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FINANCE SUPPLEMENT - BEAR TO SHARE

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The Gershon report identified shared services as a route to savings. But can it really deliver? Kate Miller investi...
The Gershon report identified shared services as a route to savings. But can it really deliver? Kate Miller investigates

Sharing sounds so nice - caring and cosy. But now millions of pounds could be riding on it. A council that doesn't want to share won't just be ticked off like a naughty toddler - it could find its financial situation badly affected.

The argument is attractively simple: councils could gain significant economies of scale by banding together to deliver certain services. So-called transactional services are seen as eligible for this, specifically revenues and benefits services.

The policy is being driven from the heart of government: the Cabinet Office itself, where a shared services team has been created. Its recent report, Transformational government - enabled by technology, says: 'Bodies awarding funding should presume that public sector organisations only deliver good value for money when they standardise and share services with others.'

A crucial question for local government now is: how far will the next spending review presume that councils are making savings by sharing services? And how far are those presumptions justified?

The Institute of Revenues, Rating & Valuation has been encouraging and publicising partnership projects in its field for some years. But now its director, David Magor, fears authorities will be rushed, or even forced, into untested arrangements.

'Who has carried out the detailed analysis or the risk assessment?' he asks. 'Not the Cabinet Office, yet it appears so keen to mandate shared services.'

Mr Magor feels the Office of the Deputy Prime Minister 'is in danger of making a grave mistake if it forces local authorities to adopt shared services against their will.'

Shared services have been given extra impetus by the Audit Commission. Its study, The efficiency challenge: the administration costs of revenues and benefits, published in November 2005, concluded that partnership working 'offers councils the greatest potential for efficiency savings if they are prepared to overcome the perceived barriers.' It points to the Anglia Revenues and Benefits Partnership (a joint venture by Breckland DC and Forest Heath DC) and says: 'Working between two district councils is already releasing over£100,000 per year to each partner. If this approach were extended across the country it could generate substantial savings.'

East Anglia could be the first place to test out this hypothesis on a large scale. All the regional centres of excellence have a workstream on transactional services, but Eastern Region is the first to launch a regional study of revenues and benefits arrangements. Over the past few months, 46 councils have participated in this project.

Michael Worron, leading the project at the centre of excellence, presents a report to the 46 authorities this month. He will suggest, for benefits administration, migrating services to a maximum of six sub-regional benefits processing centres. They would be fully 'owned' by local government and delivered via a lead authority or a public/private joint venture. A single benefits advisory centre would deal with customers.

Council tax delivery would follow the same model, but over time migrating to a single regional facility, while business rates would be delivered from a single regional centre. The predicted efficiency gains would be around£9m over three years.

Not all East Anglian councils have been convinced. Kings Lynn & West Norfolk BC dropped out of the project early on, believing it was unrealistic.

'I do not think a robust enough case has been made for these proposals,' says assistant borough treasurer Gareth Evans.

'We have already made significant efficiency savings in our revenues and benefits services, and our costs compare favourably with other councils, so what are the supposed advantages of this proposal?'

Mr Evans points out that centralised processing centres do not have a good track record - witness the child support agency, tax credits and pension credits. 'Local authority tax collection rates are very high; a small drop in collection could easily wipe out any efficiency gains,' he says.

Two district councils in Oxfordshire are following a different model. South Oxfordshire DC and Vale of White Horse DC are entering jointly into a contract with Capita for revenues, benefits and exchequer services - the first time two councils have done so as equal partners.

South Oxfordshire has contracted out its revenues and benefits service delivery for some years and was due to retender in 2005. Neighbouring Vale of White Horse saw an opportunity to 'piggyback' on the tender, explains its strategic director Steve Bishop. Each of the four bidders - one being Vale's in-house team - was asked to put in three prices: for delivering each council's services individually and a joint price.

'We were testing two hypotheses,' Mr Bishop says. 'First the Gershon arguments, saying it's cheaper for two councils to work together - and yes, there is a lot of truth in it. Second we were testing in-house versus external delivery - and the economies of scale a national company can bring will probably always outweigh what the in-house team can offer.'

The Vale in-house team was not shortlisted. Capita has agreed a no redundancies deal so staff will be transferred on TUPE terms, but it will not be delivering the service on site. Oxfordshire is simply too expensive a place to employ staff.

Parts of the service will stay in-house: accountancy and benefit counter-fraud along with the client side management, in a 'virtual shared service organisation'. Staff in this will be employed by one of the authorities, with harmonised pay and conditions.

So is this a good model for shared services? 'I started out thinking this is the way forward for everybody,' says Bishop. 'But having gone through it, it isn't that easy.

'Even with two authorities with a lot of trust between us, the amount of negotiation you have to do is amazing. We succeeded in agreeing identical reports to take to members in February, but of course our members asked completely different questions and had different priorities.

'For some councils this will never be an option. But all of us should at least explore it. The savings are there - Gershon is right,' he says. 'This year we're taking£655,000 out of our budget, of which the largest single element is the£135,000 saved through the revenues and benefits contract. For a district, that is very significant.'

This 50/50 model could work well for other district councils, he feels. 'It overcomes problems with sovereignty or dominance, which is usually what kills off attempts at partnerships. No-one, officer or members, likes to feel they are the junior partner and distrust quickly sets in.'

Two like-minded authorities, of similar size, could get together in this way. 'If you tried to do it with three councils, there would be an exponential degree of difficulty. I would have thought four or five partners would be impossible.'

South Oxfordshire, having been through a procurement process several times before, was also struck by how much more complex it was working with a partner. 'There are so many things you have to harmonise,' says head of finance William Jacobs.

'To do it with three councils, from scratch, would be a big undertaking and would carry a greater risk of failure. There would be a better chance if you brought another council into an existing arrangement.'

Because South Oxfordshire was already contracted out, it can identify that its savings in this deal do come from economies of scale. 'At some point other councils could join this partnership and we could all benefit from further economies,' suggests Rodney Mann, Conservative cabinet member for finance at the council.

But he also thinks there could be problems if shared services grow beyond a certain point. 'This project was quite difficult to keep on track even with two councils,' he says. 'As you got bigger, you would need more layers of management.'

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