Publicfinancemarch2014

PublicFinance

The business monthly of the public sector

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Issue 03 March 2014

MARCH 2014

WALKING

Why George Osborne thinks the UK economy is in a better place After the deluge

Audit decommissioned

Northern exposure

Tony Travers wades into the floods blame game

Marcine Waterman says so long to the watchdog

Councils on the brink of a financial breakdown

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PublicFinance

CONTENTS

March 2014

Features

22

22 COVER STORY On top of the world?

The chancellor will claim in the Budget that the UK is getting into the world-class growth league. But, asks David Walker, can we really walk tall?

28 The final curtain Marcine Waterman, the last controller at the Audit Commission, bids a long goodbye to the public sector watchdog as it prepares for closure

‘ACE TACTICIAN GEORGE OSBORNE WILL INSIST THE STATISTICS PROVE THAT FOR THE UK THE GLASS IS HALF FULL’

32 To have and have not A funding system that favours the wealthiest parts of England increases the chances of some councils going to the wall, argues Paul Woods

36 Thin blue line Cuts of 20% to police funding have been among the deepest austerity measures. But somehow PCCs have made the reforms work, says Clare Fraser

28

Regulars 4

Leader When money is no object

5

Second thoughts After the floods, says Tony Travers, it’s back to command and control

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6 News LEPs ‘not ready’ for single pot reforms; town hall pension costs ‘can be halved’ 8 News Analysis Interview with DFID permanent secretary Mark Lowcock on ‘smart aid’

Need to Know

10

42

14

Opinion Emran Mian on the ‘surplus hawks’; David Lloyd on blue light integration

On Account CIPFA offers advice on making audit committee meetings more productive

16

Voice of the Nations Scottish Labour is proposing to devolve the wrong tax, a senior MSP argues

43 Smart Thinking?

A sophisticated black market is offering cybercrime ‘as-a-service’

18

Restless Nation Iain Macwhirter on the sterling row ahead of the independence vote

44

Management Development How to maintain your energy levels

46 48

Numbers Game Cipfa Events

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Readers’ letters

44 Subscribe today for the latest expert comment on public policy and finance

19

Risk Review

20

Watchdog Watch

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CONTACTS

Leader Drowning, not waving

I

In the midst of the recent flooding crisis, Prime Minister David Cameron made the rather rash promise that ‘money is no object’ when it comes to helping families and businesses cope with the extreme weather.

Ministers soon toned down this unexpectedly generous offer, suggesting that there would be no blank cheque. But the principle was clear: money will be found when there is a national emergency to deal with.

Of course, national emergencies come along every now and then. Some of them can be predicted; some of them can even be prevented in advance.

Flooding is a case in point. According to the Committee on Climate Change, the government will have spent £500m less on flood defences than was needed between 2010 and 2014. As a result, the country will suffer £3bn in avoidable flood damage.

Spending £500m to prevent costs of £3bn doesn’t seem a bad investment. And the same argument could be made across the public services – in public health, education, criminal justice and beyond.

Moreover, as Paul Woods points out in this month’s issue (pages 32-35), local government funding is itself at crisis levels. A number of councils, he believes, will become unviable if disproportionate cuts to the poorest areas continue.

Woods, director of resources at Newcastle City Council, calls for Chancellor George Osborne to rethink the cuts and head off an impending calamity. But it’s not going to be easy to convince Osborne of the prevention-better-than-cure approach.

As the chancellor contemplates the March 19 Budget, he will be focusing instead on the promise to move to a surplus by the end of the next Parliament should the Conservatives win the 2015 election.

It’s a clever political move – so much so that shadow chancellor Ed Balls has also become a ‘surplus hawk’ (see Emran Mian’s comment article, pages 10-11). But is it the right thing to do for the UK economy and society in general?

Moving to a surplus shouldn’t necessarily be the priority, while the economic recovery is still fragile, productivity is flat and many public services are struggling to survive.

No doubt Osborne will find some spare cash behind the Treasury’s sofa to fund additional flood-defence spending in the Budget. But perhaps he should be taking the same approach when it comes to other critical public services.

If not, the spending, when it finally comes, could be too little, too late.

■ Mike Thatcher EDITOR letterstoeditor@publicfinance.co.uk

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Second thoughts pfOpinion

■ Tony Travers

Dial 999 for the PM As politicians wade into flood-hit areas, and David Cameron takes personal charge of the rescue effort, where does this leave arm’s-length agencies?

The flooding of southern England has led to a search for villains.

Commentators who have never before written about water management have become instant experts on dredging and, in particular, the environmental needs of the Somerset Levels and/or the quality of rail infrastructure at Dawlish.

Here, it is probably wiser to consider the administrative implications of the full-throttle media and political attack on the Environment Agency and its chair, Lord Smith. The difficulties faced by flooded communities have focused attention on how Britain prepares for occasional, unpredictable weather events. Perceived weaknesses in institutional capacity to cope with a month of heavy rain (and previously drought) have led to proposals for direct ministerial control over such matters.

Fraser Nelson, editor of the Spectator, has suggested that the Environment Agency ‘ought to be abolished, and be brought back under government control’. The logic of Nelson’s argument

is that when things get bad, people expect the prime minister personally to take control and govern directly. In such an arrangement there is no room for arm’s-length agencies. Many members of the public would doubtless agree.

It was similar logic that led to the abolition of the UK Border Agency and the transfer of its agency functions to the Home Office. Theresa May, in the Commons last year, stated that the entities replacing UKBA ‘will not have agency status and will sit in the Home Office, reporting to ministers’. The new arrangement would be overseen by the Home Office permanent secretary. May was clear: the government’s immigration policy was so important that it needed to be run from desks close to her office.

Something analogous happened to rail franchising. The Strategic Rail Authority handled rail franchising from 2001 to 2006, before the government took direct control. The infamous West Coast mainline franchise was mishandled by the Department for Transport and when this occurred there was no doubt the buck stopped in Whitehall.

The idea of ‘quasi autonomous’ bodies or non-ministerial departments managing services, which was the purpose of the ‘Next Steps’ agencies

POLITICAL LEADERS WILL NEED CLOTHING FOR EVERY EMERGENCY. THE PRIME MINISTER IS RESPONSIBLE FOR EVERYTHING EVERYWHERE Photo: Reuters

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created in the 1980s, derived from a desire to create institutions that could manage the purely operational aspects of public services. The Whitehall core would be left to set policy. This neat division had the added attraction from the point of view of ministers that it kept them away from responsibility for service breakdowns and failures.

However, the centralised nature of the British state is creating unstoppable pressure for direct ministerial control of any politically-salient service.

Separation of policy from delivery doesn’t make much sense when people see water coming through their floorboards: they simply blame the government. As do the Opposition, media and wider public opinion.

Once any kind of emergency or service breakdown emerges in England, there is now immediate pressure for the prime minister to take control. Cobra (the emergency committee for managing logistics) will be convened and, if things are really bad, the army called in.

Promises of ‘money is no object’ government largesse are duly made, however rashly. This is the commandand-control model envisaged for the NHS when Aneurin Bevan memorably stated that if a bedpan were dropped in a Tredegar hospital corridor, the reverberations should echo in Whitehall.

In a country where, in effect, 100% of taxation is determined centrally and all resource allocation to every service and unit of government is made from London, it is small wonder the floods have led to calls for direct ministerial control over ditches, dredging and rail embankments. Political leaders will need to buy clothing appropriate for every emergency. The prime minister is responsible for everything everywhere.

Tony Travers is director of the Greater London Group at the London School of Economics MARCH 2014

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News Local enterprise partnerships

LEPs ‘not ready’ for single pot reforms

BY RICHARD JOHNSTONE

Doubts about the ability of local enterprise partnerships to take on responsibility for administering public funds have prompted the Treasury to ask the Local Partnerships agency to help develop the organisations, Public Finance has been told.

The chief executive of Local Partnerships, Judith Armitt, warned that the success of the single pot for local economic development could be hampered by weak project management and accountability in business-led LEPs. Local Partnerships, which is jointly owned by the Treasury and the Local Government Association, has been authorised to help beef-up the 39 LEPs

ahead of devolution of £2bn from 2015/16 through the Local Growth Fund, she told PF. Under the government programme to agree a growth deal for every place, LEPs will be ‘really vital’ to future economic development, Armitt said.

‘Certainly this government sees LEPs as being the way to ensure the most appropriate infrastructure to support growth happens.’

However, she expressed concern that these plans – first set out by the former deputy prime minister, Lord Heseltine, in his No stone unturned growth review – could be hindered by cuts to local authorities and the lack of skills elsewhere.

Delivery agent: Some local enterprise partnerships rely on councils for delivery of projects, such as road improvements

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‘I do have a note of caution about LEPs. Most of them are very small organisations – though there are some exceptions – and it has taken a little while to sort out some of the governance and relationship issues. There are some LEPs that are only now turning their minds to how they’re going to secure their delivery capacity.’

She noted that LEPs could be dependent on councils as both delivery agents and accountable bodies for public funds. ‘That will be fine in some cases, but in some cases it won’t be fine because of the cuts local authorities have had to make.

‘Some of them have had to remove the capacity they had for doing that kind of work, and if this all goes a little bit wrong it will be because people are not ready as the money becomes available.’

Similar problems existed in previous local growth schemes, she said. ‘I think it’s likely to be more marked this time because of the scale of the budget reductions that local authorities have had to make.’

This creates the possibility that LEPs will not be ready to take forward projects when funds are localised, she added. ‘That could delay progress on infrastructure development and it would be very sad if that happened.’

There remains just enough time to avoid this and the Treasury had been clear that it ‘very much wants’ Local Partnerships to help, Armitt told PF. ‘My fear is that in the time we have – the next year – the issue might not be grasped as firmly as it needs to.

‘Let’s hope it is, and certainly we’re trying to do our part – we’ve offered assistance to a number of LEPs and we’ve also made it clear to the LEP Network that we would be able to help any LEP that would like support. That extends to local authorities working with LEPs up and down the country as well.’

Responding to Armitt’s concerns, David Frost, chair of the LEP Network, said the partnerships were ‘absolutely galvanised’ on developing their economic strategies, which will form the basis of bids for the growth deals.

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HealthReforms ■ Vivienne Russell

Finance chiefs back efforts to keep NHS accountants united ‘Yes, the LEPs vary enormously in terms of size and scale – there’s very big city-based LEPs to some very small.

‘Personally, I’m not concerned about delivery – I think they will find different models and they will deliver. The issue at this stage is really about ensuring their plans are coherent and linked into the wider vision they have for their area’s future.’

He confirmed that Local Partnerships has offered support to the LEPs, and added that it would be down to each area to respond.

‘The whole essence of localism is that there will be different structures, and that will be relevant to the area, the history and the nature of that partnership,’ Frost told PF. ‘You will get public-private vehicles, you will get local authority vehicles that deliver – there will be diversity.’

Local government pensions

Costs of town hall pensions ‘can be cut by half’

The six most senior finance leaders in the NHS are backing a campaign to consolidate and develop financial management across the health service after the government’s restructure.

The fledgling Future-Focused Finance initiative aims to ensure the NHS finance profession retains its cohesiveness as the organisation grapples with the shift from a single entity to one made up of disparate bodies.

Bob Alexander, finance director at the NHS Trust Development Authority and a member of the NHS Financial Leadership Council steering the strategy, told Public Finance: ‘Those of us who are in oversight positions have got a collective interest in ensuring that the traditional coherence of NHS financial management and NHS finance staff doesn’t get fragmented in the new landscape.’

It was recognised that leaders needed to act ‘collaboratively’ to develop finance staff whether working in foundation trusts, non-foundations, clinical commissioning groups or NHS England, he added.

Alexander’s fellow members

of the leadership council are: Paul Baumann, finance director at NHS England; Richard Douglas, finance director general at the Department of Health; Steve Clarke, finance director at Health Education England; Stephen Hay, managing director of provider regulation at Monitor; and Andy Hardy, president of the Healthcare Financial Management Association.

In a letter sent to NHS finance staff, they stated: ‘We know the challenges. Demand is growing.

Funding is flatter. The health provision and commissioning landscape is still new. So our colleagues are looking to us to lead and support the changes that need to happen.

‘Future-Focused Finance offers a vision for NHS finance to aspire to over the next five years.’

Alexander, who is also a CIPFA council member, stressed the importance of collaboration, with frontline finance staff actively encouraged to shape the process.

‘We know we haven’t got all the answers and that’s why the engagement and consultation

BY RICHARD JOHNSTONE

The cost of local government pension administration could be cut in half through greater use of shared services and fund mergers, a government-backed pension firm has said.

Virginia Burke, business development director at MyCSP, which took over the administration of civil service pensions in May 2012, told Public Finance the firm was keen to expand into administration of council funds.

MyCSP administers pensions for civil servants across 205 Whitehall employers after the ‘spin out’ of the partly staff-owned firm. It took these over from individual employers and has demonstrated the possibility to make savings, Burke said, with plans on track to cut administration costs by half over its 10-year contract.

The current system in the Local Government Pension Scheme, where most funds undertake their own Photo: Alamy

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Shared services: Half a dozen centres to administer town hall pensions ‘feels about right’, says Virginia Burke

administration, ‘doesn’t really add up’, she said. There are 81 administrating authorities for the 89 funds in England and Wales at a cost of £119m.

Shared services or mergers should trim this to between five and ten ‘administration centres’ to get cost savings, she said.

‘Half a dozen feels about right,’ Burke

processes are so thoroughly important and real,’ he said.

David Ellcock, programme manager for Future-Focused Finance, told PF that early discussions with NHS staff had elicited positive responses from clinicians as well as leaders.

He said: ‘They’re not trying to push us away to sit in a dark room somewhere and do the numbers. They recognise that finance brings lots of skills to the table. Clinicians say finance people shouldn’t be afraid to engage in decision-making across the board, because when they do it’s very welcome.’

Ellcock added that, although the initiative was scheduled to run to 2018/19, if successful it could go on for longer. Summing up its ambition, he said accountants needed to be more forward-looking.

‘Our people have historically been very good at doing the final accounts and monthly reports on what has happened, but how do we make them better able to predict the future and work with clinical colleagues to understand what decisions taken now will lead to in six, 12 or 18 months’ time?’

said. ‘In terms of merging schemes, that’s a different issue but it would be possible to bring the administration together, even maintaining the separate schemes.

‘We would say you can halve the cost of local government pension administration. It’s currently sitting at about on average £28 per member, but its a huge scheme when you pull it altogether, so you should be able to at least halve the cost – some £60m in savings.’

Nigel Keogh, CIPFA’s technical manager for pensions, queried MyCSP’s claims. ‘If that level of saving were to be achievable, it would come at significant cost and risk to the LGPS and could only be achieved over a very long time period,’ he said.

‘There is greater scope for savings on the cost of fund management, which is where a lot of LGPS effort is currently being directed.’

MARCH 2014

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News

Analysis International development

Getting smarter on aid spending The UK is radically changing its approach to aid by focusing on jobs and growth. This benefits both developing countries and domestic businesses, the permanent secretary of the Department for International Development tells Mike Thatcher Tea farmers in Tanzania are some of the first to benefit from the UK’s new approach to aid, which sees a much stronger emphasis on stimulating economic development in poor countries.

The Department for International Development is investing £7.5m in a project that will boost the incomes of more than 3,600 tea farmers spread throughout 27 villages. It’s one of a number of projects in Tanzania and should create both jobs and growth.

Win-win solution: Mark Lowcock says the private sector is the engine of poverty reduction, creating markets for the UK

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Known as ‘smart aid’, the assumption in Tanzania and beyond is that a job is the best way out of poverty. And by using returnable loans and equity, a virtuous circle is created.

‘If these businesses are successful and make a profit, the money will be returned and redeployed, multiplying the development impact. We’re sharing the risks as well as the rewards of investing in business ventures,’ Justine Greening, the UK’s international development secretary, said in a recent speech.

Greening is so convinced by this strategy that she has promised to spend £1.8bn of UK aid on economic development in 2015/16. This is nearly three times the £620m that was spent in 2012/13.

The fact that ‘smart aid’ can also build business for British companies has not been lost on the coalition government.

With questions being asked about the protection given to the UK aid budget and suggestions the funding should be used to provide flood relief at home, it’s useful to be able to highlight some domestic benefits.

‘Everybody accepts that the main driver of poverty reduction is growth and that the private sector is the engine of that growth,’ the department’s permanent

secretary, Mark Lowcock, tells Public Finance. ‘It is not just good for developing countries, it also creates markets for us, so it’s a win-win.’

Lowcock says that the UK is on track to hit its aid targets: to secure schooling for 11 million children; inoculate more than 80 million children; provide 10 million women with access to family planning; and protect 30 million people from malaria. This means that it can focus more of its attention on building the economies of ‘frontier’ countries in Africa and South Asia.

DFID will be changing its management structure to facilitate the change. More people with business experience are being brought in, including the appointment of the first director general for economic development.

Lowcock suggests that as countries Photo: Sam Kesteven/DFID

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QuoteUnquote ‘Let’s hope economic development is not just another other DFID fad. I wonder how the organisation is meant to get things done when the vision changes so much, from om poverty to governance and now to growth’ Matt Andrews, associate professor of public policy, Harvard Kennedy School

‘If a aid-supported businesses are successful and make a profit, the money will be returned and ma redeployed, multiplying the development impact. red We’re sharing the risks as well as the rewards’ We Justine Greening, UK international Jus development secretary dev

Virtuous circle: ‘Smart aid’ to Tanzanian tea farmers is designed to create profitable businesses and builds on the premise that having a job is the best way out of poverty

develop, the help they need develops too.

No country wants to rely on aid for the long term – and a strong economy can negate the need for assistance.

‘The first borrower from the World Bank was France. In the 60s and 70s the big borrowers were the likes of Singapore, Malaysia and Korea. These countries are now financiers of development rather than users of development aid. That is a journey every country wants to be on,’ he says.

It’s unlikely to be plain sailing, however, as DFID has painful experience of when smart aid can be less than clever. Last year, the Independent Commission for Aid Impact pointed out ‘serious deficiencies’ in a flagship project to boost trade in Southern Africa.

The TradeMark Southern Africa programme was eventually shut down following the criticisms. Lowcock accepts that it was ‘not a project that we handled well’, but he says that DFID has reviewed the way it operates as a result.

A new head of internal audit has been appointed, hundreds of officials have been put through enhanced project management training and all the senior civil servants in the department have taken a commercial skills course.

‘The top 100 people – all of us are doing that programme,’ says Lowcock. ‘The first course was in January and I was one of the people on it.’

TradeMark South Africa can be seen as a blip in what has been a good year for the department. It has reduced its administration costs by 30% and moved its headquarters, saving the taxpayer £63m in the process.

Meanwhile, the department is on course to achieve the government’s target of spending 0.7% of national income on aid. In 2012 this figure was 0.56%, but all

the indications are that it will have been hit for 2013 – we’ll know for sure when the final 2013 output figures are published in the next few weeks.

And DFID was named as ‘most improved government body’ by the Public Accounts Committee in the recent Civil Service Awards. PAC chair Margaret Hodge described the department as an ‘international leader in its field with a global reputation’.

This is rare praise indeed from a chair famed for her less-than-favourable assessments of overspending mandarins, tax-avoiding companies and poorly performing public sector suppliers.

The test for the department will be how well it implements the new focus on growth and jobs. Most development experts support the move in principle, though some wonder about how things will turn out in practice.

Matt Andrews, associate professor of public policy at the Harvard Kennedy School, is one who has his doubts. He argues that a ‘fixed agenda’ will prevent relevant, local solutions from being taken forward.

‘Let’s hope [economic development] is not just another DFID fad. I wonder how the organisation is meant to get things done when the vision changes so much, from poverty to governance and now to growth,’ he tells PF. But Lowcock emphasises that the change is evolutionary and that the revamp to departmental structures and systems will smooth the process.

‘This is a journey and an evolution. We are absolutely going to keep working on core poverty indicators. Those jobs are not finished yet. But because we have made progress on those goals, we have freed up some capability and resource to invest in economic growth.’

MARCH 2014

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■ Surplus to requirements, by Emran Mian ■ Time for blue light thinking, by David Lloyd

Opinion ■ Emran Mian

Surplus to requirements ‘Surplus hawks’ in the Treasury and on the Opposition benches risk neglecting productivity growth in the public sector. But years of spending restraint could be self-defeating in the long run Danny Alexander started it, suggesting at the Liberal Democrats’ conference last September that his ambition, if returned to the Treasury after the 2015 election, would be to run a surplus by the end of the next parliament. The chief secretary’s boss, Chancellor George Osborne, firmed up the commitment in the Autumn Statement.

Now Ed Balls, the shadow chancellor, has also become a ‘surplus hawk’.

There may be differences in what each means by ‘running a surplus’. Are they counting current expenditure alone or do they mean to run a surplus with capital investment included in the spending figure? Will the figure be adjusted for where we are in the economic cycle? And which is the target year for achieving it? There is billions of pounds’ worth of difference in the extent of public spending controls, depending on the details.

This month’s Budget will provide more clarity on the implications of the chancellor’s commitment, and on this basis we will be able to work out how the other parties compare. What is already clear is that they are all signed up to what commentator Hopi Sen has called the ‘Long Ugly’; that is, spending restraint that lasts until the end of the decade.

The Institute for Fiscal Studies estimates that, on 10

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the government’s plans, more than half of departmental spending cuts are still to come.

The targeting of the surplus is therefore the single largest policy choice shaping this year’s Budget and the fiscal debates beyond. But is it the right thing to do? There has been remarkably little discussion of the pros and cons.

The pros, you might say, are obvious.

If we’ve run up debt as a country during the bad times, then it’s necessary to ‘fix the roof while the sun is shining’.

Continuing the analogy, there are more storm clouds on the way. For example, the Office for Budget Responsibility forecasts that the ageing population will create fresh pressures on the debtto-GDP ratio through higher pensions spending and a lower tax take from a smaller working population.

The government has also benefited from the quantitative easing provided by the Bank of England; that policy has

Me too: shadow chancellor Ed Balls has become a ‘surplus hawk’ and Labour is kicking off a zero-based spending review

lowered debt interest costs below what they otherwise would have been. When the easing is reversed, the costs of the government’s debt will increase – all the more reason for starting to pay it down.

The most significant argument against running a surplus is that raising productivity has higher priority than paying down the debt. While the economy is growing again, productivity is flat and a long way below where it was before the crisis. This is worrying for three reasons. The first is that, unless productivity rises, wages growth will be limited; all other things being equal, it is difficult for employers to pay more per hour if output per hour is not increasing.

Secondly, future growth prospects, and therefore future tax revenues, diminish unless productivity starts increasing.

The OBR estimates that the debt-to-GDP ratio will be rising again by the middle of the next decade, despite spending restraint in the next parliament, even if productivity growth rises to 1.7%.

Only increasing productivity growth to something like 2.7% will keep the debtto-GDP ratio falling. To put those figures in perspective, the latest data suggest that productivity growth is as low as 0.5%. Or, in other words, if we are fixing the roof during the next parliament, then with productivity growth as weak as it is, it’s nothing more than a temporary patch.

The final reason for being worried about productivity is that it determines the consequences of spending restraint in the public services. Getting more for less, or even the same for less, is only possible if productivity in the public sector is improving. And yet, at least in some areas of the public sector, productivity lags Photos: Getty

18/02/2014 16:59

publicfinance.co.uk/opinion

The targeting of the surplus is the single largest policy choice shaping this year’s Budget and the fiscal debates beyond. But is it the right thing to do?

There has been remarkably little discussion of the pros and cons behind even the weak growth seen in the private sector.

As Stephen Dorrell, chair of the Commons health select committee, has put it, the challenge for the NHS in particular – even assuming no cuts to spending, but merely spending restraint – is to increase productivity growth from about half the wider average to double that average. That’s a very ambitious target and, if it isn’t achieved, then spending restraint will mean reductions in service or managing demand.

While productivity is a big issue, I don’t want to suggest that more government spending is the only way to tackle it. In the private sector, spending on new technology, new processes and on entirely new businesses should mean that workers in the UK start producing more per hour. However, business investment remains low, and it fell during 2013 even while the economy

began to recover. Plus, a lot of people creating new businesses are doing so due to need; the switch to self-employment is often driven by redundancy or a fall in income, rather than the drive to bring a more competitive product or service to the market.

Policymakers should be alert to the possibility that business activity will fail to drive up productivity and be ready to respond. In practice, this may mean using the tax system to incentivise investment in more radical ways than have been tried to date; speeding up the cycle of innovation by increasing public investment in new technologies and processes; or charging up the skills of people in the workforce. All of this costs money, money that will be scarcer due to the consensus in favour of targeting a surplus in the public finances.

In the public sector, increasing productivity will require a different

form of ambition: a new wave of public service reform. So far we’ve heard little of substance from any of the political parties about their agenda for this over the next parliament.

Labour is kicking off a zero-based spending review as part of its manifesto process, rather than starting with a set of hypotheses, as previous Labour administrations have done – like choice, competition and the extensive use of targets – for what it wants to achieve by reforming public services.

Meanwhile, the two coalition parties are preoccupied with simply ensuring that there are no delivery failures in the run-up to the election.

The surplus is in fashion; boosting productivity and public service reform, unfortunately, are not.

Emran Mian is director of the Social Market Foundation MARCH

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Opinion ■ David Lloyd

Time for blue light thinking There’s lots of talk about meeting the public sector’s challenges through integrating police, fire and ambulance services. Police and crime commissioners are exploring the options We have all read a great many words from a great many public sector leaders about the financial challenges that public services face. In earnest speeches, articles and strategy documents we all opine about the need for joined-up working to meet these challenges. But are we really being radical enough when we look at what we are doing, and how we are doing it?

Or are we just slicing each individual agency’s salami ever thinner?

I said in my police and crime plan for Hertfordshire that I wanted to see 12

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more ‘business sense’ in matters of crime and community safety – a sharp focus on extracting value from our operations and greater flexibility in working together with other areas, with other services. One of the big ideas for doing this is the vogue-ish matter of closer working and collaboration, even integration, between ‘blue light’ services – police, ambulance, fire and rescue.

At its most radical this could mean running our emergency services as one – with shared management, shared tools and equipment, shared political leadership. While detractors will crack wise about putting a bucket of water and a first-aid box in the back of the panda car, we need to recognise the weight of the reactionary forces at work here.

A single service is certainly at the radical end of the spectrum but is far

from ridiculous. It is an increasingly realistic proposition that is being actively explored by my fellow police and crime commissioner, Adam Simmonds, in Northamptonshire. He is putting a joint programme team together as well as looking at more efficient management structures in readiness; Simmonds and other commissioners, including Tim Passmore in Suffolk, have secured substantial transition funds from government to realise their plans.

Beyond the radical ideas, I am clear that there is a broad spectrum of possible work on blue light collaboration. In my own county much has already been done to find synergy and savings between services. In the main, this has been work to integrate fire with wider county council services,

Photo: Gary Sanderson/East of England Ambulance Service

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rather than the police, particularly as fire is a county council department in Hertfordshire. It has led principally to savings in the back office, as well as more efficient management with the fire chief also serving as a director in the county council. Since last April he has further expanded his portfolio to work for me as chief executive.

The programme here is one of incremental change rather than revolution, but the innovations seen in Hertfordshire form part of the proof of concept for these ideas of integration that have such currency with government ministers at the moment.

There is yet more that we can do at a practical level by looking at shared approaches to issues like estates, procurement and training. There are also opportunities to have a radical look at how we do business, as well as how we hit our financial targets.

Hertfordshire is making good headway here with initiatives such as the joint County Community Safety Unit where the constabulary and county council

A single service is at the radical end of the spectrum but is far from ridiculous. It is an increasingly realistic proposition.

In my own county, much has already been done to find synergies and savings

Blues and twos: The emergency services work together closely on a daily basis, for example when dealing with road traffic accidents

work together, combining police with fire, trading standards and the old drugs and alcohol team, as well as linking with probation services.

As I say, this is a broad spectrum.

Police and crime commissioners across the country (as well as the service chiefs they work with) will be starting to look at where they sit and where they are headed. Derbyshire is looking at a shared headquarters; Humberside is finding better, joined-up ways to procure and manage vehicles; Merseyside is developing a joint control room. Whether you’re looking at service re-engineering or running a more efficient fleet and estate it clearly makes business sense to consider the options.

The challenge is that this isn’t the only change programme on the block. Every piece of the public puzzle is shifting to meet the challenges of the times. All the moving parts are in motion at the same time and (as if life weren’t complicated enough) new things are springing up at the same time. Things like PCCs. Though we might be novel (and some would say that we are contentious) we bring something else to policing that the other blue light services have not experienced in quite the same way to date – a direct democratic mandate for the service in question. And given our novelty, there are not tracks laid down that we must follow.

The nervous commissioner may end up hiding behind a strong constabulary lead. But if we want to, and as long as we can take our partners with us, we have an open field in front of us.

In electing commissioners, the public were given the opportunity to have a direct say in how their communities are policed and, beyond policing, we have introduced a radical new dynamic to the crime and justice landscape. If we are to be fully effective in the wider drive to cut crime, while balancing the books, we will need to maximise our collective leadership with other local leaders.

It is on issues like blue light integration that this local leadership team can really start to come together.

David Lloyd, the Police and Crime Commissioner for Hertfordshire, leads for the Association of Police and Crime Commissioners on blue light integration. He will be speaking on this topic at the CIPFA Police Conference in London on March 5 MARCH 2014

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OpinionLetters Spare us from a new inquiry into council funding How many more inquiries, reviews and consultations into local government funding (Labour adds council tax reform to agenda, Public Finance, p6, January/February 2014)? Remember Lyons? The last Labour government spent millions only to see his findings join Layfield on a shelf in some dusty office.

Finding a tax that is fair to all is a conundrum no government has solved.

One thing that can be said about the present government is that their policies have kept council tax bills down. Eric Pickles has forced councils to make the savings he knew were possible – no doubt drawing from his experiences as leader of a large metropolitan council.

The Pickles team has accepted that rural areas are comparatively underfunded and taken modest steps to begin to deal with this. It has at last been recognised that the vast majority of residents in rural areas are not wealthy stockbrokers, bankers or landowners, but people whose wages are often rather lower and housing costs rather higher than those in urban areas.

The government has chosen to go down the road of localism. Inasmuch as councils have stopped much of the excessive spending and empire building, it has been the thing to do.

When the pips have stopped squeaking and all councils are as lean and mean as they should be, it may be possible to introduce something fairer for all.

Localism can be interpreted in different ways. Estimates show that if a tax collected from each household was for purely ‘local’ services (culture, sport, parks, local road maintenance, car parking, planning and licensing, for example) it could be as little as 20% of what it is now. The remainder, for the ‘essential’ services (education, social care, police and fire services) could be collected through income tax and distributed to councils on an equal per capita or per household basis.

Both Labour and the Liberal 14

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Tidy savings: A local tax for services such as parks and recreation might be only 20% of what it is now

Democrats are taken by the idea of a mansion tax. This shows they have failed to grasp one flaw in the current system – it fails to recognise that the value of your property depends on where you live.

How can it be fair that a twobedroom property can attract council tax in any band from A to H? And this £2m mansion tax figure: is that at today’s value, or at the 1991 valuation on which council tax is based? Or perhaps a revaluation would be required? Bear in mind that the value of your property does not always indicate the value of your bank balance.

an unspoken plan. I suspect the coalition wants fewer but much bigger local authorities, but hasn’t got the courage to tell councillors this.

I can’t see there being much freedom for councils to control their own level of business rates: remember this was stopped by Margaret Thatcher because too many local authorities were seen to use businesses as cash cows. In a small country like the UK having places competing over tax rates and service levels is asking for real trouble.

It will not be the whole answer, but how about removing the cap on the total take from business rates?

CHRISTINE MELSOM Isitfair (Campaign for the Reform of the Council Tax), Headley, Hampshire

STEVEN BOXALL Bexleyheath, Kent

Coalition’s hidden agenda for councils Local authority funding will have to be examined and quickly (Labour adds council tax reform to agenda, Public Finance, p6, January/February 2014).

Otherwise many councils will collapse after April 2015. Either the government doesn’t understand this, or it is part of

Cities should be more demanding The Key Cities Group of 22 mediumsized cities is right to urge ministers to set out a devolution vision (Key Cities urge ministers to set out a clear vision for devolution, p7, Public Finance, January/February). However, this must not be just about joining things up and streamlining the schemes we have.

Initiatives such as Community Photos: Alamy/Skoda

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Budgets and a move to public service reform are being undermined by a growing tide of demand on our local services and cuts that are hitting some of the poorest areas the hardest.

Some local authorities are in danger of being irreversibly denuded, reduced to a rump delivering a set of impoverished services. Some can look forward to playing no place leadership role whatsoever. This needs addressing.

The key cities should not allow the scale and voracity of austerity to be set in stone by Whitehall. I would suggest that they be belligerent and demand some basic fairness first, including an easing of cuts and their scale, and special help for the poorest. Otherwise any devolution will be a poisoned chalice, in which some key cities will gain more local control to merely shuffle social pain around.

In addition, the key cities should learn from the City Deals process to date and demand more. For all the talk of decentralisation, Whitehall is chronically siloed and the cards remain stacked in favour of a dominant and dominating Whitehall.

I would therefore argue for a bullish collective bargaining position and demand a basic deal for all key cities, topped up by some bespoke elements that reflect variations in local circumstances.

The Key Cities Group is a great innovation. I applaud its aims.

However, its strength is in numbers and a shared vision of both the essential nature of local government and what it should be. Of course, the key cities should play the Whitehall decentralisation game. But only so far.

They must be prepared to set their own terms.

Finance, January/February 2014). He doesn’t sound too hopeful of the outcome.

Our experience is just as he describes it: unrealistic savings targets; uneconomic plans for transferring work into the community; rising demand; politicians and public all lined up to resist reducing capacity in the acute sector; and the prospect of local and national elections looming.

Where he is wrong is in describing as ‘rational’ efforts to push forward these plans to reduce acute capacity. The UK by international standards has an extraordinarily concentrated acute sector, many fewer doctors and spends 2% less of GDP than its near neighbours on healthcare, as OECD comparisons show.

In addition,there is no business case for most out-of-hospital initiatives the Better Care Fund seeks to promote. But there is a very good economic case for additional healthcare funding.

As in all wars there is a tendency for ‘mission creep’. Healthcare cannot right all wrongs and address all the causes of poverty, ill-health and misery.

But it can be run efficiently to tend to those in the most acute need.

I would prefer an article addressing what is being done to counter the scandal of ambulances queuing at the entrances to A&E, not more hand wringing about the need for integration across health and social care.

Don’t misunderstand me: there can

NEIL MCINROY Chief Executive Centre for Local Economic Strategies

Rationing acute care is too crude Noel Plumridge rightly identifies the Better Care Fund deliberations as at the forefront of the struggle to balance the books across health and social care (Winter pressure politics, Public

Driven: Competitive wages fuel Slovakian car-making

be ways of reducing demand and delivering win-win to both save money and improve wellbeing. It’s just that the evidence to date doesn’t support the plans I have seen, and the theory does not hold up to critical scrutiny. It seems to be based on an over-extrapolation of some American success in reducing the excessive costs of aspects of its system.

We would do better to look to France and Germany, where more healthcare is delivered with greater capacity and costs, rather than construct elaborate (and crude) rationing policies.

ROGER STEER Healthcare Audit Consultants Gravesend, Kent

Why Scotland is not Slovakia Iain Macwhirter makes some interesting comparisons between the Czechoslovak Velvet Divorce and the Scottish independence referendum (A tartan separation? Public Finance, p18, January/February 2014).

He comments that Slovakia and Scotland have populations of about 5m each and that Slovakia has been a success story in terms of economic growth within the eurozone during the recession. However, if one looks at the numbers, Slovakia is in a very different economic situation to Scotland.

Based on 2012 estimates, average gross annual salary in Slovakia was around $15,000 (£9,150) and in Scotland $43,500. Slovak GDP per capita is about $24,300 and Scotland $69,000 (including oil and gas).

Macwhirter also states that Slovakia is the world’s largest per capita car manufacturer. The prime driver for Slovakia’s growth and successful car industry is more to do with its competitive wage rates, than a 5 million population and a government apparently closer to the people.

Whether an independent Scotland could match similar economic growth would be down to the efficiency of its private sector and internationally competitive pay rates.

ROGER DUNSHEA Whitchurch, Shropshire MARCH 2014

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Voice of the

Nations Scotland

Labour devolving ‘wrong tax’ NEWS FROM THE DEVOLVED ADMINISTRATIONS Scotland S Scotland cotland

BY KEITH AITKEN IN EDINBURGH

Labour should dump plans to offer Scots another tranche of fiscal devolution and focus on building a better Scotland with the powers already at Holyrood’s disposal, one of the party’s most senior MSPs has told Public Finance.

Ken Macintosh, who unsuccessfully contested the party leadership against Johann Lamont in 2011 and was later fired by her as shadow finance secretary, criticised Scottish Labour’s plans to devolve income tax if Scots reject independence at September’s referendum. He said such suggestions were wrong in principle and potentially harmful to the Scottish economy.

‘Of all the taxes to devolve, I think it’s the wrong one,’ Macintosh said.

‘The average amount of onshore tax raised in Scotland – leaving aside oil

revenues – is the same as across the UK. We pay our way in taxes. But the proportions of tax are not the same. We pay far less in income tax and far more in the spending taxes: especially, unfortunately, on alcohol, cigarettes and gambling. So, if you are to devolve a tax, you are devolving the wrong one.

‘Income in Scotland is generally more equally distributed. The majority of high-income and high-wealth individuals live around the Southeast of England. So, if you regard income tax as a redistributive instrument, you would be effectively opting out of redistribution.’

He added: ‘Over the long term, you would be reducing your income tax base in Scotland. As the economy grows, the wealth of the Southeast will grow faster, and so you are missing out.’

Tax take: Ken Macintosh said Scots pay less than the rest of the UK in income tax but more in spending taxes such as on alcohol, gambling and cigarettes

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The income tax plans were outlined last year in an interim report by a special Labour Party commission, and a follow-up is due for party conference in late March. But there are growing signs of a backlash, with Ian Davidson, who chairs the Westminster Scottish Affairs committee, warning that devolving income tax would spell the end of the Barnett formula for safeguarding Scotland’s share of UK spending.

Macintosh, who is close to Shadow Cabinet member Jim Murphy, did not share Davidson’s certainty that Barnett would be dismantled but admitted it would be affected. ‘There would be more pressure to review the settlement,’ he told PF. That was why Holyrood had never attempted to use its existing power to vary the basic rate by up to 3p.

He resisted the idea that the same case could be made against the measures in the 2012 Scotland Act, which Labour promoted, to devolve control over the equivalent of 10p on the basic rate.

‘We absolutely should have the possibility of using these powers,’ he said. ‘But you are confusing the ability to use them with the desirability of using them. At the moment I think it would be undesirable, and this is another reason for not devolving income tax. If you devolve income tax there’s a risk that people think you’re devolving it to increase it.’

He saw potential merit in devolving some powers from Holyrood to local authorities, for example over Housing Benefit and some work-related training programmes. So, was there a more pressing need for devolution within Scotland than within the UK? ‘I wouldn’t describe it as a pressing need for either,’ Macintosh said.

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