Manhandling the budget

Many public sector organisations have overestimated savings in the past and with large-scale changes underway many more could fail to hit targets
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The public sector may be used to the idea of cutting back but has also historically overspent on budgets. Photograph: Peter Parks/AFP

Public sector organisations have historically overestimated savings and with unprecidented cuts causing wholescale changes, senior managers will need to put in place clear plans and targets – and when it comes to hospital trusts, some may have to be willing to take on those that fail.

Last year, the public leadership survey conducted by recruitment specialists Hays found less than a fifth of public sector managers and chief executives had the resources to deal with reduced budgets. Now, according to figures from the Local Government Association, local authorities are steeled for cuts of around 28%, and making good on proposed savings could still prove difficult.

"A budget on paper is one thing, but delivering the promised savings is another matter," says Malcolm Prowle, professor of business performance at Nottingham Business School. "Historical experience would suggest that savings are often overestimated, with plans found to be inadequate at the end of the financial year."

Healthcare trusts too are acquainted with overspends. NHS Oldham is trying to claw back £10m, NHS South West Essex £53m and Barking, Havering and Redbridge University Hospitals NHS Trust £117m.

The consequence of falling short will be emergency cutbacks, Prowle says, including short-term measures such as paring back staffing, maintenance and training costs. The issue is compounded by the fact that downturns produce increased demand for health, work and pensions and unemployment services.

"The current approach, particularly in local government, might best be described as slash and burn," explains Prowle. "Some councils don't have the time to consider issues such as efficiency or productivity, and are simply chopping out large areas of services.

"There is also a problem of rhetoric in terms of dealing with expectation. A lot of people are still talking about improving and even enlarging services – if they can maintain services at roughly the same standard then they'd be doing well."

Councillor Colin Davie, finance portfolio holder for East Lindsey district council in Lincolnshire, believes local authorities that are able to look ahead and anticipate problems would now be less likely to fail on targets.

"Some authorities probably will find it difficult to balance the books, but those who prepared early are better placed than those who waited until elections in May last year then realised, like startled rabbits in the headlights, that they were going to have a big problem," he says. "To say that you didn't see it coming is not an excuse."

East Lindsey begin planning in 2007 for anticipated cuts, removing a tier of management in 2009 and setting up an arm's length management organisation with neighbouring South Holland district council. Having come in under budget for the past two years without cuts to services, it expects to deliver savings worth £19m over a decade.

Mark Exworthy, a reader in public management and policy at Royal Holloway University in London, says that in the past, healthcare organisations, such as Primary Care Trusts, which overspent were able to look to a regional system of brokerage that balanced out areas of surplus and deficit, allowing the NHS to claim it had balanced the books.

"With autonomous organisations that system and lifeline is increasingly no longer available," Exworthy says. "Foundation trusts will keep their surplus and those not making a profit will in theory not be viable. It's a political decision as to how willing the government will be to allow closures – of hospital trusts in particular.

"Other solutions, such as mergers between foundation and non-foundation trusts could come to the fore. The question then is whether successful trusts will want to take on the responsibility of those that are failing – what is in it for them?"

Nor do the GP commissioning consortiums that will take over from England's PCTs in 2013 have an exemplary record when it comes to managing expenditure. A report in the Health Service Journal last August revealed that 190 practice-based commissioning consortia from 33 PCTs "blew their budgets" by £289m in 2009-10, which when applied to the full NHS commissioning budget of £80bn would see an annual overspend of £2bn.

"The consequence of the brokerage lifeline being cut is that chief executives are paying the price for a system-wide problem, and increasingly seen as scapegoats," Exworthy adds. "Problems diagnosed with particular hospitals are actually down to the logic of the system that is being introduced."

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