Who’s seen the light?

Despite the looming crisis in public finances implied by the 2009 Budget, the political atmosphere of the run-up to a general election means the bold decisions necessary to reduce costs are unlikely to emerge from Whitehall.

For local government, the outlook is equally bleak. The largest peacetime budget deficit will start to affect settlements from 2010-11. For a generation of managers, this pressure will be a new experience as sharp adjustments become necessary.

In response, local authorities might limit their ambitions to meeting statutory obligations, cancelling some services and tightening eligibility criteria for others.

They need, though, to start thinking about this now.

The Operational Efficiency Programme (OEP) provides a start, but it needs firmer ideas for implementation. It assumes that there is widespread willingness to pursue efficiency aggressively — a recognition that there is a problem that must be confronted.

However, our experience in working with many local authorities is that this is sometimes absent.

The OEP also takes for granted that authorities have the capacity, capabilities and governance structures needed to reap the benefits of such changes, particularly in asset sales, major contracting, and shared services.

Again, even well-intentioned authorities might lack these fundamental prerequisites.

Driving down costs

If we are serious about driving down costs, we need to address some deep-seated cultural issues. In our experience, local authorities’ efficiency initiatives are sometimes let down by a failure to take account of attitudes and behaviour.

It’s not that good ideas don’t exist, but that their execution can be undermined by the absence of a real managerial and political drive for change.

For example, a prerequisite for this kind of change is a performance management framework that clearlydistinguishes between good and bad performance, and can inform the right decisions about what an organisation needs.

An effective mechanism will separate good people in extraneous roles from bad performances in key positions and enable managers to take appropriate action.

Local authorities must also be able to promote high-performers without being forced to create unnecessary management structures to justify their higher grade.

Leadership

Leadership in austerity also means being realistic about job losses

Mark Lawrie, Local government partner, Deloitte

Another important cultural component is leadership. For the past decade, leaders in local government have enjoyed increasing budgets and staff numbers.

The new climate might require a different style, and a different skills set, with emphasis on achieving more for less, and cancelling projects and programmes rather than launching new ones.

The impact of smaller local government on citizens is difficult to predict. It will depend on how well local authorities absorb the predicted financial tsunami, but it is reasonable to expect unmet demand for key services to rise.

Presenting this reality early on to councillors is difficult, but essential.

Leadership in austerity means having the resolve to be realistic about job losses and accepting the need for smaller payrolls and more flexibility to take on, redeploy and shed staff at short notice.

Local government also requires a new understanding of risk perception and management. Like all public organisations, it tends to measure risk in terms of loss to reputation, rather than cost.

In certain services, an obvious one being child protection, such attitudes (though not the bureaucracy) are required. In others, layers of procedures and costs could be removed by a proper understanding of, and acceptance of, some risk.

First step?

So having created a climate conducive to cost reduction, where should we look first?

Local government spends around half of its resources on goods and services, dispersed among thousands of suppliers.

Despite significant progress down the path of strategic sourcing, the sheer size of local government spending means there is still the opportunity for savings from centralisation and collaborative procurement with other public bodies.

Since the Gershon review and the advent of online transactions, making savings through sharing services has been widely debated, but still falls short of its potential.

Factors such as IT consolidation and standardisation and system compatibilities have made sharing systems, process and management structures a reality.

But the lack of broader take-up of shared services is a cause for concern. The causes are not all obvious, but at the core is a political resistance because of the implications for local employment, organisational sovereignty,
decision-making and control over inputs.

We have found, in some cases, that the cost of overcoming these issues can be greater than savings from the shared service. The real solution might be to cut through political concerns that can focus on the ‘reasons not to’, by legislating for the aggregation of a core set of back-office services.

This would perhaps see the creation of new public sector bodies to deliver human resources, financial and IT services on a county or regional level.

Going down this route could also address some of the arguments that have plagued the debate surrounding two-tier structures by setting aside the potential for duplication of back-office spend and allowing political considerations to prevail.

Given the urgency of reducing spend, now is the time to address the new working models needed. Failure to recognise that local government stands on a ‘burning platform’ might lead to last-minute ‘budget balancing
decisions’ that could do long-lasting damage to front-line service delivery.

Mark Lawrie, Local government partner, Deloitte

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