PublicFinance
The business monthly of the public sector
publicďŹ nance.co.uk
Issue 12 December 2014
DECEMBER 2014
Metro mania Jim O’Neill on the northern powerhouse
Roman numerals Reports from the World Congress of Accountants
Merrily on high Test your scores in the PF Christmas quiz
RUNNING ON Councils in search of breakdown cover
p001_PFIdec14_cover_roughs.indd 1
19/11/2014 19:42
Reduce operating costs, increase value
corporate services benchmarking 2015 Our Corporate Services Benchmarking Clubs are used by local authorities throughout the UK to drive improvements and transform services. We deliver clubs in a number of areas including Finance, Audit & risk, Staff, Legal & democratic, and Supplies, Revenues and benefits, and Core Back office for smaller organisations. Benchmarking provides the fuel to answer critical questions such as: How is staff time spread across various function processes? How effective is my function at delivering value for money? How does my organisation compare to others? How much do I spend to deliver services? Where are the biggest opportunities to improve? Should processes be outsourced? Or shared? Find out more about our corporate services club: T: +44 (0)20 7543 5892 E: customerliaison@cipfa.org www.cipfa.org/corporateservices
®
p02_PFIDec14.indd 14
17/11/2014 17:04
PublicFinance
CONTENTS
December 2014
‘WE HAVE GOT TO THE POINT WHERE WE CAN’T SALAMI SLICE ANYMORE. IT’S DEPRESSING, BUT IN THE END WE WILL HAVE TO PROVIDE WHAT THEY CALL A BALANCED BUDGET’
Features 24 COVER STORY The Big Chill Councils have lost nearly half their core funding in five years. Now they are asking voters to decide where the axe should fall next. Neil Merrick reports
30 Health gains despite slimmer budgets Public health is rising up the NHS agenda, and being promoted by local authorities. But too much emphasis is on changing individual lifestyles
24
34 Back to basics on welfare The government is planning further welfare cuts. But rising poverty and changes to in-work benefits could make it a reform too far, writes Claudia Wood
12 Christmas quiz Test your knowledge of the news in the annual Public Finance Chrstmas quiz for the chance to win £150 in Marks & Spencer vouchers
34
Regulars 4
Leader A Christmas quarrel
5
Second thoughts Melissa Benn asks who’s watching our schools, after failures at academy trusts
6 News Money will follow transport plan, says HS2 chief; call for town hall scrutiny inquiry; and Herts plans a ‘civil service’
30 Need to Know
43
8 News Analysis Jim O’Neill on the thinking behind his latest acronym, ManSheffLeedsPool
42
10 World Congress of accountants Germany under pressure on IPSAS and other news from the Rome conference
43
Smart Thinking? The Internet of Things is encouraging us to give away our information lightly
14 Opinion Ken Lee on Right to Buy in a housing crisis; Tom Gash in quangoland; and Mike Farrar on lessons in sharing
44
18
On Account CIPFA on the growing financial pressures for blue light integration
Professional Development Why cultural fit is vital for leaner teams
46 48
Watchdog Watch
20
Numbers Game
Voice of the Nations Why Scotland needs a balance sheet
Cipfa Events
40
PublicFinance p003_PFIdec14_contents.indd 3
Subscribe today for the latest expert comment on public policy and finance
Risk review
Scan here to subscribe to the leading magazine in public finance...
19/11/2014 19:24
CONTACTS
Leader A Christmas quarrel
‘A
re there no prisons? Are there no workhouses?’ If it were food banks and Asbos there’d be a contemporary feel to Ebenezer Scrooge’s response to the plight of the poor. In the run-up to the festive season, councils have been lobbying hard for some crumbs from the Autumn Statement table. With the loss of nearly 50% of core funding over five years (pages 24-29), and many services for children and older people under threat, you might think they have a reasonable case. Bah humbug, says communities secretary Eric Pickles, pointing to the relatively healthy level of council reserves. Instead of complaining, and raising council tax, they should shake out their piggy banks, he insists. It is indeed the case that many councils have set aside extra reserves for the post-election 20% of cuts to come. This would seem prudent, given that the National Audit Office predicts half of local authorities risk financial failure by 2020, and the Institute for Fiscal Studies says Britain is only half-way through its austerity pain. In any other line of business (banking, say) putting away money for a rainy day would be considered good housekeeping. But Pickles – whose department the NAO criticises for inadequate financial monitoring – is having none of it. In reality, English councils have only managed to make savings by shedding a sixth of their staff since 2010 – and being extraordinarily innovative when it comes to shared services and combined authorities. But as numerous council leaders report in this month’s issue, there are limits to this approach. Many are having to make ‘invidious decisions’ that inevitably hit the most vulnerable. And judging from the work and pension secretary’s Scrooge-like response, there’s going to be even less of a safety net in future. Iain Duncan Smith intends to clamp down on benefit entitlements (pages 34-37), to help shave £12bn off the welfare bill. ‘In-work conditionality’ is set to become a modern take on the undeserving poor. Unless the chancellor has an epiphany on December 3, and approves far greater fiscal freedoms for cash-strapped authorities, councils will face some grim choices in the new financial year. The NAO says the DCLG should look harder ‘for evidence of financial stress’ in local authorities. Judging from all the flashing warning signs, it’s already here. The next issue of Public Finance will be published at the end of January 2015. We wish all our readers a happy new year
■ Judy Hirst ASSOCIATE EDITOR letterstoeditor@publicfinance.co.uk
4
REDACTIVE PUBLISHING LTD 17-18 Britton Street London EC1M 5TP 020 7880 6200 www.publicfinance.co.uk Associate editor Judy Hirst 020 7324 2769 judy.hirst@publicfinance.co.uk Managing editor Vivienne Russell 020 7324 2788 vivienne.russell@publicfinance.co.uk Content development director Lem Bingley 020 7324 2768 lem.bingley@publicfinance.co.uk Senior reporter Richard Johnstone 020 7324 2796 richard.johnstone@publicfinance.co.uk Reporter Judith Ugwumadu 020 7324 2794 judith@publicfinance.co.uk Contributors Paul Nettleton, Keith Aitken Senior designer Gene Cornelius 020 7880 6227 gene.cornelius@redactive.co.uk Picture editor Akin Falope 020 7324 2713 akin.falope@redactive.co.uk Editorial assistant Tania Forrester 020 7324 2793 tania.forrester@publicfinance.co.uk Digital content manager Harriet Patience 020 7324 2733 harriet.patience@redactive.co.uk Sales manager James Condley 020 7324 2750 james.condley@redactive.co.uk Display Sales executive Vlad Harmanescu 020 7324 2726 vlad@redactive.co.uk Sponsorship sales manager James Brunt 020 7880 6230 james.brunt@redactive.co.uk Recruitment sales executive Emmanuel Nettey 020 7324 6234 emmanuel.nettey@redactive.co.uk Senior production executive Aysha Miah 020 7880 6241 aysha.miah@redactive.co.uk Printing Polestar Stones, Banbury, Oxon To subscribe to Public Finance at the annual UK cost of £100, call 020 8950 7010 or email publicfinance@alliance-media.co.uk. International annual subscription rates range from £130 - £205. Public Finance is editorially autonomous and the opinions expressed are not those of CIPFA or of contributors’ employing organisations, unless expressly stated. Public Finance reserves the copyright in all published articles, which may not be reproduced in whole or in part without permission. Public Finance is published for CIPFA by Redactive Publishing Ltd. Public Finance 17–18 Britton Street, London EC1M 5TP Tel 020 7880 6200 Fax 020 7324 2790
ISSN 1352-9250
Average circulation 16,127 (Jul 12–Jun 13)
Tel 020 7543 5600 Fax 020 7543 5700 Email corporate@cipfa.org Address CIPFA, 3 Robert Street London, WC2N 6RL
PublicFinance DECEMBER SEPTEMBER2014 2011
p004_PFIdec14_leader.indd 4
19/11/2014 19:23
Second thoughts pfOpinion
■ Melissa Benn
Who’s watching our schools? Failures at academy trusts are the predictable result of removing schools from democratic scrutiny Back in October, the National Audit Office delivered a stern verdict on poor oversight of our schools which are ‘not delivering value for money’. Bodies indicted for this failure include Ofsted, local authorities, academy trusts, school governors and the government itself. The Department for Education, which now directly oversees thousands of academies and free schools, often relies on whistleblowers or a dramatic decline in results to trigger an intervention. Last month, an NAO report on the Durand Academy in south London and 17 other academy trusts flagged up the kind of problems that can arise even within high-performing schools. Serious questions have been raised about Durand’s ‘complex’ business interests and the salary of executive head teacher Sir Greg Martin, which rose to £229,138 in 2012/13 (including pension contributions). The NAO’s findings are not a story of avoidable failures or embarrassing oneoffs. They are the direct, logical and
predictable result of a school system that has been fatally fragmented, partly privatised and substantially removed from democratic scrutiny. From 2010, the coalition government encouraged the conversion of thousands of schools to academy status, revving up the revolution started by New Labour. Inefficient or overweening local authority control was to be swept aside so that autonomous governance would flourish, driving up performance in previously poorly performing schools. Things have not quite gone to plan. Local authorities have been run down to the point that they are often powerless to intervene in schools, even when legally mandated to do so. Ofsted can take a snapshot of performance but 15% of schools have not been inspected for four years. As single academies mushroom into multi-academy trusts, their performance is just as uneven as the local authorities they replace. The government’s latest wheeze is the introduction of Regional Schools Commissioners to monitor academies and free schools only. Setting aside the irony of an extra layer of bureaucracy to enable the Gove-ian ideal of autonomy,
AN NAO REPORT ON THE DURAND ACADEMY FLAGGED UP THE PROBLEMS THAT CAN ARISE EVEN WITHIN HIGHPERFORMING SCHOOLS Photo: The Times
p005_PFIdec14_2nd_thoughts.indd 5
the commissioners look likely to confirm some of the problems the NAO found. Education journalist Warwick Mansell, who has been tracking the department’s contortions over these appointments, says the RSCs will set in place a structure of ‘opaque, behind-the-scenes decisionmaking’. They increase the ‘danger of powerful individuals doing what they want with schools without democratic accountability; the freezing out … of most education stakeholders from meaningful influence; and risks of serious conflicts of interest and cronyism’. Early this year, the Blunkett review for Labour sketched out an alternative means of oversight: a sub-regional Independent Director of School Standards, covering all school types in a given area and responsible for intervention and school-to-school collaboration. For many, the best answer is to return oversight to local authorities. Lessons could be learned from Hackney, once fabled for its chaotic schools. It achieved an amazing turnaround through a period of supervision and collaboration brokered between all schools (including academies). Managed at first through a non-profit making body, these powers have now returned to the borough. Others argue against returning meaningful supervision to local level, in part to conform to that strange law of politics that one must always come up with a fresh-sounding initiative. Either way, the challenge is to find a new balance between school autonomy, quality and public accountability. We urgently need a system that ensures early intervention, school-to-school support and regular checks on everything from safeguarding to potential conflicts of interest. Melissa Benn is a founder of the Local Schools Network and a writer on education DECEMBER 2014
PublicFinance 5
19/11/2014 19:14
News Infrastructure
HS2 chief predicts transport plan will bring private money BY RICHARD JOHNSTONE
High Speed 2 rail chief Sir David Higgins has raised the prospect of increased private investment in the UK’s transport system, as part of a 30-year government plan to develop economically vital connectivity. Speaking to Public Finance, Higgins, who chairs the government-owned company developing the line, said a national transport strategy is needed to avoid the ‘stop-start’ investment in rail, road and other infrastructure of recent decades. He pointed out that other countries have long-term plans to develop economic infrastructure, but in the UK funding is provided on an ad hoc basis for individual projects. That funding pattern extends to HS2, which will run from London to Birmingham and, later, on to Manchester and Leeds. HS2 Limited will need to negotiate with the new government after next May’s election to secure funding from the Spending Review, expected next year, as well as working towards indicative settlements until 2025, Higgins said. ‘We don’t have a national transport strategy, we have a budgeting process – a high-level output specification which comes through to control periods [fouryear funding deals with agreed projects] for Network Rail,’ he told PF. ‘The Highways Agency don’t have that, they have an annual budget.’ In his latest report for government, Rebalancing Britain: From HS2 towards a national transport strategy, Higgins called for the One North plan, developed 6
by five northern cities to improve the connectivity of the region, to be built into a government-backed transport plan. Improved connectivity on key trans-Pennine routes would form part of a more strategic approach to transport. ‘I used the example of the highways and having had a plan from 1938 about how the highways are going to work, so it makes sense to have a plan for railways. And if you do have a plan, that means that the public can understand where everything fits together. ‘It’s actually much more efficient if you have a long-term plan. Manufacturers will base themselves here, skills will develop, when you can say this is what we’re going to do for the next 30 years,’ he told PF. ‘We can’t have the luxury of not having a proper infrastructure plan – we don’t want insufficient broadband or energy generation capacity or distribution or transport to hold the country back.’ Asked how this could work within Whitehall’s budget plans, and if there is potential for greater private finance, he said that in his native Australia, many transport developments are sold to private operators as concessions. ‘They use public money to take development risk on major projects, be it motorways or power lines. They build it with public funds and then they sell it as a concession or toll road once they’ve taken the risk out of the construction phase. It’s an interesting way.’ The government has already done this for HS1, which was sold for £2.1bn as a 30-year concession to Canadian pension
funds Borealis Infrastructure and Ontario Teachers’ Pension Plan in November 2010. Higgins said he could see HS2 being run as a concession. ‘The broader issue the government needs to consider is how they want to fund the railways,’ he added. Responding to the comments, Stephen Joseph, chief executive of the Campaign for Better Transport, said there is some promise in the idea of raising funds to re-invest in other schemes. ‘It’s not possible to get the private sector to invest in construction, but once construction has happened and there is a revenue steam, there is long-term and low-risk finance that transport brings [for private sector investors]. I think there’s something there.’ However, he said, any national transport strategy needs to be planned on the basis of partnerships with local authorities and regional bodies, as there is a limit to the number of genuinely national transport projects as more powers are devolved to local authorities. ‘I do think a national transport strategy is a good idea, but I think it needs to be
PublicFinance DECEMBER 2014
p006_007_PFIdec14_news.indd 6
19/11/2014 19:18
publicfinance.co.uk/news
CouncilGovernance ‘WE DON’T HAVE A NATIONAL TRANSPORT PLAN, WE HAVE A BUDGETING PROCESS’ SIR DAVID HIGGINS
slightly more multifaceted and joined-up than just a simple national plan. ‘The number of genuine national schemes on transport is diminishing, and probably should diminish, given that a lot of transport is local. There are a number of things that are genuinely national, but they’re probably quite small in number.’
Richard Johnstone
Rotherham failings spur call for town hall scrutiny inquiry A parliamentary inquiry into the effectiveness of scrutiny arrangements in councils run by cabinets or mayors is needed after a number of high-profile failings, a senior MP has said. Clive Betts, chair of the communities and local government select committee, told Public Finance a wide-ranging examination is necessary after the committee published its report into Rotherham Borough Council’s failure to tackle child sexual exploitation. The committee is to recommend that its successor in the next parliament investigates the effectiveness of current scrutiny models, he said. Its report on Rotherham found that challenge of the cabinet by the council was not effective, meaning policies were ‘divorced from reality’. Such problems are likely to be found in other local authorities and in other service areas, Betts warned. An investigation into
how scrutiny in cabinet and mayoral governance works is now vital, he added. ‘It was interesting to read the Tower Hamlets report [into governance in the authority led by mayor Lutfur Rahman] where scrutiny was singled out as a problem where they hadn’t done their job in scrutinising issues around finance,’ he said. ‘We didn’t generalise and say how scrutiny should be improved in Rotherham and in general, but we recognise that it is such an important function in councils – now that they’ve moved over to cabinet and mayoral systems – that we need a full select committee report into this.’ Betts said he was ‘laying down a marker’ for the committee’s successor after the election next May. ‘The issue is where there is strong cabinet government or strong leadership, sometimes where things are going wrong there’s either a failure to recognise or a
and Crime Commissioner’s team. ‘Because everyone in local authorities has got to save money, we’re starting to talk about a Hertfordshire civil service,’ Wilsher said. ‘This would go across the districts, the county, the fire, police – all those people in Hertfordshire.’ He said the creation of single human resources, finance, procurement and
Integration
Councils plan one ‘civil service’ BY RICHARD JOHNSTONE
Councils in Hertfordshire are drawing up plans to create a single integrated ‘civil service’ across all the county’s local government bodies to make savings, Public Finance has been told. They are developing proposals for a unified workforce covering 10 district councils, the county council, and its police and fire authorities. The plan was revealed by Roy Wilsher, the county’s chief fire officer and also chief executive in the Police Photos: Sam Kesteven/iStock
p006_007_PFIdec14_news.indd 7
Savings device: Hertfordshire County Council is working on the concept of a unified workforce with districts
desire to close the issue down and not get public attention to them. “But scrutiny has to therefore open them up and examine them. If it doesn’t, things go wrong.’ Jessica Crowe, the executive director of the Centre for Public Scrutiny, said a national evaluation of council scrutiny is needed. ‘There hasn’t really been an evaluation since very shortly after the changes in the Local Government Act 2000 [which spread cabinet and mayoral local governance in England],’ she said. ‘We have seen support for scrutiny functions down to its lowest level since 2004 and there is an average of less than two officers per authority for scrutiny. It is under strain and we need to understand that and understand where the problems are, which in some places are leading to the kinds of failures we saw in Rotherham.’
property functions are among areas being considered. The organisations are comparing working practices and sickness absence levels to see how workforce harmonisation can be undertaken, he told PF. ‘We keep being told in local authorities that we’re only half way through austerity, so we’ve got to find more and more innovative ways to save,’ he added. A spokeswoman said Hertfordshire County Council is working on the unified workforce concept, but no details had been confirmed. ‘It’s something that we are looking to do going forward,’ she said. Sarah Lamont, an employment partner at law firm Bevan Brittan, said the scheme could represent the broadest attempt at integration so far tried in local government. ‘We get arrangements where certainly legal is shared, and back-office functions like facilities management might be shared across an area, but to do it as one big change would be a step beyond what has been done,’ she said. DECEMBER 2014
PublicFinance 7
19/11/2014 19:18
News
Analysis City Growth Commission
A mission to build cities that matter Jim O’Neill is leading the charge to boost the powers of the UK’s cities. He explains to Richard Johnstone why change is needed A new effort from Jim O’Neill, the world’s foremost coiner of economic acronyms, doesn’t quite trip off the tongue. The man who grouped the growth prospects of Brazil, Russia, India and China into the now-famous BRICs, and the nations of Mexico, Indonesia, Nigeria, Turkey into the MINTs, is unlikely to repeat the trick with ManSheffLeedsPool. As chair of the RSA’s flagship City Growth Commission, the former chair of Goldman Sachs Asset Management devised the term when looking at how to boost the UK economy by improving growth in its 15 biggest city regions. As ManSheffLeedsPool implies, much focus of the commission’s work – including from George Osborne – has been on plans to boost the north of England’s biggest cities to create an interconnected regional powerhouse to compete with, and complement, London. With the chancellor expected to set out his own devolution plans in the Autumn Statement, O’Neill tells Public Finance that the idea behind the term is that extending agglomeration benefits to more cities is key to boosting UK growth. ‘London is the only city in the UK that actually registers as being globally important, and there’s a lot of evidence that big cities drive growth. Germany, China and the US – three very diverse countries and three of the biggest four in 8
PublicFinance DECEMBER 2014
p008_009_PFIdec14_analysis.indd 8
the world – all have lots of cities that matter. The other thing they have is quite a bit of devolved power, of which we are way behind the OECD average.’ The commission’s Unleashing metro growth report, published on October 22, therefore calls for extra powers for city regions and for more co-operation between them to create more economically vital metros. ‘When we started out, I said we have to prove that it raises the national growth trend by reducing the dependency on London,’ O’Neill says. ‘And so in the report, we found that if you could raise the gross value added of all these non-London metros to the average, by 2030 it would boost real GDP by $60bn (£38.4bn) in current dollars, which equates to a rise in the national growth performance of 0.2%.’ A change from the UK’s centralised political system is needed to unlock this growth, the report states, with extra powers given to city combined authorities to tailor economic development policies. Local control should be offered over skills to help create partnerships with universities, with greater financial freedom to follow once cities are ready for these responsibilities. And, to encourage further agglomeration, connectivity between cities should be improved across the north of England – not only through
new transport infrastructure, but also through the creation of an integrated payment system across the region, similar to the Oyster card in London. O’Neill says these recommendations amount to ‘simple things about agglomeration’ as well as allowing policies to be tailored to local needs. Paul Swinney, senior economist at the Centre for Cities in London, tells PF that O’Neill’s report makes clear reform is needed, as the majority of large UK cities punch below their weight economically. ‘They should be driving national growth, and yet they don’t. The big question is ,why is that? ‘These places have very different challenges that they’ve been grappling with for some time, but they don’t have the flexibility in order to address these specific challenges. Because you have Photo: Alamy
19/11/2014 19:01
publicfinance.co.uk/news
QuoteUnquote There’s a lot of evidence that big cities drive e growth … if you could raise the gross value added of all these non-London metros to the average, by y 2030 it would boost real GDP by $60bn. City Growth Commission chair Jim O’Neill
The commission recognises that for cities to be successful they need directly elected mayors combined with real power and to be better connected both physically and digitally. This is what the northern powerhouse is all about. Chancellor George Osborne
Quay to power: The Millennium Bridge and The Lowry in Salford, one of 10 boroughs taking devolved powers in the Greater Manchester Combined Authority
policy coming out of Whitehall that is a one-size-fits-all approach, it means that Manchester can’t deal with its specific issues and Leeds can’t deal with its specific issues.’ However, the commission recommends that most powers be devolved only once combined authorities achieve ‘devolved status’ and are judged to be ready for the additional responsibility. In his foreword to the report, O’Neill proposes that only Manchester, with its longstanding combined authority, and West Yorkshire are currently prepared for the risks and responsibilities of increased devolution. This prediction has already come true,
with the coalition government reaching agreement to devolve more powers to Manchester’s combined authority as part of the creation of an elected mayor for the city region. These powers include strategic planning, the responsibility for a devolved and consolidated transport budget, and control of a £300m housing investment fund. O’Neill says the agreement represents a prototype before the next general election, and deals for the rest of the ManSheffLeedsPool axis are possible before next May if the governance of combined authorities is proven. ‘I think it’s a realistic model between now and the election, and as I teased people in Treasury, I would imagine there was now a queue of other cities knocking down the door for a similar type deal. ‘The chancellor made it clear that he would like other cities to pursue such ideas. It’s like an open invitation. I would imagine that Leeds is probably the next in line.’ Osborne, who has also embraced the cause of ManSheffLeedsPool in his own plans for a northern powerhouse with increased powers on transport and control over science funding, backs the commission’s proposals. ‘I’ve been talking with Jim about many of these ideas for some time and warmly welcome the overall report,’ he said at the launch. ‘The commission recognises that for cities to be successful they need directly elected mayors combined with real power and to be better connected, both physically and digitally. This is what the northern powerhouse is all about – giving northern cities the local power and control that a powerhouse economy needs – and I am determined to turn this vision into a reality,’ the chancellor added.
O’Neill says he expects these elements to be central to Osborne’s expected announcements in the Autumn Statement on December 3, building upon the commission’s report. ‘I expect something about what he initially called the “northern Crick” [based on creating a northern version of the capital’s Francis Crick Institute for medical research], I’m pretty sure that will feature,’ O’Neill adds. ‘I would think he would also make reference to encouraging more cities to go for this Manchester-type deal, and I think there will be more said about aspects of what he still calls HS3 [plans for a high-speed trans-Pennine rail route]. I think all those three will feature.’ Embrace of these proposals by Whitehall throws the gauntlet down to city leaders to ‘get organised’ and put in place the governance arrangements needed for additional powers, he says, particularly combined authorities. ‘It’s up to policymakers to take up the baton, both locally and nationally. Whether they need some help in some way, it gets a bit more tricky, but given the announcement of the chancellor’s deal in Manchester, there is focus and momentum on the issue.’ The 10-strong commission will reconvene in a year to measure progress, and O’Neill reveals discussions are underway about establishing a permanent presence. ‘We are trying to fathom out whether we should keep ourselves active in some way, because we don’t see mission unaccomplished, so to speak.’ Among areas of further work is the need to finesse that ManSheffLeedsPool moniker. ‘I think it needs to be redefined into something a little more easy on the ear,’ he admits. ‘Any ideas would be welcome.’ DECEMBER 2014
p008_009_PFIdec14_analysis.indd 9
PublicFinance 9
19/11/2014 19:01
World Congress of Accountants
Rome ’14 Germany
Germany ‘could do more’ on IPSAS RICHARD JOHNSTONE REPORTS FROM ROME ON THE MAIN DEBATES AT THE WCOA
Germany must do more to drive forward the establishment of accrual accounting in Europe, a global expert on International Public Sector Accounting Standards has said. Speaking to Public Finance at the World Congress of Accountants, Thomas Müller-Marqués Berger, EY’s global leader for international public sector accounting and a member of the IPSAS board, said France and the UK have helped drive forward the standards. They have also been key to developing European standards, called EPSAS, intended to harmonise accounting standards in the European Union. With a target date to introduce EPSAS looming, Müller-Marqués Berger said that Germany, the continent’s economic powerhouse, could also assist. The country, which mainly accounts on a cash basis, is ‘very strong and very powerful and therefore it is their observation that there is no change needed’. But he added: ‘I would say that we need 10
these strong countries as a frontrunner and a role model for other countries in the EU, but also globally, using these standards and going ahead in providing transparency.’ Implementation of EPSAS is not yet underway as political debate goes on about the costs and benefits of harmonised accounting standards, he said. ‘The next really important step is to publish the framework regulation, which is planned for the end of 2015.’ He suggested that the deadline could be met with buy-in from the new European Commission, which is where Germany could help push the plans forward. ‘I do see the challenges for a huge country like Germany, with its fragmented federal system, ’ he added. ‘They are considering it, certainly waiting for the developments around EPSAS, but they could do more.’ However, some conference delegates questioned whether EPSAS was compatible with unified global standards.
A delegate from Uganda told Alexandre Makaronidis, head of the Eurostat taskforce developing EPSAS, that ‘what we are hearing is that international seems to be for certain parts, because we are here and you are telling us you reserve the right to have your own standards. Should Africa also reserve the right to have its own standards?' Another delegate from Nigeria said: ‘EPSAS is legally recognised, IPSAS is legally recognised, I’m also wondering whether [there should also be] APSAS, an African version of it? ‘We thought we were going to have international standards, but at the moment we have regional standards. How do we reconcile all of those?’ Responding to the comments, Makaronidis said the plan would adopt global rules to meet local needs. ‘In the end, EPSAS should be understood as a European interpretation of IPSAS, for the purpose of harmonising standards within member states in the union,’ he told the conference. China
Borrowing cap ‘a step towards transparency’ China is taking action to limit local government borrowing in response to worries over the risks presented by debt, a senior finance ministry official told the Rome congress. Yu Weiping, assistant minister at the Ministry of Finance, said his country is implementing fiscal reforms in response to lessons from the economic crisis in
PublicFinance DECEMBER 2014
p010_011_PFIdec14_WCOA.indd 10
19/11/2014 18:14
publicfinance.co.uk/news Best practice CIPFA International chair Ian Ball, left, receives the gold award from Warren Allen, the outgoing IFAC president
InBrief LESSONS OF THE CRASH Education to highlight ethics New education standards for accountants being rolled out next year incorporate lessons from the 2008 financial crash and subsequent sovereign debt crisis, the World Congress of Accountants was told. Edward Kieswetter, deputy chair of the International Accounting Education Standards Board, told delegates the eight new standards go beyond technical capabilities to ‘strategic and critical behavioural competencies’. The new standards also put an increased focus on ethical orientation and values.
NO HIDING PLACE Whiteman's call on tax avoidance other countries. China’s 'comprehensive agenda' to modernise is intended to increase openness and transparency, he told a session on enhancing government accountability. ‘This is part of the prime minister [Li Keqiang]’s promise to modernise our government system and capacity, but is also a very important lesson we have learnt from the overseas sovereign debt crisis,’ Yu said. Moves to limit local government borrowing come after concerns were raised about the viability of this debt. In October, China announced that it would cap municipal borrowing, which currently amounts to about 30% of the country’s GDP. ‘Our plan is to establish a comprehensive and well-regulated, transparent and modern budget system to ensure sufficient oversight of the government,’ Yu said. ‘What is more, to better safeguard against debt risks, we have prescribed restrictions on local government borrowing. The result is better measurement and evaluation of debt risks, and of the emergency response system and the capacity system.’ United States
$18.4bn needed to bridge fiscal gap The United States needs to cut spending or increase taxes by about $18.4bn to stop national debt levels from rising, said Bob Dacey, chief accountant at the US Government Accountability Office. Speaking to the Rome congress, Dacey said the accountability office would Photos: Morengo Maggi
p010_011_PFIdec14_WCOA.indd 11
The accountancy profession must do more to tackle public disquiet about tax avoidance globally and can no longer ‘hide behind the letter of the law’, CIPFA chief executive Rob Whiteman has said. He told the Rome congress that accountants must 'lead the debate on the ethics of tax, including our own role’. In a session entitled Promoting Fairness and Growth through Co-operation on Taxation, Whiteman said: ‘If the
publish America’s first fully audited report on fiscal sustainability after the 2015/16 financial year. Dacey said the statement of long-term fiscal projections would set out the predicted 'fiscal gap’, based on the present value of expected receipts and projected non-interest spending over 75 years. A fiscal gap is defined as the gap between government spending and revenues that needs to be closed in order to keep total debt levels constant. Debt currently stands at 72% of GDP. The statement, under development since 2010/11, showed that in 2013/14, the gap stood at 1.7% based on the assumption that current programmes will continue. This amounted to $18.4bn, Dacey said, which could not be sustained. ‘Our debt to the public would increase substantially over time, and in effect on our definition we are not sustainable. ‘We are talking substantial change if in fact, as a matter of policy, we can’t control those costs or make policy decisions that we need to have additional funding to cover them.’
accountancy profession wants certainty about the tax environment that it operates in, it must help lead the debate on the sustainability of tax avoidance. It can no longer hide behind the letter of the law, but instead must ask itself some tough questions on the sustainability of its facilitation of tax avoidance through aggressive management and planning.’
TACKLING FRAUD RISKS CIPFA announces global register CIPFA is to launch a Global Fraud Risk Register to help the public sector across the world improve efforts to tackle the threat of fraud, and to identify and react to emerging problems. The announcement, made at the Rome congress, will be the first time that information about the most common fraud risks faced by government and public sector organisations has been brought together in one place. Announcing the plan, the institute stated it would work with partner organisations from across the world to collate the most common fraud risks faced by different states. The various risk registers will be put together into the first Global Fraud Risk Register, to be published in 2015. Government accounting
Hiding truth ‘puts recovery at risk’ Opaque government accounting represents one of the largest risks to the global economic recovery, the congress was told. Ian Ball, chair of CIPFA International, said the lessons from the financial and sovereign debt crisis have not been learned. He highlighted the resistance of some large economies to applying accountancy best practice, such as IPSAS, to government balance sheets. Governments around the world must act to adopt international accounting standards or face the consequences from an unclear fiscal position in a future crisis, said Ball, who was awarded the IFAC Gold Service Award at the congress for his outstanding individual contribution to the profession. ‘Though governments are fond of boasting about economic growth, the truth is that it is all built upon sand unless they can properly account for how they run their public finances,’ he said.
For more news, views and videos from the World Congress of Accountants and to read the winter issue of Public Finance International go to publicfinancinternational.org DECEMBER 2014 PublicFinance 11
19/11/2014 18:14
Christmas
Quiz That was the year that was! CIPFA’s annual Who led the Labour survey found which Party’s review of group of councils was housing supply? leading the way on cutting A) Sir Michael Lyons council tax, with an average B) Sir Michael Bichard reduction of 0.4%? C) Sir Michael Barber
1
A) Mets B) Districts C) Shires D) London boroughs
5
D) Sir Michael Caine
In April, Maria Miller resigned as culture secretary Four local authorities amid a row over expenses. voted yes to Scottish Who replaced her? independence on A) Esther McVey September 18. Glasgow, B) Sajid Javid North Lanarkshire, West C) Priti Patel Dunbartonshire and which D) Matthew Hancock other? A) Aberdeen And in July, David Cameron conducted B) Dundee his most wideC) Stirling ranging ministerial reshuffle D) West Lothian since taking office. Which of the following did not leave And which Scots the government? sporting star came out in favour of A) David Jones independence on the day of B) Owen Paterson the vote? C) Michael Gove
6
2
It was the year that Scotland voted no to independence, pensioners were promised more freedom with their savings and politicians began jostling for advantage in the 2015 general election. Test your knowledge of the news headlines with the annual Public Finance Christmas quiz for your chance to win £150 in Marks & Spencer vouchers
7
3
A) Sir Chris Hoy B) Ross Murdoch C) Eilidh Child D) Andy Murray
Pensions minister Steve Webb said he was relaxed if pensioners chose to use their newfound pension freedoms to purchase what luxury item?
4
A) a round-the-world cruise B) a Lamborghini C) a designer wardrobe D) a box at the opera 12 1 2
P Pub Pu PublicFinance ubllic ub icF ic Fin Fi iin nan ance D DECEMBER DEC CE EM EMB MBE MB ER E R2 2013 20 013 13
PFdec14.012_013_quiz.indd 12
D) Dominic Grieve
Sir Bob Kerslake stepped down as head of the civil service, but continued a review into the governance of which local authority?
8
A) Bradford B) Barnsley C) Buckinghamshire D) Birmingham
9
New NHS chief executive Simon Stevens published his
Photos: Shutterstock/iStock
19/11/2014 19:40
publicfinance.co.uk/Christmas Quiz
Five-Year Forward View, which warned of a deficit of how much by 2020/21? A) £10bn B) £20bn C) £30bn D) £40bn
Communities Secretary Eric Pickles sent auditors into which London borough amid governance concerns?
10
A) Haringey B) Tower Hamlets C) Greenwich D) Camden
CIPFA vacated its Robert Street headquarters after 30 years. Which Scottish writer once lived there?
11
A) JM Barrie B) Robert Louis Stevenson C) Arthur Conan Doyle D) Muriel Spark
government announced plans to 12 The claw back public sector redundancy payments if people return to work in the same sector within what time period? A) One month B) Six months C) One year D) Five years
How much will the Welsh Government be able to borrow for capital projects following the
13
Budget rows over welfare reform led the Northern Ireland Executive to warn the UK Treasury that it may not be able to stay within spending limits. How much Local authorities currently retain half was allocated to the province in an emergency loan? of business rate growth following A) £50m government reforms to B) £100m council finance. What did C) £200m Eric Pickles say he wanted D) £500m to increase this to? A) 55% The government set out plans to sell the B) 75% UK’s stake in which C) 90% European institution this D) 100% year? Chancellor George A) Eurostat Osborne revealed B) Eurostar the design of a new C) Europol £1 coin at this year’s D) Eurovision Budget, which reprises the design of the old threepenny Chancellor George bit. How many sides will Osborne announced the coin have? at the Conservative party conference that he A) 10 would freeze most benefits B) 12 for how long from April C) 15 2016? D) 18 passage of the Wales Act? A) £500m B) £1bn C) £1.5bn D) £2bn
17
14
18
15
19
Which politician told Public Finance: ‘The disaffection with mainstream politics is getting stronger and wider. People aren’t apathetic, they’re really angry – they feel we’re not listening.’
16
A) Norman Lamb B) Margaret Hodge C) Chris Leslie D) Francis Maude
A) One year B) Two years C) Five years D) Ten years
independent commission 20 An continued to
estuary did they rule out? A) London Mayor Boris Johnson B) Ryanair boss Michael O’Leary C) Chancellor George Osborne D) Transport Secretary Patrick McLoughlin
What, according to Ofsted head Sir Michael Wilshaw, should academies and free schools be doing?
21
A) lengthening the school day B) running extension classes C) paying bonuses to good teachers D) all of the above
‘In our end is our beginning’. TS Eliot’s words were invoked by whom to talk about what?
22
A) Alex Salmond on the Scottish referendum result B) Nick Clegg on the LibDems’ performance in the European elections C) Marcine Waterman on the demise of the Audit Commission D) Lord Chris Smith after standing down as chair of the Environment Agency
Email answers to editorial@publicfinance. co.uk or via the PF website by 10 January 2015. Answers and the winner will be published in the next issue of Public Finance.
examine proposals to expand both Heathrow and Gatwick airports. Whose plan for a new ‘island’ airport in the Thames DECEMBER 2014
PFdec14.012_013_quiz.indd 13
PublicFinance 13
19/11/2014 19:28
Drop the dogma over right to buy, by Ken Lee Dazed and confused in quangoland, by Tom Gash Hard-won lessons in sharing, by Mike Farrar
Opinion Ken n Lee
Drop the dogma over Right to Buy No sensible council will borrow to build much-needed new homes as long as the rules insist they must often be sold at a loss
Should political dogma be set aside in respect of Right to Buy while we face the current housing crisis? Many will point to the success of Margaret Thatcher’s flagship policy through the years in giving people a step onto the housing ladder. A step into home ownership brought with it some early evidence to support the claim that it would engender pride and community cohesion. Before the advent of the Decent Homes Standard, you could walk round many ‘council estates’ identifying the sold ones by their new front doors, double glazing and neat front gardens. Unfortunately, a generation on, the opposite seems to be true. While there are still those who buy and look after their council homes, these folk are not in the majority. It is now more likely that when you walk around the estate, the houses that are looking tired and uncared for and have the unkempt gardens are in private hands. What has become evident is that the private-rented sector has increased steadily over recent years. Also, that the Housing Benefit bill has increased dramatically. You would think it would be obvious to everyone concerned that the two things might just be connected. But no, we seem to spend our time trying to eradicate the symptoms and not the cause. 14
PublicFinance DECEMBER 2014
p014_015_PFIdec14_opinion_housing.indd 14
As David Orr, chief executive of the National Housing Federation, so rightly pointed out recently, one of the fundamental aims of the last reinvigoration of Right to Buy was that there would be a new home built for every one sold. The figures clearly demonstrate that this is not being achieved. He called for the government to safeguard the country’s social housing for future generations, pointing to the increasing numbers wanting a home. So where did it all go wrong? CIPFA has advised that a local approach should have been taken to Right to Buy, especially on discounts. The increase in London discounts confirms our view that the blanket approach was wrong even if it was easier to understand. Imagine the disappointment of northern tenants who are promised a £77,000 discount, only to find their property is only worth £80,000 so their discount is nowhere near that level. And then the London tenant who finds that even with a £102,000 discount, they cannot afford to buy their home. We need to find another way to make this work for all. No sensible authority is going to borrow money to build new houses, only for them to have to be sold without a guarantee that they will get their money
back. But this is what the current Right to Buy means. So could this be why councils are not yet building homes in sufficient numbers? The government’s insistence on taking a share of the sale price needs to alter. For example, in Wigan last year, over 60% of the cash we received for selling 126 homes went to Whitehall, with only £16,000 coming to Wigan from each sale – hardly enough to build a garage let alone a house. What could be done? If you must have a blanket discount, then use a simple percentage of the value as a maximum discount. That would reflect local circumstances and yes, even save having to keep changing things each year to reflect inflation. Also, guarantee that no new house can be sold at less than the cost of building it, so giving local authorities adequate time to ensure the investment is paid off. Photos: PA/Alamy
19/11/2014 18:05
publicfinance.co.uk/opinion
That was then Margaret Thatcher’s Rightto-Buy policy gave many people a start on the housing ladder. Here, in 1980, she hands over the deeds of the 12,000th house sold by the Greater London Council
Tom Gash
Dazed and confused in quangoland The system of arm’s-length government is a mess, MPs have said. But Francis Maude has made good progress and could still secure a good legacy
Remove the rules and bureaucracy around the pooling of receipts and allow councils to keep the whole of the sale price. Then, with the certainty of the guarantee, new build will happen. And, a bit of special pleading, let arm’s length management organisations use the Right to Buy receipts. We can bid for Homes and Communities Agency money, so why not let us compete with registered providers for the use of our council’s receipts? So the political rhetoric that dogs Right to Buy needs to change. Why not adopt the localism approach? Why not give councils longer leads and challenge them to ensure that provision of social housing continues and hopefully grows. It was done with self-financing, now is the time to do it with Right to Buy. Ken Lee is chair of CIPFA’s housing panel and business development director at Wigan and Leigh Housing
The Public Administration Select Committee report, Who’s accountable? Relationships between government and arm’s-length bodies, provided food for thought for Francis Maude, the Cabinet Office minister who has spearheaded quango reforms since 2010. The committee praised Maude’s progress in reducing the costs of arm’slength government and improvements in how government departments hold their arm’s-length bodies to account. But Bernard Jenkin, the Conservative committee chair who has come into conflict with Maude in the past, said: ‘Despite the reforms, the system of arm’s-length government is still a mess, and the government knows it’s still a mess.’ The main recommendation of the committee is for a much simpler way of classifying arm’s-length bodies. This is something that the Institute for Government has called for since 2010, based on research. We, like the MPs, found a bewildering array of organisational forms – at least 11 types – and no rhyme or reason for why they took a particular form. Names were alarmingly misleading. The Environment Agency is a nondepartmental public body, not an executive agency. The non-ministerial department HM Revenue & Customs may not report to ministers in theory, but does in practice. The messiness matters. It confuses
the public and fuels perceptions that quangoland is out of control. But it has more practical implications too. Crucially, it bewilders ministers, who largely ignore distinctions in the amount of freedom different bodies should have. And it bewilders parliamentarians, who struggle to understand who is responsible for which decisions and, therefore, who should be held to account after failures. The unedifying blame games around last winter’s floods are a case in point. The confusion also contributes to misunderstanding between departments and arm’s-length bodies, leading to duplication of activity, strained relationships that result in miscommunication and unpleasant surprises for ministers. Maude has recognised the problems. The Cabinet Office has announced a review to determine whether the system for classifying bodies is ‘fit for purpose’. Future governments will thank Maude if he can leave a legacy of a saner, as well as a smaller, landscape. Achieving change before the election will not be straightforward. Maude may need to take a cross-party approach to ensure that changes are pushed through. If he drives the hard work of agreeing a more effective approach and developing a plan for implementing it, no government should undo it in future. Maude may end up with a legacy of a truly reformed system of arm’s-length government after all. Tom Gash is director of research at the Institute for Government
DECEMBER 2014
p014_015_PFIdec14_opinion_housing.indd 15
PublicFinance 15
19/11/2014 18:05
Opinion Mike Farrar
Hard-won lessons in sharing Health and local government finance officers are learning about whole systems working the hard way, by applying it to manage the Better Care Fund
Risk factor Added emphasis on care budgets for older people can put provision for other groups at heightened risk
16
PublicFinance DECEMBER 2014
p016_017_PFIdec14_opinion_farrer.indd 16
It may be just ‘huddling together for warmth’ or a desire to transfer your risk to someone else’s budget line – but whole systems working, and with it the sharing of financial risks and benefits, is rapidly taking root as the modus operandi for local health and social care providers and commissioners. And of course, it’s absolutely imperative that it does so. But that does not make it easy to do well. Indeed, as people are learning, it’s much harder to achieve in practice. Many of the rules and skills that we have deployed for years in individual organisations are no longer effective when applied collectively. Add the word
‘shared’ to key functions, such as financial risk management or achievement of outcomes, and the complexity of the task multiplies. A case in point is managing the service and financial risks across whole health and care economies in order to design, agree and deploy the Better Care Fund effectively. For many local systems, despite years of sitting round committee tables with joint plans and strategies a-plenty, the BCF has proved extremely hard to land. For some local systems, dropping a requirement to share financial risk into a less than functional set of low-trust interagency relationships was always going to prove incredibly challenging. To develop solutions to this problem, CIPFA’s health policy team have been holding round table discussions with finance officers from health and local government across the country. And it’s encouraging how many of them have live examples providing insights into how they are tackling the challenge. So, what’s to be done? The first task is to recognise, develop and improve the context into which shared financial risk and benefit approaches are deployed. Of paramount importance is: ● Establishing a compelling core shared purpose. What is this all for and is there agreement between all the parties? ● Having a shared understanding of where organisations are operating in collaborative mode and where they are competing, a particularly important consideration for providers. ● Agreeing a route for arbitration that is understood by all parties before there is any need to test it – so that one battle doesn’t end the war. ● Ensuring that plans are clinically defensible to service users and professionals. Short-term management carve ups rarely succeed. ● Establishing sufficiently strong interpersonal relationships between key leaders across the system to sustain it when it gets tough. It usually does, as separate regulatory and accountability routes pull organisations apart. Photo: SPL
19/11/2014 18:08