Roundtable

Can mergers benefit the public sector?

With funding cuts looming, public sector managers are asking whether consolidation can help provide more efficient service delivery. Sue George reports
NHS
Will the current redesign to merge primary care trusts be successful in helping the NHS achieve its ambitious savings target?

This is a time of change, politically and financially. The forthcoming general election means the immediate future is unpredictable. But whichever government takes power, the UK's financial deficit will have an impact for years to come.

So are mergers and consolidations across the public sector the way to provide more cost-effective, efficient services? And what might be the opportunities and benefits?

These issues were discussed at a roundtable event held by the Guardian, in association with Grant Thornton. The event was conducted under the anonymity of reporting allowed under the Chatham House rule to encourage frank debate, so this report picks up themes that were discussed, without attribution.

Change needed

The discussion began with a general acceptance that, due to public finance deficits, things had to change – and fast. However, this presented a wide range of challenges for participants, whichever part of the public sector they were working in.

While public sector bodies had started to trim their budgets, this was not reducing costs enough. For instance, Total Place, which has been designed to provide better services for less by cutting out overlap between organisations in specific geographic areas, was considered the most significant development so far but would not provide significant cuts.

In general there was so much difference between those parts of the sector that were localised, such as primary care trusts (PCTs), and others that had a national remit that it made the necessary flexibility difficult.

In the employment sphere, the commissioning strategy was currently focused on overcoming barriers to entry to the labour market. This was done by creating specific packages for individuals. However, if different sectors (for instance healthcare, housing, benefits) were able to work together, this could perhaps be done more effectively and cheaply.

According to one participant, "looking around the table, we should realise that if our respective customer groups were represented by a Venn diagram there would be an overlap of 80%. It is up to providers with local partners to do the joining up – national partners don't do very well in terms of commissioning and funding."

Several participants spoke about the complex, differing demands of separate funding streams. "If we had the ability to flex money at a local level we would be able to deliver better outcomes at lower cost," one said. "The fact that everything is fragmented and has to be knitted together at local level adds bureaucracy and inefficiency."

Was partnership-working the quickest way to make the savings that would be needed? Participants generally thought not, with some who worked in this way highlighting related issues, for instance within procurement, where proposed measures had turned out to be illegal.

Redesigning services

Services may need to be completely redesigned if enough cuts are to be made. Some participants talked about the process of deciding where to make these cuts. "We have to decide which services to stop, which policies we are going to change," said one. "There is always some legislation, minister, or community that cares passionately about those services." Another participant talked about the case of four very popular and well used charity- run daycare centres, which were told by the commissioning local authorities that they had to merge.

The NHS is now in the process of being redesigned. In London, for instance, 31 PCTs could be reduced to as few as five or six over 12-18 months. This is part of a general move towards a subregional model because, according to one participant, "they can't get the local model to work well because local politicians will not take responsibility for healthcare. Unless they do, then subregional is about as local as they can get it."

If we could flex money at a local level we would be able to deliver better outcomes


Another participant considered that consolidation was not necessarily the right answer in commissioning. Big contracts reduced the number of organisations capable of bidding on a large enough scale, and increased costs for both sides. "Small-scale organisations are often more efficient at delivering services," the participant said.

"The problem is we find it difficult to deal with lots of small organisations. We need an intermediary." Another participant considered that dealing with such small organisations had already been tried, and the experience had been chaotic and unmanageable.

One participant wondered at the way the discussion had focused on cost- cutting as an overarching motive for public sector mergers. Shouldn't consolidation be about more than cost-cutting? What about better services?

More simplified government? In the private sector, he said, mergers happen "for strategic reasons, for consolidation, revenue generation. Cost is a byproduct ... In the current environment such a focus on public sector cost is part of the agenda, but we need a discussion as to how do we do things differently. How do we get better outcomes, closer to what the customer needs?"

Some public sector participants mentioned reasons they had involved the private sector in their work, for instance to improve services, or change the nature of the workforce, or to change the way that services run to make them more business- or customer-focused.

Another question was whether public sector consolidations happened primarily as a result of ministerial decisions, and if so, whether these consolidations worked effectively. One participant considered that ministers didn't really know how the public sector worked. Another thought that ministers often didn't feel they needed to get involved and, when they did, did not consider the implications.

The role of the state

The biggest question in the run-up to May's election, and for a considerable time afterwards, would be: what exactly should the state provide? One participant asked: "What is it that government is for? What do we need to prioritise?" While there was a political consensus that the state needed to contract, there were implications for civil servants at all levels and this should be considered, with the public sector a major employer in some parts of the country. New models of service were fine, but their impact might be no more than marginal.

There was a general agreement that there should be fewer bodies responsible for delivering services, and more diverse delivery vehicles. Across the public sector, there would be more outsourcing for cost reasons, but one participant pointed out that if commissioning costs were too low, providers' ability to provide care of acceptable standard might be jeopardised. This could be a risky strategy for the most vulnerable people. The state had to remain as the provider of safety- net services.

Much needs to be done, and quickly, to ensure that the public is still served. Nevertheless, any public sector mergers need to be considered ones. In this period of political change, as one participant said: "Hard choices need to be made, and it should not just be about electioneering."

Background

Since the beginning of the recession, the UK's national debt has increased sharply, standing at £848.5bn in February 2010. Ensuring this debt does not continue to rise, and ultimately paying off some of it, means drastic cuts in public spending. One way these cuts might be managed is through consolidation of different services.

The first NHS acquisition of one trust by another took place recently when the South Essex Partnership Trust took over mental health services in Bedford and Luton. Exactly what happens to the public sector will depend on who wins the forthcoming general election. However, mergers, acquisitions and consolidations across the public sector seem likely to be on the agenda.

Roundtable report commissioned and controlled by the Guardian. Discussion hosted to a brief agreed with Grant Thornton. Paid for by Grant Thornton. For information on roundtables visit: guardian.co.uk/supp-guidelines

At the table

Jane Dudman (chair) Editor, Guardian Public
Stephen Baker Corporate finance partner, Grant Thornton
Jonathan Baume General secretary, FDA
Alan Cave Delivery director, Department for Work and Pensions
Rosie ChapmanExecutive director for policy and effectiveness, Charity Commission
Karl Eddy Government and infrastructure advisory partner, Grant Thornton
Tracie Evans Corporate director of finance and commercial services, London borough of Barking and Dagenham
Stephanie Elsy Director of external affairs, Serco Group
Richard Goodwin Deputy director, planning strategy and management, Department for Communities and Local Government
Mark Hammond Chief executive, West Sussex county council
Giles Newman Health partner, Grant Thornton
Stephen Hughes Chief executive, Birmingham city council
Dr Graham StokesDirector of dementia care, Bupa Care Services

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