PublicfinanceJune2014

PublicFinance

The business monthly of the public sector

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Issue 06 June 2014

JUNE 2014

Cap and gown Alasdair Smith warns against ending controls on student numbers

Ian Mulheirn Why dynamic scoring is the chancellor’s new toy

On the bright side Gavin Kelly delves into the Pythonesque world of official statistics

CITIES UNLIMITED Peter Hetherington on the new engines of global growth

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PublicFinance

CONTENTS

June 2014

Features 24 COVER STORY Tales of the cities Conurbations are driving economic growth all over the world. But London’s pre-eminence is holding back other UK cities, warns Peter Hetherington

‘THE UK WOULD BE FAIRER, MORE SUCCESSFUL ECONOMICALLY AND MORE INTERESTING IF WE HAD A POWERFUL, RICH AND DIVERSE SET OF CITIES OUTSIDE LONDON’

24

30 Higher and higher The chancellor’s scrapping of controls on student numbers risks compounding the Treasury’s costly mishandling of tuition fees, writes Alasdair Smith

34 Solving the productivity puzzle Patrick Nolan asks why labour productivity is stagnating in both New Zealand and the UK and if we risk a global low-growth trap

38 Age of insecurity Growing inequality is affecting large numbers of people in Europe and the US, with roughly 75% of Britons now belonging to the ‘new insecure’

Regulars 4

Leader The I-word is back on the agenda

5

Second thoughts Gavin Kelly on the difficulty with official statistics on living standards

30

38

Need to Know 44 42

On Account CIPFA on the evolving role of finance business partners in a tough fiscal world

6 News Integration ‘needs single ombudsman’; credit test for municipal bonds; and ministers back ‘open-book’ outsourcing 8 News Analysis Results-base financing is changing the international development landscape 10 Opinion Ian Mulheirn on ‘dynamic scoring’; Claudia Wood on care home scandals 15

Letters

43

16

Watchdog Watch

44

18 Voice of the Nations Scottish ministers ease Treasury rules to free up land for community buyouts

Smart Thinking?

Can digital technologies help councils escape from the fiscal ‘jaws of doom’?

Professional Development Tailor-made benefits packages

46 48

Numbers Game

20 Restless Nation Gunning for Scottish banknotes?

Cipfa Events

21

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CONTACTS

Leader Because they’re worth it?

L

ong, long ago, David Cameron and George Osborne used to talk optimistically about sharing the proceeds of growth: our homegrown version of trickle-down economics.

But that was before the global economy went belly-up, making such discussions redundant. After all, what’s the point of debating wealth distribution when none is being created?

Now though, with at least some growth in sight, it appears that whilst most people have suffered a steep real-terms decline in living standards, an elite few have prospered.

According to the latest Sunday Times Rich List, 1,000 individuals in the UK now own a third of the nation’s wealth. Their combined fortunes have doubled since 2008.

Britain, it turns out, has one of the lowest equality rankings of OECD nations.

No wonder then that the ‘I’ word – inequality – is back on the agenda. Or that a 696-page tome on the subject, by an obscure French economist, should have become an overnight bestseller.

Thomas Piketty’s Capital in the 21st century argues, in a nutshell, that stark inequalities are not an aberration, but part of the natural capitalist order – and that remedial action is needed.

Politically this matters, a lot. As Patrick Diamond argues (see pages 38-41) a growing majority – estimated at 75% of working-age and retired populations – now constitute ‘the new insecure’.

This vast squeezed middle – including many in the public sector – is under enormous pressure from structural and fiscal change. With wealth concentrated in the hands of just 5%, according to Diamond, and another 20% poor and marginalised, debate over the haves and have-nots is hotting up.

It’s an argument that also applies to cities and regions. The rampant growth of global cities like London, as Peter Hetherington explains (pages 24-29), certainly boosts GDP. But it also deepens inequalities when ‘secondtier’ cities are denied fiscal freedom to share the proceeds.

The political fallout from these social tensions can be considerable. That’s why all the parties are so keen to show they are on the side of those left out from a return to growth.

Hence the increasingly acrimonious debates within the coalition over the use and misuse of schools budgets. And with the Opposition, over the desirability of ‘predistribution’ and reforms to the minimum wage.

Whether these, or other contested policies, even come close to addressing the deep insecurities of the 75% is very much open to question.

Or whether, as May 2015 approaches, a growing proportion will say ‘none of the above’.

■ Judy Hirst DEPUTY EDITOR letterstoeditor@publicfinance.co.uk

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Second thoughts pfOpinion

■ Gavin Kelly

Silly season for statistics Headline figures should be treated with care as a measure of living standards. What they leave out can matter just as much It’s already a cliché to say that the next election will in no small part be about living standards. And, because of that, every new piece of relevant data is scoured to see if it confirms competing views about what is likely to happen to household budgets over the next year during a period of recovery.

We should treat all reports of these statistics with care. While they often tell us something useful, they rarely if ever reveal the full story. And they are easily overstated or mis-used.

Take wages. For starters, the regularly reported official statistics exclude the 4.6 million self-employed, whose ranks have swelled just as their typical weekly earnings have crashed. In addition, there is a question over how these statistics take account of millions of employees in workplaces with fewer than 20 staff.

Headline pay statistics are also significantly affected by bonuses. Indeed, last month’s ubiquitous press coverage of the fact that wages had caught up with inflation only holds true if we include bonuses. If we look at regular pay, then real wages are still falling. The famed crossover point between wages and prices simply hasn’t happened.

Add in the uncertainty over different measures of inflation and things get even murkier. Of the two standard measures one, the Consumer Prices Index, is thought to be too narrow to give a proper indication of living standards as it excludes housing costs. The other, the Retail Prices Index, gives persistently higher rates of inflation and takes housing costs into account – but it is thought to be technically flawed.

What’s more, the gap between CPI and RPI – already significant – is set to grow Photo: Retna

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IN THE PYTHONESQUE WORLD OF OFFICIAL STATISTICS, A MEASURE DOESN’T ALWAYS REFLECT WHAT IT SAYS ON THE TIN as interest rates rise. It’s a mess: as things stand we don’t have a recognised measure of inflation that is appropriate for a discussion of living standards.

To get to grips with living standards we should be considering real disposable household incomes, not pay. The Office for National Statistics produces an official measure, Real Households’ Disposable Income, that the media often report as a judgment on what is happening to household living standards.

Sadly, in the Pythonesque world of official statistics the measure doesn’t reflect what it says on the tin. It is an

aggregate figure for the economy (so it rises with population growth), and it includes various items that have nothing to do with household living standards.

Nonetheless, it still gets reported – and cited by political parties – as if it is the oracle on these matters.

Fortunately, there is a way of getting at what is really happening to household incomes: authoritative surveys provide what should be reliable information. The trouble is, they are painfully slow to emerge. Today, we only know what the position was in 2011/12.

This uncertainty about whether we are measuring living standards properly might be part of the reason that when economic news improves we see shifts in public sentiment about prospects for the overall economy but little movement in perception of personal prospects.

It’s only because the issue of living standards has acquired such salience over recent years that inadequacies in how we measure these things have come to light. Some recent big shifts in the economy, like the surge in selfemployment, make official statistics even less meaningful than in the past.

Amidst all this uncertainty there are two things about living standards in May 2015 that we can say with confidence.

One is that it will be possible for different political parties to use some ‘official statistics’ or other to prove whatever story they want to tell. Prepare to be bludgeoned with contradictory accounts.

And, second, there will be a true story about what is really happening to living standards come polling day – it’s just that we won’t know what it is until halfway through the next parliament.

annual conference 2014 Gavin Kelly is chief executive of the Resolution Foundation. He will be speaking at the CIPFA Annual Conference in London, 1–3 July 2014 JUNE 2014

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20/05/2014 16:46

News Taking responsibility Dame Julie Mellor says a lack of coordination across health and social care ‘is really impacting on people’

Service reform

Integration ‘needs single ombudsman’

BY RICHARD JOHNSTONE

Government plans to integrate public services and spending mean it is vital that reforms are also made to the regime for dealing with complaints about poor provision, the Whitehall ombudsman has said.

The Parliamentary and Health Service Ombudsman, Dame Julie Mellor, told Public Finance that a single post covering local and central services in England could help ensure coordination in schemes such as Community Budgets and the Better Care Fund.

Today, the PHSO handles complaints from individuals who say they have been treated unfairly or received poor service from government departments and the NHS, while different ombudsmen deal with complaints about other sectors, 6

such as housing and local government.

The Cabinet Office is considering creating a single ombudsman service for all public services.

Mellor said good handling of complaints was vital to improving services. Her joint work with the local government ombudsman had shown where ‘a lack of coordination and a failure to take responsibility across multiple organisations mean people lose out on getting the service that they should be getting’.

She told PF: ‘We see that on so many things across health and social care, with poor planning of discharge because there isn’t proper coordination between hospitals and social care, particularly services for older people with learning disabilities or mental health problems.

Where the services span health and social care, the lack of coordination is really impacting on people.’

As the government increases the localisation of services, a single ombudsman service would help ensure ‘whoever is delivering the service needs to take responsibility for getting the feedback from concerns and complaints to inform how they’re going to improve’, Mellor said.

‘The government of the day might make decisions to move services from national to local or local to national, but it wouldn’t need any future change in the ombudsman services, because there’s just one.’

Current government initiatives include integration of public services in a local area through Community Budgets and the Public Service Transformation Network, as well as pooling £3.8bn of health and social care spending in the Better Care Fund.

Although Mellor said spending integration could improve coordination of provision, there were also concerns that the transition to local service delivery could lead to people not receiving what they are entitled to.

‘In a multiple delivery environment, there are risks of people falling between stools, and then it is the public service user that loses out,’ she said.

‘Those areas of coordination in a complex delivery environment are areas that we’ve got our eye on and we will be looking to see what the patterns are and whether we can give feedback to public services to make sure they can deliver the services so the public service user doesn’t miss out.’

A merger of the PHSO and the local government and housing ombudsmen, mirroring arrangements in Scotland and Wales, was recommended in a report by the Commons public administration select committee in April. MPs said changes were needed to an ‘outdated’ regime, and said the government should bring forward plans to create a simpler complaints-handling service.

The central and local ombudsmen were willing to reform and already

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CouncilFinance ■ Richard Johnstone

Town halls face credit test to borrow from bonds agency working together as much as possible, Mellor said.

‘If you had one organisation where you were looking across both the national and local issues, it would also help parliament hold services to account,’ she added.

The Cabinet Office is examining both how public services can make best use of complaints as a valuable source of information and the roles and powers of the existing ombudsmen. This will assess whether the structures and powers are fit for purpose and consider the case for a single public sector ombudsman in England following the select committee’s recommendations.

Patrick Dunleavy, professor of political science and public policy at the London School of Economics, who has examined the role of the PHSO, said reforms were needed to the ‘jungle’ of ombudsmen and regulators.

‘They are incredibly urgent now,’ he told PF. ‘A single ombudsman can look across the piece, whereas you have individual ombudsmen who say my job is the NHS, somebody else’s job is local government. If the ombudsman can’t investigate in an integrated way, the chances that departments will take any notice is absolutely zero.’

See Watchdog Watch p16

Councils will have to pass a credit test and cross-guarantee loans made to other authorities if they want to access the Local Government Association’s planned municipal bonds agency, the lead adviser on the project has said.

Speaking to Public Finance about the development of the agency, Aidan Brady said there had been interest from all types of councils to sign up to the scheme since approval of the business case in March.

He has been assessing interest from town halls in the ‘mobilisation phase’ of setting up the agency, which would issue bonds and then lend the money to councils as a rival to the Public Works Loans Board.

Councils will be asked for a final decision on backing the scheme in June, with those that want to join having to pass a credit test, he said.

‘The agency needs to make sure that it is not in an adverse

selection situation, where weak local authorities come to borrow money from us,’ he said. ‘So the agency will have credit processes, and that credit process will endeavour to make sure the agency only lends to strong credits in the first place.’

This would also provide assurance to the town halls that would be expected to sign a joint and several guarantee – by which councils provide collective backing of their fellow borrowers’ obligations.

Brady said the decision to include the joint and several guarantee in the business case, which had not previously been a key part of the plans, would provide cheaper borrowing.

Currently, the Public Works Loan Board charges most councils 80 basis points over government gilts for loans. The LGA’s business case stated the bonds agency could cut this rate by as much as 10 points without the guarantee, but the reduction

Transparency

Ministers set to back open-book outsourcing deals

BY RICHARD JOHNSTONE

The government is prepared to back the introduction of open-book accounting for public sector outsourcing contracts, a senior figure in the industry has said.

Speaking to Public Finance after a meeting between the CBI and government about reforms to contracting agreements, Jim Bligh, the business group’s head of public services, said there was a need to ‘move very far forward’ on transparency.

Outsourcing deals have been under Photo: Rex

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Price tag: Tagging was paid for, but not carried out

scrutiny after a host of high-profile failures, including the revelation that two firms – G4S and Serco – had billed the Ministry of Justice for millions of pounds worth of electronic tagging services that had not been carried out.

The CBI has proposed the introduction of open-book accounting

could be by as much as 30 basis points with it – saving more than £9m on a £100m loan over 30 years.

‘I put it out there, and the finance officer group that was supporting the business case proposal and the political group all agreed the joint and several proposal was too compelling to not adopt,’ Brady said.

‘We thought the agency could deliver some savings without the joint and several guarantee, but with that it became very compelling for all the people who are engaged in the process.’

Brady said it was likely that if councils were not willing to sign up to the guarantee ‘at this immediate point in time it would exclude them from the agency’.

He said: ‘My instinct is that, if an authority doesn’t want to sign a joint and several guarantee, then the agency would not be available to them.’

A first issue is expected in the second quarter of next year.

for costs, charges and profit margins between contractors and Whitehall customers in the future, as well as allowing the National Audit Office to scrutinise the deals.

Such changes now require ministerial agreement, Bligh said. ‘On all of those points, the government has shown a really clear willingness to move forward,’ he told PF. ‘We’re looking at principles on how open-book might work, and I think the next stage on that is guidance – discussing the costs with the customer and agreeing what is a reasonable margin is what it is all about.

‘We need some guidance for commissioners and for providers about how that would work. That’s a key next step.’

There was likely to be a general rule that openness would apply, with details then negotiated on a case-by-case basis, he said. ‘I think it needs to be in the discussions up front – between government as the customer and the supplier – about what open-book looks like in that particular contract.’

JUNE 2014

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News

Analysis International development

Results come first in aid revamp The value for money agenda that drives the outsourcing of public services is also changing the way development money is spent globally.

Could results-based financing be the future of aid?

Vivienne Russell reports Payment-by-results has become quite the watchword in UK public services. As outsourcing gathers pace, linking funding to outcomes is an increasingly common feature of public service contracts.

But it is also an approach that is beginning to make its mark in international development. Donors, from the World Bank to national governments, are attracted by the opportunity that this innovative funding mechanism presents to refocus and re-engineer the development process itself.

There are three basic models: money can either be directed to governments, to service providers or directly to beneficiaries. The Center for Global Development has been working on the first of these models, paying governments directly, known as cash-on-delivery aid.

‘The cash-on-delivery aid approach is very much focused on identifying one simple, clear outcome, like more children finish school or vaccine rates went up, and paying governments directly for progress towards that outcome,’ says Rita Perakis, a programme associate at the think tank’s London office.

This has two main advantages, Perakis tells Public Finance. First, it encourages better measurement of outcomes when generating robust data is a ‘huge problem’ 8

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in development. But more importantly, she suggests it gives recipient countries the flexibility to implement solutions in the way they think works best.

‘Paying for the results and not necessarily prescribing the solution requires the donor to be more hands-off than traditional approaches and leaves the [recipient] country with the flexibility to adapt, figure out and learn. The institutional learning that happens is part of the development process itself.’

In the UK, the Department for International Development was the first donor to trial the cash-on-delivery aid approach. It has agreed a programme with Ethiopia’s education ministry. A maximum of £30m will be disbursed to the ministry if it increases the number of children who complete lower secondary education. Payments are higher for students from lagging groups – girls and emerging regions – so the ministry is incentivised to target its efforts here.

There’s also a high-level political advantage for donor countries, as it allows governments to link international aid projects with value-for-money concerns at home and ‘sell’ the worth of aid programmes to sometimes-sceptical electorates.

This was former international

development secretary Andrew Mitchell’s approach when he announced DFID’s backing for a results-based approach in 2010, shortly after the coalition government took office.

‘The Big Society defines our new approach to development,’ Mitchell said at the time, ‘an approach that delivers choice and demands accountability. An approach that fundamentally lends itself to this value-for-money agenda.’

The evidence that has emerged so far is compelling. The World Bank recently evaluated Plan Nacer, an Argentinian programme to provide health insurance for maternal and child healthcare to uninsured families. Performance incentives are built into the payment formula through which provinces receive national funding.

It found the programme was ‘very Photo: World Bank

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QuoteUnquote Providers get increased autonomy and they get financial ncial resources to make local decisions that are appropriate iate for their contacts. Everybody – the security guard, the he nurse, the cleaning lady, the doctor – benefits from performing well.

Monique Vledder, programme manager, World Bank Health Results Innovation Trust Fund Paying for the results and not necessarily prescribing the solution requires the donor to be more hands-off than traditional approaches and leaves the [recipient] country with the flexibility to adapt, figure out and learn.

Rita Perakis, programme associate, Center for Global Development

Cost effective: Plan Nacer uses results-based financing to provide health insurance for mothers and children in Argentina. The World Bank says it could be emulated across the world

cost-effective’, had a positive effect on birth outcomes and could be usefully emulated across the world. ‘Plan Nacer uses a relatively small amount of resources (2-4% of total health spending) to provide incentives to medical care providers to use existing resources more efficiently,’ the evaluation said.

As well as evaluating results-based approaches, the World Bank also has several pilots up and running under the auspices of its Health Results Innovation Trust Fund, which focuses on improving the scope and quality of maternal and child healthcare services.

The fund was established in 2007, with

backing from Norway and subsequently the UK, and was born of frustration with the failure of more traditional, inputbased approaches to really change outcomes. Most of its work is based on the model of direct payments to healthcare providers that are already established and operating in developing countries. Contracts are developed and fees paid for each service carried out – for example, for each delivery of a baby or each immunisation.

A mature, results-based financing package will include 30 to 40 of these essential services and local facilities are contracted to deliver them, says Monique Vledder, a senior health specialist and programme manager for the trust fund.

‘Under the terms of these contracts, providers get increased autonomy and they get financial resources to make local decisions that are appropriate for their contacts. We call it smart service delivery, where the system pushes the financing to the frontline. For the first time these facilities have bank accounts, they receive their funding every quarter and they can partly use that to motivate their staff.

Everybody – the security guard, the nurse, the cleaning lady, the doctor – benefits from performing well.’

It’s an approach that fosters outreach and an entrepreneurial spirit and makes the financing that is already flowing into the facilities work better, Vledder tells PF. ‘What we do with these extra resources is gear the system to performing better and performing the right things. You help the system focus on what are the right services.’

So is results-based financing the future of aid? At the CGD, Perakis is cautious and stresses it is still early days for results-based approaches. It’s not necessarily going to displace more

traditional forms of aid, she says. ‘But we just need a few different and welldesigned pilots in a different areas with a real focus on evaluation and learning to be able to draw out a few different lessons, and then see how quickly or in what areas or under what conditions would this approach work best. We’re not quite there yet in terms of assessing those questions.’

There are challenges too in ensuring outcomes are properly measured and verified. This can be difficult and is costly to do upfront, Perakis observes, but she adds that these investments should be happening anyway and can also help reduce transaction costs over the life of a project.

At the World Bank, Vledder says the shift to results-based financing has challenged the bank’s business model for assessing the impact of aid.

‘It requires a lot of very hands-on support during the implementation and also required that we look at the way we support countries to monitor their programmes,’ she says.

‘This is not an approach where you can design a programme and come back after four years and see what happened.’

Now, payment data is analysed every quarter providing insights into how well programmes are performing and where they might need further support. ‘While we’re doing that we’re learning about which factors determine the success or failure of a programme,’ says Vledder.

She adds that there is interest in scaling up this results-based approach and also in extending it beyond health services to education. Further announcements may emerge from the bank in September.

‘There is incredible momentum for this,’ says Vledder. ‘We have a hard time meeting the demand.’

JULY 2014

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20/05/2014 18:06

■ It’s the politics, stupid, by Ian Mulheirn ■ The real care home scandal, by Claudia Wood

Opinion ■ Ian Mulheirn

It’s the politics, stupid The government set up the Office for Budget Responsibility to keep Treasury decisions non-partisan.

Now ‘dynamic scoring’ is bringing back politics by the back door The chancellor has a new weapon in the battle of political ideas. It’s called ‘dynamic scoring’. An approach to assessing the costs of budget measures, it uses the latest economic knowledge, state-of-the-art economic theory and the best available computer technology.

What’s more, it tends to show that tax cuts aren’t as costly to the public purse as conventional assessments suggest. So what’s not to like?

Sadly, George Osborne’s new toy risks undermining an emerging political consensus about the appropriate limits of politics.

Some questions are legitimately political – questions of values, about which there is no ‘right’ answer. Others are, at least in principle, matters of fact.

But political debate too often dominates the latter. Values start to shape ‘facts’ which, freshly minted, are deployed to buttress arguments in favour of the values that spawned them. hing When it comes to assessing something as important as the economic impact of different tax and spending policies,, there should be no doubt that it’s bestt to leave the politics out. For example,, many on the Left struggle to accept that returning to a top income tax ratee of 50p might conceivably reduce the ll amount paid by the well-heeled. Small state devotees, on the other hand, have tended to argue that spending cuts in pursuit of deficit reduction boost economic growth. Neither of 10

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these views is sustained by the bulk of evidence.

So establishing the Office for Budget Responsibility has been one of this government’s most important – and hopefully enduring – institutional reforms. Part of the watchdog’s role is to keep the Treasury honest when it comes to assessing its own tax and spending plans. As an effort to depoliticise questions that are not legitimately political we should all welcome the OBR as evidence of progress. Its immediate acceptance by all the main parties is an encouraging sign of its likely durability.

More’s the pity, then, that the chancellor has recently been talking up a series of analytical papers the Treasury is writing to showcase its new dynamic scoring approach to determining the budgetary cost of tax cuts. The first two papers have looked at the costs of cutting fuel duty and corporation tax – two of the government’s big giveaway policies.

Under conventional scoring, the assessment of tax cuts must take account of how behavioural changes among those affected will alter the cost of the Giveaway policies George Osborne has been talking up Treasury papers that showcase dynamic scoring of cuts in fuel duty and corporation tax

change. So if duty on fuel is cut, the anticipated revenue loss must reflect the fact that people will drive more because fuel is cheaper. That reduces the cost of the cut compared to a situation where drivers’ behaviour is assumed not to change.

Dynamic scoring takes the idea of accounting for behavioural responses a stage further, and then some. A complicated computer simulation of the entire economy seeks to trace all the subsequent behavioural changes people might make in response to the duty cut.

Paying less for fuel, drivers now spend more on other goods, increasing VAT receipts, for example. And the resulting higher demand raises investment and employment across the economy, boosting corporation and income tax receipts. A chain reaction of these and thousands of other such relationships brings the entire economy to rest in a new place, with a substantial chunk of the lost fuel duty revenue offset.

If all this sounds devilishly clever that’s because it is. Far too clever, in fact. Two big problems lurk behind the endless reams of computer programming and mathematical equations that are the stuff of dynam dynamic scoring.

First, tto trace the myriad effects of a tax cut, such models demand that you input mathem mathematical answers to, as the Institue for Fisca Fiscal Studies put it, ‘virtually every question question, theoretical and empirical, that has ever been asked in economics’. One wonders why the omniscient economists answerin answering these questions would need such a m model in the first place. In reality they rely on a huge amount of guesswork.

Political Politically biased judgments easily fill the evidence vacuum.

Photos: Rex/Shutterstock

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While dynamic scoring might show a fuel duty cut costs less than thought, another tax must rise to balance the books. The Treasury’s dynamic assessments assume this has no deleterious economic effects Second, while dynamic scoring might show the cost of the fuel duty cut to be less than previously thought, at some point the remaining shortfall still has to be made up if the government’s budget is to be sustainable. Raising another tax to balance the books, the same logic of dynamic scoring works in reverse: you need to increase the headline rate substantially more than conventional scoring might suggest, once all the damaging reductions in economic activity have been factored into the dynamic revenue estimate.

The Treasury’s dynamic assessments sidestep this problem by assuming that this alternative tax is one that has no deleterious economic effects. In effect, the results depend on government imposing an economically magical but practically impossible type of tax.

Unsurprisingly, no tax of this sort has been proposed. In the real world, tax rises that have been imposed – such as the 2.5% VAT rise in 2011 – are far from economically harmless. Dynamic modelling of a fuel duty cut funded by a VAT hike wouldn’t give the government much to shout about.

Its capacity to cast tax cuts in a good light means that dynamic scoring has been promoted vociferously by politicians of the Right in the United States since the days of Reaganomics.

And the cause is increasingly being taken up by British Conservatives. But the principles behind it and the risks of politicisation it entails are not the preserve of tax cutters. How much impact additional government spending on education could have on boosting the productivity of the UK workforce,

for example, is hugely uncertain. Mix some politically motivated assumptions with an economically harmless source of taxation to fund much higher education spending, and big government enthusiasts can just as easily bend such reasoning to their own political ends.

Attractive in principle, dynamic scoring models can only ever echo the complicated and often shaky assumptions their masters feed into them. Unavoidably vulnerable to bias, but shielded from external scrutiny by its complexity, the approach threatens to politicise economic evidence. That would be the path to a diminished democratic system, and it should be resisted.

Ian Mulheirn, a consultant with Oxford Economics, is writing in a personal capacity JUNE 2014

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Opinion ■ Claudia Wood Mysterious places: Few of us pass through the doors of a care home until we or our parents have to

The real care home scandal Care homes get a bad press, sometimes deservedly. But the bigger issue is chronic underfunding and rock-bottom pay for their staff Very few weeks go by without an abuse scandal rocking the care system.

Writing this after a BBC Panorama documentary broadcast hidden CCTV footage of the alleged abuse of older people in residential care homes, there is now the grimly recurrent debate as to whether such cruelty is becoming endemic in a system in the grip of a financial crisis.

This crisis isn’t so much a big bang as an inexorable decline, thanks to years of underfunding, followed by unprecedented cuts to local authority budgets by the coalition government, topped off by its lack of urgency over a new funding settlement.

According to the latest survey by 12

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Lang & Buisson, the healthcare market intelligence provider, local authority fees for care home beds have fallen by 5% in real terms in four years. Councils are buying care beds at between 5% and 10% below the market prices.

Cross-subsidisation means care homes are charging self-funders on average 13% above market prices to stay afloat. But for an increasing number, pulling out of the state-funded care system entirely is the only way to longer-term financial survival.

This may mean a wholly two-tier system in years to come, but in the meantime, much of the sector is blighted by low-pay, low-status work. It is the home of the zero-hours contract, the minimum wage agency worker and the 20% turnover rate.

Of course, low wages and low morale do not make people cruel or abusive.

But such conditions do exacerbate staff shortages and high turnover that

can lead to less rigorous recruitment practices, lowered standards and people being thrown into stressful, understaffed conditions without the training – let alone the personal qualities or temperament – to cope.

Working in care is a very demanding, emotionally draining, highly skilled vocation. It’s not interchangeable with cleaning, shop work, or other minimum wage jobs, nor is it possible to do well with a day’s induction. Those who excel love it and stick at it despite the poor pay and low regard in which the public holds their profession.

They must surely despair, then, when they see another TV exposé of abuse. Because, while each instance of abuse represents a human tragedy and a fundamental failure of a system designed to care, the exposés feed our negative perceptions – indeed our fear – of the care system. And this does the vast majority of dedicated Photos: Alamy

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pfBlogs

A DIGEST FROM THE WEB

Care homes need fair funding and an acknowledgement of their vital role in a care system where the numbers of the very old, and those with dementia, are soaring

‘All successive governments load the funding system to favour their own constituency. Over my career I have seen “simple and transparent” mean giving more money to Conservative areas and “fair and transparent” mean giving money to Labour areas’ Rob Whiteman, CIPFA chief executive

‘The biggest barriers to integrating local services are financial structures that create artificial boundaries and stifle collaboration. Different financial structures are getting in the way of building relationships locally that allow integration to progress at speed’ Laura Wilkes, head of policy & research, New Local Government Network

care workers an injustice. Instances of abuse represent a tiny proportion of the hundreds of thousands of care interactions taking place every day, but the media coverage these cases attract, the subsequent unpicking of responsibility, follow-up prosecutions and so on means that these loom large in the public imagination.

In polling by Demos for our Commission on Residential Care, chaired by former care services minister Paul Burstow, three-quarters of the public said they wouldn’t consider moving into a care home at old age.

Of these, 54% said this was because they feared neglect or being abused, a significantly higher percentage than those who didn’t want to have to sell their house to cover costs (33%) or lose contact with friends and family (31%).

With a disproportionate focus on failure, and scant regard given to the exceptional work carried out every day by care workers, is it any wonder that the public feel abuse is rife?

The same survey found that while 24% of people on average said they would consider moving into a home in old age, this rose to 39% among care home workers. While a care home will never (nor needs) be a first choice for the majority, those who see one every day are more likely to consider it as an option for themselves.

We are presented, then, with a catch-22 situation. How do we root out abuse in care, without vilifying the entire workforce and terrifying the public? When we read of physical or sexual abuse by a teacher, we do not fear to send our children to school.

‘Put today’s obligations off until tomorrow. Claim new revenue and savings that may or may not materialise.

And say your budget is balanced. New York City and its neighbour, Nassau County, have come to share these dubious attributes as the foundations for spending plans’ William Glasgall, programme and editorial director, Volcker Alliance

‘Getting closer integration between health and social care is a good thing. But the arithmetic is truly heroic.

NHS England says emergency admissions will have to reduce by 15% to pay for the Better Care Fund. There is no evidence that a shift of this size can be achieved’ Andy McKeon, senior policy fellow, Nuffield Trust

And this is because everyone has been to school – we know such cases are an exception to the rule. But care homes are mysterious places, few of us pass through their doors until we or our parents have to. They are associated with frailty and a loss of independence.

What future?

Former care services minister Paul Burstow is chair of the commission considering the prospects for residential care

We have little to go on other than what the papers – or Panorama – tell us.

Why should any home strive to be better? How can they be encouraged to innovate? Care homes need fair funding and acknowledgement of their vital role in a care system where the numbers of the very old, and those with dementia, are soaring. Outstanding achievements need to be celebrated with the same vigour as failures are exposed. Without this, residential care settings will lack confidence to open their doors to the community – some are already offering day centres, GPs and MPs consulting space – and ask what future generations of would-be residents expect from communal living. No matter what resources are committed to improving the quality of care, without proper recognition, the sector will stagnate.

Claudia Wood is the chief executive of Demos JUNE 2014

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Smart solutions, supporting change

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OpinionLetters

You can e-mail your letters to letterstoeditor@publicfinance. co.uk. Please include your name and address and a daytime phone number. The editor reserves the right to edit letters

Planning to get the best out of high-speed rail With the passing of the HS2 Phase One Hybrid Bill at its Second Reading last month, challenges to the project will now focus on the wider planning and delivery requirements, rather than just the discussion of costs and benefits.

Former Goldman Sachs economist Jim O’Neill raised such a challenge in Public Finance (Cities guru calls for more fiscal freedom, p6, May). He made the pertinent observation that, given the rallying call for the project as being about boosting economic development in Northern cities, why not start delivery with the ‘Y network’ at Manchester and Leeds, rather than from London to Birmingham?

This question raises important issues about the aims of the project, and highlights the need for considered, strategic planning about what we want the network to deliver. How we should start building is only one of a host of questions that need to be addressed to ensure the benefits of high-speed rail are proactively captured and not left to chance.

O’Neill’s suggestion is part of a discussion about how best to extract the benefits from infrastructure projects. If we really want to ensure that a highspeed rail network delivers value for money, we need to get planning, at both national and local levels.

We need to plan how stations connect with wider areas, how we develop places as a result of dynamic demand changes brought about by being on the network, and how we utilise the network and new stations to unlock land for housing and employment – thus tackling two other great challenges facing the nation.

By developing an understanding of what we want the network to achieve and where, we will be able to develop a well-designed, beneficial and effective vision of how we should deliver it.

RICHARD BLYTH Head of Policy Practice and Research Royal Town Planning Institute London Photo: www.hs2.org.uk

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High anxiety: Suggestions that HS2 should be built from the north highlight the need for a focus on planning and delivery

Only connect – but not via London Before anyone gets carried away, they need to read carefully what is being said

by Jim O’Neill (PF, p6, May). First, he seems to be saying that some cities may be capable of increasing their tax take, but this is not enough to solve problems of insufficient growth and success outside London and the South East.

It is the other things he mentions that will help to increase growth across the country.

In my opinion most cities do not, in the short to medium term, have the potential tax-base to raise anything like the investment required without massive transfers from the centre I’m not convinced by his ‘lessons’ from the United States. The US is much bigger than the UK and distances between cities greater, which mitigates tax ‘competiton’ between cities. Even then, there are many examples of cities reducing taxes (rather than increasing them to fund infrastructure), and the hollowing out as people move to the lower-tax hinterland but still expect to use infrastructure for which they don’t want to pay.

Second, there are lots of examples in the real world (the US and Europe) of

local government borrowing via bonds etc and then not being able to repay the money – so let us learn from these before we say ‘it has worked elsewhere’.

His assumptions about making large savings in time from HS2 are full of ‘ifs’ which don’t seem to be based on reality.

There is lots to be gained from connecting our Midland and Northern cities to each other, but not by linking them (especially via hubs which are not actually in these cities) to London.

STEVEN BOXALL Bexleyheath

Silenced voice of Somerset Levels None of the mainstream parties will face up to the fact that the public have cottoned on that it barely matters who you vote for (Nobody likes us, p5, Public Finance, May), because these people decide so little.

The fate of the people of Somerset neatly illustrates this. They voted Conservative, but their representative has no say whatsoever over whether their rivers are dredged. This is decided by an unelected quango chaired by a failed Blairite.

MIKE KEENE Winchester JUNE 2014

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Watchdog

Watch WHAT’S GOING ON IN THE WORLD OF REGULATION AND INSPECTION Ombudsman The Parliamentary and Health Service Ombudsman said the government must do more to ensure complaints about public services are listened to after it revealed more than 7,500 inquiries had been made in 2013.

Publishing the annual examination of Whitehall complaints, ombudsman Julie Mellor said government departments and agencies must also be more aware of the devastating impact that service failures have on individuals and their families.

Cases examined included a child who had to wait nearly 10 years for an immigration application to be decided, an individual whose medical records were shared inappropriately and a victim of sexual assault whose suffering was compounded by treatment errors.

Of 7,588 inquiries, 1,812 were examined in detail and 640 taken forward for investigation, with recommendations made to government to prevent problems from recurring.

The Department for Work and Pensions was the source of most initial inquiries to the ombudsman, while the Home Office had more complaints assessed in detail. The Ministry of Justice had the most complaints investigated.

Meanwhile, a select committee of MPs has called on ministers to bring forward the creation of a single public services watchdog for England in reforms to the role of the ombudsman.

The Public Administration Select Committee said rules governing the ombudsman were outdated. For example, the office does not have the power to proactively investigate problems in government departments, 16

Right to complain: Bernard Jenkin said people wanted lessons to be learned for the benefit of others

agencies and the NHS – a restriction that must be lifted, the MPs said.

The committee’s chair, Bernard Jenkin, said: ‘We have to make these changes. PHSO is part of our service to our constituents, and it’s way behind the times. Our voters have a right to complain about public services when mistakes, misunderstandings and maladministration occur. We so often see that people complain not for their own benefit, but to ensure lessons are learned and the same mistakes are not inflicted on others.’

Accounts Commission Scotland’s local authorities saved £71m last year through more efficient spending of their aggregate £5.4bn procurement budget, but more can be done to boost collaboration and develop

purchasing skills among staff, the Accounts Commission has said.

The watchdog’s Procurement in councils report found that performance improved across the 32 Scottish councils during 2012/13, but some inconsistencies remain.

‘Some councils have done well by looking at all the options, investing in the right skills and systems and learning from each other,’ commission chair Douglas Sinclair said. ‘But there is scope to do a lot more and the pace of improvement needs to increase.

‘Councils need to secure maximum value for the money they spend as budgets continue to tighten. Better use of procurement can improve quality and bring benefits to their local communities.’

The audit comes ahead of a third reading at Holyrood for the Scottish Procurement Reform Bill, intended to make it easier for small companies to compete for deals and for councils to penalise unethical employment activities, such as blacklisting.

The commission predicted that both the legislation and recent European Union reforms would have a big impact on procurement deals. ‘Procurement now has a higher profile and councils are buying more goods and services collaboratively,’ the report stated.

Public Accounts Committee The Public Accounts Committee has called for an external audit of NHS waiting times in England after finding that differences in recording across the country made it difficult to compare the wait patients face for hospital treatment.

Examining waiting times for elective care in England, the MPs said the

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