know

6 News Brandon Lewis interview; Whitehall urged to do more on mutuals; Steve Freer to depart CIPFA

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42 Management Development How to improve your resilience, by Alex Davda and Vicki Culpin 41 Smart Thinking?

Why Whitehall finds it hard to share On Account The savings hurdles that face central government

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Voice of the Nations

17

Risk Review

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Building Matters

Numbers Game Cipfa Events

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Watchdog Watch

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10 Opinion Views from Lord Darzi & Christopher Exeter and Tara Majumdar

18 Restless Nation Is the referendum deal a triumph or failure for the first minister?

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46 48

8 News Analysis Whitehall’s third tax freeze offer

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CONTACTS

Leader Do the maths

T

he economist J K Galbraith famously said there were two kinds of forecasters: those who don’t know, and those who don’t know they don’t know. Which sort is the Office for Budget Responsibility?

The question has been thrown into sharp relief by the International Monetary Fund’s mea culpa over ‘fiscal multipliers’.

Until recently, the Fund based its assumptions about the impact of fiscal contraction on a multiplier effect of 0.5. In other words, for every £1 of cuts in government spending, there would be a 50p dip in gross domestic product.

But at its October gathering in Tokyo, the IMF made it clear it had seriously underestimated the impact of austerity measures. Dismal global prospects (see cover feature on pages 22 to 27) mean that it now expects a multiplier effect of 0.9 to 1.7.

If the actual multiplier is midway in the IMF’s range, the UK’s deficit cuts will have drained £76bn more out of the economy than anticipated.

This is bad news for the OBR, and for the chancellor. The government’s independent forecaster has already had to admit that its 2010/12 growth predictions were six times too optimistic.

Ahead of December’s Autumn Statement, the OBR has a choice. Either it owns up to having based its previous forecasts on outdated data. Or it carries on regardless – not knowing what it doesn’t know – and plucks another growth figure out of thin air.

For the Opposition, the multiplier mess is a gift. The potential negative impact on growth makes the West Coast Main Line fiasco look like small change by comparison.

Shadow chancellor Ed Balls claims that ‘expansionary fiscal contraction’ is dead in the water, along with George Osborne’s austerity strategy. A large body of economists is using the multiplier issue to ramp up pressure for a Plan B. But how robust are these latest algorithms? As Tony Travers argues in this issue, debates about numbers have an Alice in Wonderland quality: official statistics are not always what they seem.

And, depending on your view, it’s not just deficit reduction, but also high inflation, tight credit and weak global demand that have caused the disappointing growth figures.

With no recovery in sight, it is inevitable that disputes about growth should stir such passions. What is less clear is whether anyone has a clue as to what lies around the corner.

Prediction, after all, is very difficult – especially about the future.

■ JudyHirst DEPUTY EDITOR letterstoeditor@publicfinance.co.uk

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REDACTIVE PUBLISHING LTD 17-18 Britton Street London EC1M 5TP 020 7880 6200 www.publicfinance.co.uk Editor Mike Thatcher 020 7324 2768 mike.thatcher@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 Nick Mann 020 7324 2794 nick.mann@publicfinance.co.uk Reporter Richard Johnstone 020 7324 2796 richard.johnstone@publicfinance.co.uk Contributors Jane Cahane, Keith Aitken Chief subeditor Anne Lawton 020 7324 2789 anne.lawton@publicfinance.co.uk Art editor Gene Cornelius 020 7324 6227 gene.cornelius@redactive.co.uk Editorial assistant Henry Manners 020 7324 2793 henry.manners@publicfinance.co.uk Digital content manager Harriet Patience 020 7324 2733 harriet.patience@redactive.co.uk Sales manager Katy Eggleton 020 7324 2762 katy.eggleton@redactive.co.uk Digital Sales Executive Leila Serlin 020 7324 2787 leila.serlin@redactive.co.uk Advertising production Aysha Miah 020 7880 6241 aysha.miah@redactive.co.uk Printing Pensord, Blackwood, Gwent, Wales To subscribe to Public Finance at the annual cost of £100, call 020 8950 9117 or email publicfinance@alliance-media.co.uk.

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PublicFinance NOVEMBER SEPTEMBER2012 2011

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Second thoughts pfOpinion

■ David Walker

Get with the programme, Gove In an increasingly complex world, the education secretary needs to look less to the past and modernise his approach to schools Poor Michael Gove. Pity comes grudgingly. In a Cameron cabinet where self-doubt is scarce, the secretary for education is self-assured in the extreme. Gove cultivates anachronism, fantasising about recreating his glorious youth at Robert Gordon’s College in Aberdeen – all blazers and inkwells and ferocious competition. His policies lurch between anarchy (free schools and untrammelled parental choice), and a centralising push to prescribe content and forms that even Tory columnist Sir Simon Jenkins calls ‘Soviet’.

And yet sympathy is due – even for a minister who wanted to spend scarce public money to dispatch an autographed copy of the King James Bible to all schools – at least for the role.

Children are our future. Even in an ageing society, schools carry fervent aspirations. Yet they remain mysterious places: education (compared to health and other social policy domains) is peculiarly evidence-free. What’s the formula for a ‘good school’, beyond exam passes? Research on class size, teaching method, home influence and

individual ability is hotly contested.

Ministers (including Gove’s predecessors) talk of ‘freedom’ and choice. But learning also involves coercion and indoctrination. Autonomy for heads and governors, he says; in the next breath, students must do his Victorian version of ‘our island story’.

Schools are the site of ambitions that are elsewhere suppressed or disguised, around class, gender, race and (think Kenneth Baker) nation. Schools remain the cynosure of extraordinary, Utopian hopes. The political Left dreams they can unite a fissiparous and unequal society; the Right wants them to freeze time and halt unruly social and attitudinal shifts.

Of course, the ‘governance’ of education matters. Critics say that Gove is dismantling the 1944 education settlement, excluding elected councillors from all but the most marginal roles in running primary and secondary schools (having been jettisoned from higher and further education by former Tory governments). That matters for accountability, but, given councils’ uneven track record, will it matter for outcomes?

For all his cockiness, the puzzle about Gove is how unsure his touch is. GCSEs need revision, but where’s his vision for embracing vocational strands (which

GOVE SHOULD START SPREADING CAMERON’S ETONIAN PRIVILEGE AROUND

he seems to despise) or – 68 years too late – a redemption of the 1944 promise to give technology-oriented schooling a fair shot at recognition and resources?

Gove wants an ‘English baccalaureate’, but this would only work if it ended the dogmatism around A level. And while an ‘A bacc’ looks attractive, how will Gove keep the universities, with their highly specialised 18+ exams, on board while protecting his bid for Tory leadership?

Standards aren’t for their own sake.

Schools matter because, whatever adult programmes and catch-ups can do, it’s in the years from five to 18 that skills, habits and knowledge are gained – and it is on that training that our prosperity, growth prospects, culture and social equilibrium depend.

The world is getting more complex.

Cognitive demands grow. Schools have to ask for more – more knowledge, more capacity, more adaptability – as they become even more complex places.

That means more maths and stats – unavoidably. It’s also technological aptitude (for ‘creative’ types as well), languages, all manner of preparation for the changing shape of UK exports and opportunities. Get modern, Gove, and start talking about the mental furniture of twenty-first century England.

And take David Cameron at his word about spreading Etonian privilege around. Schools spending is investment.

Education deserves its own section in the national accounts, along with infrastructure and capital spending capacity. We could readily forgive Gove his intrigues and foppishness if only he consistently confronted his colleagues in the Cameron cabinet with the urgency (and necessary expense) of supporting schools in their incredibly difficult task.

David Walker is a journalist and broadcaster NOVEMBER 2012

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News Local government finance

Minister considers business rates shift

BY RICHARD JOHNSTONE

Further changes could be made to the coalition’s town hall finance reforms after local government minister Brandon Lewis revealed he is examining calls to alter business rates localisation to ensure cities are not disadvantaged.

In an exclusive interview with Public Finance, Lewis also discussed the government’s concerns over some local authorities’ plans to impose council tax hikes on their poorest working-age residents.

On business rates, Lewis said proposals put forward by a London borough to ensure urban areas benefit from growth were ‘interesting’. Authorities will retain half of the growth in business rates in their area from next April under plans to encourage councils to back new developments for business growth.

However, Westminster City Council has told ministers the plan could leave authorities in built-up areas – with little room for new commercial properties on which rates are paid – with no incentive.

Council leader Philippa Roe told PF the authority was in ‘very, very early stage’ talks with government to create ‘local growth zones’ as part of the plans. These would devolve some of the ‘increased

Brandon Lewis: ‘Some of the schemes do not protect the most vulnerable, and that’s not acceptable’

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Accelerating change: Westminster City Council said the plan may leave authorities in built-up areas with ‘little incentive’

amount of tax that local businesses generate because they have been more successful’ back to the council, she added.

Lewis told PF the Department for Communities and Local Government was examining the proposal as part of responses to a consultation that closed on September 24, and would provide an update in November. Proposals for local growth zones contain ‘some interesting stuff’, he added.

‘What is very clear is that councils are responding positively to us devolving the interest in the local business community and the local commercial interest to local councils. That, in principle, they’re happy with. What we will look at with the consultation responses is to make sure we have a scheme that really does reinforce that,’ said Lewis.

The potential change comes after Lewis announced new transitional arrangements to localise the national Council Tax Benefit scheme to town halls.

Councils will take responsibility for allocating council tax support from next year following a 10% funding cut. Billing authorities – unitary and district councils in two-tier areas – are responsible for

administering new schemes.

The government insists that councils continue to provide existing levels of benefit to pensioners, forcing authorities to design new eligibility criteria for working-age people. Some councils had been preparing to charge those who received 100% relief under the national scheme as much as 25% of their liability.

However, Lewis revealed on October 16 that councils will be able to bid for a share of a one-year £100m ‘transition grant’ if they capped liabilities for those who previously paid nothing at 8.5%. Grant applications will be made from January 31 next year, with money paid in March.

Lewis told PF that some proposed tax demands were ‘not acceptable’ to government, and some councils ‘need to look again’ at their plans. ‘Be very clear: some of the schemes that have come out do not protect the most vulnerable, and that’s not acceptable,’ he said.

‘There’s a few schemes that are all about just charging people money and cutting the benefit. Some are not looking at how they create economic growth and help people back into work.’

However, the funding announcement Photo: Shutterstock/Allstar

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EmployeeOwnership ■ Richard Johnstone

Whitehall urged to boost mutuals programme A member of the government’s Mutuals Taskforce has said some Whitehall departments need to do more to back employee-owned firms that could provide public services.

Iain Hasdell, chief executive of the Employee Ownership Association, told Public Finance that some departments were ‘doing a wonderful job’ promoting employee-owned firms. But he singled out the departments of transport, education and defence as lagging behind some of their Whitehall counterparts on mutuals creation.

The government has launched a ‘pipeline’ to help develop employeeowned mutual companies, and Hasdell said both the departments of health and local government have ‘a

strong pipeline of mutuals already underway’. Among the recent spinout proposals is a plan for Cleveland Fire Brigade to become employee-owned.

However, a report by the Mutuals Taskforce published in June urged all government departments to ‘set out a clear plan and vision for developing and implementing a mutualisation policy’ by December this year.

Ahead of this deadline, Hasdell said there was still a need to ensure ‘all departments of state are getting to the same stage in having the same pipeline’ of mutuals.

He added: ‘There’s not so much of a pipeline in education, transport or defence, and [the recommendation] is about supporting the momentum right across government, building on

creates a ‘problem’ for authorities as they begin setting their budgets for 2013/14, a senior council figure has warned.

Peter Fleming, lead member for welfare reform at the District Council’s Network, said a ‘majority’ of authorities had been consulting for charges above 8.5%.

Fleming, who is also the leader of Sevenoaks District Council, said his authority’s plan – which had been developed with the backing of Kent County Council – was now ‘up in the air’.

There was ‘no real detail’ about how the £100m will be split, he said.

‘There has been a mild change of heart by the government, but no detail – and until they account for how the scheme [will work], it is difficult,’ Fleming added.

‘Councils need to have this funding in their budget plans, but we can’t apply for money before January 31. That’s a bit of a problem if an authority doesn’t then get the money they thought they would.’

The government’s attempt to limit liabilities followed concerns that ‘this could be another “poll tax”, with lots of bills going out and not getting paid’, he said.

‘My response to that is they should have consulted properly on the plan before they introduced it. It does look a bit like the poll tax – asking people who haven’t paid to pay a little bit of money.’

Despite the extra funds, the question of ‘what do we do if they don’t pay’ remains, he added. ‘Authorities are not in a position to write that off.’

what’s already there in local government and health.’

Hasdell also urged the Department for Communities and Local Government to provide extra financial support for spinouts from councils as it develops its plan.

Stressing he was ‘very supportive of what the government is doing’, Hasdell added: ‘One additional ingredient I would be particularly keen to encourage is more seed funding to pump prime mutuals’.

This would help ensure that emerging employee-owned companies have ‘better balance sheets’ that could protect them from the risks of bidding for new work.

‘One of the dangers [to mutuals] is their lack of working capital – they

can be so dependent on one contract that some additional help on balance sheets would help them early on.’

He also revealed that the public sector ‘knowledge’ of how to set up mutuals within European Union procurement rules was growing, which could provide greater security to new firms.

The June Taskforce report raised concerns that a lack of ‘clarity’ around EU public procurement rules made it difficult to support newly formed public service mutuals.

However, Hasdell told PF: ‘More and more people [launching mutuals] are getting longer contracts, clear of competition, than a few years ago, as the knowledge has grown on how to do it.’

CIPFA

Steve Freer to step down after 12 years

BY MIKE THATCHER

CIPFA chief executive Steve Freer has announced that he is to step down from the institute at some point over the next 12 months.

Freer, who has been in the role for more than 12 years, said the decision to leave had been tough. ‘It’s a brilliant job and a great organisation. I really have enjoyed every moment,’ he said.

‘CIPFA and its members make such an important contribution to the public services. Our members are handling some of the most challenging roles in the profession, and doing so with amazing skill.’

He complimented members on their commitment and conscientiousness at a time of severe public spending cuts.

‘Although it is an incredibly tough period, I am absolutely certain that, when we get to the other side, people will feel proud of the job that they have done to maintain critically important services and to keep organisations afloat,’ he told Public Finance.

CIPFA president Sir Tony Redmond paid tribute to Freer’s work at the institute. ‘He’s been the driving force and a major influence behind many

Steve Freer: ‘It’s a brilliant job and a great organisation’

of CIPFA’s very considerable achievements during his tenure,’ Redmond said.

He added: ‘On behalf of the institute, I would like to express my sincere gratitude for his exceptional work, delivered tirelessly, in public finance, and wish him well in whatever he chooses to do next.’

Freer qualified with CIPFA in 1976 and forged a career in local government in the Midlands and at the then consultancy Coopers & Lybrand. Before joining CIPFA in February 2000, he was county treasurer for Warwickshire.

He told PF that he didn’t intend to retire, but hadn’t yet developed any plans for what to do next.

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News

Analysis Council tax freeze

Tax freeze signals anti-localist move

Washout: Brighton and Hove Green Party’s attempts to reject last year’s council tax freeze and introduce a 3.5% increase was scuppered by opposition parties

Whitehall’s third council tax freeze offer has met with mixed reactions from councils — not least because it is another shift back from ‘localism’ to centralism. Vivienne Russell investigates

They say that everything comes in threes, and so it is with council tax freezes.

Eric Pickles’ announcement at the Conservative Party Conference of yet more Whitehall funding to hold down council tax in England for a third successive year grabbed relatively little media attention compared with previous years. Perhaps this is unsurprising – an indicator of how quickly the tax freezes have become part of the fiscal landscape.

Trailed in a pre-conference interview

by Chancellor George Osborne, the council tax freeze didn’t even get a mention in his main platform speech. It was left to Local Government Secretary Pickles to confirm the funding and set out the details. He said the freeze grant would be £450m, to be paid over two years to local authorities that decide to hold down or reduce their council tax.

According to the Department for Communities and Local Government, councils, police and fire authorities going for a freeze stand to receive £225m in funding in both 2013/14 and 2014/15 – equivalent to raising their 2012/13 Band D council tax by 1%. A temptingsounding carrot, perhaps, but there’s also a stick: any authority proposing to 8

increase council tax by more than 2% will have to hold a local referendum – a significantly lower threshold than the 3.5% that previously applied. Pickles will provide more details on the referendum in December.

At the Conservative conference in Birmingham, new local government minister Brandon Lewis shared some of the government’s reasoning for lowering the referendum trigger point with Public Finance. ‘Inflation is lower,’ he said. ‘I think the public expectation, rightly, is that we do all we can to reduce cost to people. So I think it’s right that if councils think they should increase council tax, they go and get permission from their residents.’

He added: ‘Our view is that we should set it relatively low to do what we can to protect as many residents as possible.’

The last freeze-grant round was not entirely successful, with around 15% of English councils opting to increase council tax, according to CIPFA’s annual survey. While Lewis admits some councils in the next budget cycle will refuse the freeze cash, he’s hopeful that the majority will accept it.

Reaction from local authorities and

their representative bodies has been mixed. The Local Government Association noted that, while any extra help for councils was welcome, the freeze grant could only be a short-term option and was not a solution to the long-term pressures in the local finance system.

LGA chair Sir Merrick Cockell also observed that the lower referendum trigger point brought the government’s localist credentials into question. ‘If local referendums are to be truly localist, they should be triggered by local people who can determine whether a council tax increase is excessive or not,’ he said.

CIPFA is also unhappy at Whitehall’s attempts to hold down local taxation levels. ‘It is worrying that we seem to be drifting to a position in which the council tax is effectively determined by central rather than local government,’ says chief executive Steve Freer. ‘That’s bad news for local democracy, and sits awkwardly with the government’s own localism policy.’

On the front line, some authorities – such as Suffolk County Council – have been quick to go public with their acceptance of the freeze grant.

Suffolk leader Mark Bee points out that

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QuoteUnquote ‘It’s right that if councils think they should increase council tax, they go and get permission from m their residents’ Brandon Lewis, local government minister

‘It’s a real possibility that we are slowly strangling our only source of local taxation’ Simon Parker, director, New Local Government Network

‘IT’S PRETTY

ABSURD TO SUGGEST THAT THE COALITION GOVERNMENT BELIEVES IN LOCALISM IF THEY DON’T EVEN LET US CHOOSE OUR COUNCIL TAX’ JASON KITCAT, LEADER, BRIGHTON AND HOVE CITY COUNCIL

the economic slump means many of his residents are struggling to make ends meet. ‘It’s therefore our moral and professional duty to do everything we can to keep delivering quality public services without asking people for more money, however hard that is to achieve,’ he says.

‘I’m delighted that this additional support from the government means we can freeze council tax for a third year and help the hard-working people of Suffolk during these difficult financial times.’

Other councils, however, are choosing to keep their options open until they receive details of their grant settlements in December.

Peterborough City Council, a Tory-run authority, made waves last year by turning down the freeze-grant funds on offer and raising council tax by 2.95%.

John Harrison, executive director of strategic resources at Peterborough, tells PF that levying a rise had been a ‘difficult decision’ for his members.

Harrison won’t be drawn on what his members might do next year, but he offers a summary of how the lower referendum trigger has changed the nature of the council’s options.

‘The medium-term financial plan had assumed council tax increases of 2.95%, so if it were to look at that level of increase, it would be looking at triggering a referendum, with all the costs and uncertainty that may go with it. Or, does it drop it to below 2% and avoid a referendum? Or, does it drop it to 1% and take, in effect, the freeze grant?

‘There are varying levels of decisions, but none of that can be taken without the context of the overall spending power and grant settlement, and what that will mean for services locally.’

At Brighton and Hove City Council, the Green Party are in minority control.

Their attempt to reject last year’s freeze grant and introduce a 3.5% council tax increase was scuppered by opposition parties. This decision has left the council with a £3.6m funding hole for next year, council leader Jason Kitcat tells PF. Kitcat is awaiting the outcome of the Autumn Statement and grant settlement before making any commitments on what

Brighton and Hove might do next year, but he says annual freeze grants make long-term financial planning incredibly difficult.

He adds: ‘It’s pretty absurd to suggest that the coalition government believes in localism if they don’t even let us choose our council tax.

‘The government doesn’t seek a referendum when it amends any of its taxes whatsoever, and yet they are saying that government will set the method, the question and the type of referendum, and that it will only be valid for one year – and they’re also setting the bar at which it will be triggered. It doesn’t feel like freedom, from our perspective.’

He adds that the referendum measures are ‘completely untested’ and would cost Brighton around £300,000 to implement.

Simon Parker, director of the New Local Government Network think-tank, offers the view that, while it might be ‘good, short-term politics’ to freeze council tax, in the long run, it is bad for local democracy and localism.

‘Council tax is the only tax that’s local in the UK,’ Parker points out. ‘We’ve already got one of the most centralised financial systems in the developed world; once you start freezing council tax, it becomes very hard to stop freezing it.’

He goes so far as to suggest that we might be witnessing the ‘slow death’ of council tax. ‘It’s a real possibility that we’re slowly strangling our only source of local taxation,’ he tells PF. Parker predicts that more councils could break the freeze next year.

‘Councils will be worried about their council tax bases, they’ll be worried about the principle of the tax effectively being nationalised over time.

“They’re negotiating the third year of a seven-year austerity programme. They’ve kept the tax down so far, but things are pretty tight.’

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■

The price of inactivity, by Lord Darzi and Christopher Exeter ■ Commission possible for police? By Tara Majumdar

Opinion ■ Lord Darzi and Christopher Exeter

The price of inactivity The biggest risk to human life today is not infection but largely preventable illnesses.

Health policy must shift from hospital-based treatment to early intervention, and the Treasury needs to take note Prevention, they say, is better than cure.

And for a long time, preventative health has been high up government agendas across the world. Most policy makers recognise that investing in prevention makes long-term economic sense.

However, political rhetoric is one thing. In times of fiscal austerity and – in the UK – major health service upheaval, preventative health risks being shunted to the bottom of the pile. This would not only be short-sighted. It would potentially add to the burgeoning health bill we collectively face.

World health trends are changing fast.

Since the 1950s, living standards have

risen, life expectancy has increased, and child mortality has fallen. Rapid globalisation, increased urbanisation and technological advances have broadened horizons – recasting what we as humans expect and demand.

In 2012, the principal cause of death is no longer infection. It is the group of illnesses defined as noncommunicable diseases – the ones that are not transmissible from one human to another – that now present the greatest threat to human life.

The big four NCDs are cardiovascular disease, common cancers, diabetes and chronic obstructive pulmonary disease.

None of these is a new disease. What is new is the scale of the problem, and the dawning realisation that traditional approaches to health care are becoming increasingly ineffective.

NCDs were once regarded as diseases of affluence, largely confined to high-income countries. But this

Catch it while you can: high blood pressure is responsible for 13% of deaths worldwide

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view has rapidly shifted. Regardless of country or socioeconomic status, everyone is potentially at risk. Of the 57 million deaths across the world in 2008, 36 million (63%) were caused by an NCD. Of these, 48% were due to cardiovascular disease, 21% to common cancers, 12% to chronic obstructive pulmonary disease and 4% to diabetes.

Globally, hypertension (high blood pressure) accounts for approximately 13% of deaths.

By 2030, non-communicable diseases will be killing 52 million people per year.

The number of deaths is now so high, it is regarded as a pandemic.

Economically, the figures are just as startling. Harvard University’s School of Public Health has estimated that over the course of the next two decades, the cumulative economic loss resulting from NCDs (the big four plus mental health) will be US$47 trillion (£29trn). This equates to 75% of global gross domestic product in 2010 (US$63trn or £39trn).

So what are the causes? The scientific evidence is clear: if you smoke, have a poor diet, exercise little and drink alcohol excessively then you are at substantial risk of acquiring an NCD. Some commentators view rapid globalisation and urbanisation as causes.

But this needs to be put into context.

The economic benefits of a global world are not in doubt; it is poor longterm planning that creates the problems.

For health policy makers, the causes of and solutions to this pandemic present a fundamental challenge that requires subtle approaches – both for policy formulation and, in high-income countries such as the UK, the design of health care systems.

It is wrong to assume, for example, Photos: Shutterstock

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Keep on running: the steep rise in non-communicable diseases is due partly to preventable causes such as lack of exercise and inadequate early detection and intervention systems

that the steep rise in NCDs stems from increased life expectancy. If you live to be 100, you might well die from an NCD-related illness, but greater longevity – one of medicine’s great success stories – is not in itself the cause. The problem lies with a lack of effective preventative interventions, and with people ‘discounting’ future problems by believing they are many years away.

In fact, almost a fourth of all global NCD-related deaths now occur before the age of 60. For example, evidence is emerging of rising bowel cancer rates among young people, which can be attributed in part to sedentary lifestyles and binge drinking.

This suggests that the way we think about health in the UK needs to change radically. Current health systems are not well adapted to dealing with a world where NCDs account for most of the burden of disease. These systems were developed at a time when infection was the main risk. They provide episodic, disjointed and hospital-based care.

A few simple interventions could

By 2030, non-communicable diseases will be killing 52 million people per year. The number of deaths is now so high, it is regarded as a pandemic potentially prevent, detect or mitigate debilitating diseases. Technology, for example – through phone apps and suchlike – could be used to help people monitor simple conditions. That alone is clearly not enough; once a problem is detected, it needs to be acted upon.

That is why tackling these long-term problems in the UK can no longer be regarded solely as an NHS issue. It is one that can be solved only by taking a

whole-of-society approach. All sectors – government, employers, the private sector, non-governmental organisations and, most importantly, individuals – need to be involved in curbing the rise of what are, in many cases, preventable illnesses.

These issues were the focus of the Global Health Policy Summit recently held by the Institute of Global Health Innovation. One conclusion was clear: at the governmental level, tackling NCDs is as much an issue for the Treasury as it is for the Department of Health.

This is a long-term problem, and requires a new approach. It presents a fundamental challenge to health policy thinking in the UK but it is one the country cannot ignore.

Lord Darzi and Christopher Exeter are respectively director and senior fellow of the Institute of Global Health Innovation at Imperial College London. Lord Darzi is a former health minister under Labour and headed its NHS Next Stage Review. This article is based on research available at www.globalhealthpolicyforum.org/ docs/GHPS_NCD_Report.pdf NOVEMBER 2012

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Opinion ■ Tara Majumdar

Commission possible for police?

As elected police and crime commissioners settle into their new roles in the next couple of weeks, they will have to find ways to steer their forces through a world of shrinking budgets, fewer staff and changing technology On November 15, voters will elect the first police and crime commissioners for 41 police forces in England and Wales.

On entering office, the commissioners will be looking to hit the ground running with their election promises: reducing 12

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crime, making police more accountable to the public and giving victims a stronger voice.

But they will also have to lead their forces through the toughest financial challenges of their histories, with budget cuts of up to 20% required by 2015 and yet more expected in the next Spending Review.

This will require a complete cultural shift for a service used to steadily increasing funding – budgets rose by a third in the decade between 2001 and 2011. With commissioners at the helm,

forces will have to transform the way they work by improving services and maintaining public confidence while saving money. .

Fortunately, there are plenty of examples of the top brass delivering more for less. Staffordshire Police deputy chief constable Douglas Paxton told delegates at a recent Reform/ KPMG conference that his force had rethought its core operational processes and been relentless about making the best use of its staff. The first stage of the programme had looked at how slimmed Photos: Shutterstock

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publicfinance.co.uk/opinion

pfBlogs

A DIGEST FROM THE WEB

Commissioners will have to lead their forces through the toughest financial challenges of their histories

‘The obsessive recording of data is an illusion of control, a chimera of certainty about a future that is unclear. Before the crash, the financial sector had more information than ever before but only a handful of people predicted what would happen.’

Michael Ware, corporate finance partner, BDO

‘Predistribution alone cannot solve the problem of growing polarisation and a progressive tax system will always be needed. However, it does represent a necessary shift in politics and policy – from a curative to a preventative approach.’

Faiza Shaheen, senior researcher, New Economics Foundation

down middle- and back-office functions could be made to work more effectively.

Staff were given tighter objectives and made to concentrate on fewer, better defined, areas of work.

The next step was to assess how the force conducted its main areas of work, including the way it responded to incidents, recorded crimes and dealt with defendants at police stations.

Paxton said officers were now attending almost 800 more incidents a month within the target time and charging defendants faster once they were brought into custody, despite having 400 fewer staff.

But there are no set ways of approaching organisational change.

In Scotland, the eight police forces are merging into a national police service that will begin operating by April 2013.

The new force is expected to allow greater partnership activities and economies of scale, ultimately saving £106m by 2016/17.

However, KPMG research found that only 31% of corporate organisations increased their value from merger programmes. If the Scottish national police force is to achieve its ambitious goals, it will need a clear plan about how integration will take place, adopting lessons from other industries that have succeeded in the past.

Technology will play a central role in the future of the police. Highperforming forces are encouraging the public to engage with them through social media and the internet.

For example, online tools, such as Facewatch, are allowing businesses to instantly report crime and share

‘Is there a state of the world in which the Outright Monetary Transactions programme buys policymakers’ time and they use that time wisely to draw a line under the eurozone crisis? Sure. But I wouldn’t bet the farm on it.’

Megan Greene, head of European economics, Roubini Global

‘Given how badly the coalition’s economic and financial plans have worked, the 2013 Spending Review will be seen as integral to the platforms of the two parties as the general election looms.’

Colin Talbot, professor of government and public administration, University of Manchester

information within a local network.

Launched at the end of 2010 by a London wine bar after a spate of thefts from customers, the initiative has reduced the amount of police time spent on recording crime, improved conviction rates and assisted victims by providing instant crime reference numbers. It is Neighbourhood Watch for the twenty-first century, adding new meaning to police founder Robert Peel’s principle that ‘the police are the public and the public are the police’.

While forces are pioneering new models of policing, government reforms have set the context. Police and crime commissioners are making forces democratically accountable for the first time and the new police-led ICT company will make technology more responsive to professional needs.

The state of the public finances means that it is not sustainable to keep on spending money on topping up police numbers without any assessment of how

well they are operating. Tom Winsor’s Independent Review of Police Officers’ and Staff Remuneration & Conditions will introduce better rewards for high performance and specialist skills.

On the ground, police forces are beginning to respond to the challenge but still have some way to go. In July, the Inspectorate of Constabulary published Policing in austerity: one year on, which found that most forces had reduced their spending while providing consistent services to the public. Yet a more recent report by the inspectorate, Taking time for crime, found that crime prevention was still an afterthought for most forces. There is definitely room for a further push on reform.

Tara Majumdar is a researcher at Reform.

A copy of the Reform/KPMG conference report, Transforming policing for the twenty-first century, can be downloaded from www.reform. co.uk NOVEMBER 2012

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Voice of the

Nations NEWS FROM THE DEVOLVED ADMINISTRATIONS Scotland

New chief vows third-sector revamp

BY KEITH AITKEN IN EDINBURGH

The bodies representing Scotland’s third sector in community planning and local service delivery aim to transform themselves into a major new national force in public policy debate over the coming year, their new head has told Public Finance.

Calum Irving was speaking a month after taking up a post as the first-ever chief executive of Voluntary Action Scotland, the national network set up three years ago to link up the Third Sector Interfaces in each of Scotland’s 32 council areas.

‘I would expect us to be a lobby within public debate, but at the same time, “lobbying” sometimes diminishes what needs to be done,’ Irving said. ‘We need to be a partner – a critical friend, if you like – to Scottish government and public bodies in Scotland.

‘We need to say we support the agenda to make the most of the voluntary sector, but by the same token, we ask you to recognise what you [the Scottish Government] need to do in terms of supporting and trusting that voluntary sector – part of which is ceding power where appropriate to ensure that you have a more equal relationship with partners when you’re taking forward the big agenda around community planning, procurement and so on.

‘I think it’s also about trying to set the agenda: why should community planning change? What’s the purpose? And [we need] to advocate a stronger role for TSIs, because we want a stronger role for the communities we work with from day to day.’

Irving made it clear that he envisaged a brisk timetable for the new role: ‘I think 14

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National force: Scotland’s community planning and local service delivery bodies aim to impact public policy debate

in a year’s time I want the network to feel stronger and more confident, and I want VAS itself to be able more clearly and confidently to advocate things that TSIs and VAS together know need to happen.’

The appointment of Irving, former Scottish director of the gay equality charity Stonewall, reflects a view that the sector has sometimes struggled to punch its weight in dealings with councils and other local partners. Coming legislation on prevention, procurement and community empowerment is seen as an opportunity for the sector to do better.

Irving said the plans also reflected a maturing, both of the network and of the idea of TSIs, since VAS was formed in 2009.

‘Probably because TSIs themselves are a

relatively new thing, the focus has been more on the locality rather than on what can be achieved together across the nation,’ he explained.

‘It’s very hard to ask people to focus together on what the collective power of that network is when you’ve got stuff to sort out back at the ranch.’

He dismissed suggestions that VAS would become just one more third-sector lobby in an area already thick with them.

TSIs had a uniquely multifaceted role in developing volunteering, charities, social enterprises and links with other sectors, Irving said. ‘TSIs are comprehensive in terms of what they do, and in covering every local authority.’

VAS convener Harriet Eadie told PF that the upcoming legislation increased the pressure on TSIs to represent thirdsector bodies more effectively to local partners, and that this role was also important to the partners who needed the TSIs to bring shape to the ‘cacophony’ of thirdsector groups.

Asked whether this meant that councils had become better reconciled to an increased third-sector role in service delivery, Eadie replied: ‘A bit. There are two sets of attitudes. One set of public sector officers see opportunities in the third sector as potentially a cheaper deliverer or alternative deliverer of public services.

‘But there is another set – the middle managers – that tends to be less strategic, and that feels threatened by the third sector.

There are huge tensions around what this relationship should look like, and massively shifting sands in this relationship.’

Photos: Alamy

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publicfinance.co.uk/news

InBrief HOUSE RULES House elected police chief constable Strathclyde police chief Stephen House has been appointed chief constable of the new Police Service of Scotland, which comes into being next April. He will work with National Force Authority chair Vic Emery, who said House would bring ‘a wealth of experience’ to the role.

RESPONSE REQUEST Poots seeks reply to care reforms Northern Ireland Health Minister Edwin Poots has called for a wide-ranging response to his consultation on health

and social care reforms, Transforming Your Care. The proposals focus on prevention and early intervention, and ‘are about improving service delivery, not cuts’, said Poots. The consultation ends in January.

MONEY TALKERS Training to teach financial ‘literacy’ Welsh teachers are being encouraged to sign up for training to teach financial education to primary and secondary school pupils as part of the Welsh Government’s National Numeracy Programme for 5 to 14-year-olds.

Education minister Leighton Andrews

said: ‘We have a responsibility to equip young people to face the ever-increasing complexity of financial products.’

MCPEAKE PRACTICE New Nilga head to tackle challenges Sinn Féin councillor Seán McPeake was appointed president of the Northern Ireland Local Government Association for the 2012/13 term following its September 28 AGM. McPeake said local government was at a ‘massively challenging crossroads’, adding: ‘A huge amount needs to be done in order to support the delivery of local government reform.’

Scotland

Swinney pledges spending boost Scottish Finance Secretary John Swinney is to end the public sector pay freeze and boost capital spending, he announced in his draft Budget for 2013/14.

Pay for government staff will rise by an average of 1% from next March, with proportionately more for those earning under £21,000 a year, and nothing for those earning over £80,000. The assumption is that local authority employees will be able to negotiate similar increases, though there is no indication this will be centrally funded.

Capital spending on construction, skills and green energy will rise by £180m over the next two years, but at the cost of tough constraints on revenue spending.

Prominent among the new investments are £40m for affordable housing and £17m for the college sector, in both cases partially restoring politically unpopular cuts made last year.

There will also be an £80m acceleration of the programme to build and renovate schools using the non-profit distributing funding model, recruitment incentives for smaller companies to hire young unemployed people, the creation of an Energy Skills Academy, and packages of investment in home insulation, athletics, cycling infrastructure, hybrid buses, tourism and maintaining historic buildings.

Swinney also reaffirmed commitments to free personal care, free higher education, free prescriptions and the living wage, and to maintain the Scottish Government’s promise of no compulsory redundancies of its employees.

Funding comes on stream: The Welsh Budget has allocated an extra £10m to strengthen defences following the severe flooding in Ceredigion and Gwynedd this summer, including eight extra flood-prevention schemes in vulnerable communities Wales

£175m injection for key projects The Welsh Government is to commit an additional £175m in capital investment to support ‘strategically important’ projects.

The announcement was included in the £15.4bn draft Budget, published on October 2 by Finance Minister Jane Hutt.

Hutt said the Budget was focused on boosting jobs and growth, but would also uphold social justice and sustainability.

Included in the £175m capital investment package is £65m for transport improvements, £30m for hospital improvements and £25m for school refurbishments.

An extra £10m is included in the allocation to strengthen flood defences in Wales, following the severe flooding in Ceredigion

and Gwynedd this summer. Environment Minister John Griffiths said it would fund eight additional flood-prevention schemes in vulnerable communities.

Hutt said the £175m in capital investment would make a ‘real difference’, delivering long-term benefits to the Welsh economy and improvement infrastructure.

On revenue spending, the 2013/14 draft Budget proposes continued protection for the health budget, an extra £35m revenue support grant for social services, and maintenance of universal benefits, including free prescriptions, free concessionary bus travel and free school milk and breakfasts.

Hutt said: ‘Despite the Welsh Budget being £2.1bn lower in real terms by 2014/15 than at its peak in 2009/10 as a result of cuts imposed by the UK government – including a 45% cut in capital over that period – we have ensured all Welsh Government departments see an increase in funding.’

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Voice of the Nations Scotland

supported through the various measures in the Bill.’

Sinn Féin Assembly member Alex Maskey said the party’s amendment had been ‘sensible and measured’. He added: ‘This is not the end of the battle; we will continue to lead the demand for change to the Bill, and lead the demand for protection for low-income families and those reliant on benefit.’

CIPFA reveals tougher controls The Scottish Government faces tougher Whitehall controls over its new capitalborrowing powers than councils, according to CIPFA. Responding to a Treasury consultation, the institute noted that, although the Scotland Act 2012 extended Holyrood’s borrowing powers, it did not ease existing UK government constraints on how the money could be raised. However, it does give the Scottish secretary discretion to do so at a later date.

Under the Act, Scotland will be able to raise up to £2.2bn in bond issues to finance capital projects. By comparison, local authorities already have capital borrowing powers, and their treasury management is governed by a statutory framework and two professional codes of practice issued

by CIPFA. ‘It would appear that the control framework for the devolved administration is much tighter than that of local government,’ the CIPFA paper concluded.

The consultation reflects Treasury concern over the transparency of subsovereign bond issues, and the consequent potential impact on credit ratings.

CIPFA argued that the new Holyrood powers would be best exercised under a professional-practice framework, as well as being subject to legislative controls.

Power brokers: Holyrood’s borrowing powers have been extended through the Scotland Act 2012 – but with limits

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Wales

IFS report issues cuts wake-up call

Opportunity knocks: NI Social Development Minister Nelson McCausland said the reforms will aid benefit levels

Northern Ireland

Vote backs UK’s welfare reform Members of the Northern Ireland Assembly have backed the UK government’s welfarereform plans by 60 votes to 42.

Sinn Féin had tabled an amendment to postpone the changes, which will see a range of disability, housing and unemployment benefits cut and replaced with the single Universal Credit. The party wanted more time to negotiate flexibilities over their introduction with Westminster.

But Social Development Minister Nelson McCausland, a Democratic Unionist Party member, said that while he did not agree with all aspects of the reforms, failure to deliver them could see Northern Ireland miss out on vital Treasury funding for schools, hospitals and the police.

‘When Universal Credit begins, there will be an opportunity to increase the levels of benefit paid into Northern Ireland that will provide the additional income,’ he told the Assembly.

‘The consequence of not delivering on this Bill is that we will get the negative aspects of welfare reform, but not the benefits; those dependent on welfare will experience real cuts without the potential for increasing their income, through progression into work

Welsh councils will be spending less per person by the end of the decade than they do now, the Institute for Fiscal Studies has predicted.

An IFS analysis of local government spending in Wales revealed that per capita spending by Welsh unitary authorities has been cut by 8% in real terms since 2009/10.

The institute warned that, despite this ‘significant’ cut, the bulk of spending cuts implied by the government’s plans were yet to come.

David Phillips, senior research economist at the IFS, said: ‘Even if the UK public finances are restored to health by 2016/17, and public spending then grows in line with the Office for Budget Responsibility’s forecast of long-term economic growth, Welsh unitary authorities would likely be spending less per person at the end of this decade than they do now, and that is after three years of quite deep spending cuts.’

He added that the spending squeeze was taking place against a backdrop of rising demand for services, such as elderly care, while further cuts beyond 2016/17 were also a ‘real possibility’.

The IFS report, Local government expenditure in Wales: recent trends and future pressures, also highlighted significant variation between service areas, with spending on regulation and safety being slashed by 24.6% per person since 2009/10, followed by planning and development (22.9%) and housing (20.6%).

Spending on social services had been relatively well protected, falling by 2.78% over three years, as had spending on environmental and refuse services (4.8%), and education (7.3%).

Aaron Shotton, deputy leader of the Welsh Local Government Association, said the IFS’s findings were a ‘wake-up call’ on the severity of the long-term financial crisis in public spending.

Photos: PA

17/10/12 20:11:05

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

Supported by

■ Andrew Jepp

Save it for a rainy day It might be tempting for town halls to use their reserves to keep providing services in this time of unprecedented cuts – but it leaves them exposed IN THE PAST, local authority reserves were

built and maintained in preparation for the unexpected – a rainy day fund for when councils had to dig a little deeper.

They were saved, used and rebuilt.

Today, councils hold £17bn in reserves, according to the latest figures from the Local Government Association. Some have had to reduce their levels over the past year to provide services and others have issued reserves warnings. As the external risk landscape becomes more precarious, councils that fail to save accordingly will be left with little defence for the future. It is important to retain reasonable and realistic levels of reserves, even if this might result in short-term difficulties, and to communicate the rationale for this clearly to communities.

As local authority spending is increasingly put under the microscope, with growing public interest and the government’s transparency drive, decisions about fund allocation are under greater scrutiny. With rising demand for services and shrinking resources, some councils are responding by drawing on reserves for the short term. The LGA has warned that if nothing changes, even the most prudent council’s reserve bank will be empty in five years. Our own research suggests it could take just three. This leaves councils vulnerable to unanticipated future disruptive events.

The Zurich report Risk and response, released earlier this year, predicted that the risk of large-scale disruptive events affecting hospitals, local authorities and charities will increase over the next five years. Major incidents such as cybercrime, flooding, fire and supplier failure will not only become more prevalent but will have a greater impact and will cost more to recover from.

Around three-quarters of public sector finance directors surveyed for the report (71%) said depleted reserves would in turn compromise their community’s resilience to such major emergencies in terms of Photo: iStock

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Keep it safe: council coffers are threatened by government funding cuts, soaring demand and disruptive events

both immediate fallout and permanent changes. Simply, the more local authorities use their reserves for routine business and services, the less they will have to draw on if something major goes wrong.

Deciding how and when to use reserves will be different for every local authority, depending on its priorities. However, the decision also needs to be considered with the local community, taking into account its tolerance for risk.

In some scenarios, strong partnership working between local council and third sector organisations, for example, will provide a network in the case of a largescale emergency. In others, the council will have to pick up all the pieces. In the latter scenario, the impact of depleted reserves might hit local authorities hard and compromise the return to ‘business as usual’ after the incident.

As local authorities weigh up their priorities over the coming years and budget their finances accordingly, there is an increasing imperative to widen the broader contingency planning framework.

There is a difference, for instance, between putting money aside for business continuity – when a supplier is unable to

deliver – and planning for a major incident – when three partners in a supply chain go into administration concurrently. Internal scenario planning can go only so far and councils that fail to build in margins for knock-on external events and risks will be caught out.

Major incidents by their very nature will happen unexpectedly. However, as our research suggests, local authorities can no longer claim they are unanticipated.

Factoring in a certain degree of financial flexibility is therefore a growing requirement for future resilience.

There is no right or wrong approach to managing reserves. However, if future risks are to be mitigated, then the traditional meaning of ‘reserve’ funds – to be drawn upon when needs must – should not be totally forgotten.

Local authorities that are able to effectively communicate the long-term need for retaining a ‘ring fence’ around reserves, even at the risk of short-term hardship, will be more resilient in the future.

Andrew Jepp is director of public sector at Zurich Municipal NOVEMBER 2012 PublicFinance 17

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publicfinance.co.uk/voice of the nations

Restless nation A VIEW FROM NORTH OF THE BORDER

pfOpinion

■ Iain Macwhirter

The one that got away?

So ‘devo max’ will not be an option in the referendum. But is this a defeat for Alex Salmond or part of his cunning plan?

Did David Cameron outmanoeuvre First Minister Alex Salmond over the independence referendum deal struck in this month’s Edinburgh Agreement, or was it the other way round?

Certainly, Cameron secured his key ‘red line’, which was that there should be only one straightforward question in the referendum. The UK PM rejected Salmond’s proposal of a space for a ‘devolution max’ option on the ballot paper. But the Scottish National Party has insisted that a single question was Salmond’s objective all along, that he fooled the UK into thinking he was giving ground by agreeing to it. Brilliant negotiating tactics, say his supporters; game set and match to the nats.

My view is that this outcome, while satisfactory to most nationalists – who were never very comfortable with the enhanced devolution (or devo max) option – is a setback for Salmond. It

presents unionists with an opportunity to halt the march towards ever-greater home rule, or incremental federalism, that has been gaining momentum in Scotland over the past three decades.

The Scots would almost certainly have voted for devo max had they been presented with the option. But the various bodies loosely referred to as ‘civil society’ in Scotland failed to come up with an agreed formulation of this question, and consequently Salmond was unable to insist on one. The chance won’t come again for a generation.

No one should be in any doubt that, if the answer in autumn 2014 is ‘No’, as all the opinion polls suggest it will be, the UK government and Scottish opposition parties will hail it as a vindication of the constitutional status quo. We can largely forget the vague promises made by Cameron and unionist campaign leader Alistair Darling about Holyrood being granted greater economic powers if Scots vote to remain a part of the UK. A review of powers will probably be launched the day after the referendum vote, but it will probably conclude that

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the new tax powers given by the recent Scotland Act to the Scottish Parliament represent the limit of autonomy possible in a unitary British state. It will be argued that the Scots have said, unequivocally, that they plan to remain in the UK, and thus in a fiscal union across the four nations.

A fiscal union with a common currency requires a central taxation authority and a common treasury – as eurozone members have seen – if it is to be stable. Consequently, while the Scottish Parliament can be given a tax base, like a local authority, it cannot have anything like full fiscal autonomy if we are to avoid the kind of sovereign debt problems that have wrought havoc in the European Union and in semiautonomous regions such as Catalonia.

There might be some cosmetic reforms, of course, especially if the ‘Yes’ vote rises significantly above 40%. The UK government could, for example, allow Scotland to have formal representation on the Bank of England’s monetary policy committee, a move already proposed by the SNP. It makes sense for Scotland’s voice to be heard on the committee that determines interest rates. But if Scotland votes ‘No’, there will be no allocation of oil revenues to Holyrood – let alone corporation tax.

The SNP will use this to argue that Scots who want a better devolution should vote ‘Yes’ to achieve it.

Anecdotally, a lot of non-nationalists are considering this. ‘I’m not a nationalist, but...’ is a phrase I often hear around Scotland now. But whether they take the final leap out of the UK is another matter altogether. They have 100 weeks to make up their minds.

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

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S P O N S O RE D C O LU M N : B UI LD I N G M AT T E R S

Supported by

■ John Hicks and John Mead

The other legacy of the Games The Olympics not only revived the nation’s spirits and a deprived area of east London, they also showed how large public projects can be run successfully no doubting the legacy left by the London 2012 Games. The Olympics and Paralympics transformed a once-neglected corner of east London, brought drama and delight to millions of spectators, and galvanised our nation around a common purpose.

There is another legacy, however. One that is less visible, but no less important for that. It has to do with the lessons learned from successfully organising a large-scale project, under budget and on time, during one of the biggest boombust cycles witnessed in modern times. It is also about effective involvement with local communities and businesses.

An opportunity now exists for local government to learn from the best practice of the Olympic Delivery Authority, as well as from Crossrail and other major projects. In a context where every penny of public spending is under scrutiny, these projects show that effective supply chain management can enhance value, reduce waste and bring local businesses on board.

In all such projects, it is essential that public sector buyers interact with suppliers at an early stage in the procurement process. This might include consulting potential bidders before putting contracts out to tender, so that they can play a role in shaping them. This strategy can be especially useful in ascertaining how ‘value’ will be measured – giving suppliers a clear sense of what is expected of them even before they bid.

All potential suppliers need to be informed about the opportunities. For the Olympics, this was done by publishing a Supplier Guide and launching an opportunity portal, CompeteFor (www. competefor.com). A similar approach has been adopted at Crossrail, using a website (www.crossrail.co.uk/business) to raise awareness of procurement needs among businesses throughout the country.

In practice, of course, most central and local government procurements are THERE CAN BE

Lighting the way: the success of the London 2012 Games has lessons for other large public sector projects

awarded to Tier One contractors, who in turn subcontract the work to their preferred suppliers.

However, communicating with the entire supply chain makes it possible for Tier Two and Tier Three contractors and suppliers to approach the main bidders on a project and offer their expertise at an early stage in the tendering cycle.

That supports the inclusion of small to medium-sized businesses locally and nationally, and encourages innovation. It thus helps stimulate economic vibrancy, by giving small businesses access to a slice of lucrative contracts.

The wider involvement of SMEs in government contracts also poses some risks. That is why assurance is a major component of supply chain management.

Public sector procurers need to look at programmes and projects as a whole, to see if subcontractors appear with too much frequency on bid lists and are at risk of being overstretched. Alternative plans can then be put in place, preventing delays during the delivery phase.

Sadly, in uncertain economic times, there is also an enhanced risk of supplier insolvency. Management of this risk plays a part in meeting project deadlines, and staying within budget. During the Olympics, an extra £640m of costs was avoided by mitigating or preventing insolvencies among subcontractors, thanks to regular monitoring of the financial health of suppliers.

This is one of the many areas of best practice from the ODA that other public sector buyers can adopt. By learning the lessons from London 2012, central and local government can manage projects effectively, and give every citizen a share in the Games legacy.

John Hicks is head of government & public, Europe, at Aecom and John Mead is director of programme management at Davis Langdon, an Aecom company. John Mead is currently seconded to Crossrail as principal programme supply chain manager, and held a similar role with the Olympic Delivery Authority NOVEMBER 2012 PublicFinance 19

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Watchdog

Watch W H AT ’S G OING ON IN TH E WOR LD OF R EGU L ATION A N D INSPECTION government should consider ringfencing, payment linked to outcomes, or other mechanisms to improve its use.’

Audit Commission A growing number of NHS organisations in England are in the red, the Audit Commission has warned.

Its NHS Financial Year 2011/12 report said the number of NHS trusts and foundation trusts in deficit had more than doubled, from 13 in 2010/11 to 31 in 2011/12.

A total of 39 trusts reported a poorer financial position in 2011/12 than in the previous year and 18 had to be given financial support from the Department of Health.

The watchdog also drew attention to the stark differences in health finances around the country. The majority of trusts in deficit were located in London or the Southeast, it said, although the London region reported the highest surplus nationally.

Auditors also found that the NHS had achieved the first tranche of the £20bn savings required by 2014/15. These were found to have had no material effect on the number of frontline staff, although managerial and administrative posts had fallen significantly.

Meanwhile, Jeremy Newman was confirmed as chair of the commission following a successful pre-appointment hearing with MPs on the communities and local government select committee.

Newman, a chartered accountant and former chief executive of accountancy firm BDO, took up the post on October 1.

Communities Secretary Eric Pickles said Newman’s ‘proven track record of delivery’ would be essential to the successful closure of the commission.

Outgoing chair Michael O’Higgins added that, as an ‘accountancy 20

Accounts Commission

Closing encounter: new Audit Commission chair Jeremy Newman will oversee the closure of the organisation

high-flyer’, Newman would maintain the commission’s authoritative voice as it focused on the regulation of public audit.

Ofsted Schools that fail to make good use of the pupil premium could lose discretion over how they spend it, the inspectorate has said.

In September, Ofsted surveyed 262 schools’ use of the money, which is paid for each pupil who is eligible for free school meals, in care or with parents in the Armed Forces. In 2012/13, schools were allocated a total of £1.25bn.

Asked what they were doing with the cash, the majority said they had not separated the pupil premium from their main budget, while half said the money had made little or no difference.

Ofsted said that, in future, use of the pupil premium would inform judgements on school performance. It added: ‘If schools do not target pupil premium money effectively, then

Inadequate performance management systems are preventing Scottish local authorities from properly comparing their activities, according to the Accounts Commission.

The councils spend a total of £21bn annually but none has a comprehensive performance and improvement framework to benchmark services and demonstrate value for money, the watchdog said. It concluded that all 32 councils could improve in this area.

Commission chair John Baillie said: ‘It is particularly important at this time of tight financial pressures that [councils] do have effective performance management to maintain quality services and ensure they are getting the best value for every pound spent.’

Another commission report concluded that Strathclyde Fire and Rescue Joint Board had demonstrated ‘systemic failures’ in the way it handled the retirement and re-employment of its chief fire officer, Brian Sweeney.

Sweeney retired in 2009 but was re-hired only weeks later on a fixedterm contract. The board subsequently agreed to fund potential tax liabilities of more than £200,000 – both for itself and Sweeney – arising from his decision to retire early, although no money has been paid to date.

Processes followed by the board were found to have fallen short of acceptable standards. In particular, the commission criticised it for failing to consider

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COMING UP… Health check: the NAO is examining the contract to run Hinchingbrooke hospital, awarded to Circle Health in 2011

PRIVATE DIAGNOSIS The National Audit Office will soon issue a report on the franchising arrangements at Hinchingbrooke Health Care NHS Trust, a district Hospital in Cambridgeshire. In November 2011, the operation of the hospital was awarded to Circle Health under a ten-year contract, the first instance of a private company taking over the management of an NHS trust.

Auditors want to establish how bidders for the contract were identified, the basis on which Circle was selected, the contract terms, payment mechanism and safeguards for patients and staff.

MATCHING FEES alternatives to Sweeney’s retirement and re-employment. The watchdog also said it was ‘inappropriate’ that Sweeney was co-author of a report that proposed he retire and be re-hired, and that he attended board meetings where this was discussed.

Baillie said the case provided reminders to all Scottish local authorities about governance and transparency.

Criminal justice The patchy use of ‘restorative justice’ in England and Wales risks damaging the reputation of the programme, the four criminal justice watchdogs warned in a joint report.

Facing up to offending, published by the inspectorates of constabulary, prisons and probation and the Crown Prosecution Service, found there were clear benefits to restorative justice schemes but these were not consistently applied. In particular, police forces and criminal justice agencies in different areas allowed different types of offences to be resolved with this approach.

Restorative justice requires offenders to apologise to their victims, sometimes in addition to a custodial sentence.

Examples range from the police using ‘informal resolutions’ to bring a ‘common sense’ conclusion to incidents on the street to formal meetings that bring victim and offender face to face, often after sentencing. The watchdogs said the schemes could give victims satisfaction, as well as helping reduce re-offending, but they needed to be applied consistently.

Meanwhile, the Inspectorate of Constabulary has called for a more preventative approach to policing.

Photos: Alamy/PA

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The Care Quality Commission is consulting on a schedule of fees for 2013/14. The watchdog plans

to make fee charges better reflect its activity. CQC chief executive David Behan said fees had to be fair and proportionate: ‘We have set out six principles to guide how we will charge fees while we move towards the government’s policy of full cost recovery from providers.’ The consultation ends on December 21.

2006/07 and 2010/11. The Northern Ireland Audit Office is determining whether its services are provided effectively and efficiently and if it makes a significant contribution to the Department for Agriculture and Rural Development’s strategic objectives.

AGRI EFFICIENCY

The Wales Audit Office is examining whether the benefits of the 2003 revised contract for NHS consultants have now been realised. The study will follow the WAO’s audits in individual trusts. At the same time, auditors are looking at how well local authorities in Wales are responding to financial constraints. Both reports are due to be published this year.

In Northern Ireland, auditors are examining the operation of the Agri-Food and Biosciences Institute, a non-departmental public body established in 2006 to support the agri-food industry.

Its principal role is to conduct scientific testing and research to control major animal disease outbreaks and detect patterns.

The AFBI spent £261m between

Funding cuts mean forces will have to focus more on crime prevention than take a reactive approach, it said.

In the inspectorate’s Taking time for crime report, chief inspector Sir Denis O’Connor said the police service needed to return to its origins as a crime prevention force.

‘No longer can the police operate as they have – in a predominantly reactive way that chases increasing demand for services. This is especially true in these times of austerity where more is needed from less,’ he said.

Northern Ireland Audit Office The use of agency staff in the Police Service of Northern Ireland has ‘not always met high standards’, auditors have concluded.

Use of temporary officers increased following the implementation of Chris (now Lord) Patten’s 1999 review of policing in NI, which led to around 5,500 regular and reserve officers leaving the service. More than 1,000, or almost 19%, of these retirees subsequently returned as agency staff, and the service spent more than £106m on temporary cover.

The Northern Ireland Audit Office was critical of the PSNI’s management of its contract with Grafton Recruitment, which supplied the service with temporary officers from 2004. This was not subject to competitive tendering before 2008, and once a competitive process was run, the salary costs were not included in the business case,

WELSH RESPONSES

although they amounted to 90% of the contract’s value.

NI auditor general Kieran Donnelly said use of temporary staff needed to be properly managed and controlled. ‘The way the PSNI has gone about procuring, appointing and managing temporary staff has not always met the high standards of governance and accountability expected of public bodies in Northern Ireland.’

In another report, the NIAO concluded that there was scope for the public sector in Northern Ireland to collaborate more on the procurement of common goods and services, such as energy, telecommunications and office supplies. Excluding local government, public procurement accounted for £2.7bn in 2010/11. ‘If used properly, this can lever significant savings for the public sector,’ said Donnelly.

Temporary difficulty: use of agency staff by Northern Ireland’s police force ‘has not always met high standards’

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C OV E R F E AT U RE

Financial crisis

NO DIRECT I Halfway through its term in office, the coalition is still looking for a route map to recovery. The chancellor’s Autumn Statement must offer some way out of here Words: Steve Freer

IT IS A chilling

realisation that the global financial crisis is now in its sixth year and there are few, if any, indications that normal service is about to be resumed. On the contrary, there is still significant concern that things might get a great deal worse before they get better. Notwithstanding European Central Bank president Mario Draghi’s ‘whatever it takes’ intervention in London in July, the crisis in the eurozone remains centre stage.

Fears are growing for the financial health of governments and financial institutions across the continent as well for any repercussions for global financial stability.

While the UK is not as severely exposed as members of the common 22

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ION HOME? currency, the practical implications of a full-scale crisis in the eurozone would be extremely serious for the country. Trade with European partners would diminish.

Lending by banks would become much more difficult and expensive. Banks with significant exposures in the eurozone would require emergency support.

The UK economy would fall deeper into recession, with significant adverse implications for business confidence. Either government borrowing would need to rise or public spending plans would have to be cut back sharply. Public bodies would face significant budgetary, treasury management and demand challenges.

It would be hard to rehearse a more depressing backcloth to George Osborne’s Autumn Statement – apprehensively rather than eagerly awaited on December 5. The pressures on the chancellor are immense. Plan A now looks increasingly battered and politically difficult to sustain. His fiscal target for aggregate public debt to fall by 2015/16 is in jeopardy. Of the coalition government’s twin engines for recovery, only one, austerity, has fired. Growth has remained disappointingly elusive as we stand halfway through this Parliament.

Howeve r, m i n i s t e r s ’ s p e n d i n g

OF THE GOVERNMENT’S TWIN ENGINES FOR RECOVERY, ONLY ONE, AUSTERITY, HAS FIRED. GROWTH HAS REMAINED ELUSIVE Photo: PA/Shutterstock

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C OV E R F E AT U RE

Financial crisis

UK PUBLIC BODIES HAVE MANAGED THE FUNDING CUTS EFFECTIVELY TO DATE. THEY HAVE BEEN HELPED BY THE FACT THAT OPPOSITION SO FAR HAS BEEN MUTED

Departmental expenditure limits (index, 2010-11=100)

reductions are firmly on track – although The government is acutely aware of the there is still some distance to travel importance of ‘fairness’ in formulating before they are achieved. The cumula- austerity plans. Deputy Prime Minister tive nature of the challenge means that, Nick Clegg is a particular proponent of inevitably, the hardest part of the journey this argument. However, this is easier lies ahead. to address in public speeches than in Over the four years from 2011/12 to public policies. We have seen from the 2014/15, departmental spending on public Treasury’s own figures that spending, services is set to be cut in real terms by tax, tax credit and benefit changes made 11.1%, after accounting for economy- to date by the government have had an wide inflation. In 2011/12, the cut was above-average impact on the bottom 5.2%, meaning that 5.9% is to come this quintile of households. And, inevitayear and over the next two. On top of this, bly, further benefit changes will have a further spending reductions are likely to disproportionate effect on less well-off dependency and encourage people to be required in the two years beyond the households. work. It is also obvious in service areas A great deal will also ride on the skill where charges have been introduced or current Spending Review period. Based on official forecasts, if no further cuts to with which cuts continue to be selected, increased significantly, with university other areas of public spending are found, fashioned into coherent policies and fees being a notable example. a further 7.5% real-terms reduction in implemented. Since the election in 2010, However, initial expectations that ‘Big resource public service spending would the government and individual public Society’ initiatives and organisations be needed over 2015/16 and 2016/17. bodies have taken action in the main might emerge, enabling government to The chancellor has said he is areas highlighted in the 2009 CIPFA/ shrink the scope of its activities without adverse impact on communities and users determined that £10bn of these reduc- Solace report, After the downturn.

First, there have been concerted efforts of public services, have to date failed to tions will come from further welfare benefit cuts. However, it is less clear that to readjust the relationship between – and materialise on any significant scale.

These are some of the areas in which this will be the top priority of the Liberal respective responsibilities of – the state and the citizen. We can see this in wel- questions of fairness, including inter-genDemocrat half of the government.

Public bodies can take a great deal of fare benefit reforms that aim to reduce erational equity, are apparent. There are credit for managing the funding obvious resentments associated reductions to date so effectively. with being the first generation to =`^li\ (1 =fi\ZXjk Zlkj kf N_`k\_Xcc jg\e[`e^ efd`eXc Xe[ i\Xc k\idj They have been helped by the pay for a previously free service or making higher contributions fact that opposition has, on the to a pension scheme that offers whole, been relatively muted.

100 less generous benefits.

Whether this continues is one Secondly, there have been of the critical variables in the several policy initiatives that equation. The scale of forecast 95 aim to ‘delayer’ the public cuts to departmental spending is eye-watering. By 2016/17, sector, simplifying structures 90 real-terms spending is likely to and reducing costs. Examples reduce to approximately 85% of include efforts to reduce the 2010/11 levels. number of quangos, abolish 85 As we have seen in Athens and regional development agencies Madrid recently, public support and change the structure of the 80 cannot be taken for granted.

NHS. Frequently, these involve 2010– 2011– 2012– 2013– 2014– 2015– 2016– significant one-off costs as well Disquiet and dissent are bound 2011 2012 2013 2014 2015 2016 2017 as the need to reassign responto increase as public bodies are Public Expenditure Statistical PESA 2011 – real Analysis (PESA) 2011 – nominal sibilities to other continuing forced to consider cuts to senPESA 2012 – real PESA 2011 – nominal Assuming £10bn welfare cuts – rea organisations. In many cases, sitive services that have direct Assuming £10bn welfare cuts – nominal No further welfare cuts – real this leads to additional costs implications for the quality of No further welfare cuts – nominal people’s lives and life chances. and disruption to services in the Source: Institute for Fiscal Studies 24

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Boiling over: public support for cuts cannot be take for granted, as we have seen in Greece and other countries recently

any growth in private sector jobs, and in the short term will contribute to relatively stagnant levels of total employment in the economy. Regional variations are significant, however, creating major hurdles to the restoration of growth in, for example, the Northeast of England. For many commentators, this is the real contradiction in the strategy – the drag that austerity places on growth.

The chancellor will no doubt reflect on all of this experience in reviewing his spending plans for the period ahead short term in pursuit of medium-term formally merged, compared with softer, and in determining any adjustments that improvements and savings. more informal, collaborative working might be needed in the Autumn State‘Delayering ’ is also being widely between separate entities. ment. One possible scenario is that there Additionally, there has been concerted might be pressure for deeper cuts in some practised in smaller-scale settings as the vast majority of public bodies action to restrain public sector pay and programmes to free resources to direct adjust their organisation structures to reform public sector pensions, as well towards carefully targeted pro-growth achieve savings. A recurring theme is the as a relentless emphasis on measures to investments. removal of tiers of management and the ensure the tightest possible stewardship Based on feedback from chief finance shortening of chains of command. of resources and elimination of waste. officers across the public services, a The government has also espoused a Pay and pensions are critically number of learning points emerge strong commitment to ‘localism’, placing important because of the people-intensive increasingly clearly from the experience more confidence in decision-making at nature of public services. Over the six of the strategies deployed over the past local level, free from or subject to mini- years from 2011 to 2017, almost 750,000 two years. The chancellor would do well mal oversight. However, it is too early public sector jobs are expected to be lost to bear these in mind, too, in formulating to draw the conclusion that this model (see Figure 2). This is a counterbalance to his plans for the next period. will necessarily be implemented It is clear that there are no on a sufficient scale to produce easy ‘silver bullet’ solutions. =`^li\ )1 >\e\iXc ^fm\ied\ek \dgcfpd\ek d`cc`fej significant efficiency gains.

The business of reducing public T h i rd l y, ‘c o l l a b o ra t i o n ’ spending is more marathon than sprint, requiring very careful initiatives have also been 6.0 encouraged. Organisations have planning and rigorous attenexperimented with shared toption to implementation detail. management structures and High-profile transformation front- and back-office services, programmes are particularly 5.5 difficult to mobilise and sustain pooled budgets and a number on a whole-organisation basis, of other forms of co-operation. let alone on a sector-wide basis.

Many have taken longer to put 5.0 The theory might be compelling in place than anticipated, and but the practice is sometimes some have been abandoned along the way. A proportion also slow and frustrating. seem to have worked well and to I n i t i a t i ve s t h a t re q u i re 4.5 have delivered savings, usually collaboration between separate entities – whether public-public from rationalisation of staffing or public-private – pose their structures. In general, savings 4.0 own distinct and significant appear to be achieved with 2010– 2011– 2012– 2013– 2014– 2015– 2016– 2011 2012 2013 2014 2015 2016 2017 challenges. These can include: greater certainty where organialignment of agendas; calibration sations or elements of them are Source: OBR, March 2012 NOVEMBER 2012

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C OV E R F E AT U RE

Financial crisis

Growing pains: public sector job cuts are hitting regions differently, creating major hurdles to the restoration of growth in the Northeast

and assignment of risks, rewards and incentives; and integration of processes.

Many ‘unfashionable’ stewardship or housekeeping measures – including tight cost control, reducing overhead spending, and freezing categories of spending such as temporary staff and consultants – continue to play an important part in organisational strategies. Whether these have any longer-term downside consequences, such as failure to invest appropriately in the maintenance of assets, remains to be seen.

Control of staffing costs, by reducing head count, removing layers of supervision and freezing or tightly controlling pay levels, has been critically important because of the labour-intensive nature of most public services. Again, however, there might be a negative longer-term effect in relation to the recruitment and retention of high-quality staff.

Maintaining good communications with stakeholders and managing their expectations are critically important activities, especially in the area of gaining acceptance for significant changes to services. However, this task becomes

more, rather than less, difficult over time, as cuts are contemplated in increasingly sensitive areas and tolerance of austerity is eroded. Perceived fairness remains a critically important performance measure.

Public sector organisations and their leaders will be under no illusions about the challenges they will face after the Autumn Statement. The prospects for the short, medium and perhaps even long

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term are unrelentingly more of the same.

A return to stability and previous growth norms remains almost unimaginable for some time to come. Austerity and managed retrenchment – deploying the same strategic options identified in After the downturn in 2009, underpinned by very tight stewardship – will continue to be the order of the day.

Leaders of public bodies will face increasing pressure to bias their strategies towards initiatives that are likely to stimulate growth. This will particularly be the case in local authorities, which will be expected to prioritise economic development activities. They will be encouraged to do this partly as a natural response to their responsibilities for the general wellbeing of the area and communities within it, and partly by national policies, such as retention of local business rates.

Finance leaders will focus their energies on four main activities: leading innovation, adding value, managing risk and cutting costs. All of the learning points from the past two years will be highly relevant to the strategies and detailed plans that organisations develop.

Major transformative projects – in some cases undertaken with partners – will grow in importance and prevalence.

Very few public bodies are likely to manage through this unprecedented Photos: Rex

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LEADERS OF PUBLIC BODIES WILL FACE INCREASING PRESSURE TO BIAS THEIR STRATEGIES TOWARDS INITIATIVES THAT ARE LIKELY TO STIMULATE GROWTH

transition without recourse to radical ‘game-changing’ initiatives. But proper resourcing, detailed and realistic planning, robust forecasting and excellent project management will be required to assure their success. Organisations that are unable to provide these ingredients will fail to achieve their desired financial and/or service outcomes, and some will experience difficulties that threaten their viability.

At the same time, stewardship and housekeeping initiatives will remain critically important for all public bodies. As well as helping to contribute to efficiency

savings, such initiatives will play an important role in maintaining the tone of austerity within organisations in line with public expectations. Tight control over costs and staffing numbers will remain a priority. The most successful organisations will be those that can embed this practice within their culture and embrace it as a distinctive and positive hallmark of modern public services.

Steve Freer is chief executive of CIPFA. This article is based on a report, The long downturn, which will be published on October 29

MAKE SENSE OF HOW THE IMMINENT IFRS CHANGES WILL AFFECT YOUR ORGANISATION Roadshows taking place in London, Manchester, Birmingham, Leeds and Exeter Visit the website for full details www.housing.org.uk/events

IFRS ROADSHOWS October and November 2012 NOVEMBER 2012

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FE ATURE

Official statistics

THINGS ARE

NOT WHAT THEY SEEM Words: Tony Travers

franchising debacle has delivered a new body-blow to trust in Whitehall statistics. It now appears that Department for Transport officials got their modelling badly wrong, notably in relation to assumptions about inflation.

The more complex government becomes and the less officials can understand the numbers they rely on, the greater the chance of serious mishap. The government might yet face a multimillion pound compensation claim because of this numerical disaster.

Ahead of the chancellor’s Autumn Statement, we are bound to see further concentration on measures of public borrowing, growth forecasts and inflation assumptions. The basis of government policy, market responses and public sentiment can be swayed by ‘better’ or ‘worse’ sets of numbers. Yet the very omnipresence of statistics and public data makes it difficult to observe problems and weaknesses. Moreover, there can be an Alice in Wonderland quality to debates about improving existing numbers. Statistics are not always what they seem.

For example, the Office for National Statistics has recently launched a consultation about the future of the Retail Prices Index and the Consumer Prices Index. Even though one of these measures refers to ‘retail prices’ and the other to prices faced by ‘consumers’, they are not the same. The RPI is generally somewhat higher than CPI, because the two measures involve different baskets of THE RECENT RAIL

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A lot rides on official statistics – economic policies and people’s incomes for a start –but constant changes have made much of the data meaningless

goods/services and are also calculated differently. The CPI is broadly consistent with measures used internationally.

In the 1980s, Margaret Thatcher’s government invented the Tax and Prices Index to show that inflation including tax cuts was falling (at least until it didn’t), while RPIX has been used for many years to provide a figure for the RPI minus mortgage costs. Another measure, RPIY, measures inflation excluding mortgages and a number of indirect taxes. Beyond all of these is the GDP deflator, which is used to calculate ‘real-terms’ public spending and is supposed to measure inflation across the whole economy.

How inflation is measured matters to us all. In April 2011, the government switched from using the RPI to the CPI for the indexation of benefits, tax credits and public sector pensions. Index-linked government bonds continue to be adjusted in line with movements in the RPI as do large numbers of private sector pension schemes. For students in England and Wales the interest rate paid on their student loans depends on the RPI. The RPI is also often used in pay bargaining and for price regulation, notably for certain privatised utilities and also for train fares. If the ONS decides to reform the RPI, it will materially affect millions of incomes and all household spending.

It is easy to see how the Economist Photo: iStock

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magazine has resorted, semi-seriously, to using the ‘Big Mac Index’ to compare purchasing power in different countries. Attempting to assess the compound impact of changes in inflation and exchange rates from country to country is very difficult. The cost of an internationally quality-controlled item such as a Big Mac or Mars Bar gives a clearer sense of what is going on.

There is no true measure of inflation.

Oligarchs concern themselves about the rising costs of Mayfair apartments and yachts, while pensioners worry about milk, fuel and bread prices. Owner-occupiers see the cost of living differently to those who rent. Although we have a single UK measure of RPI and CPI, it is improbable that prices are currently

LONDON’S POPULATION

TURNED OUT TO BE

400,000 HIGHER IN

THE 2011 CENSUS THAN THE 2010 ESTIMATES

increasing as fast in Milton Keynes as in the Western Isles or Newcastle. Inflation measures are constructs.

Many other statistics suffer in similar ways: they are methodologically complex artefacts, not absolute truth.

Governments have fiddled with crime and unemployment figures until it is hard to know what precisely they are telling us. Population figures also provide good examples of hard-to-interpret numbers.

There are big differences between official 2011 Census figures and the mid-year estimates previously available. London’s population turned out to be 400,000 higher in 2011 than the 2010 mid-year estimates suggested. Such numbers matter: they are used to calculate grants to localities for local government, health and other services.

But the vagaries of inflation, crime or unemployment indicators pale into insignificance alongside some of the adjustments made to time series of statistics produced by the government, which are also, in many cases, official statistics.

Take the apparently simple question of whether expenditure by central and, separately, local government is rising or falling. At a time when the chancellor has made huge efforts to reduce public spending as part of his deficit reduction policy, it is surely important to be able to be precise about the path of Whitehall and council spending.

Looking at Public Expenditure Statistical Analyses 2012, there are tables showing ‘Central government own expenditure’ and ‘Total local government expenditure’. The former rose from £506.2bn in 2010/11 to £513.8bn in 2011/12, an increase of 1.5%. Local government expenditure reduced from £175.1bn in 2010/11 to £174.2bn in 2011/12, a fall of 0.5%. So, although spending by the centre moved up by a small amount and by councils down a fraction, there was not much difference between the two.

Yet local authority employment is falling significantly faster than central government’s. Since the coalition took office in the second quarter of 2010, the number of council workers has fallen by more than 300,000 while the number of central government employees had dropped by about 90,000, from a similar base. The likely spending gap appears far wider here. Perhaps the official spending figures are masking true changes.

Analysis of the local government spending figures shows a jump in ‘local authority self-financed expenditure’ NOVEMBER 2012

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FE ATURE

Official statistics

THE NOTE IS AN

OBSCURE WAY

OF SAYING THAT £8bn OF SPENDING

HAS SHIFTED FROM CENTRAL

TO LOCAL GOVERNMENT

(LASFE) from £25.7bn in 2010/11 to £37.6bn in 2011/12 – an increase of £11.9bn in a year. The mystery of the big jump in self-financed expenditure is not explained in the Treasury’s PESA document. But there is a helpful table in the Office for Budget Responsibility’s March 2012 Economic and fiscal outlook showing that locally financed capital expenditure (a component of the LASFE) has been the subject of an adjustment because of a transfer resulting from the reform of the Housing Revenue Account.

This shifted about £8bn of spending from central to local government between 2010/11 and 2011/12. Without this ‘adjustment’, local government expenditure in the PESA document would have been closer to £166bn than the £174bn shown.

Council spending would have fallen by more than 5% rather than by the 0.5% shown. Central government spending would have been correspondingly higher, up about 3% in 2011/12.

This analysis might seem desperately arcane. But it shows how the failure of the government’s PESA document to provide a footnote explaining the £8bn accounting change has rendered a proper analysis of local (or central) government spending virtually impossible. In fairness to the Treasury, in a separate section on adjustments to the national accounts it is noted that: the HRA reform ‘represents a receipt by central government of net capital grants from local authorities that implement the reform of council house financing announced in the Spending

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Review. This net receipt is completely offset by a net payment included within capital LASFE, so this has no impact on the overall public finances’. This is an obscure way of saying that £8bn of spending has, by an accounting adjustment, been shifted from central to local government.

It is possible there have been other adjustments that move spending the opposite way: from local to central government. The Department for Communities and Local Government publishes annual local authority revenue statistics. Its budget estimates for 2012/13 show overall spending down by 3.1% in cash, with some services, notably transport and planning, falling significantly more. Education is shown as dropping by 8.6% year on year.

However, there are two problems with this latter figure. First, councils have little or no control over the bulk of schools’ spending, as ministers determine the amount of the Dedicated Schools Grant paid to local authorities. Second, as academies are created, their spending shifts across from local to central government.

In this case, a reform is taking place that overstates the reduction to council spending while adding to central government budgets. Any observations about the pressure on budgets based on these spending figures will be either wrong or, at best, misleading. Next year, spending on public health will transfer from central to local government, further confusing the picture.

Beyond the relentless movement of spending from central to local government and, separately, accounting adjustments, there are reclassifications brought about by ONS decisions about the blurred border between the public and private sectors. The most recent public sector employment figures appear to show a big drop in the central government workforce. In fact, the whole of the reduction was because 196,000 further education employees had been transferred from the public to the private sector. In fairness, the ONS included text to explain this change. But in future quarters there will be little more than a footnote to denote the change. A slight change in the governance of colleges, schools or, indeed, hospitals could lead to further reclassifications.

Next year, the transfer of the Royal Mail pension fund to central government will cut apparent spending by £28bn.

Misleading conclusions will be drawn.

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Losing track: even Whitehall got confused over inflation figures when drawing up the West Coast rail franchise, an error that led to the scrapping of the contract

forever. But the restlessness that affects Britain’s public administration means that these kinds of accounting and classification changes will make it almost impossible to be certain whether a trend is a trend. Departments have regularly been reconfigured, councils restructured, services transferred from one part of government to another, assets reclassified and employees moved between the public and the private sectors. Time series in official publications must be analysed with such caution that it will often be safer not to compare any one year’s figures with another.

In the end, it is very difficult to know whether local government spending is falling by 0.5% or 5%, although the impact on the ground will be easy enough to see.

The number of public sector employees can fall and the private sector grow because of a statistical definition.

NEXT YEAR, THE TRANSFER OF THE

ROYAL MAIL PENSION FUND TO CENTRAL GOVERNMENT WILL CUT APPARENT SPENDING

BY £28BN

The closer we approach a time when even people who can find their way round official statistics realise they cannot be sure what any particular number means, the worse it will be for democracy. If we cannot be sure whether an asset or employee is in the public or private sector, we have a problem. If we cannot measure how cuts in public spending are affecting sub-sectors of the economy, people will resort to anecdote and hunch.

Looking ahead, the Office for National Statistics and the UK Statistics Authority must take the lead in ensuring that official data are produced in ways that allow comparisons over time, regardless of the configuration of government. The ONS website, which often makes it hard to find things, needs to be improved. There should also be more ‘overlapping’ tables of times series that make it possible to look across radical changes in classification, organisation and the delivery of services.

We need the ONS to represent the public interest in the production of trustworthy, consistent figures about the operation of government. No amount of official ‘open data’ policy will overcome the problem of inconsistent or ill-presented statistics. Statistics must not be allowed to give way to damned lies.

Tony Travers is the director of the Greater London Group at the London School of Economics NOVEMBER 2012

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FE ATURE

New Zealand

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ANOTHER COUNTRY Why is the government copying public service models from far, far away — particularly Down Under in New Zealand? It’s a riddle wrapped in an enigma

Words: Judy Hirst

BRITISH MINISTERS, SPECIAL advisers – and the think-tanks

that buzz around Westminster – are in the midst of one of their regular bouts of public service envy. Or so it seems from the quantity of research into why other countries’ public services are so much fitter, flatter and leaner than our own.

Canada, Sweden, Finland and New Zealand – to name but a few – apparently did fiscal consolidation long before George Osborne knew the meaning of the term, and could definitely teach Eric Pickles a thing or two about getting more for less.

As for civil service accountability (a politically pressing issue in the wake of the UK’s West Coast Main Line shambles), ministers clearly think there is a lot to learn from other nations about ensuring public officials carry the can.

Cabinet Office Minister Francis Maude has recently been venting his frustration at the way mandarins have ‘blocked’ government policy or ‘advised other officials not to implement ministerial decisions’. He is currently leading the charge to get a grip on ‘unacceptable’ conduct in Whitehall.

Maude has commissioned the Institute for Public Policy Research to compare how Australia, New Zealand, Singapore, France, Sweden and the US deal with their state bureaucracies. Ministerial appraisals for top officials – and the publication of their objectives online – are already being introduced under the Civil Service Reform Plan.

He recently told a prestigious Institute for Government audience he is especially interested in New Zealand’s model of civil service accountability, with its contractual relationship between ministers and their ‘chief executives’ (heads of departments), involving formal outcomes and five-year, fixed-term contracts.

In fact, British politicians and policy wonks have long Photo: Shutterstock/Getty

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In the realm of fantasy?: New Zealand’s (left) public service reforms have long fascinated UK politicians such as Cabinet Office Minister Francis Maude (below)

been fascinated by New Zealand’s way of doing things.

This is not just about cross-party admiration for its 1980s experiment in ‘Rogernomics’ – a mix of neo-liberal economics and cheeseparing fiscal theory, spearheaded by the country’s former Labour finance minister, Roger Douglas. Nor merely because New Zealand has long been in the vanguard of ‘new public management’ techniques, like contracting and outsourcing – or the historical links with a fellow Commonwealth country, run along Westminster lines.

The British political class seems genuinely convinced that in the land of The Lord of the Rings, The Hobbit and Sauvignon Blanc, the public service grass really is much greener; that Kiwis have discovered the secret elixir that has eluded UK governments: how to deliver public

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FE ATURE

New Zealand

The Middleearth way: New Zealand’s deputy prime minister Bill English says it’s about getting more for less

services more efficiently, at the same time as driving out costs.

So is this just fantasy politics, fuelled by a desperate search for big ideas at a time of eye-watering austerity back home? Or are there really valuable lessons to be learnt from one of the world’s most remote countries – with a population roughly three times the size of Kent, and a government small enough to fit into one building in Wellington – on how to do public service reform?

The Institute for Government is conducting research to discover by what strange alchemy New Zealand is so ahead of the curve. (An adjacent issue is why so many UK policy initiatives – from welfare reform to pensions legislation – seem to have antipodean origins.)

The Institute’s director, Peter Riddell, tells PF that it is important to dispel some myths. In the corridors of power, ‘people often invoke the name of New Zealand, without really knowing or understanding what happened there,’ he says. ‘Many of them don’t realise that the model has been adapted and changed. Things have moved on in the past 20 years.’

Indeed, the country has shifted away from the increasingly fragmented, decentralised delivery model initiated in the 1980s towards a more centralised focus on cross-cutting objectives. The Auckland region’s ‘super city’ initiative – merging eight councils into one service provider – is a recent example.

New Zealand’s deputy prime minister Bill English put things into a wider context during a London stopover with Maude last month. A member of the ruling centre-right National Party that won power from Labour in 2008, English emphasises the country’s relatively benign fiscal position. Core government spending fell to just 33.8% of GDP last year, and New Zealand is ‘on a 2%–3% growth path’, he says – enough to make British ministers gnash their teeth with envy.

Not that this has always been the case. In fact, much of the pressure for radical public sector reforms in the 1980s and 1990s came from New Zealand’s own fiscal crises, well before the latest global crash. This, says Riddell, has nearly always been the impetus for early adopters of such measures, such as Sweden and Canada.

And there is plenty of evidence that kiwis paid a high 34

price over 15 years for their radical therapy, in terms of unemployment, health and poverty indices.

At least some of New Zealand’s recent growth spurt has, of course, also been a by-product of the 2011 Christchurch earthquake disaster, which has prompted major reconstruction activity. The boost from ‘Middleearth’ tourism has stimulated GDP too.

Notwithstanding the economic context, English claims the key is the way New Zealand is going about its public service reforms. Its ten cross-cutting ‘results’, or objectives – focusing on welfare, skills, employment, children and crime – are being used to break down public sector silos. ‘Outcomes are a hackneyed old tool, but they’re the only way to drive change,’ he says. ‘It’s all about getting more for less, not less for less.’

So far, so familiar. But how do they make it happen?

This, believes Riddell (and Maude, it seems) is where the issue of civil service accountability comes in.

New Zealand has an independent state services commissioner who is responsible for appointing and assessing departmental heads. Under this contractual relationship, chief executives are much more publicly accountable for delivery than in the UK. Riddell thinks something like this may need to happen here.

However, public administration expert Colin Talbot, who is collaborating with the IPPR/Cabinet Office research, is sceptical about the fashion for importing public service models from afar, particularly when they

ON THE OTHER HAND, WEST COAST-GATE HAS CERTAINLY ADDED GRIST TO MAUDE’S REFORMING MILL

Yes, minister: Maude wants Whitehall (right) to adopt New Zealand’s model of civil service accountability

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publicfinance.co.uk/features

risk getting lost in translation. ‘Often the ideas are quite ill-thought through, and based on sanitised accounts,’ he says. People like the contractual civil service model, ‘because it all seems quite simple, in a Hobbit-like, good and evil way. But in practice, New Zealand’s ministers turned out to be not very interested in managing contracts. Hence the need for a new quango.’

Britain’s ‘serial monogamy’ civil service convention – with permanent secretaries having to ‘fall in and out of love’ with each administration – is in need of updating, says Talbot. But the jury is out on whether a New Zealand-style accountability model is the answer.

Unsurprisingly, English disagrees. He defends his government’s ‘strong, collaborative approach’, in which each of the ten public service ‘result’ areas has a named chief executive who is held personally accountable.

They are ‘left in no doubt about what’s wanted of them,’ he says. This, along with four-year budget plans, ‘is the only way to really drive change,’ English insists.

Former New Zealand finance minister Ruth Richardson – a key player in the early public service reforms and related accountancy changes – wrote recently that ‘no transformation programme can succeed without embracing civil service reform.’

This is all music to the British coalition’s ears. With its deregulatory, small-state philosophy (the core civil service has shrunk from 39,000 to below 36,000 staff since 2008), New Zealand’s attraction is at least partly

‘A LARGE PART OF THIS WHOLE DEBATE ABOUT PUBLIC SERVICE ACCOUNTABILITY IS TO DO WITH POLITICAL FRUSTRATION’ Reality check: Institute for Government director Peter Riddell (above) advises scrutinising the New Zealand model in light of recent changes

down to its role as an outrider for all the things ministers would love to do here.

But the reality is a little more nuanced. As English emphasises, their agenda is not all about cuts. ‘When it comes to welfare, for example, we’re spending more money – not less. But I believe the payoffs are going to be large. Our focus is on maintaining and improving public services, not cutting them.’ The pace of change is slower too, with less drastic spending reductions than in the UK, he tells PF. Public satisfaction with services is rising, ‘because we’ve taken the longer-term view.’

Not everyone is convinced. New Zealand’s Public Service Association has compiled a catalogue of cuts – across tax offices, tenants’, conservation and Maori development services, and border security – that raise serious questions about the success of the strategy.

PSA national secretary Brenda Pilott says that the fixed-term, contractual civil service model has downsides: not least that it de-motivates departmental chief executives from improving cross-government working.

The Labour opposition, for its part, calls the current round of public sector reforms ‘ideologically driven’.

If this sounds uncannily like public service debates here, it’s probably because – despite differences in scale and timeframe – the issues are pretty similar.

‘A large part of this whole debate about civil service accountability is to do with political frustration,’ say Riddell. ‘Remember “scars on our backs”?’ But it is important to ‘dispel the chimera’ that a contractual relationship between ministers and their civil servants is a cure-all, based on a ‘neat division between policy and implementation’, he says. A different contractual model probably wouldn’t have averted the debacle at the Department for Transport: that was more to do with the terms of the franchise, cuts to staffing levels, the skill set of civil servants, and lack of oversight and auditing – depending on your point of view.

Talbot agrees. It is unlikely that New Zealand-style accountability would have prevented the ‘schoolboy cock-ups’ at the Department for Transport, he says. On the other hand, West Coast-gate has certainly added grist to Maude’s reforming mill.

Back in the real world, beyond the arcane discussions in Elvish, there are some interesting ideas and bits of good practice to learn from. But no magic bullets – from New Zealand or anywhere else – can conjure up more from much, much less. With apologies to Tolkien, there’s no one public service ring to rule them all.

Photo: Getty

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PF I N T E RV I E W

Frances O’Grady

SISTER FRANCES The first female general secretary of the TUC will have her work cut out dealing with public sector disputes and the union brothers. But don’t expect Frances O’Grady to start tub-thumping any time soon

Words: Mike Thatcher | Photography: Sam Kesteven

on the shoulders of Frances O’Grady. The incoming general secretary of the Trades Union Congress will be expected to play the role of the ‘moderate face of trade unionism’ just as potential disputes escalate across the public sector.

There’s uproar over the government’s pension reforms, wages cap, proposals for regional pay and attempts to shrink the state, which could mean the loss of 750,000 public sector jobs by 2017. In September, delegates at the TUC conference voted for co-ordinated strike action against the pay freeze.

This, of course, follows on from last November’s one-day strike over pensions.

Almost 2 million public sector workers took part in what was described as the biggest dispute since the General Strike of 1926.

Schools were closed, operations cancelled and travel disrupted as town hall staff and civil servants walked out.

More recently, the TUC staged its anti-austerity march and rally – ‘A future that works’ – on October 20 in London, A LOT RESTS

36

Glasgow and Belfast. It’s quite possible that large-scale industrial action could follow by the spring of 2013, with Unison and the GMB alone threatening to bring out their 1.5 million members in local government and health.

So should we expect another strike on a par with last November? ‘I don’t think that is on the cards, but we’ll have to see,’ O’Grady says as we meet at the TUC’s London headquarters. ‘Unions are focused on making the public case around the unfairness of pay caps and trying to persuade the government to change course.’

O’Grady, who will succeed Brendan Barber as general secretary at the end of the year, is regarded as a ‘reasonable’ union leader with a more considered style than some of her colleagues across the movement. John (now Lord) Monks, Barber’s predecessor, claims the new leader uses ‘diplomacy, charm and imagination’, which is not always the approach taken by her union brothers.

She does confess to a few ‘tub-thumping’

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‘THERE IS A FUNDAMENTAL MISUNDERSTANDING THAT CUTTING PAY IS GOING TO HELP THE ECONOMY, WHEN ALL THE EVIDENCE IS THAT THE OPPOSITE IS TRUE’

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PF I N T E RV I E W

Frances O’Grady

AS THE FIRST WOMAN TO HEAD THE TUC, O’GRADY HOPES TO ‘NAIL SOME OF THE MYTHS’ THAT TRADE UNIONS ARE MALEDOMINATED AND SEXIST INSTITUTIONS

moments, but more often with her children when they were growing up. ‘Different leaders have different strengths. I would much prefer to put across my case through persuasion. But just occasionally you have to be tough as well.’

That toughness will be tested as industrial tension mounts. Being head of the TUC requires a two-pronged approach: she will have to articulate the concerns of ordinary union members, while trying to keep some unity among a disparate group of what used to be called union barons.

While musing on whether we can call her a ‘baroness’, O’Grady denies that the political agendas of high-profile union leaders – including Unite’s Len McCluskey and the RMT’s Bob Crow – will make her job impossible.

She says, diplomatically: ‘Trade union leaders have different styles, for sure, but they are expressing the frustration and anger that ordinary families feel. We are a big, broad church. Of course, there are going to be occasionally different views, but I think our values are what unite us and we want to see a fairer Britain.’

O’Grady’s significant experience as a trade unionist will stand her in good stead.

She has been the TUC’s deputy general secretary for almost ten years, having previously launched its Organising Academy and

Start of something big: last year’s action over pensions was compared to the 1926 General Strike 38

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run campaigns. Before then, she worked as a researcher for the Transport and General Workers Union.

As the first woman to head the TUC in its 144-year history, O’Grady hopes to ‘nail some of the myths’ that suggest trade unions are male-dominated and sexist institutions. ‘Three in ten general secretaries are now women. Four in ten of our general council are women. If every public body or private boardroom hit that benchmark, we would be in a different country.’

A single mother of two children, O’Grady says she can appreciate the importance of public services to ordinary working women and men. Low pay will be her first challenge.

The TUC believes the government’s approach to wage restraint is unfair and self-defeating. Chancellor George Osborne has promised that the current pay freeze will be followed by a 1% cap in 2014 and 2015. But O’Grady says that the economy is in dire need of growth and not more austerity. One way to achieve this is through boosting pay packets.

‘We have to see a shift away from the scale of cuts that are being implemented, to find a way of building “wages-led growth”.

People are not spending because they have Photo: Shutterstock/Sam Kesteven

17/10/12 18:48:35

no confidence that they will have a job next week. One way to reboot the economy is for wages to gently rise.’

O’Grady has no truck with the view espoused by the government, and by Eds Miliband and Balls, that there is a tradeoff between pay and jobs – that zero pay increases mean fewer redundancies. She claims that public service workers will have endured a 16% real-terms cut in their income by the end of this Parliament, including pensions.

‘Unions are as keen as anybody to protect services and to protect jobs. But there is a fundamental misunderstanding that cutting pay is going to help the economy, when all the evidence is that the opposite is true.’

She suggests that the large profits made by some private suppliers in local government and the NHS have hardened attitudes among public sector workers and their unions. According to TUC estimates, a third of all public spending is now on outsourced services.

‘It is hard for people to accept that they should tighten their belts when they look at private companies often raking in quite significant profits. So if money is being sucked out of the public sector into shareholders’ and top bosses’ pockets, then it is

Curriculum Vitae 2012 General secretary elect, TUC 2007 Appointed to Low Pay Commission 2003 Deputy general secretary, TUC 1997 Head, New Unionism campaign, TUC 1994 Campaigns officer, TUC 1982 Senior researcher, Transport & General Workers Union 1976 Manchester University

very hard to ask public service workers to make sacrifices.’

Unsurprisingly, O’Grady is equally scathing of government plans to introduce regional pay. In the 2011 Autumn Statement Osborne said there was a case for public sector pay to better reflect local labour markets. One think-tank, Policy Exchange, estimated that the change could save £6.3bn a year.

Subsequently, a number of Liberal Democrats have criticised the plans.

O’Grady says that most public sector employers are opposed, fearful of the extra administrative costs and the impact on local economies. ‘It can’t be fair that a teacher working in a tough school in inner Newcastle should get less than somebody working in a leafy suburb in the south.

‘It may be called regional pay, or local pay, or zonal pay, but what we are actually talking about is lower pay outside of the south. The impact that will have on the private sector could be catastrophic, just at the time when many good businesses are already struggling to keep afloat.’

O’Grady sees the regional pay proposals as part of an ideological push by elements in the blue half of the coalition to finish what Margaret Thatcher’s governments of the 1980s started. She quotes environment minister Greg Barker, who told an audience in the US that the coalition was inflicting cuts that Thatcher ‘could only have dreamt of’.

If there is an ideological debate to be had, the general secretary designate is confident the public will come down on the side of Plan B. ‘The public in general feel that both cuts in services and cuts in real pay are unfair. They are increasingly seeing that it is not just unfair, it is damaging the economy. It’s choking off demand.’

Whatever happens, it’s clear that O’Grady will have a bulging in-tray for some time to come. It means less time to watch her beloved Arsenal or sneak off to the local arts cinema to watch European films.

She accepts that working life is going to be hectic, but confesses to ‘always being a bit of a grafter’ over her career.

‘Anybody who works for the trade union movement doesn’t stick to the 9 to 5,’ she says. ‘But obviously within the terms of the Working Time Directive.’

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smart solutions supporting change At CIPFA we are committed to doing things better. We help our customers spend public money wisely. And with our unique insight and services we give them the means to deliver change.

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NEED TO KNOW

Smart thinking?

▪

John Thornton

You don’t share it well Why does Whitehall find it so hard to reap the benefits of shared services? One reason is that departments still put their individual needs first WHEN A FORMER county treasurer

recently told an audience of senior finance professionals: ‘Shared services do not work, or to be more specific, I have not seen a shared service arrangement deliver the planned savings’, he was greeted with a general murmur of agreement.

Later, a member of the audience did challenge this statement, saying his shared service project had been very successful. But the overriding view of those present seemed to be that shared services had over-promised and underdelivered. Why should this be?

The potential benefits are enormously persuasive. By sharing infrastructure and systems you can achieve substantial economies of scale. For each party it should build greater organisational capacity, ensure resilience and lever in more capital for investment. It should also provide a great mechanism for stimulating innovation and driving improvement.

There have, however, been some well-publicised failures. According to a recent National Audit Office report,

plans for Whitehall departments to save money by sharing back-office services have cost £500m more than projected.

The NAO reviewed five of the eight shared services centres that were created across Whitehall following Sir Peter Gershon’s efficiency review in 2004. Together they were expected to cost £0.9bn to build and operate and then save £159m over the five years to 2010/11.

To date, they have cost £1.4bn. Only one, at the Ministry of Justice, has achieved sufficient savings to cover its costs. Two others, for Research Councils UK and the Department for Transport, have each cost more than £100m to build, overspent by at least a third, and are unlikely to generate enough savings to ever recoup their setup costs.

Many of these shared services initiatives were predicated on and inspired by private sector models. IT company Oracle, for example, used shared services to cut its costs by over 25% and save $1bn. At the heart of the Oracle strategy was investment

Public sector shared services are usually overly customised to meet the needs of individual departments, resulting in multiple systems and processes Illustration: Angus Grieg

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in technology, shared services and standardised processes. This included moving from 52 versions of Oracle’s financial systems to one and transferring most of its global transaction processing to a single shared service centre. It did this some years ago and since then has acquired numerous businesses, adding substantial revenues and business capability, and integrated these into its shared service centre without significantly increasing its core overheads.

Why has the public sector found it so difficult to achieve similar savings from shared services? The NAO report concludes that the services provided are usually overly customised and made more complex to meet the needs of individual departmental customers, resulting in multiple versions of systems and processes, thereby significantly reducing the ability of the shared service centres to make efficiencies.

Most departmental customers have not acted as ‘intelligent customers’, they have not driven savings and rationalisation. Government has not developed the necessary benchmarks against which it could measure performance and drive improvement.

Plus, the use of the centres has been voluntary and so departments have struggled to roll out shared services fully across all their business units and arm’s-length bodies.

This does not prove that the concept was wrong but it does show that you cannot just lift a model from the private sector without considering the wider structural, cultural and policy levers. Shared services have worked in the private sector and parts of the public sector, usually within single organisations, with strong leadership that could force through standardisation, automation and rationalisation.

There remains a strong commitment to shared services across government departments – but have they learnt the lessons of the past?

John Thornton is the director of e-ssential Resources and an independent adviser on business transformation, financial management and innovation NOVEMBER 2012 PublicFinance 41

12/10/12 16:57:42

NEED TO KNOW

Management development How to improve your personal resilience As the slings and arrows keep coming, how can the public sector keep calm and carry on? Alex Davda and Vicki Culpin explain ten ways that managers can strengthen themselves and their organisations Stress-related absences are increasing in today’s public sector workplace as the pressures from organisational change and funding cuts take their toll.

To be resilient, leaders need to develop a range of physiological and psychological resources and make better use of those they already have. This will help them not only to avoid stress and burnout but also to meet difficult situations, learn from them and keep pressure positive.

Resilience has often been described as the ability to bounce back from adversity or to turn adversity to advantage. But this definition overlooks people who display resilience by managing well each day. More fitting explanations might be ‘sustainability’ and ‘the capacity to continue to move forward in the face of difficulty’.

Clearly, people need both kinds of resilience, but sustainable performance seems to have more appealing and long-lasting benefits for the organisations themselves, the workforces that mobilise them and the general public. Research has shown that individuals and organisations can perform consistently and thrive under pressure by creating opportunities to learn and grow. Organisational strategies to achieve this include: providing decision-making discretion, sharing information, reducing uncivil work behaviour and offering performance feedback.

As a leader, you can change your views, habits and responses to pressure by modifying your thoughts and actions and increasing your openness to change.

Although some people seem to be naturally resilient, others can learn how to be. Here’s how.

Resilient people often use an adverse event as an opportunity to branch out in new directions

1

FIND YOUR SENSE OF PURPOSE

Having structure, commitment and meaning in your life will make you more resilient. A clear sense of purpose, whether related to home or work life, helps you to assess setbacks within the framework of a broader perspective, allowing you to focus on the bigger picture and consider longerterm goals rather than short-term problems. On a personal level this can be achieved by considering ‘who’ and ‘what’ is important to you when you are under pressure. People in the public sector can also benefit from connecting to the purpose of the organisation, 42 PublicFinance NOVEMBER 2012

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often related to improving the lives of the general public. Take time to think about what you do to help achieve your organisation’s purpose.

2

DEVELOP YOUR PROBLEM-SOLVING STRATEGIES

The way individuals perceive situations, solve problems and manage change is crucial to resilience. Take a step back and think about how you approach difficult issues, the extent to which you follow objective logic, and how often your judgement is clouded by emotional responses and irrational thinking.

3

BE SELF-AWARE

Reflection fosters learning, new perspectives and a degree of self-awareness that can enhance your resilience.

Developing a belief in yourself and your capabilities can be achieved through looking back at memorable and challenging experiences (both positive and negative) from your professional and personal development and taking the time to acknowledge that you came through those periods of difficulty.

Public sector leaders have some valuable experiences and lessons that can be drawn on and shared to boost collective confidence in the future.

Illustration: Natalie Wood

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DO

1. Embrace change as a positive 2. Develop your self-awareness

DON’T

3. Focus on things you can control

1. Neglect your private life 2. Hold on to bad habits 3. Let your emotions go wild

Leadership bursary Ashridge Business School has launched a leadership development bursary in memory of Steve Watson, an outstanding programme director and teacher of finance and strategy. Steve died after a long battle with cancer in 2011.

The £5,000 bursary will fund the attendance of a finance professional on an Ashridge development programme. Entry is open to any member of a professional finance institute.

Applicants have to write a short piece explaining how the programme could help them in their working lives. For more information contact info@ashridge.org.uk. The deadline for entries is November 30.

changes often having a significant organisational impact. Learning how to be more adaptable will better equip you to deal with an unexpected work challenge or large-scale restructuring.

This often involves actively going out of your comfort zone and increasing your openness to new experiences, both in and out of work. Resilient people often use an adverse event as an opportunity to branch out in new directions.

6 4

KEEP ON LEARNING

5

EMBRACE CHANGE

Learn new skills, gain new understanding and apply them during times of change. Seek formal and informal opportunities to learn and develop, rather than holding on to old behaviour and bad habits, especially when it’s obvious that they do not work anymore. Start thinking about what drives your preference towards this old behaviour and whether it is helpful for the context you operate in today.

Flexibility is essential in resilience and a necessity in the public sector, with political

UNDERSTAND WHAT YOU CAN CONTROL

Resilient individuals are often those who are able to focus their time and energy on projects and issues that are either directly under their control or that they have a level of influence over, while letting go of those they have no control over. This might seem difficult to achieve in the public sector, with a lot of decisions feeling very far away from your direct control. However, even if you can’t control the results of a decision that has taken place, you can still control the way you react internally and externally with your team.

7

ENJOY YOURSELF

In situations of rising work pressure, it can be extremely difficult to still do the things you enjoy. People often focus on solving the challenge at hand, working longer and overlooking other parts of their life to their detriment. You will feel revitalised if you continue to do the things that make you feel good, even when under pressure. Ensure you are using the flexibility available to you in your role. Remember, ten hours at work does not always equate to ten hours of productivity.

8

GET ENOUGH SLEEP

9

MANAGE YOUR EMOTIONS

When you feel stressed, it can be all too easy to neglect yourself. Losing your appetite, ignoring exercise and not getting enough sleep are all common reactions to both everyday pressure and a crisis situation.

Taking care of your own needs can boost your overall health and resilience and prepare you to face life’s challenges.

Poor sleep, diet and lack of exercise can all reduce physiological resilience, making coughs and colds more likely.

When under pressure, people with low resilience will often demonstrate poor emotional management. You need to raise your awareness of when emotions are appropriate and in which situations. You should also pay attention to both your negative and positive emotional triggers.

10

BUILD SUPPORT NETWORKS

Resilient people often have strong support networks at home and at work. Take the time to check in with colleagues and start building informal and formal support networks now, so that they are there when needed. In the public sector, managers often have a wide network of colleagues and can share some common experiences with a range of people. For example, everyone is operating under the media spotlight in times of significant cuts.

Vicki Culpin and Alex Davda are respectively research director and psychometrics consultant at Ashridge Business School NOVEMBER 2012 PublicFinance 43

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delivering more More great changes to the CIPFA Professional Qualification Earlier this year we made exciting improvements to the content of our Professional Qualification. Highly relevant and highly attuned to your needs – it’s simply the only choice for public finance professionals. And from your feedback we know you agree.

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The PEP is a streamlined and flexible scheme, ensuring relevant workplace experience with a strong focus on ethics principles, and complements the educational development obtained through study.

Key features of the new PEP are:

Improved learning and reflection requirements The need to reflect on the ethical dimensions of each activity

Fewer activities to complete and write up No set submission deadlines – submit at any time after passing all required exams

Quicker review of portfolios and issue of results All of these improvements, together with our flexible study options, mean that we can now deliver more to you, and your staff can become full CIPFA members quicker.

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NEED TO KNOW

On account ■ Manj Kalar

Long and the short of it Whitehall has yet to feel the worst of the cuts. It will need to find lasting, cross-government savings and could learn from best practice in councils THE PUBLIC SECTOR faces an ‘enormous’ challenge in meeting the remaining cuts demanded by government, the chair of the Public Accounts Committee told the CIPFA Central Government conference in September.

Margaret Hodge said that only a quarter of the planned cuts had been achieved so far and many had already been passed on to the front line, as was mainly evident in the local government workforce. Radical change was needed to make the rest of the cuts, Hodge said.

This called for two main approaches: • A focus on the long-term impact of short-term cuts – are we merely deferring cuts to future generations, as with the Private Finance Initiative?

• A move away from ‘silo’ or internal departmental thinking. Cuts should be looked at holistically, at cross-public sector or cross-department levels.

Existing approaches in these areas had led to less than perfect decision making and ‘unintended consequences’, Hodge said. For example, Revenue & Customs had cut staff by 3,000, saving the department £100m. But overall this added up to a £1.1bn loss to the Exchequer as there were fewer staff

to pursue outstanding tax. Similarly, the Department for Transport cut the road maintenance budget by £1.23bn, although this could mean more potholes and potentially greater long-term costs.

The decisions might seem perverse but this is partly due to the spending controls on departments. Departmental Expenditure Limits cover spending on policies and programmes (capital and revenue, including administration). The sums are set in Spending Reviews and approved by Parliament and cannot be exceeded. Annual Managed Expenditure covers more volatile, demand-led spending, such as welfare and interest payments. Although limits are set, AME over-spending is not subject to the same penalties as exceeding DEL. To keep both within overall limits, departments are required to reserve some money for contingencies. This has recently been quantified for the first time, at 5%.

Given these controls, it is perhaps easier to appreciate why departments focus on individual elements of spend (in their silos) rather than on the whole (what does it mean for the Exchequer?).

For example, the Exchequer might save

The road maintenance budget has been cut by £1.23bn, which could mean more potholes and greater long-term costs

significant unemployment costs in AME by a small rise in DEL spending. But the controls would prevent this.

The problem doesn’t just affect Whitehall, where costs are moved between departments, but between central and local government.

However, Hodge believed ministers had recognised the need for change, noting the work of the crossgovernment Finance Transformation Programme, which is managed by the finance directors-general of the large departments.

She also felt that the current system did not encourage innovations, such as bringing forward some capital budget from future years to develop new processes that could lead to overall saving. Hodge said she could understand the Treasury’s nervousness, as this would require trust that the proposals would yield the savings. Unfortunately, cost overruns in major public sector projects were all too common. Trust could be earned only over time – so it was a Catch-22 situation. To help build this assurance, she referred to the PAC recommendation that ‘senior responsible officers’ stay in post until projects had been completed, now included in the Civil Service Reform programme.

Another concern was the ‘tension between localism and getting better value’, she said. The worst example was 61 different NHS trusts purchasing 21 different types of A4 paper, gloves and cannulas. Whitehall has centralised similar spending via the Cabinet Office’s Efficiency and Reform Group.

Hodge recommended increasing the skills of senior responsible officers leading major procurement projects. More than half had no commercial experience, she said.

Greater exploitation and intelligent interpretation of data were also needed, as was better collaboration with local government, which had a wealth of good practice.

She also emphasised again that whatever changes are made, they will have to be radical to work.

Manj Kalar is technical manager, central government & financial management, at CIPFA NOVEMBER 2012 PublicFinance 45

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NEED TO KNOW

Statistics

Numbers game PF’s monthly roundup of statistics covering the public finances, economic growth, unemployment and more The International Monetary Fund had some chastening news for the UK and other developed economies when it published its latest World Economic Outlook this month.

Growth estimates were downgraded for the UK, the euro area and for world output as a whole.

The IMF now estimates that the UK economy will shrink by 0.4% in 2012 and grow by only 1.1% in 2013.

Chief economist Olivier Blanchard admitted that the IMF’s assessment of the impact of austerity had been off target. He had previously assumed a ‘fiscal multiplier’ in advanced economies of 0.5 – that is, every £10bn cut in government spending leads to a £5bn GDP reduction – but now believes the figure is between 0.9 and 1.7.

If the multiplier were in the middle of this range (1.3), the coalition’s deficit reduction programme could have sucked £76bn more out of the economy by 2015 than previously thought.

The Trades Union Congress analysed the effect of a higher multiplier on the growth forecasts made by the Office of Budget Responsibility back in June 2010. It begs the question: would the coalition have cut as deeply if it had understood the impact fully?

We’ll be in a better position to answer this question when we get the UK preliminary growth figures for the third quarter of 2012. These are due to be published on October 25, after this issue of PF goes to press.

There is likely to be some improvement, however, and most commentators are predicting a return to growth. They are helped in this assessment by improved figures for both unemployment and inflation.

The three months to August 2012 saw a 50,000 fall in the number of people unemployed to reach 2.53 million, while total employment hit a record high of almost 30 million.

Meanwhile, both the Consumer Prices Index and the Retail Prices Index registered a fall of 0.3 percentage points in September to 2.2% and 2.6% respectively.

PUBLIC SECTOR EMPLOYMENT, AUGUST 2012

29,590,000 46

UK GDP GROWTH FORECASTS (2009/2015, %) *Actual

2.4

1.8

2.4

1.2

0.9

–0.2

–4.0 2009*

2010*

2011*

2012

2013

2014

2015

Source: Ernst & Young Item Club

INTERNATIONAL GROWTH FORECASTS (%)

7.8 8.2

2012 2013

6.0 4.9 4.0

3.3 3.6 2.2 2.1 2.2 1.2 –0.4 0.2 World Output

Euro Area

3.7 3.8

1.5

1.1 –0.4

US

Japan

UK

China

Brazil

India

Russia

Source: IMF World Economic Outlook

OBR GROWTH ESTIMATES WITH DIFFERENT MULTIPLIERS (%) 3.0 2.5 2.0 1.5 1.0 0.5 0.0

2010/11

2011/12

OBR estimate June 2010

Estimate with multiplier of 0.9

Estimate with multiplier of 1.3

Estimate with multiplier of 1.7

2012/13

2013/14

2014/15

2015/16 Source: TUC

PublicFinance NOVEMBER 2012

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Jun–Aug 2011

2,528

2,577

2,634

2,675

2,577

UK UNEMPLOYMENT (000s)

Sep–Nov 2011

Dec 2011 – Feb 2012

Mar–May 2012

Jun–Aug 2012

The number of people unemployed fell by 50,000 to stand at 2,528,000 in the quarter to August 2012. Total employment reached a record high and the unemployment rate fell to 7.9% LABOUR DISPUTES – WORKING DAYS LOST (000s)* Private sector Total 100%

1,246

AVERAGE WEEKLY EARNINGS – TOTAL PAY 2011/12 (£) Public sector

495

Public sector

81

Source: ONS

Whole economy

Private sector

490

6.5% 485 480 475

1,166 93.5%

470 465 460

*Year to August 2012

455 Sep 2011

Source: ONS

Oct 2011

Nov 2011

Dec 2011

Jan 2012

Feb 2012

Mar 2012

Apr 2012

May 2012

Jun 2012

Jul 2012

Aug 2012

Source: ONS

INFLATION 2011/2012 Consumer Prices Index (%)

2.2%

5.0

5.4 4.8

Retail Prices Index (%)

5.2

4.8 4.2 3.6

3.9 3.4

3.7 3.5 3.6

3.5 3.0

2.8

3.1

2.8 2.6 2.4

3.2 2.5

2.9 2.2

2.6

CPI inflation, September 2012 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Jul 12

Aug 12 Sep 12

Source: ONS

NOVEMBER 2012

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NEED TO KNOW ALL E CO VENTS A COUNURSES CANND YOUR T TOWAR PRO CONTINUIDS DEVEFLESSIONALNG O SCHEPMENT ME

CIPFA Events CIPFA, the leading public finance and accountancy body, is the major event and course provider for the public services. Our events range from technical updates to conferences on strategic issues. Covering finance, governance and performance topics across all the public services, they are not to be missed. Some of the forthcoming ones can be seen below.

Conferences Search ‘conferences’ at www.cipfa. org/events

November November 7

Pensions network annual conference 2012 The challenge of reforming the Local Government Pension Scheme will be the focus of this year’s conference. Expert speakers will cover the key issues in the debate.

London Rikki Ellsmore 020 7543 5746 rikki.ellsmore@cipfa.org www.cipfa.org/events

November 13, 15

Local government technical update conference Local government finance is going through a period of unprecedented change and this conference will act as a guide to the latest happenings.

Experts will highlight issues arising from developments in local authority accounting and financial reporting.

London (November 13) Birmingham (November 15) Alana Roberts 020 7543 5854 alana.burnett@cipfa.org www.cipfa.org/events

November 14

Asset management planning national conference 2012 The theme for this year’s conference is the impact that property assets can have on local communities and local people. A range of expert speakers will be sharing their experience of using assets to make a difference to regeneration, housing renewal, localism, community facilities, community health, productivity through good design, and customer demographic mapping.

London Denise Edwards 01244 394600 denise.edwards@cipfa.org www.cipfa.org/events

November 22

Income generation: maximising revenue, minimising CSR reliance This year’s income generation conference will provide a variety of options for organisations looking for new or refreshed revenue streams to help maintain current service levels without resorting to cuts or raiding their internal reserves. It will include guidance on how to make the most of policy developments that could provide scope to drive income levels up.

London Rikki Ellsmore 020 7543 5746 rikki.ellsmore@cipfa.org www.cipfa.org/events

The need for effective management of public sector procurement and contracts has never been more pressing. This programme has been developed in response to these challenges.

London

November 15

Certificate in corporate governance

November 14, 21

Financing social enterprise London (November 14) Leeds (November 21)

November 15

Understanding and performance managing outcomes in organisations and across partnerships

From discussions with chairs and chief executives of public bodies, we have identified the need for a practical and structured training programme that will increase the knowledge and skills of those charged with making governance work in public bodies.

London

Edinburgh

CIPFA North East annual conference: from here to austerity

Online, continuous

London (November 23) Leeds (November 28)

This conference will look at turning current challenges into opportunities and using austerity as a catalyst for innovation.

Gateshead Jane Cuthbertson Jane.Cuthbertson@southtyneside. gov.uk www.cipfa.org/events

Prince2 for the public sector is now available in e-learning format.

With a number of locations across the UK available for sitting the foundation and practitioner examinations, it is a highly flexible way to gain the qualification.

November 23

November 28

CIPFA audit update This conference, aimed at audit professionals, will update delegates on the latest legislative and sector developments affecting audit and assurance services. It will include briefings on topical issues in public services and good practice in audit.

London Rikki Ellsmore 020 7543 5746 rikki.ellsmore@cipfa.org www.cipfa.org/events

Accredited courses Visit www.cipfa.org/Events/ Accredited-Training or call 020 7543 5854, or email cipfatraining@cipfa.org

November November 6

Certificate in audit of procurement and contracts

Prince2 for the public sector e-learning

Key open courses Search ‘open courses’ at www. cipfa.org/events for short courses in England and under ‘training courses’ for the rest of the UK.

November 6

Maximising the value of the audit committee Belfast

November 13, 20

Introduction to social enterprise in public service delivery London (November 13) Leeds (November 20)

November 14-15

November 15

Shared service business case toolbox London

November 23, 28

Financial reporting for academies

November 22

Introduction to risk management Glasgow

November 27 & December 13

Improving the value from your training London

November 27, 29

Advanced component accounting - half day event London (November 27) Leeds (November 29)

December 4

Introduction to local government finance London

December 5 Lean audit London

December 4-5

Shared services architects programme

Masterclass in negotiating outsourcing and joint ventures with the private sector

London

London

Introduction to local government finance

November 14

Building a better balanced scorecard Swansea

December 6

Leeds 11 December, London; 13 December, Leeds The A–Z of Capital

48 PublicFinance PublicFinance JUNE NOVEMBER 48 2011 2012

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

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KentPolice.QPV.indd 1

Helping you choose the right path

Chief Accountant Ref: 2023 Up to ÂŁ42,494 (subject to job evaluation) Permanent North Norfolk is unrivalled as a place to live and work. An area of outstanding natural beauty, the quality of life is excellent with mile after mile of stunning countryside, unspoilt coastlines and beaches, yet still within easy reach of the bustling cosmopolitan city of Norwich. Reporting directly to the Head of Finance this is an exciting opportunity to take a key role in driving the finance function for the authority to deliver a successful professional accountancy service.

We are seeking to appoint a Chief Accountant to lead and manage the accountancy team and work with the Head of Finance to support the Council in delivering its service objectives and priorities.

Your remit will include managing the budget process including the setting of the budget, the in-year reporting and the statement of accounts process. You will also provide a pivotal role in the Council’s procurement process, providing advice and support to departments on purchasing approaches.

You must have excellent communication skills, be able to plan, monitor and prioritise workloads and work under pressure to deliver to strict deadlines. The successful candidate will be a CCAB qualified accountant and possess strong all round accounting skills as well as year-end reporting experience and knowledge of IFRS and procurement.

Excellent interpersonal skills are essential as well as the ability to build relationships with key non finance individuals across the organisation. Local government experience is highly desirable although not essential.

North Norfolk District Council is committed to equality and diversity in employment and encourages applications from all sections of the community.

We offer employees a friendly working environment, flexible working hours and a final salary pension scheme. Applications from individuals wishing to work part time will also be considered.

Please note that we do not accept CV’s unless accompanied by a fully completed application form. We also do not accept electronic applications via online storage.

These must be sent as an attachment via email only.

If you would like an informal discussion regarding the post, please contact Karen Sly, Head of Finance on (01263) 516243.

Closing date: 19 November 2012.

For a job description, specification and application form, contact our job line on (07661) 001017 (24 hours) or email hr@north-norfolk.gov.uk Details can also be found on our website at www.northnorfolk.org/jobs/

16/10/2012 15:06

With our user friendly website, it has never been easier to ďŹ nd your next Public Finance job. •

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PFRecruitment.indd 49

NOVEMBER 2012

PublicFinance 49

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For all the latest vacancies within public sector finance, accountancy and management visit

www.pfjobs.co.uk To advertise on pfjobs.co.uk please call 020 7324 2762

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www.pfjobs.co.uk PFI New Laundry List FP.updated.indd Sec1:2

17/10/2012 15:45

Property

turning the spotlight on your asset management The Localism Act introduces a Community Right to Bid (Assets of Community Value) which aims to ensure that buildings and amenities can be kept in public use and remain an integral part of community life. CIPFA has a number of solutions to support you across asset management with our expert knowledge and expertise.

Asset Register Health Check ‘stress-tests’ current approaches highlighting weaknesses and suggests practical changes Capital Accounting Software IFRS compliant software that also deals with componentisation of assets Annual National Asset Management Conference The impact of property assets on local communities 14 November, London – HOLD THE DATE For more information about how we can help you please visit www.cipfa.org/property or call 01244 399 699 Ref 12E12PA

®

PFNov.051.indd 14

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supporting best practice Public Sector finances are under scrutiny.

Meeting the proper accounting practice will ensure that you are managing the public purse sensibly. Our guidance will support you and keep you up to date with all the important changes.

Order your copies now!

Code of Practice on Local Authority Accounting in the United Kingdom 2012/13 Code of Practice on Local Authority Accounting in the United Kingdom: Disclosure Checklist for 2012/13 Accounts Code of Practice on Local Authority Accounting in the United Kingdom: Guidance Notes for Practitioners – 2012/13 Accounts Service Reporting Code of Practice for Local Authorities 2013/14 Local Government Application Note for the United Kingdom Public Sector Internal Audit Standards

Visit www.cipfa.org/publications or email publications@cipfa.org for more information Ref 12E12PA

®

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