There is not much more to be said in the short term about Carillion: and there is not much more to be said in the short term about Northamptonshire CC. It’s only when we start putting the two together that it becomes more interesting.
These two phenomena illustrate two facets of a particular idea of local government which has been prevalent for at least eight years, indeed since austerity took hold. It is that local government was so inefficient and bloated that it was possible to build a model which both responded to increased demand, and at the same time kept council taxes low; and the mechanism for doing so was a combination of business rate growth and outsourcing to the private sector which would squeeze out the inefficiencies and square the circle.
This principle was not only embraced by councils themselves but actively promoted by the Department for Communities & Local Government. It instigated schemes to keep the council tax down by providing short-term incentives which benefitted councils for a year, but then fell out of the base budget leaving a hole in subsequent years. And these were offered over a series of years, compounding the problem into a structurally weakened tax base. A further piece of bait was the belief that repatriation of 50% of business rates would encourage councils to promote economic growth and provide a rich source of additional finance. One glimpse at Northamptonshire’s statement of accounts shows that even in one of the fastest growing areas of the UK (albeit an area in which the majority of the locally-retained proceeds of growth have gone to districts), this too proved to be a chimera for reasons there is no room to go into here.
Yet all might have been well had the other element of the model’s equation worked as prescribed. Had the excessive outsourcing, which these same authorities embraced with such alacrity, delivered on the promised efficiencies, then the problem might have been mitigated. However it had the opposite effect.
Two factors have been at work to undermine the effectiveness of dependence on outsourcing. First, the evolution of private sector provision from, in some cases, a force which provided innovation and greater efficiency into one which too often ended up as self-serving rather than serving the customer or the council’s interests. Some of the earlier outsourcers were established by ex-public sector workers who at least recognised the service ethos. Many of these rapidly either lost their ethic or were taken over by venture capitalists. Only in the last week I have spoken to a number of ex-employees of outsourcing organisations fleeing back into the public sector in order to re-establish a moral purpose
In some cases, such as Carillion, a bid culture was built up on the assumption that the public sector was so inefficient that they could not fail to make a margin. In effect some of these margins failed to materialise. The net result for councils overcommitted to outsourcing was that contracts became difficult and expensive to manage with firms trying to make margins on rigid contract interpretation and excessive charges for the inevitable variations.
The second factor was simple loss of financial control and flexibility. In a period of cutbacks, having huge tracts of budget tied up into inaccessible contracts limits the scope for merging overheads and benefiting from economies of scale.
The consequence now is a change in culture within local government. Far from reducing council tax, hoping for business rate windfalls, and outsourcing large swathes of services – the Northamptonshire model – the order of the day is increasingly to maximise council tax-take, not for the sake of it but simply in order not to destabilise service provision more than necessary. Local government is also increasingly looking at the opportunities for insourcing. The best indicator of this is the number of consultants now queuing up to offer their ‘insourcing’ services, often the same people who 15 years ago were offering to help outsource. And finally, it is not only insourcing that is taking off. It is commercialism where councils are beginning to make inroads into private sector provision – property management, energy provision, leisure service provision, housebuilding, catering. None of this is new. In some cases – energy, for instance – it is going back to Victorian roots.
What is interesting is that those councils which have had the self-confidence to maintain their tax and asset base, to branch out responsibly into commercialism, and which for years were told they were far too traditional, are the ones which might just survive the best.
Graham Chapman (Lab), deputy leader, Nottingham City Council