Over the last decade, the government has provided a continuing vision and framework for public sector service transformation. However, as the UK's public finances deteriorate, new research of public sector finance directors' views suggests that more realistic approaches to public finances are needed. Innovative ideas from below could become the order of the day.
If the Gershon report of 2004 was the touchstone for consistent savings across central and local government, subsequent reports have kept up the pressure. Sir David Varney famously called for joined-up, citizen-centric services. This year's Roots Review identified potentially massive savings in local government's £42 billion annual procurement.
As a result, government departments, local authorities, health trusts and housing associations, as well as their different partners, have sought to drive through a careful balance of service improvements and operational efficiencies. The latest in this long line was the recent Budget's operational efficiency programme. This called for improvements that would deliver annual savings of £9bn by 2013-14 against a backdrop of reduced public spending increase – a more modest growth of 0.7% over this period.
Last month, research from CIPFA of 129 public finance and resource directors commissioned by Civica suggests that more radical thinking will be needed if the books are to be balanced and service resilience maintained. In particular, there needs to be a wider acceptance of finance practitioners' insights by an incoming administration. Many public organisations feel they have reached the limit of the savings they can deliver within their existing operating structures. New approaches are needed to balance declining public finances with, in some sectors, rapidly growing service demands.
Survey respondents were fatalistic about the economy. Nearly all the respondents – 93% - said demands for efficiency savings/value for money topped their agenda. Four out of 10 (41%) of those polled believe that economic confidence will be the same by the next general election. Slightly more (43%) believe it will be worse. More than four out of five (83%) expect new Gershon-type efficiencies from an incoming government. just over half – 54% - fears cuts to local funding settlements and grant entitlements.
The survey also highlights the scale of innovative strategies supported by senior finance professionals, such as shared services, through which their organisation can help reconcile local needs with tougher spending constraints. Majorities of respondents were examining, respectively, process redesign/re-engineering methods (68%); greater partnership working (66%); new service delivery structures (64%); and procurement innovation (56%). In addition, a majority – 57% - believed they were 'well placed' to build the wider partnership structures that will help develop procurement savings.
How can risk and reward be structured for better outcomes?
Looking at the more visionary aspects of the government's change agenda - organisations' ability to engineer transformation - nearly half (45%) of those questioned had introduced service modernisation plans. Almost as many (43%) had adopted business process re-engineering. Finance directors are looking closely at how risk and reward can be structured to deliver better outcomes: Two thirds of the poll (66%) said they are more likely to put forward projects offering 'quick wins'. Over one half is more likely to work with others to reduce risk (53%).
The survey's most intriguing food for thought comes in the responses on funding changes that would remove many government constraints on organisations' investment in service innovations, or strategies to balance finances. Four out of 10 (40%) of respondents want the reinstatement of local taxation powers; over one third (37%) supported new types of public-private funding such as 'reworked' PFI; 38% believed they should raise funds locally; and over a third (37%) thought mutual funds for capital projects would help. Clearly, public finance professionals don't always accept the government's vision: they are clearly considering new ways to 'square the circle' in the new financial climate.
Public finance directors are clearly under relentless pressure to deliver value for money. But they must achieve this without undermining the resilience of a whole range of complex national and local services. While our political masters argue over definitions of, or the need for, public spending plans, practitioners themselves accept that the next government may have to look beyond the 'efficiency agenda' and accept some new thinking from new sources. Innovations from finance experts across the public and third sectors could make all the difference if the circle of service expectations and re-engineering the public finances is to be squared in the years ahead.
Dr Paul Jackson is financial performance adviser, Chartered Institute of Public Finance & Accountancy (CIPFA)
