Public: Finance | Public

They are already lean, is it time for councils to get mean?

Jo Adetunji — Thu, 29 Jul 2010 09:39:01 GMT

Local authorities have been hailed as the most efficient within the public sector, but now the challenge is to prune even more without cutting services - can it be done, asks Jo Adetunji

The announced cuts to local government spending are forcing councils to rethink budgets on an unprecedented scale, prompting fears that local authorities are in danger of undermining real improvements in performance and efficiency made in the last few years.

But while some have accused the government of making authorities "carry the can" for the public sector, with estimates that councils will shoulder around 20% of cuts in the sector – £1.165bn of the allocated £6.2bn outlined in George Osborne's emergency budget in June – councils that have embraced efficiencies may be best placed to tackle further cuts.

"We see this as a logical continuation. The pace will have to increase and be more innovative but one of the things in our favour is having the right culture," says Carlton Brand, corporate director for resources at Wiltshire council.

"We'll be looking at every single department and service and redesigning with lean principles. Local government has made huge efficiencies over the last three years but I don't think we're at the end point."

Brand said that while some argued that cuts would fall disproportionately on authorities that were already lean, he believed that richer councils could struggle more.

"Those organisations that don't have that [efficient] way of thinking will struggle. Efficiencies are about how you think not just what you cut."

And local government has been increasingly successful at thinking that way, says the Association for Public Service Excellence (Apse), but warns that despite the pressure authorities must continue to plan and not fall for quick-fix solutions.

Mo Baines, principal adviser for the north of England, said that local authorities had spent years nurturing a holistic approach, which had delivered over £3bn in efficiency savings in three years. "Such improvements should be built upon in order to achieve even greater efficiency, rather than obliterated," Baines says.

Services such as parks, leisure, local environment, school meals and recycling and community safety are all "vital pieces of one big public service jigsaw," she says.

Paul O'Brien, Apse's chief executive, says that local authorities had "exceeded their targets" following Gershon and were now "the most efficient sector within public services" but authorities need to think carefully about cutting services that "the public care most about, like getting their bins emptied, or feeling safe because street lighting is being properly maintained- areas that decision-makers seem to fall back on."

In difficulty lies opportunity

Although no-one doubts tough times ahead for local authorities – the 25% that councils need to cut over the next four years could prove higher and may be weighted in the first years – some public sector leaders argue that in difficulty lies opportunity.

"You need to think in the medium-term. Can you keep making year on year cuts and sustain that? It's taking one step now rather than four small steps," says Andrew Smith, chief executive of Hampshire county council. "Councils are at different stages of development and approach to this issue. The councils who'll get through it will be those that take the opportunity to transform themselves."

At Birmingham city council, the largest UK local authority, finding deep cuts means tough challenges ahead. But the council hopes that a clear planning approach will help it find further savings to the £69m it's finding this year.

"We've been putting our business transformation plans in place- driving up quality and making services more efficient," says Stephen Hughes, the council's chief executive. "We've got to find something like £230m over the next four years, of which business transformation will contribute another £50m. The approach we need to take is being very clear about what our priorities are, protecting vulnerable people, improving employability and keeping people safe, and start with what we're trying to achieve."

"If you don't [plan] but just wait to see what the government says about what you will no longer get," he says, "there's a real danger of cutting things that are an investment in the future.

"We understand the challenges - protecting outcomes using service design and engaging with communities ... We don't have a blueprint but we recognise that's what we need to do, not fall into the trap of slash and burn."

Jo Adetunji

Local Government Pension Scheme needs reform, says Audit Commission

Thu, 29 Jul 2010 08:34:00 GMT

Long-term sustainability of the largest public sector scheme is an issue says watchdog

The Audit Commission says the Local Government Pension Scheme (LGPS), the largest one in the public sector, needs reform.

The LGPS is largest public sector pension scheme by membership. It has 1.7 million active members, 1.15 million members with deferred pensions, and 1.1 million receiving pensions.

Nearly three-quarters of its members are women, and nearly half work part-time.

The Audit Commission's research into LGPS highlights the difference in relationship to other public sector schemes. It is backed by local funds which take some of the pressure off the tax payer. But recently these investments have failed to deliver the anticipated returns and the funds currently cover only about three-quarters of the scheme's future liabilities.

The report looks at whether LGPS benefits are affordable in the long run. It acknowledges that recent reforms will address some of the underlying issues, but warns that these reforms alone will not guarantee long term sustainability.

Council tax levels

As Lord Hutton's review of public sector pensions gets under way, the Commission's paper Local Government Pensions in England
addresses a major financial issue for local government, affecting the cost of council services and influencing future council tax levels.

Pensions are a live issue for the public and private sector. The cost of providing council pensions is rising in absolute terms and as a proportion of the total pay bill. People are living longer in retirement, wage levels have increased, and benefits have improved over the years.

While there is no immediate crisis, says the Commission, the scheme needs further action to manage the growing mismatch between liabilities and the resources available to fund them.

The Audit Commission's chief executive, Eugene Sullivan, says: 'Media reports about generous public sector pensions distort the picture. We did this research to ensure that the debate was informed by facts, not perception. One of the key facts is the high proportion of part-time and low paid members in the LGPS. Around half of pensions in payment are below £3,000 a year.

"Nevertheless, local government employers already pay much more into the LGPS than employee members, and without corrective action the gap will widen. The scheme can't continue as it is. Unfunded liabilities are being deferred, and this is storing up problems for the future."

Public and private: a collaborative approach

Wed, 28 Jul 2010 09:01:02 GMT

Place-based budgeting is seen by the government as one of the ways to save money while maintaining frontline services the question is: how to make joint working work?

According to the National Institute for Economic and Social Research, the cut in real government consumption will amount to 10% between now and 2015. This compares with cuts in the 1930s, 1950s and 1970s of about 1.5%.

The recent Emergency Budget mapped out various policy measures which demonstrate the direction of travel for the new government. A key challenge for the public sector is to find savings in service delivery while at the same time minimising the effect on frontline services.

Potential solutions, HM Treasury's March 2010 report on the initial Total Place pilots, claims that there are real service improvements and savings to be made from a "Total Place approach".

A key feature of this is to find ways for public and private organisations to work together more collaboratively to find efficiencies.

Some types of joint working are simple and do not require much engineering. Others require an "externalisation" of services, including:
• shared service arrangements between one or more public sector bodies and a private sector provider for the provision of services
• the outsourcing of services such as ICT, HR, finance, administration and asset management to deliver economies of scale, drive efficiencies, and deliver new investment, with a greater attention to operational costs, a tighter performance regime and some sharing of risk
• the adoption of a "whole systems" or "pooled budget" approach between a council and a PCT

Successful joint working, particularly where services are to be externalised, depends to a large degree on how well the joint working model is put together from both a financial and legal perspective.

10 Do's and Don'ts
Successful collaborative working is more likely to be achieved if certain rules are followed. Here are our 'top 10':

1. Be crystal clear on the specific objectives and what "success" looks like
2. Work out what level of investment and budget is required to deliver the success – delivering something new to save costs is rarely free
3. Identify and deal with the specific key cultural/organisational barriers that may prevent success being achieved – for example, resource constraints, cultural/political resistance, an "us and them" mentality", weak local management, fear of the new
4. Identify and deal with the specific key legal barriers that may prevent success being delivered – for example powers/vires issues; contractual/structural complexity, public procurement issues, pensions/employment considerations
5. Identify with precision the assets and services that are relevant for the joint working – isolate any interfaces and overlaps and determine any cost implications that may complicate or otherwise affect delivery
6. Irrespective of the particular governance requirements of the chosen way of joint working, identify who should "control" the joint working and the final say in making decisions – the answer may be linked to relative contribution levels (see 7 below)
7. Work out and agree upfront who is contributing what to the joint working and the relative value of each contribution – this will drive the discussion as to the proportions in which the profits/costs savings delivered by the joint working should be shared (which is often contentious)
8. Think about what will happen if the proposed joint working arrangements break down — make sure that you are not creating something that will be a nightmare to unravel either legally or financially
9. Particularly with public/private joint working models where a separate entity is being created to deliver the joint working, carefully consider the tax implications and obtain advice at the outset
10. Where the joint working involves a contract, identify at the outset how it will be managed and operated – bearing in mind that it is in the period after the contract is signed where success will be delivered

Andrew Pettinger and Paul Bentham, are partners in Addleshaw Goddard, a UK law firm

Better economies of scale for councils

Tue, 27 Jul 2010 12:31:03 GMT

Companies that deal with hundreds of different local councils may find those bodies demanding a better deal, as the public spending squeeze tightens

Most local council contracts are dominated by a handful of suppliers, especially in big-spending areas such as construction and waste disposal, with just 17% of suppliers holding contracts worth nearly half of all local council business.

New research carried out for Guardian Public by procurement company Spikes Cavell, also shows that the top 10 businesses serving local government are dominated by waste and construction firms (see graph [2a] below).

These figures will be important, procurement experts say, as local councils look to get a better deal from their suppliers. They show that in three areas - waste disposal, construction and financial services - a handful of firms have over 90% of the business between them.

The dominance is almost as pronounced in several other fields, including IT, energy and building management.

Public services advisory firm Kable believes that while IT is important to local authorities as they reshape services, the supplier roster won't change dramatically.

"The two obvious options available to local authorities are transformational outsourcing and shared procurement. Both of these tend to benefit larger, established suppliers, which can deliver economies of scale", says research director Stephen Roberts.

Predictably, the list of biggest suppliers is dominated by waste firms, including Veolia and the Waste Recycling Group, and construction companies, among them Wilmott Dixon and May Gurney.

The most dominant companies will have dozens, possibly hundreds, of contracts with England's 463 local councils.

Spikes Cavell estimates £50m is lost each year by "price variance" - companies charging different amounts to different councils .

The firm suggests that up to £290m could be saved if councils collaborated more, bringing forward wide-ranging joint contracts to get a better deal from big suppliers.

In total, councils could save almost £2.2bn by being a more canny client: getting better terms from existing suppliers, re-tendering contracts in areas with a sole supplier or, conversely, reducing the number of contractors in some areas to get economies of scale.

Suppliers will have to learn to deal with stronger, better informed councils, procurement experts say. "The supply side may well need to wake up [and realise] that the dynamic of power has shifted from the supplier to the buyer," says Spikes Cavell founder Luke Spikes. He says councils are missing out on the best deal from suppliers and says some adjustment will be needed, particularly for longer-established suppliers.

'Suppliers like a challenge'

Councils agree more could be done to get a better deal. "There's some strategic pricing which goes on," says Portsmouth city council procurement head David Pointon, diplomatically. "There's bound to be. But in my experience, suppliers like a challenge."

Jonathan Jones, who helps run a procurement hub in the West Midlands, says councils often have a huge amount of fragmented spend, which is going to the same suppliers but tendered on an individual basis and not always co-ordinated.

"Collectively, that costs quite a lot of money," he comments. "A lot of the spend is going to be in the hands of a few suppliers, and it seems logical that we could all be dealing with suppliers in an aggregated and coordinated way."

But it's not just about councils cooperating, Pointon adds. When letting, say, a new bus contract, he asks why local authorities don't talk to universities or primary care trusts. "It's an area which is ripe for review," he says.

Pointon also favours buying online - e-procurement, in the jargon - which cuts the cost of competing for smaller local firms. Those suppliers are not doing as badly as might have been thought, however. Although the Spikes Cavell data shows that large companies (those with over 250 employees) get 49.6% of all local council contracts, the remaining half does go to small (26%) and medium-sized firms (24%).

How councils could save billions

Mon, 26 Jul 2010 15:35:51 GMT

New research shows councils could save billions on procurement. The hard part is turning those potential savings into reality

Local councils could save themselves £2.2bn a year by driving a better deal on the goods and services they buy from private companies, according to new research.

The data, compiled by procurement company Spikes Cavell for Guardian Public, shows that if all England's councils matched their top-performing peers, they could cut 6.6% from their £33bn annual spending with the private sector.

If fully realised, that would be more than the £1.165bn in local council cuts demanded by the Treasury in May, though some of the savings are for one-off capital projects.

Procurement expert Jonathan Jones, of the West Midlands Innovation and Efficiency Programme, said the figures were "feasible".

The data also shows where councils spend the most money (see graph 1). By far the two biggest categories are construction, which accounts for £7.4bn a year or 22.3% of total spending, and social care, which accounts for £7.2bn or 21.7% of spending.

Spikes Cavell works with two-thirds of the UK's 463 councils. Its figures are extrapolated from those councils but based on actual invoices and, the company says, are accurate to within 1%-2%.

Some £150m could be saved just by consolidating invoices (see graph 2). That means getting mobile phone companies, say, to send only one monthly bill rather than 20 each month, slashing processing costs.

Some £430m could be saved where different arms of a council have myriad contracts with different suppliers, and consolidating contracts would create a better deal.

Another £310m could be saved by getting better terms from companies that have started doing so much work for councils that they should be delivering economies of scale. In areas where councils deal with just one supplier, £100m could be saved by renegotiating deals or tendering them more widely.

At the most complex end, £530m is up for grabs - but only if councils completely rethink the way they buy goods and services in areas such as adult social care and construction.

Luke Spikes, the company's founder, says these are the most challenging areas: "You don't buy adult domiciliary care from a catalogue." Instead, councils should, he says, follow a three-step process: draw up a new, comprehensive plan for the services they need; buy those services using a pre-selected framework; then create the tools - generally online - that will allow staff to quickly work out which supplier is offering the best deal.

Spikes says his company was able to help Peterborough primary care trust cut £1.8m from its £9m spending on caring for people in their homes - a 20% saving - simply by putting all the providers' price and quality details into an online ordering system.

However, councils say achieving such savings is not easy. "There's still huge scope [for savings]," admits David Pointon, Portsmouth city council's head of procurement. "But it is not just procurement alone. You are not going to make those savings simply by bullying down prices. You are going to do it by fundamentally reviewing ... the goods and services we are buying."

Jones, meanwhile, warns that knowing where savings lie is not the same as realising them. "Sometimes where councils fall down is, they have the spending analysis done, they have good data ... but they don't do much with it."

Public managers: your sector needs you

Thu, 22 Jul 2010 09:41:22 GMT

When it comes down to the nitty-gritty of local cuts, who will councillors turn to? Not expensive interim managers, says Blair McPherson, but someone who is politically sensitive to understand all the issues

'The interim manager will save the day and deliver those big savings because they are brave and not afraid to make cuts in services and jobs. Good riddance to those public sector managers too unimaginative to come up with creative alternatives and too timid to act'.

I wrote this in anger. I was responding to an article on Guardian Public written by a senior manager from a management consultancy firm basically saying public sector managers are not up to the task of delivering challenging budget cuts so interim managers should be brought in to do the job.

But wait a minute. If we are talking about local government then how radical, how bold, or how innovative the response is will depend on elected members not managers.

Once the management structure has been streamlined and back-office services rationalised, members will realise that the size of the savings required means cutting frontline services.

Cutting frontline services means closing libraries and day centres, taking home helps from elderly people and removing grants from cherished voluntary groups - all of which will be very unpopular with local people, as will the increasing number of potholes in the roads, the less frequently emptied rubbish bins and the disrepair of local schools.

Once they realise, this it will not be the resolve of managers that is tested. And I don't think members will be inclined to look to expensive interim managers who will not be around to rebuild the trust in local politicians.

I think public sector managers do have what it takes to identify and deliver big savings. They certainly don't lack the" balls" or the ability to be innovative but they do operate in a political environment where decision are not simply based on a strong business case.

Accountable

This is something that those from outside local government often fail to appreciate. Local elected members/councillors are locally accountable to local people. Elections in local government take place more frequently than general elections. In a large county council, for instance, a third of the seats are up for reelection in three years out of four.

The good thing is that it makes councillors sensitive to local options, but it can also inhibit them from taking unpopular decisions that may cost them votes.

Despite this, local councils have shown themselves willing to take unpopular decisions. You only have to look at the closure of local authority residential homes to appreciate the strength of public opinion, the level of interest from the local media and the willingness of pressure groups to resort to the courts in the form of judicial reviews. And yet homes have been closed.

Politics is not simply about following the best financial advice but a judgment about steering a course between conflicting interest groups which inevitably means negotiating a compromise.

Rural libraries may be expensive to operate and the numbers of users compared to urban areas may mean they are not cost-effective but what about wider issues? What if a village school and bank has closed and the village post office is under threat; and what if a political party has come to power on a promise to tackle rural poverty and shift the balance of resources from inner city areas?

Alternatives

It may mean looking at alternatives. A mobile library service can replace the existing service; or the library could be re-housed in a community centre and run by volunteers; or a self-service system could be introduced based in the village supermarket.

Local authority managers need to be politically sensitive and appreciate that they do not simply work to the bottom line. This does not mean that they do not have the wit, the balls or the know how to deliver big budget cuts and radical changes.

Rather than talk of bringing in interim managers as hired guns who will slash and burn - and then leave - we need managers with the skills to influence and negotiate, who will retain the trust of staff and service users through the difficult times ahead.

Blair McPherson was until recently a senior manager in a large local authority

Can the big society concept save your local swimming pool?

Patrick Butler — Wed, 21 Jul 2010 15:20:36 GMT

Volunteers run the local rugby club, so why not the local swimming pool, asks one resident who is campaigning to keep it open

• This report is taken from Guardian Society Daily, follow the link for more of today's top stories on Guardian Society

Shane McCracken has written a powerful blog post about what it might take to resurrect the local swimming pool in Bradford on Avon, earmarked for closure by Wiltshire county council on the grounds that it will soon no longer afford be able to afford to run it.

Some local politicians seem to think keeping open the pool depends on
persuading the council to meet its "obligations" through campaigning
and petitions. McCracken, however, suggests that a more fundamental
re-assessment of its future is needed: "The swimming pool as we know
it will close. We need to choose if we, as a town, want to keep it. It
needs to become our swimming pool, not the council's. Big society
isn't about closing council-run facilities. They are going to close
anyway. We can't afford them. Big society is a way of keeping them
open."

If the energy and commitment of volunteers can sustain his daughter's
rugby club, argues McCracken, why can't it sustain the local swimming
pool? A bigger business, much more risk, but essentially the same
principle.

McCracken is right in believing this kind of idea didn't start with big society. A colleague pointed me in the direction of Jesmond swimming pool in Newcastle-upon-Tyne, which was succesfully taken over by a community group in similar circumstances nearly 20 years ago. How did it succeed?

I spoke to Glenn Armstrong, chief executive of Jesmond swimming
project, a social enterprise which runs the pool on behalf of the
community. Surprisingly easily, he says. Lots of hard work, but a lot
of common sense too.

It took a year to get the business plan together and persuade a
sceptical local authority to hand it over. Just under £90,000 was
raised in grants and pledges, £40,000 of it from local people. But
within months it was turning a profit and attracting more visitors.
Explains Armstrong: "We designed the programme around the customers.
It was now open for swimming when they wanted to swim."

Before, he says, it had been designed around the needs of the council
and the staff. After the takeover, opening hours went from 42 hours a
week to 80. It started to open on bank holidays.

When the pool decided it need a refurb and a gym, it financed half the
£1.5m cost through its own reserves built up over the years (the other
half came in the form of a Lottery grant). It turns over £570,000 a
year, and handles over 140,000 swims. The staff are full time, backed
up with volunteers.

I suggested it succeeded partly because Jesmond was in a fairly
well-off part of the city, with an articulate and expert activist
base. Armstrong accepts that local residents were passionate about the
pool, but points out that a nearby pool, Fenham, in the deprived west
end of Newcastle, has also saved itself by going down the community
ownership route.

So what lessons did he have for people who want to rescue their local
pool? First, decide how badly local people want their pool. Some
community takeovers fail to get off the ground because, ultimately,
residents actually don't use it.

Second, and perhaps surprisingly, get support from the local authority
– they can give crucial business and professional advice. It's an
intersting point. The state and its agencies still matter: big society
swimming pools don't survive in an infrastructure support-free zone.

It will be interesting to see if McCracken's tentative idea gains any
traction. Bradford on Avon is a middle-class market town, with
passionate and articulate residents. It will be interesting to see how
far, when push comes to shove, they really, really want their swimming
pool to survive.

In the meantime McCracken has succeeded in articulating big society
much better, it should be added, than any minister. "Big society
really is a crap name, but I can't think what to call it either. I've
long railed against the idea of encouraging people to volunteer.
People don't volunteer per se. They offer to run schools, clubs,
charities for free."

Patrick Butler is head of Society, Health and Education at the Guardian

Patrick Butler

Hunt to cut his own department by half

Wed, 21 Jul 2010 11:17:25 GMT

Culture secretary Jeremy Hunt has submitted plans to the Treasury proposing deep cuts in staff and a move to smaller government building

In a move which will send a chill through the arts world, culture secretary, Jeremy Hunt has proposed cutting staff at the Department for Culture, Media and Sport (DCMS) by up to 50%

As part of hits cuts programme submitted to the Treasury, Hunt is also proposing moving out of the well-appointed departmental headquarters in Cockspur Street, just off Trafalgar Square, with the remaining staff finding room in a different, existing departmental building.

A week after senior arts figures pleaded with the government not to slash funding, Hunt believes he will not be able to win support for the coming deep cuts in arts and media budgets unless he leads by example.

All government departments have been told by the Treasury to offer cuts of between 25% and 40% of total budgets. Some departments have failed to meet the Treasury deadline or are refusing to produce 40% cuts, saying it is not realistic to do so, and therefore a waste of time.

Ministers who settle early with the Treasury have been told they can then sit on the star chamber set up to arbitrate on departments that refuse to settle until September or October.

The DCMS, even now still referred to in some circles as the "Ministry of fun", has one of the smallest of Whitehall budgets at £2.1bn, compared to, for example, the defence budget of more than £36bn. It also has one of the smallest workforces – 590 of the 468,700 civil servants employed by central government.

Arts organisations are bracing themselves for a torrid time because Hunt wants to keep publicly-subsidised free entry to national museums, on the basis that it improves tourism and the wider creative economy. An initial trawl has also found little suggestion of waste or mismanagement in the preparation for the Olympics in 2012.

This effectively leaves arts, media and heritage. The DCMS has already asked the biggest arts organisations to provide models of how they would implement cuts of 25-30% over four years, and what the effects would be.

Arts Council England, which receives £445m to give out to 850 organisations around the country, has warned that it would have to stop funding for at least 200 organisations. Arts Council England's chief executive, Alan Davey, this month wrote to all its regularly funded organisations outlining the bleakness of the climate and asking them to at least be prepared by modelling for a 10% reduction in funding for the next financial year. But while arts leaders realise they cannot be immune to cuts, they are not prepared to go down without a fight.

Private philanthropy

The government is hoping to plug funding cuts by encouraging more private philanthropy but it is a route fraught with problems, not least the danger of safer, more conservative programming. Some of the UK's most generous private donors, including Sir John Riblat and Anthony D'Offay, have also written to ministers pointing out that they give as an addition to, not a substitute for, public spending.

The potential for a cuts programme to lead to the closure of a prominent theatre company is exercising minds in Whitehall. Hunt, though, is determined that by setting an example through attacking staff and bureaucracy surplus in his own department he will be able to persuade arts groups, museums and galleries to focus on their administrative cost base rather than frontline services.

If enormous cuts are, as seems likely, announced in the October spending review, many in the arts world are lobbying for them to be phased in gradually.

The cuts that will be batted about within Whitehall will come on top of some £73m of cuts already decided by the DCMS, including the cancellation of the £25m Stonehenge visitors centre; the suspension of the £12m libraries modernisation programme; cancelling the £45m contribution for a new BFI film centre; and axing free swimming for the young and elderly.

The most cost-effective way to making cuts

Wed, 21 Jul 2010 10:00:44 GMT

Can the deficit be cut without killing the patient, asks Tony Grundy

The financial pressure on the public sector over the next three to five years will be unprecedented, with annual cuts of £80bn a year likely.

Conventional cost management techniques which involve incremental thinking are unlikely to be effective in this context.

At the onset of the private sector recession, I argued that to survive and be successful, private sector organisations needed to manage costs in a challenging but also in a strategic way.

The same message should be made now in the context of public sector cuts.

In the theory of strategic cost management, costs must never be managed in isolation, and the aim should be to target long-term effectiveness and efficiency, not merely short-term and often non-sustainable benefits.

Cuts should not undermine the strategy, unless that strategy needs changing anyway.

In the private sector, savings of up to 20% can often be made through innovative thinking about the cost and the value drivers in the business.

But this requires radical rethinking about the "structural" cost drivers, ie the design of the organisation, the focus and prioritisation of the businesses it is in, and its mindset and assumptions.

Without such radical thinking, which entails fundamental long-term change, cuts of this order will be damaging, unproductive and not sustainable.

To manage public sector costs strategically one needs to:

• define how the current deployment of resources adds value, to which stakeholders, and where value is diluted or even being destroyed (the "value audit")

• diagnose areas of current inefficiency in the acquisition and deployment of current resource; to do this, time travel (imaginatively) to the future to assess future organisational demands and what future value will be added by public sector services, using some "scenario story telling"

• in this imaginary time travel, try to visualise the target future unit costs that one might strive to achieve with truly radical thinking: this entails coming up with a "cunning plan", based on redesigning from sctach the organisation, the value it adds, and its processes, skills and mindset

• prioritise these ideas, flesh out implementation strategies and estimate the cost of breakthrough projects, as well as overcoming stakeholder resistance; the aim is to work out the value of a services against the cost of change

In conclusion, the public sector will need to get far more astute and sophisticated in getting the best value out of increasingly scarce resources and this will require quite a fresh, value–led and strategic approach to cost management.

Dr Tony Grundy is director of Cambridge Corporate Development, and visiting lecturer in strategy and corporate finance at Henley Business School

More value for money needed from government

Jane Dudman — Tue, 20 Jul 2010 08:59:56 GMT

Big central departments such as the MoD look as though they are making savings on paper, but the National Audit Office is finding that the figures sometimes don't add up

Central government departments have failed to reach almost a fifth of their cost-saving targets, according to a reportfrom government watchdog, the National Audit Office (NAO).

Savings worth more than £147m claimed by the biggest Whitehall departments, including the Ministry of Defence (MoD) and HM Revenue and Customs, have been described as overstated or not real savings by the NAO report on the government's value-for-money programme and a further 44% may represent savings, but with "some uncertainty".

The watchdog says its findings at the halfway stage of the Treasury's three-year value-for-money savings programme, which began in 2008-09 and runs through to next April, have significant implications for the present government's cost-cutting plans.

It says the scale of savings needed in the current financial situation means departments "will have to think more radically about how to reduce costs and how to sustain them in the longer term".

The report finds a number of problems with the way central government states cost savings. These include the use of unsuitable baselines from which to calculate savings, a lack of transparency over the way in which departmental arms-length bodies report their financial affairs, and difficulties in demonstrating links between savings and performance.

The NAO has so far reviewed reported savings amounting to some £2.8bn from five major departments, which between them will deliver about 40% of the government-wide savings programme, set up by the previous government.

It has concluded that of the results so far, 38% fairly represented sustainable savings (green); 44% may represent savings but with some uncertainty (amber); and 18% do not represent, or significantly overstate, savings (red).

Of the three major departments it has assessed alongside the report, the NAO found that savings of £38m at HM Revenue & Customs were red, as were £13m of stated savings at the Department for Education and £96m of stated savings at the MoD.

The watchdog concludes that departments need more robust data systems to substantiate improvements in value for money; at the moment, departments are often unable to reconcile reported savings to the spending agreement set out in the 2007 comprehensive spending review or to their annual audited accounts.

It adds that departments do not always have systems in place to identify what their arms-length bodies are doing to save money - "making it difficult to determine whether savings had been realised".

Jane Dudman

Checkmate: how bad decisions can cost an organisation

Mon, 19 Jul 2010 10:54:26 GMT

Why do public sector managers invariably fail at effective decision-making? It's through no fault of their own and until the system changes costly mistakes will continue to be made

A government department has a large programme of work ready to move from its feasibility stage to implementation. The programme will save the department £10m as well as massively improve customer service. However, it needs £300,000 spent upfront to kick things off.

Decision? Cancel the programme – there is a freeze on any external support.

Another government department needs to send staff on an overseas training course so they can learn key skills for their job. The overseas trip means spending £10,000 now, the alternative is to pay for external support over the life of the project at a cost of £100,000.

Decision? Spend £100,000 – we can't be seen to be sending people overseas in this period of austerity.

The above examples have highlighted a real problem in the public sector. That too often decision-making is lacking in any common sense when considering the overall net impact and bigger picture, even if the individual drivers at the time are valid. Decision-making is also often poor, slow, and too political.

Where has it all gone wrong?

"The problem", says Mark Warren of consulting firm Moorhouse, "Is that today's public sector has become so complex and political that leaders become almost 'paralysed' when asked to make a decision. They try and take into account too many influencing factors – the political agenda, the position of senior bosses, what the media might say - and are terrified of making a mistake. They then either procrastinate and do nothing, or go for the 'correct' thing to do depending on who has the highest influence – even if that decision seems like craziness to everyone else."

A challenge, or in some cases direct interference, from leaders at the top has made decision making particularly difficult in the NHS. Decisions at a primary care trust (PCT) level are being modified because of a strategic health authority's position on a local issue – even if it doesn't make sense for the customer.

Richard Marsden, a partner with The Berkeley Partnership says: "We've seen good decisions watered down or completely upturned at the insistence of senior bodies – only to be reversed back to the original, locally led proposal later on. It's a huge waste of time and money."

Bad decision-making isn't just the fault of politics or interfering seniors though. There are many psychological traps in decision-making that leaders should be aware of, as outlined in the classic Harvard Business Review article 'The Hidden Traps in Decision-Making'.

There is the 'sunk cost trap'– where a deep-seated bias sees us make a choice to justify a past decision, the 'confirming evidence trap' – which has decision-makers ignore evidence which contradicts their instinct on a decision, and the 'status-quo trap' – in which leaders make decisions that perpetuate the status quo - to name but a few.

With all this to contend with, it is little wonder that good decision-making is so rare and a radical change in approach is required.

"People need to think about decision-making as a specific skill set," says Warren. "Strategic decisions that have a high impact need to be treated like a major project, and given all the resource, data, time, and discipline that you would normally dedicate to an important initiative."

This approach, plus the addition of some strong analytical players and others who are independent and specifically tasked with playing 'devil's advocate', can help leaders who are otherwise apt to procrastinate.

Basic rules of decision-making

The basic rules of decision-making are worth bearing in mind. Allan Wood, chairman of Harmoni, one of the leaders in providing primary care services, has this piece of advice: "Understand the psychological traps you can fall into with decision-making so you can do your best to avoid them. Then put some time aside to build an understanding of the context, using the data and facts that outline the issue, and involving the right people to discuss the critical factors.

He suggests using a balanced scorecard to decide on choices. "Finally, factor in some common sense. For example, a decision may be 'politically correct' and please a boss far away, but if it damages an entire department's motivation, your second choice may be better."

A civilised society needs the arts

Fri, 16 Jul 2010 10:31:19 GMT

Former poet laureate Andrew Motion leads a crusade to persuade the government not to short change the country's cultural and artistic life

"If the Big Society means we aspire to create more civilised places where humanity prevails, and the individual spirit thrives, then artistic and cultural activity is not just indispensable, it must sit at the core, and national and local government must work together in one cause, " said former poet laureate Sir Andrew Motion today.

Against the backdrop of the call from national arts leaders for the government to recognise the damage overly severe cuts in arts funding could do, Motion, chair of the Museum, Libraries and Archive Council (MLA), said that pressure on local council budgets was probably an even greater threat to the country's cultural and artistic life.

"Government is asking - which public services are essential and how we can aspire to a bigger society? Cultural engagement is essential to humanity and civilisation and we all have a responsibility to ensure it thrives.

"Most of our country's population up and down the country rely on libraries, museums, exhibitions, record offices and performances, funded or part-funded by local government. Towns and cities stripped of books, arts, theatres and celebrations of our past and future would be a grave threat to a bigger, better society.

In this climate, it has never been more important to safeguard one nation whose heritage, culture and international excellence is more than the sum of its parts

"But we must recognise the pressure local councils are under to protect much more expensive services, ranging from road maintenance to care of children and the elderly. We are obliged to ensure that the benefits of the relatively small sums of funds that go on arts and culture are accurately targeted, spread wide, and act as a catalyst for creativity. In this climate, it has never been more important to safeguard one nation whose heritage, culture and international excellence is more than the sum of its parts.

"And all those of us who rely on public support, have a responsibility to rise to the challenge, tackle costs and do more with less; we need 'sharper investment in changing times', as the MLA has been arguing for months .

MLA chief exec Roy Clare added: "The future of museums, libraries and archives lies in the hands of leaders with the vision and imagination to think differently; to persuade local government and others with responsibility for arts and culture that investment in our sector is an opportunity not a cost.

"Those who are winning are those who are building ever-stronger partnerships between local and national government and with other players such as universities, independent museums, colleges and arts centres; the local high streets of England are where these partnerships need to work well on behalf of people and communities.

"The MLA exists as a source of impartial, independent advice; we believe in solutions that use money better, share expertise, join up services across boundaries, utilise new forms of governance and various sources of funding and free up institutions to work in innovative ways with a variety of partners and a mix of paid staff and volunteers. We believe that customer demand should lead; institutions and organisations need to adapt accordingly."

Quangos: 'read before burning'

Nick Huber — Thu, 15 Jul 2010 08:10:00 GMT

Seen as a potentially quick way to save money, closing down quangos may have the opposite effect says a report by the Institute for Government, unless there are major reforms to arms-length bodies

A plan by the government to cut the number of quangos is unlikely to deliver substantial savings and could even increase costs unless there are major reforms to how arms-length bodies are run, a new report has warned.

Quasi-autonomous non-governmental organisations, which deliver services ranging from nuclear commissioning and teacher training to arts grants and national savings, are a prime target for public spending cuts, as the coalition government tries to slash the UK's £154.7bn budget deficit.

Critics claim that quangos, which account for about 13% of total government spending, create unnecessary bureaucracy and are unaccountable.

The coalition government has already announced plans to close the Qualifications and Curriculum Development Agency and also Becta, which advises schools on technology.

The government is holding a review to decide the future of remaining quangos, also known as arms length bodies (ALBs).

One of the arguments for closing quangos is the potential to save public money, but according to a report by the Institute for Government (IfG) – Read Before Burning – a cull might not create savings unless the government tackles "deep-seated problems" about how quangos are structured, run and regulated.

Any big savings will come from reforming the big quangos. According to the IfG, three quarters of expenditure by "non department public bodies" is tied-up with 15 large organisations, including the Learning and Skills Council, Nuclear Decommissioning Authority and Higher Education Funding Council for England.

"It will be here that the greatest savings could be found, rather than in the long tail of smaller bodies," says the IfG report, which is based on a year of interviews with quangos and analysis of their spending.

However, restructuring public bodies can be expensive. Scrapping quangos and incorporating their functions into government departments, may not create savings and could even add to government costs, the IfG says.

The IfG estimates that 51 reorganisations of central government departments and their quangos carried out between 2005 and 2009 cost a total of about £780m.

Some 85% of this cost was attributed to establishing and reorganising quangos.

"There is a cost attached to creating a new department and then disbanding it again," says Ian Magee, a co-author of the IfG report and a former chief executive officer of three executive agencies.

"It's fine to reduce duplication and get some economies from that but it isn't a numbers game. You don't necessarily achieve the savings that you want by saying, for example let's cut 100 of these [public] bodies."

The IfG report says that although many quangos perform a useful function, the complexity and differing structures of the organisations (there are at least 11 types of quango) is causing "duplication and policy coordination problems".

Perhaps more alarmingly, the report says that it found examples of "both micro-management and institutional neglect" of quangos, resulting in "low trust" and sometimes in "downward spirals of institutional conflict."

Reforms to quangos in order to make them more efficient and transparent

The IfG report calls for a series of reforms to quangos in order to make them more efficient and transparent. Recommendations include: performance reviews every three to five years for quangos spending more than £50m; ministerial "sponsors" of quangos should be briefed thoroughly on their quangos; and the government should publish a list of all quangos, details of their expenditure and lead officials sponsoring them.

Most quangos contacted by Guardian Public declined to comment on the IfG report.

But Christopher Banks, chair of the Public Chairs' Forum, which aims to improve the efficiency and of public services in the UK, and represents quango leaders, says he welcomes the IfG report.

"The report sheds light on some of the key challenges faced by ALBs and their sponsoring departments and makes helpful recommendations on how this complicated landscape can be improved," he says.

Alan Langlands, chief executive, of the Higher Education Funding Council for England (HEFCE) adds: 'We agree that there is a need for the government to scrutinise arms-length bodies." He adds that a recent external review of HEFCE by Dame Sandra Burslem judged it to be a "high-performing" organisation.

The Local Government Association (LGA) which has raised concerns over the number of quangos and their perceived lack of accountability to the public, declined to comment on the IfG report.

Last week, the LGA claimed that devolving power and budgets from public bodies including quangos and Regional Development Agencies to local councils and groups of councils could save up to £100bn over five years.

Nick Huber

Large-scale NHS redundancies in biggest shakeup since 1980s

Tue, 13 Jul 2010 09:25:02 GMT

Estimates suggest 30,000 managers and administrators may lose their jobs as a result of the government's proposals

The effect on the government's shake up of the NHS "could result in the biggest transfer of employment out of the public sector since the significant denationalisation seen in the 1980s", says Kingsley Manning, of Tribal, a public sector strategy and services firm which works with doctors and PCTs.

Tens of thousands of managers and administrators could see their jobs disappear as a result of yesterday's announcement by health secretary Andrew Lansley.

Large-scale redundancies are certain because the 10 strategic health authorities (SHAs) and 152 primary care trusts (PCTs) around England are being abolished. Between them they employ 64,000 people, according to figures from the NHS information centre.

But some staff are likely to switch to jobs with the regional offices of the planned new independent NHS board which the coalition is setting up.

Lansley refused to speculate on what the eventual total might be. But informed estimates suggest that the government's determination to drastically reduce what it calls the NHS's ballooning bureaucracy means that about 30,000 people – who are currently involved in commissioning care, a function that will be taken over by groups of GPs in 2012 – may lose their jobs.

They will pay the price for Lansley's stated aim of reducing NHS management costs overall by "more than 45%".

The forthcoming white paper is explicit that the changes in the NHS "taken together ... amount to a major delayering, which will cause significant disruption and loss of jobs. It has become rapidly clear to us that the NHS simply cannot continue to afford to support the costs of the existing bureaucracy".

NHS managers in fear for their jobs

Mon, 12 Jul 2010 11:14:00 GMT

Health secretary targets quangos and administration staff to achieve promised £1bn a year savings

A major shake up of the NHS is under way this week with Andrew Lansley, the health secretary, pledging to cut £1bn a year in "central bureaucracy" with heavy job losses.

His plans include bringing down the axe on several health quangos – it is believed that the Food Standards Agency, which employs 2,000 staff, will be abolished.

Lansley says the savings will be equivalent to the salaries of more than 30,000 nurses and will be reinvested in frontline services. But critics say they will be devastating for the managers and administration workers who face losing their livelihoods.

"Bureaucracy ballooned under Labour. Even when it became clear that the nation's borrowing was out of control, they continued to spend money unwisely. But we will not make the sick pay for Labour's debt crisis," Lansley will say today.

Rising demand for health services, he argues means that significant savings must be found in the NHS's ring-fenced budget. "Every penny saved will be reinvested to improve patient care, meeting demand and driving up quality."

The comments come ahead of this week's health white paper on the future of the NHS. The plans will hand control of budgets and commissioning to GPs, with primary care trusts and strategic health authorities stripped back.

Tens of thousands of jobs could go. Kenny Bell, the Newcastle branch secretary of the trade union Unison, which represents staff in the NHS, said the north-east was bracing itself for the loss of one in three admin workers and hundreds of managers.

"Managers are no different," he said. "Everybody needs work and is dependent on an income." Bell said he feared the plans would be implemented so quickly that there would not be time to manage the process in the fairest way possible.

Some experts warned that the savings might not be as extensive as ministers think. Professor Chris Ham, the chief executive of The King's Fund, an independent health charity, said cutting managers meant a large initial payout in redundancy and increasing the number of commissioners could mean more paperwork. He also suggested GPs would be likely to demand more money for the additional work. "The BMA is a strong union and will negotiate very hard."

Ham said he supported some of Lansley's ideas, including getting doctors and patients more involved in the NHS. But he added: "The issue for us is the impact of what is going to be a huge restructuring of the NHS at a time when the attention of managers needs to be on financial issues."

Others said the savings from getting rid of quangos were often overstated. Kailash Chand, a GP and chair of a primary care trust in the north-west who is active in the BMA, said: "Quango-bashing is 'politically correct' and is quite fashionable to grab some great headlines, but in my view the work undertaken by many of these organisations still needs to be done even if the organisation disappears." He called for a review of quangos before they are abolished.

The work of the FSA is expected to be split between the Department of Health and the Department for Environment, Food and Rural Affairs.

Professor Jack Winkler, of the Nutrition Policy Unit, said he hoped the government would continue with some of the best programmes. He particularly praised an initiative to reduce salt levels by encouraging manufacturers to decrease levels by tiny "imperceptible" amounts at a time – which added up to large reductions over many years.

"The FSA campaign for salt reduction is the single best nutrition policy in the UK since the second world war and the second version of that is its saturated fat campaign which, against my expectations, also got off to a good start," said Winkler.

Other health quangos include the Medicines and Healthcare Products Regulatory Agency, the Human Fertilisation and Embryology Authority and NHS Blood and Transplant, but it is not known which will be hit by the plans.

Andy Burnham, the shadow health secretary and leadership candidate, said that, if true, the abolition of the FSA was very worrying: "It is starting to look as though Mr Lansley has caved in to the food industry. He may call the FSA 'bureaucracy' but to others it is essential regulation holding the food industry to account."