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Apocalypse now- Holyrood Magazine

Kerry Lorimer, Holyrood Magazine, 4 May 2009
The crisis in public finances has spawned a new public sector paradigm. For the public sector, Armageddon could be nigh. For months now, economists have been warning that the current level of public indebtedness could lead to the situation most feared by the Treasury – insufficient lenders to meet the planned level of borrowing.
\r\nThe first prediction of a public finance Doomsday came two months ago from Steve Bundred, chief executive of the Audit Commission – the English equivalent of the Accounts Commission – who said such a scenario was beginning to look a distinct possibility. Any public services manager not operating on the basis that they will have substantially less money to spend in two years’ time is living in cloud cuckoo land, said Bundred. Last month’s Budget decreed that growth in public spending would be cut to 0.7 per cent from 2011, foreshadowing post-election economies across key departments. The notion that such a modest reduction will suffice, and that it will be achieved by “efficiency savings” rather than outright cuts, was attacked as risibly optimistic by economists and the opposition parties. In Scotland, members of the Scottish Parliament have been warned to expect budget cuts of up to £4bn by 2013/14 and low growth rates for the next twenty years.
\r\nThere were nervous mutterings at the annual conference of local authority chief executives of a public sector, taking the Great Depression as a precedent, scaled back to no more than a safety net, with individuals taking far greater responsibility for their own wellbeing.
\r\nMike Turley, head of public sector practice at Deloitte, says that against the backdrop of the tightest public finances in a generation, public sector managers are beginning to “think the unthinkable” – which might include questioning sacred cows like longterm care for the elderly and the public sector pensions’ regime.
\r\n“We can’t afford to do things we’ve done before in the way we’ve done them [and]lots of leaders at the cutting edge are thinking what that means in terms of taking costs out,” he says. “No area is totally sacred.” Pressure to reform public sector pensions has intensified in the wake of actuarial assumptions and poor returns within individual funds, he says, while the issue of long-term care will have to be navigated as the realisation hits that expenditure cannot be deferred indefinitely.
\r\nThe public sector will be forced to accelerate radical change in order to balance the books, he says. Sharing back-office functions across organisations, once regarded as optional, will become unavoidable. “Chief executives and leaders are saying there’s no alternative – they have to collaborate and do it fast, which is very different from the historic position,” he says.
\r\nCollaboration will increasingly mean standardisation, for example, in payroll systems, in the drive for efficiency. He predicts far greater use of the third or private sector in the delivery chain as the public sector is recast as a commissioner of services rather than a direct provider. That will involve organisations understanding which are the core functions which must be provided in-house and which functions could more efficiently be bought in from outside specialists, he says.
\r\nNone of this will be easy: new ways of working – collaborating with partners, managing across the supply chain – will demand a whole new skill set for managers and politicians alike. “It’s a time of great change,” he says. “Many public sector managers and leaders are facing their first major recession.
\r\nThey need to acquire new capabilities and skills, which is a big challenge.” One council which has embraced efficiencydriven transformation more than any other is Glasgow City Council. Scotland’s largest authority has taken the bold step of establishing arm’s-length organisations to run services that were once provided directly by the council.
\r\nThe business case for the first arm’s-length body, City Building, which runs building services and maintenance, was that forcing it to tender for work would drive costs down. “We thought if they could set up as a company and operate in the way…other construction and maintenance companies were operating, they would be more competitive,” says Glasgow chief executive George Black.
\r\nThe second body, Culture and Sport Glasgow, is able to run its business along private lines, which means facilities are staffed in the evenings and on weekends, when demand is greatest. “There was pressure on that area to raise external finance and to modernise the way libraries and sports centres were providing services to the public, rather than the traditional nine to five,” he says. “They were also able to access external funding through charities…that a local authority can’t.” Direct and Care Services, launched as a limited liability partnership last month, aims to bring the same focus on efficiency to the council’s homecare, catering and cleaning services. “They need to be delivering services in a way which is competitive against the private sector and voluntary sector,” says Black.
\r\nLast year, the council entered into a joint venture partnership with Serco to bring private sector expertise into its ICT and property services, a deal it hopes will save £75m over the next ten years. Ownership is shared 50/50 between the council and its partner, with Glasgow taking responsibility for the strategic direction while Serco assumes everyday operational control.
\r\nOne of the biggest advantages of Glasgow’s new approach is the flexibility it gives different parts of the organisation to operate in the way that best suits its particular market. “The way you’d want to structure a business for building maintenance would be different from home care or sports centres,” says Black. “So the idea was to allow these businesses to develop staff conditions of service, the way they operate, and opening hours [that are]entirely suited to the business they were operating in.” Even more crucially, the new structure means the council can concentrate its energies on the areas where it can add most value to the lives of residents. “It’s allowed the council to focus more on its core priorities, which are improving the local economy, the environment, academic attainment and services for the elderly,” says Black. “These are the services where direct provision is by the council, rather than building maintenance, ICT, property, leisure and homecare which are at arm’s length.” So could the Glasgow model be adopted across local government? There’s no reason why not, says Black, as long as adequate resources and political buy-in are in place.
\r\n“You have to dedicate resources to getting the project up and running,” he says. “You have to make sure people are dedicated to it; it can’t be something they’re doing in their spare time because it is very intensive.” For some smaller councils, though, the start-up costs may prove prohibitive. “There is quite a hefty investment required to get an arrangement up and running,” he says.
\r\nWhat is certain, though, is that councils will be unable to offer the range of services for which they are currently direct providers.
\r\n“Every organisation will be looking ahead for the next three, four, five years [and]identifying their priorities and making sure they are delivering on these priorities,” he says. “There will be other activities that have to be scaled down or stopped.” Other councils are watching developments in Glasgow with interest. Alan Blackie, chief executive of East Lothian Council, sees the Serco deal in particular as the shape of things to come. “There will be more of that influence and involvement of private sector in service delivery and shaping business processes,” he says. “Why would you not want to look at different delivery models that could bring better value and reduce costs and still provide services?” He says that although councils across Scotland vary in their enthusiasm for private sector involvement, momentum for change will build as people face up to the financial reality. “There’s a realisation dawning that challenges we have cannot be met by continuing to do things the same way,” he says. “Innovation is often fuelled by real pressure.” Similarly, the outsourcing of leisure facilities to private companies and not-for-profit trusts is no longer seen as controversial. “If you take sport and leisure and the way it’s organised in Edinburgh and Glasgow, it’s the council pays for it plus the people who use it, but it’s not delivered by the council per se,” he says. “Do people who live in Edinburgh and Glasgow worry about that? I don’t think so.” Ultimately, Blackie believes the shape of local government will be determined, as it always has been, by the expectations of the public. “I think the public sector will be different in terms of its shape and how we deliver services, but we will deliver the services people value, want and are willing to pay for,” he says.
\r\n“Finance will be tight and there will be some things that councils currently do that may not be done in the future. We need to be clear about what we can and can’t do and open with the public about what we can and can’t do.” The crisis in public finances has brought the health sector, too, to a turning point.
\r\nAgainst a backdrop of tightening budgets, rapid developments in medical research and growing public expectations have created a demand for treatment that experts now warn is unsustainable.
\r\nIn a recent lecture at the Edinburgh International Science Festival, John Smyth, assistant principal for cancer research development at the University of Edinburgh, warned that the NHS faces tough choices over the diseases it will be able to treat.
\r\n“The real dilemma is that medical research is proving very successful,” he says. “It gets into the media, and the public’s expectations are higher than ever before. Everyone feels entitled to everything they read about.” The NHS is approaching a tipping point at which the assumption that underlies it – that high quality care will be available to everyone free of charge – will be called into question, he says.
\r\n“The idea of the NHS was that if you keep the population healthy, give them check ups, give children milk at school, fewer people would be asking for healthcare,” he says. “But instead of dying at 65 from natural causes, people are living till their 90s.” The impact of the recession on public spending has brought these issues to a head.
\r\n“UK Inc is in deep, deep trouble,” he says. “We have one of the few healthcare systems that is trying to provide quality, affordable universal care out of taxes.” But, he argues, it is easier to raise essential questions about value for money during a downturn than at the height of a boom. “Sometimes, in adversity, people become more rational,” he says.
\r\nThere is an important ethical dimension to that debate: should a 90 year old, for example, who has already had a heart transplant, two new hips and cancer treatment, be deemed to have had his or her healthcare ration? And should lifestyle factors on the part of the patient, such as smoking and obesity, be taken into account when rationing finite health resources? “We’ve got to do a better job of educating the public to understand what the issues are,” he says.
\r\nGeoff Mawdsley, director of the Reform Scotland think tank, believes the financial crisis has the potential to trigger fundamental change across the public sector. Within health, he calls for a more honest, rational debate which acknowledges that technological advances will lead to the development of treatments that cannot be provided universally and free at the point of use. “Professor Smyth has a very valid point,” he says. “We can’t pretend everything will be available as it is at present. What is available on the NHS should be nationally defined to enable people to take out insurance to cover what’s not available.” He says Glasgow is a “great example” of what local government can achieve, but that the incentive is not there for other councils to follow its example.
\r\nThe obligation to achieve 2 per cent annual efficiency savings is too blunt an instrument to force councils to be bold and innovative in their approach to delivering services, he says. “If you have an [efficiency target]across the board, the focus is on getting reductions, which leads to dissatisfaction with the quality of services,” he argues. “It’s better to look at what we want the public sector to provide. The argument is about what government should do – that’s the debate we need to have.” He believes the best way to promote value for money, and with it better public services, would be giving councils more power to raise their own revenue. “We need a radical decentralisation of power in Scotland,” he states. “To the credit of the SNP Government, they have reduced ring-fencing and started the process of freeing up local government, but there is still a long way to go. We’ve got to have local government raising a greater share of its income to give them the incentive to provide genuine value for money.” Currently councils raise only around a fifth of their income locally; Mawdsley would like to see that raised to at least half. “We could start by giving business rates back to local government,” he says. “Then we need a proper debate about the range of taxes local government can levy.” One weakness in the current system is that councils have only one tax – the council tax – at their disposal. A range of local levies would, thinks Mawdsley, broaden local authorities’ tax base and give them greater scope to raise revenue locally.
\r\nIt could be that, in seeking to address the impact of the downturn on the public finances, Scotland’s public sector has no choice but to think the unthinkable. If the result is public services that are bolder and more innovative in how they meet the needs of local communities, that could be no bad thing.