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Whatever the colour of our next government, there are likely to be cuts in public spending across many services. But how will the sector be able to deliver savings while maintaining service quality? We ask the views of a number of senior professionals within the sector their views and invite you to join in the debate.
The NHS has to take a root and branch approach to reviewing pathways to care, and that calls for improved management and leadership skills in the service
Commenting in our latest edition of Connections magazine where we explored the future challenges surrounding funding cuts, Harpreet Kaur, Associate Director of Social Care & Inclusion at Manchester Mental Health & Social Care Trust said: “The NHS has to take a root and branch approach to reviewing pathways to care, and that calls for improved management and leadership skills in the service. We need new thinking – more amalgamation away from the front line; more rationalisation and savings in the corporate overhead. The best Foundation Trusts are showing that this can be done, and the change needs to accelerate – irrespective of who’s in government.”
Public Sector Management Consultant Phil Moss believes that even when the private sector is in recovery, the public sector is likely to remain economically depressed for far longer. “It will be a long time before any Government can increase public spending. Winning the next election could still turn out to be a poisoned chalice. “Labour’s policies for the public sector will be more like nipping and tucking than major change. But they will enter a bidding war over who can cut most while retaining quality. The Tories remain opaque – natural for the opposition – and there are no big policy themes coming through yet. They’ll ring-fence health, and we may see a return to a stronger brand of stakeholder type management. The Quangos will get their usual pasting and the Regional Development Agencies look under threat with key policy areas going to consortia of local authorities.
“If Cameron gets in, he’ll need a big vision and a lot of energy to change the public sector and have impact. That vision will be there, but it’s difficult to promote without adverse reaction from voters concerned about education and health cuts. Questions definitely remain about the Conservatives’ change agenda and whether the Public sector is capable of maintaining service quality while still delivering savings.”
How will your organisation or department deliver savings while maintaining service quality? Which areas of public services do you think will be worst effected and why? How will you continue to attract and retain the best talent with potentially less funding?
13 Comments
Both Harprett and Phil make a number of very good points. My response to their points needs to be put into context.
The UK is running one of the largest public sector deficits in the developed world at over 61% of GDP and will total about £170 billion of borrowing this year, an increase of nearly 20% over one year. Much of this has to be funded through the Capital Markets and credit rating agencies are already in the process of reviewing their ratings for UK Government Debt. Once Quantative Easing (QE) ceases, gilt yields are likely to rise. This will lead to more money coming out of annual expenditure to pay interest on any new government debt that is issued.
Taxes may have to rise to plug the funding gap. VAT could rise to 20% for example. But with QE, increases in Fuel Duty and VAT back at 17.5%, inflationary pressures are building in the economy. UK CPI has already reached 2.9% up from 1.9% the month before and there is likely to be a further increase in the pipeline with some economists predicting 3.5% before the end of the year.
Any inflation rise has a major impact on public finances. Some of these include:-
o The pension deficit. The vast majority of Central Government pensions are unfunded and therefore money has to come out of each year’s revenue to cover these
o Local Government pensions are funded to the vast majority of their liabilities but few are close to 100% funded. Many local authorities are paying around 23% of staff salaries out of revenue each year just to try and keep the pension pot somewhere near their liabilities
o As inflation rises so does the cost of goods and services to the public sector
Within this precarious economic situation there is a real need for considerable radical reform and efficiency within the public sector, this may well include the ‘sacred cow’ of public sector pensions.
Having set the context I would like to build on the points that both Harprett and Phil have made. Firstly, expanding on some of Phil’s points:-
The issue of public sector Quangos is increasingly rising up the political agenda. Initially, David Cameron in his speech in July 2009 set out the Conservative’s approach to reforming Quangos.
Cameron made it very clear that his party were carrying out a fundamental review of all Quangos and whether they were ‘fit for purpose’. Within that speech and subsequently there has been mention of the possibility of winding down the Financial Services Authority and QCDA. Other changes including mergers are very likely.
Cameron has also made it quite clear that if the Conservatives come to power each of his government minsters will be personally responsible for any Quangos under their departments, rather than the current complicated arms length arrangements.
All this adds up to a radical reforming agenda which will by its nature affect the wider public sector, including health and local government, as the reforms are rolled out.
But the Conservatives are not the only ones looking at reform of the Quangos. Nearly six months after Cameron’s speech Gordon Brown in December 2009 announced that Labour would also look at Quangos. In that speech he mentions the likely abolishing or merging of 123 organisations. This is unlikely to be as radical as the Conservative agenda as it is only around 10% of the total number.
Next to expand on Harprett’s points, I am very much in agreement with what is being said. However, there is a wider issue which needs to be considered.
Whist both the Conservatives and Labour have stated that they will broadly ‘ring fence’ health budgets, what does that mean in reality. Is it the NHS element or the NHS and Social Care? We are as yet unsure.
One of the difficulties here is the increasing inter reliance between Health and Local Government in joint delivery. The Audit Commission’s new CAA framework is a good example of that as well as the new pilots within the ‘Total Place’ joined up concept.
So whilst Health maybe ‘ring fenced’, what happens to everything else? Again we are not sure at the moment and await developments, some of which might become clearer after the March Labour Budget.
Finally, to throw in some radical thinking. As a 12 year senior interim manager who has often had to create organisations from scratch for clients, this has meant using zero based budgeting. This concept to a certain extent is used in Central Government’s Comprehensive Spending Reviews (CSR) but then seems to get rather lost.
How about each part of the public sector deciding what are the fundamental services, how they will be delivered and then using zero based budgeting cost them, rather than using incremental budgeting. This would drive out a lot of inefficiencies and increase the ability of initiatives such as ‘Total Place’ to deliver the cost effective integrated service that is required.
Not possible, well anything is possible in this post recession world look at the changes to MPs expenses in this country and Obama’s reform of the banking system just announced!
Answer to the big question: BIG TIME! Senior Managers have been told that there will be no bonuses in 2010, so (just like their banker brethren) they’re jacking up their salaries by cannablilising services and plebe posts triple time. Mum and Dad, get my room ready – you only thought I was a slob when I was a kid!
I like the zero based budgeting approach but rather than individual organisations doing it… Why not start building a total place budget for each area on that basis
Taking Donald’s point I agree completely.
In fact going back to the point I made earlier about the CSR, there is no reason in my mind why the whole public sector should not be re-basing their budgeting on a zero basis. It might take three years to permeate through the whole sector but it would have considerable benefits in highlighting areas of inefficiency and linking service delivery to actual funding across all organisations and their joint delivery.
It would also remove one area that I find completely indefensible in public sector financial management, the spending of large amounts of money between January and March on items that may or may not be needed just to ensure that the Budget Manager spends to the budget. I call this the ‘Use it or Lose it’ approach to financial management.
We have developed an innovative in-house consulting model to use on a consultancy or interim capacity with our partners.
This brings a considerable amount of added value and a high degree of self-funding to senior stakeholders and helps fund the way for introduction of ourselves and consultancy and interim partners.
There is nobody else out there in this space, so we are working with interim CEOs, directors and recruiters to deliver this.
This only works with those stakeholders who are open to true partnership and progressive working practices and prepared to make the time, however it does work and negates the entire issue!
I have read the above with interest and there is some good thinking and analysis of the current situation and how managing spending cuts can be realised as budgets are reduced.
Firstly I would like to say that there is a lot of good work being done in the Public Sector.
With the inevitable reduction in funding after the largesse over the past many years to reduce Government debts, going “back to basics” with budgeting on a zero basis could be a very worthwhile.
For example, the NHS it is suggested will have its budgets reduced by £15bn over the next few years. It is a victim of its own success and this should not be seen as a negative comment. More, new & better drug variants and more expensive drugs as well as new operating procedures are assisting individuals to live longer and better lives and this is to be applauded..
When I have analysed what is different about the Public and Private sectors I have deduced that the Public sector endeavours to satisfy needs whilst the Private sector endeavours to satisfy wants. If this observation is correct I suggest that the public sector are doing more than their prescribed remit currently as more Government money has been made available.
I believe the Governement is also aware of this encouraging public private partnerships, PFI and other initiatives but we have still seen increases in the public workforce, increases in quangos, increases in public pay resulting in public sector productivity going down circa 20%.
Interestingly looking at PFI hospitals they may find it more difficult making any necessary savings over the next years because of their relationship with the Private Sector in the form of PFI.
Using a different budgeting model may indeed be necessary therefore to get back to the Public sector delivering to needs only; root and branch reviews are essential going forward not just efficiencies which I believe is a word I fear has been over used in the Public Sector arena over many years as to make it somewhat impotent and derided. In many of my interim roles I have heard the word efficiency, I have on many occassions seen the good work being done around tariffs care packages but overarching all of this good work is the reduction in productivity.
UK PLC also needs to ensure it maximises the use of its workforce. High percentages of potential workers being paid to stay at home over many years cannot be good for productivity.
Ceratinly working in the Public Sector is going to be exciting and challenging in equal measures over the next few years endeavouring to identify “real” needs the public require from the sector and delivering as productively as practicable. Essentially this will require getting the right people in the right place at the right time whether these are permanent or interim professionals who are willing to ask questions and provide answers to deliver needs based services with reduced amounts of taxpayers cash.
As an HR Interim I for one am up for the challenge
I was interested in reading Colber’s points, however I was unclear in which part of the public sector his in-house consulting model was based. Is it part of an internal consultancy?
Also I am sure the different posters on this board would be interested in understanding which issues the model entirely negates, as the previous postings are very wide ranging.
Separately, picking up on Colin’s point that there is a lot of good work going on in the public sector, I would agree.
I do not have much experience of Health, however my experiences of both Central and Local Government suggest that much of the good work is still unfortunately within silos either kept within one part of the organisation or sector.
Taking a private sector view point, if one of your competitors is significantly out performing you. The decision that you have to make is either:-
a) exit the market
b) replicate their model better
c) merge or take them over
Without this competitive element much of the Public Sector is missing out on the good work being carried out by other parts. Hopefully within both the Labour and Conservatives reviews of the Quangos, some of these issues will be addressed.
Having been involved in delivering a fairly radical approach to Local government budgeting in the past, (setting three year budgets against three year service plans, with each part of the deliverables being seperately costed), I have no illusions about the amount of work that a root and branch approach to local government finance models (I can’t speak for the health sector) would be. I’m not against the concept of deciding what you plan to do, and then setting a budget to match resources to outcomes. It works well, but it must be linked to a longer time frame than one year, when you are talking about delivering a very complex set of services, withing a regulatory framework which gives little room for manouver. Getting it right is impotant, but re-inventing the wheel every October for the next financial year across all services and against a fluctuating budget is very hard work, and a costly exercise.
The public sector is easy meat, the government can determine the outcomes it wants from it’s local deliver arm, which is what Local government has become, but it takes no responsibility for any mis-match in resources against demanded levels of service. Three year budgeting, starting from a zero base if you like, but giving some degree of continuity, even at a lower level of resources, would work better than the annual round of cuts in funding, but no reductions in service.
The private sector has to manage its activity in relation to income, and can invest for greater returns. This is so different from the way that Local government is funded that it is hard to draw fundamental lessons to apply accross the sectors. There is one truth that applies. Both sectors are faced with fluctuating income streams, Both need to relate activity to resources. For the public sector zero based budgeting may be one way of doing this, but it needs longer time horizons if its going to work, and I have seen few governments who could be relied on to povide such an environment..
Public Sector Cuts – A Unique Opportunity
Cuts in Public sector spending are inevitable, the broader context behind this inevitability was eloquently summarised by Standard & Poors, the ratings agency, who recently stated, “the rating could be lowered if we conclude that, following the election, the next governments fiscal consolidation plans are unlikely to put the UK debt burden on a secure downward trajectory”.
The UK cannot afford to lose it ‘AAA’ credit rating and the access to cheap money market borrowing that being a member of the top creditworthy nations club enables.
But this inevitability is also a unique opportunity to drive through organisational change that would have proved almost impossible in better times.
The Public sector challenge is also unique, unlike the Private sector where cash conservation has led to the top two business changes comprising of spending cuts and headcount reduction, the Public sector has a binding mandate of service provision that must be maintained and continually improved.
It is this unique mandate to the UK population that also provides the unique opportunity for change.
The need for a new investment model intrinsically linked to value and tangible, high quality outcomes should be welcomed as an opportunity to drive out the inefficiencies inherent in the existing Public sector supply chain, for too long viewed by suppliers as a gravy train, irrespective of quality, value or outcome.
Procurement processes will change, for the better, with long term value at its core and leveraging new methods of measurement, learning from countries such as Norway that measure the long term social ROI on major public expenditure.
For firms with innovation, agility and creative solution making at the core of their business ethos, this renewed focus on value and quality, hard wired investment linked outcomes and measurable social benefit will allow them to flourish as Public sector suppliers of choice.
For the recruitment industry this means that their operating landscape has changed. In the recent CBI ‘The Shape of Business Report’, they stated that “the biggest challenge over the next 10 years will be how to build, retain and make the most of the knowledge and experience in the workforce while finances and training are restricted.”
Labour flexibility, new forms of partnership and collaboration and new contractual relationships will become more extensive, encouraged and enabled by increasing use of innovative technology.
For recruitment firms that understand, interpret and evolve accordingly, this opportunity to deliver discernable value into the Public sector will be compelling and rewarding on professional and social fronts.
For those firms who do not evolve a value centric business, they will join the other supply chain casualties to mull over their outdated business models at their leisure.
Stan Dacre is the founder of Laterra, a strategic business consultancy.
I agree with a lot of what Len has said earlier. However, taking Colin’s point as well, it is quite likely that the public sector is supplying services beyond the core requirements. This needs to be looked at very carefully and costed accordingly.
An example of this is Labour’s announcement today regarding one to one care for cancer patients. Yes, we need to do more for the people that suffer from this awful illness but is this core or a peripheral service?
If core how has it been costed? Has it been by incremental or zero based budgeting? If it is peripheral can we really afford it?
Going back to zero based budgeting. I submitted an article last week expanding on my views I have put on this blog to topconsultant. They have today agreed to reproduce the article. The link is below:
Is it time for a radical re-think in the way our public sector finances and resources are allocated and managed?
As there is no form for responses on topconsultant’s website I have agreed with Badenoch and Clark that any views for or against what I have written can be posted to this blog.
I was very interested in the comments shared so far. I would like to offer the following comments –
I understand the reduction in public sector spending aims to reduce government debt and aid economic recovery, while still delivering quality services. But, I wonder how the quality of services can be improved when the focus of public discussion seems to be on finance alone.
To what degree are current budget cuts based on smart thinking, a thorough analysis of options and considering how in the future resources will be diluted but service demand will be unchanged?
It is possible that some public services are not core and so can be sacrificed. Initial budget cuts in 2008 and 2009 were taken on this basis. But, how far can services be diluted before they become worthless?
Over the weekend Radio 4’s repeat of ‘You & Yours’ examined the role of Guardians (Senior Social Workers) employed by CAFCASS and highlighted a trend in caseloads of 200+ children per Guardian following budget cuts. It also highlighted that they do not have time to assess the child in their home and can now only read the file notes an hour or so before a hearing about their future care. Such a thin public service delivery model is I feel, an insult to the profession and the vulnerable children it is meant to support!
I am concerned that goal posts for service quality will be moved as resources are reduced. I also think that intelligent questioning about the impact of cuts need to be asked now rather than waiting for the re-structing of services to be worked out.
Birmingham Social Services employs 4000 social care staff and I understand that even before the recession it had a record of sick leave among staff of 5 times the UK average. With 400 redundancies and £16million savings required, how can these services be re-structured, improved and provide value given an already demoralised workforce?
I understand that Birmingham City Council say they may look to the voluntary sector to deliver future social services. Bristol City Council is also considering looking to the third sector to deliver services as a way of managing reduced budgets in the future.
Generally the relationship between the third sector and public sector can work very well as they share goals of generating public benefit. But it can be fraught with difficulties when eachothers independance and responsibilities are not respected.
I will be very interested to see how relationships are developed and cross-sector delivery models worked out in the coming months and years inc: the scope of future services, zero-based budgets perhaps? and the level and quality of service users will receive.
In the past private sector companies have benefited from outsourced public sector contracts and I would not be surprised if many are anticipating such opportunities in the cost reduction drive.
However, it is interesting that some public bodies are reviewing their outsourced contracts as their contractors drive to make a profit has meant quality and efficiency were sacrificed.
(E.g. London Borough Southwark is reviewing its council tax collection service contract, as the employment of less qualified staff resulted in unacceptable levels of errors in council tax calculations.
Also outsourced education services are being reviewed by Bradford City Council and Stoke on Trent Council and may be taken back in-house).
However we look at the situation difficult decisions have to be made. But I would urge smart thinking, applying lessons learnt and considering more than financial cost.
Perhaps then the aim for the efficient use of public funds and improved service quality will be more than a soundbite.
I too have much sympathy with Len’s remarks. I’d just add a couple of points.
Iain’s reference to the “sacred cow” of public sector pensions is worth noting, but answers are not easy. Nothing can be done about pensions already in payment. Current employees could be moved onto less beneficial schemes, but this has already been done to some extent in the civil service and local government, and moving further is a problem. A key issue is that a large number of public employees still earn less than equivalents in the private sector: I suspect they only stay where they are either when they are not as skilled, or when their personality is such that they prefer the security of the public sector (including the enhanced pension rights). If this is so, it suggests that downgrading pension rights will mean either that services will deteriorate or pay will have to rise – and unintended consequences like these ought to be avoided.
I’m not sure about Iain’s implication that the level of borrowing this year is a bad thing. A 20% increase in public debt amounts to a huge sum, of course. But QE has enabled the private sector, from whom government and its employees purchase goods and services, to be cushioned against a potentially far more damaging deflation. Keeping that network of economic relationships in place, to be built on as we climb out of the recession, is hugely valuable, and will mean higher taxes and lower benefit payments as well (which will be available to make the extra interest payments). Besides, the term of our public debt, which averages about 8 years, is much longer than other countries. and this will heavily damp the effect of increases in interest rates. I suspect you need quite sophisticated modelling to work out what is the best time to reduce public expenditure (and you will never have the information and data needed to get it right, quite apart from the inscrutable market confidence issues).
The modern State has little alternative but to spend, the question is what on.
It can do both arms and butter but at a cost for the US-UK contemporary wars, fairly accurately estimated by J. Stigtitz at $ 3 trillion plus.
Quantitative Easing is a very old trick of Western democracies for “sticking together rather than hanging separately” and even that cannot sometimes forestall increased military confrontations, revolutions etc. Spending on arms has been recommended by some but most sane people subsrcibe to the opposite, yet it is difficult to stop this train most of the time. Its procurment
record is appaling and estimates rarely fully fleshed out as the above unchallenged thesis by Nobel economist Stiglitz proves.
So the short answer must therefore be: Badly, unless and until public opinion makes its alternative demands felt somehow in both general elections and otherwise .