PublicFinance
The business monthly of the public sector
publicfinance.co.uk
Issue 09 September 2014
SEPTEMBER 2014
Conference calls Tony Travers on ends, beginnings and Boris
Scotland decides Facing up to Holyrood’s changing fiscal future
Rural retreat How the RPA achieved its unqualified success
CONDITION CRITICAL How long has the NHS funding model got?
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insight, guidance and inspiration CIPFA Conferences this Autumn Our conferences this autumn offer help, best practice and commentary for finance professionals across the public services. CIPFA Procurement and Contract Audit Update 17 September, Birmingham CIPFA Insurance Summit 25 September, London CIPFA National Housing Conference 26 September, London CIPFA Social Care and Health Conference 30 September, London CIPFA Procurement Summit 14 October, London CIPFA Better Governance Summit 18 October, London CIPFA Local Government Accounting and Finance Conferences 4 November, London 19 November, Manchester
To book and view programmes visit www.cipfa.org/autumnconferences
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PublicFinance
CONTENTS
September 2014
Features
‘WITHOUT A CREDIBLE ALTERNATIVE PLAN, THE NHS SEEMS DESTINED TO EXPERIENCE A FUNDING CRISIS THIS YEAR OR NEXT’
24 COVER STORY Health alert
24
The NHS is never far from the headlines despite the best efforts of ministers. Now there are warnings of a financial crisis ahead, writes Noel Plumridge
30 Bubble trouble Support for inflated house prices creates a zombie economy that is destined for low productivity and weak growth, argues Erik Britton
34 Waiting in line A fast-track, patient-centred health service was the aim of government reforms, but delivering on this ambition is a distant prospect, says Andy McKeon
38 Country files The Rural Payments Agency has turned round the way it manages more than £2.3bn a year in farm subsidies. How did it do it?
Regulars 4
Leader Faith-healing for the NHS
5
Second thoughts Tony Travers on why the 2015 general election could be a good one to lose
30 Need to Know
6 News Northern cities plea for 10-year budgets; Better Care Fund fast-track areas slashed; dash for fracking cash
38 44
42
On Account CIPFA on the challenge of following the public pound in the era of outsourcing
8 News Analysis Public services lose billions to fraud. CIPFA is helping the fight-back 10 Cipfa Conference News Pickles launches fraud-busting fund; Hodge makes public audit review plea 12
Opinion Don Peebles on Scotland’s balance sheet; Mike Farrar on healthcare costs
43 Smart Thinking? What Estonia can teach us about delivering e-government
18
44
20
Voice of the Nations Boris’s tax powers intervention is ‘a godsend for the yes campaign’
Management Development How to build up team confidence
46 48
Numbers Game
22
Restless Nation The cudgel of the currency
Cipfa Events
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CONTACTS
Leader Keeping the faith
I
f the NHS is the closest thing we have to a national religion, Jeremy Hunt is the nearest approximation to its high priest. And with a general election on the horizon, the health secretary is under pressure to rekindle public belief in the health service. Renewed vows on hospital waiting times and personal budgets, new thinking on ‘co-commissioning’ and the promise of a ‘forward view’ five-year-plan – these are just some of the ideas being aired to convince the waverers that the NHS is safe in the government’s hands. But a succession of bad news stories about rising GP and cancer care waiting times, plus increased levels of emergency admissions, have been spoiling the feel-good effect. NHS waiting lists recently exceeded three million for the first time since 2008. Images of ambulances queuing outside A&E departments, amid tales of rapidly dwindling NHS trust coffers, are not the kind of shroud-waving headlines ministers want on the eve of their party conferences. As we discuss in this issue of PF (pp24-29 and 34-37), a number of authoritative reports indicate that the NHS could soon be heading into a financial tailspin. According to the Nuffield Trust, the long-awaited health service transformation has not materialised. The NHS is ‘destined to experience a funding crisis this year or next,’ it says. So what’s to be done? All the parties, acutely aware of the toxic role that negative NHS stories can play, are squaring up for a credibility battle over the health finances. The LibDems are toying with the idea of a hypothecated ‘NHS tax’; something recent polls suggest could be a vote-winner. Labour is more cautious, focusing instead on debates over ‘preferred providers’ versus privatisation, rather than risk being accused of tax-and-spend financial profligacy. The Conservatives, meanwhile, are conflicted over whether to uphold the cherished free-at-point-of-delivery model – or move in the direction of proselytising in favour of NHS charges. Even with its hitherto ‘protected’ status, the NHS budget can barely keep pace with demand. Year-on-year savings of 4% – the so-called ‘Nicholson Challenge’ – are looking increasingly unsustainable. Under these circumstances, as Mike Farrar argues on p14, the best option is to be transparent about the true costs of running a world-class health service and the hard choices about funding that follow. But opening up that discussion requires political courage – and another huge leap of faith.
■ Judy Hirst DEPUTY EDITOR letterstoeditor@publicfinance.co.uk
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REDACTIVE PUBLISHING LTD 17-18 Britton Street London EC1M 5TP 020 7880 6200 www.publicfinance.co.uk Deputy editor Judy Hirst 020 7324 2769 judy.hirst@publicfinance.co.uk News editor Vivienne Russell 020 7324 2788 vivienne.russell@publicfinance.co.uk Senior reporter Richard Johnstone 020 7324 2796 richard.johnstone@publicfinance.co.uk Reporter Judith Ugwumadu 020 7324 2794 judith@publicfinance.co.uk Contributors Paul Nettleton, Keith Aitken Senior designer Gene Cornelius 020 7880 6227 gene.cornelius@redactive.co.uk Picture editor Akin Falope 020 7324 2713 akin.falope@redactive.co.uk Editorial assistant Tania Forrester 020 7324 2793 tania.forrester@publicfinance.co.uk Digital content manager Harriet Patience 020 7324 2733 harriet.patience@redactive.co.uk Business development manager Chris Dooley 020 7880 8545 chris.dooley@redactive.co.uk Sales manager Katy Eggleton 020 7324 2762 katy.eggleton@redactive.co.uk Sponsorship sales manager James Brunt 020 7880 6230 james.brunt@redactive.co.uk Recruitment sales executive Emmanuel Nettey 020 7324 6234 emmanuel.nettey@redactive.co.uk Advertising production Aysha Miah 020 7880 6241 aysha.miah@redactive.co.uk Printing Polestar Stones, Banbury, Oxon To subscribe to Public Finance at the annual UK cost of £100, call 020 8950 7010 or email publicfinance@alliance-media.co.uk. International annual subscription rates range from £130 - £205. Public Finance is editorially autonomous and the opinions expressed are not those of CIPFA or of contributors’ employing organisations, unless expressly stated. Public Finance reserves the copyright in all published articles, which may not be reproduced in whole or in part without permission. Public Finance is published for CIPFA by Redactive Publishing Ltd. Public Finance 17–18 Britton Street, London EC1M 5TP Tel 020 7880 6200 Fax 020 7324 2790
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PublicFinance SEPTEMBER 2011 2014
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Second thoughts pfOpinion
■ Tony Travers
The end of the beginning The party conferences bring closer what is shaping up to be a hard-fought election. The public spending metrics suggest this could be a good one to lose Party conferences are the gateway to the final months of the current parliament. Senior politicians will be setting the scene for what will be the most tightly fought general election since 1992. Opinion polls during 2014 have suggested some tightening of the race between the Conservatives and Labour. Indeed, it is generally the case that governing parties start to shake off their ‘mid-term blues’ as the election campaign approaches. The Liberal Democrats, in particular, must be hoping their baleful poll ratings recover between now and May. After years of building their strength in local government and Westminster as a party of protest, being in government has caused drastic losses of councillors at each set of council elections since 2011. It appears inevitable that the LibDems will lose MPs at the general election. TheUK Independence Party are in the opposite position. Buoyed by spectacular successes in the 2013 and 2014 local elections, and in this year’s European
poll, Nigel Farage’s party now holds a number of council seats and is the opposition on a number of authorities. Farage will be hoping that he (at least) can win a Westminster seat next year. For Labour and the Conservatives a dreadful and bitter struggle lies ahead. The electoral mathematics of the Commons mean that Labour could win the election with only 34% or 35% of the vote. The Conservatives probably need to win 39% to 40% to win outright. Labour only received 29% of the vote in 2010 but, as the election approaches, appears likely to be close to the magical 35%. The Conservatives, by contrast, need to win a bigger share of the vote than they did in 2010 to have any hope of forming a majority government. Thus, despite being under consistent challenge, Labour leader Ed Miliband is probably the marginal favourite to win the largest number of seats in 2015, though many of his MPs are privately far more pessimistic. London mayor Boris Johnson’s decision to seek a seat in next year’s election will provide the Tories with a boost in tacking their Ukip flank: few Conservatives are better at holding ‘Ukip waverers’. Better-informed Labour supporters must wonder if 2015 would be a good
BORIS JOHNSON’S DECISION TO SEEK A SEAT WILL GIVE THE TORIES A BOOST IN TACKLING THEIR UKIP FLANK Photo: Shutterstock
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election to lose. The public finances remain dire, with the deficit for 2014/15 likely to be in excess of £90bn and tax receipts not growing as fast as expected. During the summer, shadow chancellor Ed Balls ruled out an increase in National Insurance or a so-called ‘death tax’ (a levy on estates to pay for end-oflife care), which leaves him with few ways of raising additional revenue. Labour is committed to reduce the UK’s budget deficit (for spending apart from capital investment) to zero, so Balls would confront several years of managing the deficit downwards after 2015/16. But Labour’s real problem would surely be the expectations that would be heaped upon it. The NHS, schools, defence and welfare all have good claims to an increase in funding above current levels. After five years of austerity, an incoming Labour government would be expected by its supporters to produce magic money from thin air. The Conservatives would face a bigger need to cut spending than Labour, because George Osborne is committed not only to removing the entire deficit (ie. funding current and capital expenditure from in-year revenue) but to running a budget surplus. On the other hand, the public are used to the Tory-led government making cuts, so expectations would be very different than for Labour. In terms of austerity, 2015 is the end of the beginning, and no more. The opening salvos of the 2015 election will take place in Manchester, Birmingham and Glasgow during the next few weeks. The electoral and public spending calculations facing the main parties are complex and unpredictable. There can be no real winners. Tony Travers is director of LSE London at the London School of Economics SEPTEMBER 2014
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Geordie sure: Northern ‘economic powerhouse’ cities want a decade-long financial settlement to justify taking on the risks of significant investment in transport infrastructure
News Localism
Core cities call for 10-year funding deal BY RICHARD JOHNSTONE
England’s core cities have called for decade-long public service funding settlements to form part of Chancellor George Osborne’s devolution plan for the North. Nick Forbes, the leader of Newcastle City Council and Core Cities Cabinet member for reform, said 10-year funding deals in the areas of skills, transport and adult social care would help boost the growth potential of cities. Forbes said the group – which includes the five northern cities of Leeds, Liverpool, Manchester, Newcastle and Sheffield – wanted place-based settlements to form part of Osborne’s ‘Northern economic powerhouse’. ‘Rather than fund public services in national tramlines, give us financial settlements over a longer period of time than one year, or even one Comprehensive Spending Review period,’ he said. ‘We need financial settlements for a decade if we want to see the long-term risk taking that we need to ensure we have the right infrastructure in place.’ His comments come after Osborne announced in August that he would set out a localism drive in the Autumn Statement that would include ‘new money, new infrastructure, new transport and new science, and real new civic power too’. In a response to the One North report from the five cities, which put forward a £15bn transport improvement proposal for the region, the chancellor said the wide-ranging plan would encompass capital projects and university research, as well as control over budgets. Forbes told Public Finance that Osborne had ‘raised the stakes of 6
expectations to unprecedented heights, and if he delivers he will be the chancellor that has transformed the centralisation of Whitehall for good’. Skills, transport and health and social care were the top areas for action. ‘We know that there is a big skills issue in all of our cities – it’s a different skills issue in each place, but there is no doubt that there is a real skills problem. ‘Similarly with transport, we know that transport funding per head in the northern cities is far less than it is in London. Our argument is that if we have a greater level of transport infrastructure [spending] and greater flexibility in how we’re able to use it, we could plan the city of the future, which would accelerate economic growth.’ Health and social care funding reform was needed to join together public sector delivery in a coordinated way. ‘The trouble at the moment is that there isn’t the incentive within the system to make the investment at local level,’ Forbes said. Across these areas of spending, the core cities would be able to demonstrate the benefits. ‘Allowing us a different way of planning public services over long periods of time will enable us to develop greater efficiencies as well as improve outcomes – that’s true in those three areas of activity.’ Forbes added that the One North report had set out a route map towards transport improvement. Among the proposals was a call for quicker delivery of the High Speed 2 rail line and a new high-speed HS3 trans-Pennine route. The cities of Leeds, Liverpool, Manchester, Newcastle and Sheffield had brought their respective area transport plans together for the first time to determine what was needed across
the region, Forbes said. ‘We want to see particularly significant rail investment over the next 15 years, in advance of HS2 and HS3, so that we have a public transport system fit for the 21st century where the northern cities are able to operate as one when it comes to economic activity.’ Jim O’Neill, the economist and chair of the City Growth Commission that is examining how to increase the growth rate of municipalities across the UK, told PF that the One North report’s recommendations could maximise the economic benefits of agglomeration. ‘High-quality connectivity is vital for enhancing productivity and we are delighted the chancellor is seriously considering the cities’ proposal,’ he said. ‘If the UK is to continue to compete globally we need to allow all our major metros to thrive by creating a “system of cities” and equipping each with the freedoms needed to manage investment more strategically.’
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HealthSpending Richard Johnstone
Eight out of 14 areas fall off Better Care Fund fast track The Department of Health has slashed the number of Better Care Fund areas that are fast-tracking their plans from 14 to six, Public Finance can reveal. As part of changes to BCF plans announced in July, ministers had said that 14 areas would be able to fast-track their local plans. However, it has been confirmed to PF that only six areas – Sunderland, Wiltshire, Greenwich, Reading, Liverpool and Nottinghamshire – will now be continuing on the fast-track programme. The areas that will not goahead with early completion of the plans include the London triborough areas of Hammersmith & Fulham, Kensington & Chelsea, and Westminster. Areas outside the fast-track scheme have to submit revised plans to the department by September 19 after alterations to the operation of the BCF. Under the scheme, a minimum of £3.8bn is to be pooled from the NHS and local government from next April to integrate health and care provision and relieve pressure
Shale gas
Parishes join LGA demand for ‘fracking benefit’ BY RICHARD JOHNSTONE
Parish councils and the Local Government Association are to work together to develop community benefit schemes to manage the locally retained revenues from fracking for shale gas. Jonathan Owen, chief executive of the National Association of Local Councils, told Public Finance that parishes must be included in any funding agreements reached following the government’s launch of a licensing programme for extraction in July. The LGA has already called for communities in areas where councils approve the extraction of shale gas to receive up to 10% of the revenue to mitigate the adverse impacts from Photos: Alamy/Getty
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on hospitals and council care services. However, ministers announced in July that as much as £1bn of this would be tied to reducing hospital admissions. Health and Wellbeing Boards – made up of councils and NHS commissioners – will set a local target for reducing the number of unplanned hospital admissions by at least 3.5%, or 185,500 nationwide. Funding will then be allocated against this target, but if it is not reached, the balance will be used to support NHScommissioned services. The fast-track process is intended to allow aspects of the BCF to be tested before being rolled out to all 151 areas. Confirming the change, a DoH spokeswoman said: ‘Following further work with the areas that were identified as fast-track candidates, we have selected Sunderland, Wiltshire, Greenwich, Reading, Liverpool and Nottinghamshire to continue to work towards becoming exemplars. ‘Their plans show real potential which is why we are speeding up the sign-off
fracking. This is up from the 1% that the industry has so far committed to give to local people. Community benefits should also be mandatory and enforceable by law, the umbrella group of councils said. Owen told PF that parishes also wanted a contribution to the local community that reflected the profitability of the industry, adding that 10% ‘wouldn’t sound outside the order of things’.
Extraction plan: Fracking firms are offering 1% of revenue
process, allowing them to start transforming services for the benefit of their patients. ’ The councils not now included in the fast-track scheme are: Dudley, Hammersmith & Fulham, Kensington & Chelsea, Westminster, Leeds, Rotherham, Torbay, and Warwickshire. County Councils Network director Simon Edwards welcomed that counties remained among the fasttracked areas as part of the ‘vigorous assessment process to ensure BCF plans deliver better outcomes’. He added: ‘However, counties have disagreed with the recent changes to BCF allocations, as we see them as a step backwards in protecting investment in care service and reducing long-term costs on the NHS. The BCF is vital for county areas aiming to deal with the intense demand-led pressures on their care budgets. ‘We cannot allow these changes to slow radical integration enabled by the BCF, particularly ahead of the implementation of the Care Act.’
The NALC and the LGA would work together to develop plans to submit to government on how community benefit schemes could work. Parishes must have a key role in ensuring that the funds are spent on local priorities, he added. ‘We want to have a united front on this one so we will be speaking to the LGA to explore how we can move this forward together. ‘We are intending to get a discussion around this subject at the next meeting of the Local Democracy All-Party Parliamentary Group in October. We want to get a number of key players together to talk through how any scheme could operate.’ As part of proposals to be worked up this autumn, Owen also said discussions were needed on how the money would be treated for accounting purposes – either as recurring revenue or as one-off use of an asset. ‘I think that would be an issue that we might well want to talk about with the government,’ he added. SEPTEMBER 2014
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News
Analysis Counter-fraud
Cracking down on public sector scams Fraud risks are becoming more challenging and complex yet much of the counter-fraud architecture has disappeared. Vivienne Russell reports on a CIPFA initiative to bridge the gap When Local Government Secretary Eric Pickles addressed the CIPFA conference in July, the fight against fraud was the focus of his speech. In the current climate of austerity, where every public sector pound counts, fraud is a hot topic. We know that £20.6bn is lost to fraud across the entire public sector, much of this in tax and credits. The loss to local government alone is a hefty £2.1bn, and to central government more still at £2.6bn. But while ministers have kept up the rhetoric about fraud, they have at the same time dismantled much of the architecture that was in place across the public sector to tackle it. Gone is the National Fraud Authority, which hosted local government’s Fighting Fraud Locally strategy. Soon to be gone is the Audit Commission, which ran the National Fraud Initiative, an extensive data-matching exercise between public and private sector bodies. It also carried out an annual fraud survey and, crucially, had a range of powers to compel councils to co-operate and name and shame those that refused. ‘The demise of the Audit Commission poses some problems on the fraud front, mainly around the need to co-ordinate activities,’ says Ian O’Donnell, executive director of corporate resources at Ealing Council and chair of Fighting Fraud Locally. ‘Who is going to step into that 8
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space and how will they manage it without the powers the Audit Commission had?’ Stepping up is CIPFA. In March, it was announced that the institute would take over the Audit Commission’s counterfraud tools and in July CIPFA’s Counter Fraud Centre (CCFC) was formally launched at an event in the City of London. Speaking at the launch, CIPFA chief executive Rob Whiteman set out his ambitions for the new centre. ‘We know that the landscape that we operate in is changing and that the risks that public organisations face are becoming all the more complex,’ he said. ‘The thing that CIPFA wants to do is be a good partner and make sure that, in terms of counter-fraud, we all understand the risks that are being faced, organisations can form a strategy, organisations understand the role of good governance in making sure that fraud can be countered and that we raise the profile of the profession.’ The point is echoed by Rachael Tiffen, former deputy director of the National Fraud Authority, who has been appointed to head the CCFC. She says the centre will bridge the gap in the counter-fraud landscape, particularly the hole left by the abolition of the NFA, which looked after Fighting Fraud Locally. ‘Someone was
needed to pick up the reins on that and to host the current strategy and develop and research the next strategy,’ she tells Public Finance. And from April next year, the CCFC will take over the Audit Commission’s counter-fraud tools: the annual fraud survey and the Protecting the public purse report that goes with it, as well as the changing organisational cultures toolkit. But first on the agenda for the centre is the research for a new counter-fraud strategy for local government. It’s been three years since the last mapping exercise was carried out, and experts believe the time is ripe to take a fresh look at the fraud landscape in local government and the impact of new policies, particularly those concerning welfare reform. So how has the fraud landscape changed? O’Donnell says it is difficult to Photo: Corbis
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QuoteUnquote ‘The demise of the Audit Commission poses some ome problems on the fraud front, mainly around the e need to co-ordinate activities.’ Ian O’Donnell, chair, Fighting Fraud Locally
‘We kn know that the landscape that we operate in is changing and that the risks opera organisations face are that public p becoming all the more complex.’ becom Rob Whiteman, W chief executive, CIPFA
Big money: Organised crime is behind the growing incidence of benefits fraud and cyber attacks as more public service transactions move online
be certain about new and emerging fraud threats because the research has yet to be done.But he does offer some observations. New arrangements for business rates, which allow councils to keep a proportion of the revenue they collect, create a stronger incentive for councils to crack down on business-rate fraud, which he suggests is ‘very big money’. ‘My feeling is there are lots of businesses out there that ought to be paying business rates that aren’t. It might be businesses that are sharing premises, it might be businesses that are using premises that are not currently in the rating system,’ O’Donnell tells Public Finance. ‘Other things that are really
emerging now are attacks from organised crime – that’s something we’ve been seeing more of in benefits… Also, cyber attacks as we put more services online.’ Gareth Davies, partner at Mazars, one of the founding sponsors of the CCFC, echoes these views about the risks around business rates and cyber fraud. He adds that there is a whole set of propertyrelated fraud that councils contend with, such as housing tenancy fraud and council tax discounts. ‘With spikes in property values in the Southeast, it puts more and more pressure on the costs of property and that is bound to lead to more temptation for that type of fraud.’ The roll-out of personal budgets in social care also brings new challenges. ‘The policy deliberately puts power in the hands of the user; that’s the aim of it,’ says Davies. ‘All you need is some users to misuse that power and you’ve got a new source of fraud risk.’ Another big change to the counterfraud landscape is coming from the Single Fraud Investigation Service, the Department for Work & Pensions’ project to create a single investigation service, using a single set of policies and procedures, for countering welfare benefit fraud. Although the government maintains that DWP aims to work closely with local authorities to ‘ensure that we continue to share data where permissible and work closely on cases of mutual interest’, O’Donnell is concerned that there is a big risk of duplication. ‘The Single Fraud Investigation Service will only do benefits, but fraudsters don’t just do benefits, they do everything they can think of, so what will happen, you’ll get the same fraudster being investigated by councils and by DWP entirely
separately for separate things and duplication of prosecutions. We need to find a way of getting DWP engaged with councils.’ At the CCFC, Tiffen says the impact of the Single Fraud Investigation Service is already on the radar and the centre is beginning to work to ‘mitigate the risks’ that come along with it. One solution is to train and build up a fraternity of fraud professionals across the public sector and to help upskill and professionalise the service. As such, the centre has created two qualifications, accredited through Portsmouth University, and bringing with them CIPFA affiliation. There is interest from both local and central government as well as the third sector, Tiffen says, and the qualifications offer opportunities for sectors to learn from each other. ‘Fraud is evolving all the time and we need to work together to learn from each other about what is happening,’ she tells PF. A network of counter-fraud specialists would ‘get people to start talking about common risks and learning lessons from each other’. O’Donnell agrees that professionalisation of the counter-fraud service will help improve communication and co-ordination, while at Mazars, Davies says the firm intends to avail itself of the training. ‘Having a more standardised, recognised qualification specifically for public sector counter-fraud specialists is going to be very useful for us, so we’re right behind that.’
More information on the CIPFA Counter Fraud Centre and a video from the launch event can be found at www.cipfa.org/services/ counter-fraud-centre SEPTEMBER 2014
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Conference
News Local government
Pickles funds fight against fraud THE PF TEAM REPORTS FROM THE CIPFA ANNUAL CONFERENCE IN LONDON, JULY 1-3S business rate retention and so is the New Homes Bonus.’ Pickles responded by saying councils were free to increase council tax if they could win a local referendum. ‘Show a bit of leadership… and make the case for a council tax increase. If you do and you win, you won’t hear a peep out of me.’ Budgeting
Plan for long term, says CIPFA chief
Tax challenge Win a referendum to increase council tax and ‘you won’t here a peep out of me,’ Eric Pickles told delegates
A £16m fund to help councils tackle fraud was launched by Communities and Local Government Secretary Eric Pickles at the CIPFA annual conference. Addressing delegates in London, Pickles said the money could be used to support initiatives aimed at cutting losses caused by fraud including abuse of council tax reliefs and blue badge parking for disabled people and the theft of grants. Bids from town halls for the new fund must be made by September 5 and will be judged on the potential financial savings and benefits offered. They will also be assessed on their contribution to partnership working, sustainability, feasibility and innovation, he said. Pickles also urged councils to do more to put ‘idle assets’ to profitable 10
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use, saying the money raised from sales of empty buildings and redundant land could help to pay for local services or avoid council tax increases. The secretary of state stressed that councils could not expect a more favourable financial climate under any future government and should use counter-fraud measures, asset sales and encouraging local economic growth as means of raising money. But in a combative question and answer session, Guy Ware, strategic director of enabling at the London Borough of Lambeth, said his authority faced cuts of £115m, almost a third of the revenue budget. ‘To suggest that tackling fraud can cover that is either ignorance or mendacity,’ Ware said to applause. ‘Fraud is important but marginal, so is
CIPFA president Mike Owen has urged political parties to avoid tempting voters with short-term policies at next May’s general election, but instead plan and budget for the medium to long term. Speaking at the last CIPFA annual conference before the election, Owen said the continuing need for fiscal austerity meant that the cost, efficiency and sustainability of public services would be central to the thinking of all parties. ‘Whichever way we look at the future of public services we know that they will have to undergo a fundamental redesign to meet the needs of society in 10, 20 or even 50 years’ time,’ he told delegates. ‘The paradigm of the post-war welfare state is no longer affordable. Its structure, delivery mechanisms, funding, the relationship between citizen and state, are all in need of radical reform.’ Therefore, CIPFA would be asking all the political parties to consider the questions of sustainability, efficiency, flexibility and accountability ahead of next year’s election. There was also a need to deliver integrated services that meet the needs of local communities, he said. Photos: Rafa Bastos
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InBrief RECOVERY DOUBT The economic recovery has been led by household consumption but a ‘frothy’ housing market and poor trade and productivity statistics raise questions over long-term sustainability. Chris Giles, economics editor of the Financial Times, told delegates that weak taxes were also creating the need for more austerity to balance government spending in 2017/18.
RETHINK DUTIES Spending cuts being imposed on councils mean that the statutory duties placed on town halls will need to be revisited, according to Gavin Kelly, chief executive of the Resolution Foundation, and
Conservative commentator Danny Finkelstein. With the current deficit-reduction plan half done, Kelly observed that, ‘like the best World Cup games, I think the second half is going to be a lot livelier than the first half’. Finkelstein agreed public spending would become an even bigger political issue in the next parliament.
LOOK BEYOND TAX There is little appetite among voters to pay higher taxes to support public services, and other options will be needed to pay for local government and the NHS in future. Professor Julian le Grand, a member of the Commission on the Future of Health and Social Care in England, told the
Spending watchdog
PAC chair calls for public audit review The chair of the Public Accounts Committee called for an examination into the future of public audit following the abolition of the Audit Commission. Margaret Hodge, Labour MP for Barking, told the conference the decision to abolish the commission had been a mistake and replacement plans were inadequate. So-called ‘armchair auditors’ had never appeared and a vital function was no longer being performed. ‘We need a commission looking at whether public audit remains fit for purpose right across the public sector or whether or not we should think about the arrangements we have to protect the taxpayers’ interest,’ she told delegates. Hodge said she agreed with Lord Heseltine, the Conservative former minister who founded the Audit Commission in the 1980s, that the Taxpayers’ interest Margaret Hodge asked if audit remains fit for purpose across the public sector
CIPFA conference that problems of affordability in the NHS could be met only by increased productivity, increased private sector contributions, such as charges, or higher taxation.
GOVERNANCE CODE CIPFA and the International Federation of Accountants launched a good governance framework for the public sector, setting out seven principles based on behaving with integrity and respecting the rule of law. CIPFA International chair Ian Ball said public sector governance must focus explicitly on sustainable
rationale for a local spending watchdog remained valid. ‘You want somebody looking at economy, efficiency and effectiveness outside local authorities and you want capabilities that enable you to compare performance. None of the arrangements that have been put in place postabolition will fill that essential need.’ Financial crisis
economic, social, and environmental outcomes, while Ifac chief executive Fayez Choudhury added that good governance in the public sector required an eye to the future, transparency, and accountability.
CIPFA AWARDS CIPFA’s Sir Harry Page Merit Award was won by Rob Lilley, head of business development at Trafford Community Leisure Trust, for his work on the social return on investment. The Tom Sowerby award for service to student education went to Paul Simpson, director of finance at Nottinghamshire County Council. He led the establishment of CIPFA’s cross-sector co-operative training scheme in Nottinghamshire.
Spending on services had been sustained over decades as more people paid tax on rising incomes and defence spending fell, but neither trend could meet long-term demands. He said: ‘Tuition fees are now unlikely to be reversed but are an example of where people start paying fees for bits of things the government previously provided for free, and I think you will see more of that.’
Why austerity ‘only hastened squeeze’ ‘Think outside The austerity that followed the recession national borders’ only hastened a crisis in public finances Globalisation
that would have happened anyway, pollster Peter Kellner said. The managing director of polling firm YouGov said that growing demand for public services – particularly health and social care – and reluctance to increase the tax burden meant ‘the austerity years made the challenges more urgent but you would have faced them anyway’.
Public servants must look beyond national borders and election cycles to meet the challenges of globalisation, Uschi Schreiber, global government and public sector leader of EY, told delegates. She said governments faced six challenges, all of which would require responses different from those on which they had long depended. These were: global interdependence; the shift in economic power from West to East; advances in online communications and social media; population growth and urbanisation; climate change; and biological and genetic developments. Public servants would need to be ‘strong leaders who think quickly to react to demand from governments and the citizens, who have their eyes on the long term and are aware of solutions from around the world’, she said.
For more on these stories as well as interviews and videos from the CIPFA 2014 conference, please visit publicfinance.co.uk/cipfa2014 SEPTEMBER 2014
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Change is the only certainty Don Peebles Can we see more clearly now? Mike Farrar
Opinion Don Peebles
Change is the only certainty Whatever the referendum vote on independence, Scotland will be given more devolved powers. Either way, it needs a different system to manage its finances March 24 2016 could be a landmark date not only for Scotland, but also for the rest of the UK. That is the date selected by the Scottish Government as independence day. Of course, before then, there is the momentous matter of the referendum on the other landmark date: September 18 2014. As Scotland prepares to vote, there is unprecedented interest in information about the future financial position of the nation, interest that shows no sign of diminishing. The energetic debate we have seen unfold over the last two years has, however, ignored the fact that there is a significant absence of understandable information about the current financial position of Scotland, especially any that takes in the whole of Scotland’s finances. It was in this context that CIPFA
produced our paper Scotland’s future in the balance. This was the first piece of work to recognise that, despite the appetite for financial information, the current picture in Scotland could not be adequately assessed. So why is it, that something as critical as Scotland’s true financial position, cannot be identified? The answer lies in the UK approach to public finances and to a system of funding that does not require Scotland, or the other devolved nations, to report separately on their finances or even to prepare their own public sector balance sheet. It was in this absence that CIPFA undertook to estimate what a devolved Scottish balance sheet might look like. After trawling the accounts of Scotland’s public sector bodies, we found that it has assets of about £84bn against liabilities of about £100bn. This is not so surprising, as it is common for governments to maintain a negative equity position. The UK balance sheet, for example, shows a current deficit of about £1.3trn. So CIPFA’s Scottish balance sheet
Crude levers The volatility of North Sea revenues is a challenge for Scotland whatever the powers of the Scottish Parliament at Holyrood
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demonstrates that the current devolved financial position has similar characteristics to the UK balance sheet. However, we believe that reporting a balance sheet is not enough in and of itself: it has to be managed. In light of this, our report also concluded that whatever the outcome of the referendum, Scotland must be able to report on and manage its finances differently in the future. But what will that future look like? Looking just a few weeks ahead, there are of course only two possible outcomes from the referendum: to become independent or to stay within the union. But importantly, what many people don’t realise is that there will be change ahead for Scotland no matter what the outcome of the referendum. A yes vote will clearly bring all of the powers associated with an independent nation, but under current proposals a no vote is not simply a vote for the status quo. All the main UK political parties are planning devolution of enhanced powers for Scotland and the Scotland Act 2012 already provides Holyrood with a new set of fiscal levers, including the first tax-raising powers for a Scottish Parliament in almost 300 years. It is clear that, in the event of a no vote, Scotland will still be embarking on a new fiscal journey. So looking further ahead, what might Scotland’s financial future actually look like? We can already begin to consider what the fiscal position could be for Scotland, whether independent or not. CIPFA estimates that in 2016/17, the first year of independence if achieved, and assuming that a proportionate share of UK national debt is recognised, Scotland would spend about £69bn. We estimate tax revenue in that year at about Photos: iStock/Scottish Parliament
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A yes vote will bring the powers associated with an independent nation, but a no vote is not simply a vote for the status quo. The Scotland Act will enable £2.2bn of borrowing and the introduction of a Scottish rate of income tax £65bn, generating a shortfall of about £4bn or about 6% of total spending. Before we rush to judgment on affordability, it’s also worth looking ahead to the projected position in that same year for the UK. In 2016/17 estimated public spending in the UK will be £753bn against tax revenue of £671bn, meaning the UK faces a shortfall of £82bn or 11% of total spending. This shows that the challenges which could face an independent Scotland are again not dissimilar to those facing the UK, though other factors will of course have an impact. An independent Scottish Government would have greater levers with which to manage its financial and economic position. It would, for example, be able to borrow and hold reserves to smooth funding over several financial years and to plan long-term for sustainable public services. Set against this are significant
challenges such as the volatility of North Sea revenues and the debt interest rate. But there are other, more immediate challenges. The lack of a current balance sheet means that the separation or sharing of assets and liabilities between an independent Scotland and the rest of the UK will be identified by negotiation between governments. This increases the importance of any negotiated settlement of assets and the need to reassure the public about this process. If independence is rejected by voters, then the one certainty is that the Scotland Act will enable £2.2bn of borrowing while also allowing the introduction of a Scottish rate of income tax. In addition, the three main Westminster parties are united in promising more fiscal powers, with each of them establishing a commission to make recommendations. The Scottish Labour Party’s
independent commission proposed the ability to raise 40% of tax income, while the Liberal Democrats proposed devolution of most taxes except corporation tax. The commission established by the Scottish Conservatives proposed full powers over the setting of income tax (but not personal allowances) and the assignment of a share of VAT receipts. Amongst all this one thing can be relied on: the people of Scotland will be voting for change on September 18, no matter which way they cast their ballot. The outcome of the referendum is the most hotly anticipated political event of the year and arguably the most significant vote in the UK for a generation. It will tell us what that level of change will be, not just in Scotland but in the rest of the UK as well. Don Peebles is head of CIPFA Scotland SEPTEMBER 2014
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Opinion ■ Mike Farrar
A night on the town: Public behaviour changed after the costs of alcohol-related A&E admissions was published
Can we see more clearly now? Recession brought an unexpected silver lining: it’s no longer taboo to reveal the costs of healthcare as a means to reshape public behaviour and NHS priorities Much play is often made of the need to make public financial management more transparent and the political narrative about the state of the public finances more honest. It’s the kind of thing that representative bodies say loudly, but which can too easily be discounted in practice. Behind this call lies a hugely important and potentially transformative opportunity – to better engage taxpayers and service users in 14
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the stewardship, priority setting and utilisation of the resources we deploy. For the health services, the subject of a recent CIPFA roundtable event in Leeds (If truth be told, Public Finance, July/August 2014), there are added incentives to be more open. These include restoring the public’s trust; exposing the variability of financial performance as a driving force to improve overall quality; revealing sources of financial pressures; making the case for clinically necessary reconfiguration of services; and acting as a catalyst for healthier lifestyles and demand reduction. One silver lining of the economic recession arguably was the ability to
reveal the costs of healthcare as a means to reshape public and professional behaviours in areas such as alcoholrelated accident and emergency department attendance, hospital admissions as a consequence of poor medication compliance and readmissions to hospitals from failure to adopt clinical best practice. However, little happened in response to the economic pressures on the transparency of NHS finances and costs. Parallels could be drawn with the field of energy conservation where, unlike in the NHS, there has been a genuine correlation between improved data transparency and changes in the behaviour of individual consumers. Photos: Rex/Peter Titmuss/Alamy
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pfObituary The public are rightly better informed about nurse staffing ratios on hospital wards, but not of the financial consequences for health trusts that influence care quality
Reinforced by local council policies, this has led to increased recycling and installation of solar panels and influenced motorists’ choice of car. All of these predated the extreme recent increases in the price of energy. The lesson here is the impact of producing data that the individual consumer can understand and use to find ways of making a personal contribution while potentially receiving a share of the benefit. But it is a lesson still to be learned in the NHS. Service users have little knowledge of the specific costs of treatments such as hip or knee replacements, for example. If they had, might it influence them to take more exercise to strengthen core muscles, or to support more expenditure on fall prevention? Even when the costs to the NHS of avoidable treatments are revealed, it is at such a level of abstraction (for example, the billions spent on alcoholrelated illness and injury), that it fails to connect to anyone at a personal level. This failure to be more transparent also hurts the NHS when it comes to arguing the case for change. Shouldn’t the public be told the costs of keeping people in hospital when they could be cared for at home? And to have this information before deciding if they wish to march on the streets to keep that money with the local acute provider, rather than reducing hospital capacity and spending the cash on better primary and community services? All of this plays strongly to CIPFA’s mission – to secure more financial transparency – without which it is
Rita Hale 1946 – 2014
Rita Hale, who has died aged 68, was for many years the country’s foremost expert on local government finance. She worked in a number of roles within local government, the private sector and at CIPFA. Her career spanned 40 years of turbulence within central and local government relations. In particular, she was heavily involved in the period from 1986 to 1993 when the community charge (poll tax) was introduced, operated, abandoned and replaced. She regularly and patiently explained the challenges faced by councils in operating a tax she believed was unworkable. Born in Birmingham in 1946, Rita trained as a CIPFA accountant and worked first in Rowley Regis in the Black Country and then in 1966 moved to the borough treasurer’s department at Dudley, then a county borough, where she became assistant director of finance. In 1977 she moved to London to work initially as an assistant secretary at the Association of Metropolitan
Authorities and latterly as the AMA’s under secretary for finance. After a short stint in a private company, she took up the position of under secretary (finance) at CIPFA in 1980. Subsequently she became CIPFA’s head of local government. From 1996 to 2000 she was a member of the Public Works Loan Board. Finally, prior to retiring in 2007, she ran her own consultancy for over 15 years. The institute, under director Noel Hepworth, wished to expand its research and professional development, allowing it to undertake the kind of policy studies published by other representative bodies and universities. Rita, who was interested in both the development and impact of policy, was well-placed to expand CIPFA’s horizons. Very few individuals, before or since, have been able so effortlessly to master the vast data sets that underpinned the Byzantine and unnecessarily complex arrangements for distributing rate (latterly revenue) support grant.
infinitely harder for the public to understand and determine the kind of public services they want. This month, for example, the NHS has published seven sets of data about the quality of care. They have made transparent the variability of performance in the reporting of serious untoward incidents to friends and family. Yet is there any acknowledgment in those data sets of the underpinning financial issues for the trusts that influence care quality? The answer is no, and the consequence is that the public are rightly better informed about, for example, nurse staffing ratios on hospital wards, but not the financial consequences of them. Again the public has only one side of the story. As was once said to me: financial balance without quality
Her dedication to the broader issue of the quality and integrity of public life within the institute and local government was unshakable. She could be fierce and combative in defending her position, though always on the side of probity and fairness. An article about her in the Independent, published in 1992, described her as ‘small, and frighteningly clever, yet without being remotely intimidating’. In 2005, she was awarded an OBE. An ardent royalist, this recognition was enormously important to her. Equally, if not more, important were the Siamese cats which elegantly patrolled her home in Islington, north London. Indeed, she had a taste for elegance, being an enthusiast for the films of Fred Astaire and Ginger Rogers. Rita died in late July after a short illness. She will be remembered as a unique professional who made a remarkable contribution both to CIPFA and to local government. Tony Travers
– unthinkable; quality without financial balance – unsustainable. It’s often said that the burgeoning of personal debt came with the increased availability of credit and the opaque nature of loan terms. Before this, households ran on metaphorical jam jars which made visible to all family members the cash available and helped to balance expenditure within budgets. Behaviourally, this meant that people curtailed demand during times of austerity. Is it not time for the NHS and public financial managers to rediscover their jam jars?
Mike Farrar is CIPFA’s strategic adviser on health. CIPFA is holding a conference on Social Care and Health in London on 30 September SEPTEMBER 2014
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