PFMay13 by Public Finance

PublicFinance

The business monthly of the public sector

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Issue 05 May 2013

PublicFinance MAY 2013

LET THEM EAT

WHAT? Tony Travers expects few crumbs of comfort from the 2013 Spending Review

True blue? Peter Riddell discusses the legacy of Margaret Thatcher

Get Carney Will the Bank of England’s new governor bring growth?

Pay pariahs Heather Wakeﬁeld on local government’s wage wars

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PublicFinance

CONTENTS

May 2013

Features 26 COVER STORY The state of things to come

THE CHANCELLOR WILL EITHER HAVE TO REMOVE RING-FENCING OR CONTINUE THE PATTERN OF CONCENTRATED CUTS

In June’s Spending Review, Chancellor George Osborne will set out austerity measures that go much further and faster than anything seen in the Thatcher era. Expect a bun-ﬁght between ministers, says Tony Travers

34 Under new management With the economy stubbornly sluggish, the chancellor wants more help from the Bank of England. And he’s looking to incoming governor Mark Carney to perform some monetary magic. James Zuccollo reports

38 What about the workers? The coalition government’s undermining of public sector pay and conditions has left many workers reeling. But council staff are feeling the pinch more than most due to a double whammy of cuts, says Heather Wakeﬁeld

Regulars 4

Leader The perils of ﬁscal famine

Second thoughts Peter Riddell on Margaret Thatcher’s political style and substance

News Sir Merrick Cockell on a new plan for local government; Whitehall urged to drop growth cash competition

Conference news Nick Mann reports from the CIPFA/EY event on EU accounting standards

Need to Know

News Analysis Richard Johnstone asks if May’s local polls will produce any political surprises

Smart Thinking? John Thornton on the IT challenges of Community Budgets

Opinion Topical views from Malcolm Prowle & Roger Latham, Michael Ware and Mark Williams, plus readers’ views

Management Development Ghislaine Caulat explains how to hold successful virtual meetings

46 47

Cipfa Events

On Account Pension reforms’ false economies

Numbers Game

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20 Voice of the Nations Green Investment Bank asks for more, synergies in Northern Ireland, Wales covers Council Tax Beneﬁt cuts

14 Subscribe today for the latest expert comment on public policy and ﬁnance

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CONTACTS

Leader Austerity rations

ow low can public spending be allowed to go? For public services, this is the issue of the moment, as the chancellor prepares for his 2015/16 Spending Review on June 26 – and ministers slug it out over who gets prime pickings from the meagre funding crumbs. It’s also a question exercising the mind of the International Monetary Fund’s chief economist, Olivier Blanchard, who has warned that George Osborne could be ‘playing with fire’ if he fails to modify his austerity strategy. With the IMF downgrading its UK growth forecast to 0.7% for 2013 – and non-ringfenced areas like local government facing 50% less income by 2017/18 – the size of the public spending cake is no mere academic issue. Ironically, despite the current 1980s nostalgia-fest, and the Iron Lady’s reputation for ‘rolling back the frontiers of the state’, total public spending grew steadily over most of the Thatcher era. Contrast this with the present government’s radical ambitions for shrinking the state. In its efforts to drive down the deficit, the Treasury plans to slash Whitehall spending still further, take an axe to Annually Managed Expenditure – in particular, the welfare bill – and accelerate cuts to the public sector workforce. So what might this future small state look like? The New Local Government Network and other think-tanks have been busy ‘reimagining’ local services after they’ve been on a 50% austerity diet. Spending on education and leisure could well be reduced to zero, and care services forced to rely on the kindness of neighbours. Newcastle City Council, which has recently had to cut its entire culture budget to pay for social care, could soon be the template. Not that any of this is being spelt out by those actually in charge of the purse strings. As Tony Travers points out in this month’s cover feature (pages 26–31), the timing of the Spending Review means the 2015 general election will be fought on the basis of unknown expenditure plans. Nor has the Opposition been any more candid about its future spending commitments. This is unsurprising, given politicians’ fear of alienating an electorate that, as many polls indicate, is still strongly wedded to the idea of the state as a social safety net. But given how much hinges on the future size and scale of public spending, we should be told.

■ Judy Hirst DEPUTY EDITOR letterstoeditor@publicﬁnance.co.uk

REDACTIVE PUBLISHING LTD 17-18 Britton Street London EC1M 5TP 020 7880 6200 www.publicfinance.co.uk Editor Mike Thatcher 020 7324 2768 mike.thatcher@publicfinance.co.uk Deputy editor Judy Hirst 020 7324 2769 judy.hirst@publicfinance.co.uk News editor Vivienne Russell 020 7324 2788 vivienne.russell@publicfinance.co.uk Senior reporter Nick Mann 020 7324 2794 nick.mann@publicfinance.co.uk Reporter Richard Johnstone 020 7324 2796 richard.johnstone@publicfinance.co.uk Contributors Jane Cahane, Keith Aitken Chief subeditor Anne Lawton 020 7324 2789 anne.lawton@publicfinance.co.uk Art editor Gene Cornelius 020 7324 6227 gene.cornelius@redactive.co.uk Editorial assistant Henry Manners 020 7324 2793 henry.manners@publicfinance.co.uk Digital content manager Harriet Patience 020 7324 2733 harriet.patience@redactive.co.uk Sales manager Katy Eggleton 020 7324 2762 katy.eggleton@redactive.co.uk Digital sales executive Leila Serlin 020 7324 2787 leila.serlin@redactive.co.uk Recruitment sales executive Gill Rock 020 7324 6234 gill.rock@redactive.co.uk Advertising production Aysha Miah 020 7880 6241 aysha.miah@redactive.co.uk Printing Pensord, Blackwood, Gwent, Wales To subscribe to Public Finance at the annual cost of £100, call 020 8950 9117 or email publicfinance@alliance-media.co.uk. Public Finance is editorially autonomous and the opinions expressed are not those of CIPFA or of contributors’ employing organisations, unless expressly stated. Public Finance reserves the copyright in all published articles, which may not be reproduced in whole or in part without permission. Public Finance is published for CIPFA by Redactive Publishing Ltd. Public Finance 17–18 Britton Street, London EC1M 5TP Tel 020 7880 6200 Fax 020 7324 2790

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PublicFinance MAY 2013 2011 SEPTEMBER

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Second thoughts pfOpinion

■ Peter Riddell

Thatcher: the real deal Neither the brickbats nor bouquets being thrown at the memory of Margaret Thatcher accurately reflect her record The real Margaret Thatcher has got lost in the outpouring of reverential praise and vituperative attacks since her death on April 8. These have obscured both the style and substance of her record. Many of the themes of the 1979–1990 era – tensions in Whitehall, attempts to make the civil service both smaller and more efficient, brushing aside local government – have obvious echoes now. Thatcher is often accused of being both hostile to the civil service and of politicising it. Both charges are gross over-simplifications. She was certainly unsympathetic to civil servants as a group and to the public sector in general. However, she had excellent personal relationships with mandarins at Number 10, who admired her strengths, not least her relentless and demanding working style. In many ways, she was a traditionalist in her view of the civil service. The Cabinet and its committees met regularly, even if her style was to lead from the front, rather than to sum up the collective view. Rather, and in contrast to some Conservative ministers now, she did not regard vigorous discussion by civil

servants as obstruction, provided the advice was well argued. Some officials became permanent secretaries who might not have done before – not for partisan reasons but because she saw them as ‘can-do’. However, after her third victory, some advice was no longer welcome, but that is true of all longlasting governments. The Thatcher era also saw the dismantling of much of the postwar Whitehall apparatus. Close links with the trade unions, through Whitley councils settling pay, were ended. This was symbolised by the abolition of the Civil Service Department in 1981. Yet the assault on civil service pay, perks and numbers looks modest by current standards. The Thatcher government cut the civil service by a little over 10% in its first four years. This is less than the coalition achieved in its first 18 months, let alone the cuts to come before 2015. Nevertheless, the Rayner efficiency reviews in the early 1980s produced substantial savings and new approaches to financial management, foreshadowing what became known as the New Public Management and other initiatives (roughly one per Parliament). While Thatcher was directly involved in pushing the Rayner scrutinies, at least in their early years, David Cameron has shown little interest in civil service

THATCHER’S ASSAULT ON CIVIL SERVICE PAY, PERKS AND NUMBERS LOOKS MODEST BY CURRENT STANDARDS Photo: Getty

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reform, preferring to leave this to Cabinet Office minister Francis Maude. The Ibbs report of 1987 led to the creation of ‘Next Steps’ executive agencies to administer large chunks of government activity at arm’s length. Relationships between sponsoring departments and agencies have remained fraught as it has proved hard to achieve a satisfactory balance between ministerial accountability to Parliament and managerial autonomy on contentious areas, as seen in the recent re-absorption of the Borders Agency within the Home Office. The Thatcher government was famously reluctant to tolerate different policies, and higher levels of rates and taxes, in local authorities – especially when they were run by the hard-Left. The battles with the old Greater London Council and metropolitan councils, and then over the poll tax, shaped later Whitehall attitudes to local government. For all the subsequent preaching of localism, flexibility is still on Whitehall’s terms. Eric Pickles, himself a product of the battles with the hard-Left of the 1980s, and Michael Gove have gone further than ministers of the Thatcher years in side-stepping local authorities. Thatcher’s championing of freedom and of the private sector required a strong state to succeed. That paradox has not been lost on the current Tory generation, which is trying to use the powers of the centre to roll back the state. A big difference, however, is that, while she was in many ways a gradualist, developing her programme over more than a decade, the current Conservatives are trying to achieve equally far-reaching changes in a single Parliament.

Peter Riddell is director of the Institute for Government and has written two books on the Thatcher era, legacy and policies MAY 2013

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News Sir Merrick Cockell interview

LGA plans sector shake-up BY RICHARD JOHNSTONE

The Local Government Association is set to launch a radical reform plan for councils that will outline new ways of allocating public funding and providing services, chair Sir Merrick Cockell has revealed. In an interview with Public Finance, Cockell set out details of the LGA’s attempt to develop a ‘new model’ for local government, which will be launched at its annual conference in July. In February and March, the group examined five key issues for local government at ten regional roadshows across England. Areas under the spotlight included the financial sustainability of local government, as well as the future of adult social care services and welfare reform. The group also examined what additional powers could be devolved to create an ‘independent’ local government sector, as well as what councils can do to boost economic growth. Cockell said there would now be a ‘deep dive’ into the detail of each area to devise proposals. ‘We haven’t reached the conclusions yet, but we have been doing this for a few months now, going round our member authorities, with councillors and officers from those authorities and people in communities,’ he told PF. ‘It’s focusing on the real priorities over the next years and then looking from base principles at how we can achieve those results more effectively.’ With funding reductions planned by central government until 2018, a reform package is needed to ensure councils are ‘sustainable in the medium term’, he said. ‘It isn’t just going to be for one year, or a four-year Spending Review or whatever it will be, and is actually looking to what will work 6

Diving deep: Sir Merrick Cockell said the LGA will scrutinise details of each area to devise proposals based on ‘real priorities’

better in the future.’ The proposals are being made so they can influence manifestos for the 2015 general election, and will build on the LGA’s recent campaign for greater power for local government. The group assisted on the House of Commons’ political and constitutional reform select committee’s report on achieving independence for local government, which called for greater autonomy and fiscal powers for English authorities when it was published in January. Cockell said the ‘very core’ of the model would build on independence for local government, including what he called ‘real freedom’ for councils. ‘That’s going to be one of the key elements from which the rest would flow, and therefore we’ll be able to

point to how greater freedoms can lead to increased growth, more infrastructure investment and more housing, and join everything together.’ Among the possible ﬁnancial freedoms being examined is whether councils could be given a wider role in Comprehensive Spending Reviews, including a possible power for the LGA in dividing up available funding. This would be ‘a different relationship’ Cockell said, where local government was part of a ‘proper negotiation’ over funding. The new model will also seek to advance changes being introduced by the current government, such as the Community Budget pilots, where funding from across the public sector is pooled in local areas for local services.

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LocalGrowth ■ Richard Johnstone

Government urged to drop ‘wasteful’ competition plan Cockell said the new model could then be used as the basis of a settlement with Whitehall. ‘If we can carry the broad support of local government for a better way of operating local, democratically accountable public services, then we have a chance of selling that into the manifesto-writing process, leading through to 2015. If the broad thrust is common, we might have a chance of actually landing this, whoever forms the next government.’ The chair of the political and constitutional reform select committee, Graham Allen, welcomed the LGA’s attempts to build on the committee’s report. He told PF: ‘What we need is devolution to take place throughout the UK and that vehicle in England is local government. We will free tremendous amounts of innovation, creativity and money if we make the best of local government by setting it free rather than if it’s tied down by Whitehall.’ Allen added: ‘We are the only country that treats local government as a servant rather than a partner.’ Simon Parker, director of the New Local Government Network, said the plan for a new model for local government would unite a number of areas of concern for the sector amid the current climate of spending cuts. ‘I think it’s useful to bring it all together in one place, as everything is changing all at once, and I think we need a historic national settlement to manage this. We talk about cuts, and that’s what’s driving a lot of this change, but councils are looking to areas like their role in growth – that’s where they are going.’ He added: ‘The LGA is right on these ﬁve themes, and we need a historic, new political solution. It’s a good idea, and something I would support.’ However, it will be vital for the LGA to get buy-in from most authorities, Parker added. Alongside the LGA, large city councils such as Manchester and Birmingham will need to use their lobbying power to help it succeed. Photo: The Guardian/Alamy

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The government has been urged to back down on plans to make Local Enterprise Partnerships compete for a share of the proposed single local growth fund after a warning that such an exercise could be a waste of money. In the Budget on March 20, Chancellor George Osborne said he had accepted Lord Heseltine’s recommendation to establish a single funding pot to boost economic development. This will devolve some Whitehall cash for skills, housing and transport to LEPs from 2015, with total amounts to be determined in the Spending Review on June 26. Heseltine had proposed that as much as £49bn could be included. Osborne said all 39 LEPs would negotiate a local growth deal with the Treasury for funding to be distributed on a competitive basis, reﬂecting the quality of local plans. LEPs, which were created when the coalition government came to power in 2010, are intended to help councils and local businesses work together to stimulate growth across an area. The Treasury said that ‘competitive tension’ in the allocation of funds would

‘strengthen incentives… to unleash local areas to generate growth and drive collaboration’. However, the Core Cities Group has told Public Finance that the plan to individually assess plans from each partnership could be wasteful when public money is tight, and should be dropped. The group, which represents the eight core cities in England outside London, called for the pot to be allocated on the basis of each area’s economic activity or population. Director Chris Murray said member authorities would be making a submission in mid-May to set out how they would like the scheme to work. As the government is cutting spending, it should just ‘get on with’ dividing up the funds without the need for a bidding process, he said. ‘This is about government making choices with scarce resources and not wasting time on bidding. That’s what we would be doing with bids, and that just seems very wasteful. We think just get on with it.’ Ben Still, chief executive of the Sheffield City Region LEP, which comprises nine local authorities, hopes for ‘a fully devolved single pot’.

He told PF that if more than a quarter of the funds was decided by competition, the government would be asked ‘whether it is letting go or not’. Still added: ‘If government wants to have a competition of the ﬁrst round, let’s put in 75%–80% through an allocation and around 20%–25% on competition. That’s something most places could live with.’ But James Morris, who chairs the House of Commons’ all-party parliamentary group on local growth, told PF a competitive element in funding could ‘drive up the quality and effectiveness of LEPs and local decision-making’. In Morris’ view, the plan for a single pot offered a ‘massive opportunity’ to boost local growth. The single fund must ‘move away from the idea that cities and LEPs must justify their take from central government’. He added: ‘This should be very much more about them getting into control and taking decisions on what they think is appropriate for this area, and not an ongoing negotiation for their area. ‘I think the single pot takes us away from that, but not completely away from that, and we need to go further.’

Stirring the pot: opinions are divided on splitting the single pot competitively. In Sheffield (below), Ben Still, chief executive of the city-region’s Local Enterprise Partnership, is asking whether this shows government is letting go or not

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Conference

News NICK MANN REPORTS FROM THE CIPFA/EY CONFERENCE ON EU ACCOUNTING STANDARDS Epsas

EU accounting standards ‘need political support’ Political buy-in will be crucial to the successful introduction of common accounting standards across the European Union, according to Eurostat official Alexandre Makaronidis. Makaronidis, head of the project researching the options, told Public Finance that Eurostat’s March report had shown there was a ‘very clear need’ for EU-wide accrual-based standards. The report also concluded that International Public Sector Accounting Standards could not be directly applied across the EU, he said, but should still serve as the ‘key reference framework’ for any future European Public Sector Accounting Standards (Epsas). Makaronidis was speaking at the CIPFA/Ernst & Young conference on the implications of the Eurostat report, held in Brussels on March 26. He highlighted the need for ‘broader agreement’ on whether accrual-based accounting should be adopted by all EU public sector bodies and on the harmonised standards to underpin this. He added: ‘We need to develop a certain momentum and political co-ownership over this very important project because we cannot do without it.’ Makaronidis noted that Eurostat’s consultation on applying Ipsas across the EU had raised a number of concerns. As these needed to be addressed, it was important to be ‘pragmatic and realistic’ and ‘not rush’ when it came to considering if and when to move forward with any potential standards, he said. Among the barriers identified by respondents were the costs of making the change and the administrative burden it would impose on small government bodies. Eurostat’s report also highlighted concerns that Ipsas were ‘incomplete’ 8

Alexandre Makaronidis: ‘We need to develop political co-ownership over this very important project’

and lacked the precise rules needed for consistency between countries. Eurostat proposes introducing Epsas in three stages but it was difficult to judge how long this process could take, Makaronidis said. ‘We think this might be a mid-term project… four to six years. It may be shorter or it may be longer.’ European Central Bank

ECB ﬁnds case for Epsas ‘convincing’ The European Central Bank has put its weight behind European Public Sector Accounting Standards. Julia Katz, of the ECB’s macroeconomic statistics division, told the conference that the Eurostat report on the issue had made a ‘very convincing case’ for the introduction of a single accrual-based set of accounting standards for the European Union.

In particular, moving to Epsas would improve the quality of data at all levels of government, as well as ensuring consistency with the accrual-based data used by countries to report their finances to the European authorities. ‘Creating and implementing Epsas would be a major milestone, which is expected to increase the timeliness and reliability of fiscal data,’ she said. Richard Hughes, from the International Monetary Fund’s fiscal affairs department, told PF that Epsas would make a ‘huge difference’. Using common public sector accounting standards could help governments worldwide to manage the continuing impact of the global economic crisis on their finances, he explained. ‘A lot of what you want countries to do to be able to manage this kind of balance sheet crisis is just adopt international accounting standards, which tell you to produce a full balance sheet and put your assets together, so your fixed assets are on there and you can understand the full network of government,’ he said. Epsas vs Ipsas

Harmonised accounts ‘will help comparisons’ Moving to a common set of accounting standards in Europe would offer a ‘huge improvement’ in the comparability of public sector accounts, Ernst & Young’s global leader for international public sector accounting told PF in Brussels. Thomas Mueller-Marqués Berger said it would also allow government accounts to be closer aligned with statistics. He said he believed a harmonised set of European Union-wide accrual-based accounting standards would become a reality. ‘The question is how near that will be to International Public Sector Accounting Standards.’ See video interviews from the conference on www.publicfinanceinternational.org

PublicFinance MAY 2013

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News

Analysis Local elections

All eyes on the election prize An unpredictable turnout at the May 2 elections is likely to register varied reactions to the coalition’s cuts and beneﬁt changes – but the big story could be how Ukip fares, suggests Richard Johnstone Less than a month after the government started to make a host of controversial changes to the welfare system, voters will go to the polls across England in a fresh test of support for the coalition’s deficitreduction plans. Elections scheduled for May 2 will give residents in 37 counties, unitaries and mayoralties the chance to flex their democratic muscles for the first time since Prime Minister David Cameron came to power and began to cut government spending. Chris Game, a visiting lecturer at the Institute of Local Government Studies, has analysed the upcoming contests. He says the results will reflect mid-term discontent with the coalition as cuts and benefit changes provoke a reaction to the party rather than anger at local councils. ‘If I’m a voter, then I have lots of incentives to vote against some of the cuts local authorities seem to be doing,’ Game tells Public Finance. ‘But if you have any sense of how these are coming about, you are more likely to blame the government.’ This means the results could be a mirror image of the 2009 elections, as Labour looks to reverse the gains made by Conservatives. Of the 27 counties going to the polls, the Conservatives have a majority in all but one, Cumbria, which is under no overall control. Game says that Labour, which lost overall control of four of these authorities 10

last time, should be on course to regain at least three – Derbyshire, Lancashire and Nottinghamshire. David Sparks, leader of the Labour group in the Local Government Association, says he is hopeful of making gains in these areas. He tells PF the focus of the Labour campaign has been on spending cuts, including welfare cuts like the ‘bedroom tax’ that began in April. ‘I think this year’s local elections will be a continuation of the past couple of years where there’s a great deal of dissatisfaction with the coalition government in the north of England, and the coalition parties will lose seats.’ However, the impact that spending reductions have in different parts of the country could lead to a ‘varied’ picture, Sparks says. It is difficult to predict the impact of changes such as the localisation of council tax support. ‘Different areas have different priorities,’ he says. Gary Porter, leader of the Conservative group in the LGA, certainly hopes the performance of councils that went Tory last time will protect them. But he adds the party is ‘bracing’ itself for some losses from the high point of 2009, when the Tories gained control of seven councils. ‘We have got some councils and councillors that we were surprised by and pleased to have won at the [2009] election and are likely to be in the most vulnerable

group at the moment. But we’ve been checking on some of the work that they’ve been doing, and we’re pleased with their track record, and we hope against hope that that track record will sustain them.’ Porter hopes the party’s performance in both Nottinghamshire and Derbyshire specifically will be enough to repel a Labour advance in campaigns where local issues will be key. The council tax freeze grant, offered to councils for a third time by Whitehall and taken up by 60% of authorities, should also help the Conservative cause, he observes. Gerald Vernon-Jackson, who leads the Liberal Democrats in the LGA, is frank that the party must improve on its recent showing in both the 2011 and 2012 local elections, where it lost 50% of its councillors each time. The LibDems will be targeting their efforts in the Southwest, particularly Somerset and Cornwall – authorities lost to the Conservatives in 2009. ‘It’s where we have historically done well, and it’s an

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theStats Swingeing statistics: county and unitary election results 1997–2009 30

Councils controlled

20 30 15 20

National vote share %

10 10

5 0

1997 Conservatives

‘WE ARE TRYING

TO STOP THE CONSERVATIVES FROM DOING SOME OF THE STUPIDER STUFF THEY WANT TO DO, BUT IT’S VERY TOUGH’ GERALD VERNON-JACKSON, LIBERAL DEMOCRAT LEADER, LGA

Photo: PA

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2001 Labour

Liberal Democrats

area where we want to continue to do well,’ Vernon-Jackson tells PF. Good results for the LibDems in recent local by-elections offer hope the party is developing its campaigning skills while in government, he adds. ‘The last time we were in government in peacetime was in the 1920s, and not a lot of us remember it, so we are getting used to it. I think there’s an understanding that in government we are trying to stop the Conservatives from doing some of the stupider stuff they would want to do, but it’s still very tough.’ Game highlights the county contests to watch. He predicts Labour is likely to make gains in Warwickshire, where the authority is preparing for no party having overall control, and Worcestershire, where Labour has an outside chance of replacing the Conservatives as the largest party. If it is able to make big gains there, Worcestershire would be seen as a bellwether of the party’s momentum nationally, he adds. In Staffordshire in 2009, Labour lost not just control, but all but three of its councillors; how it bounces back now will be key. Given the scale of the Labour wipe-out, regaining control ‘looks very difficult’, but Staffordshire has a strong Labour history, says Game, so is another authority that could prove a hung vote. In the eight unitaries going to the polls, Labour can reasonably expect to become the largest party in Northumberland and in Bristol, where the LibDems currently run the council as a minority. The two mayoral contests – in Doncaster and North Tyneside – are also likely to go to Labour, Game says.

2005

2009

No overall control

National vote share %

But these predictions could be scuppered by two factors all parties agree are hard to predict: the turnout in the vote and the impact of the UK Independence Party’s growing support in national polls. In 2009, elections were held alongside the vote for the European Parliament, and only 34.5% of voters cast their ballot. Porter warns that the turnout could fall even lower this year to become the worst in local elections for two decades. Game suggests the turnout could prove more resilient than feared, as people who voted in European elections will be likely to vote in county polls. He adds that the great unknown will be the performance of Ukip, whose high standing in national opinion polls and strong showing in recent Westminster by-elections will give them a new prominence in this campaign. The party gained a total of seven councillors in these contests four years ago. Ukip is fielding a record slate of 1,727 candidates across the country, compared to estimates of 2,249 for the Conservatives, 2,165 for Labour and 1,760 for the LibDems. ‘The story of these elections will be how Ukip is doing,’ says Game. Running the 2009 local elections along with the Europeans probably gave the party a 2–3% boost. ‘But they’re now back in normal elections,’ adds Game. ‘Will they find it as difficult as they ever do under our voting system?’ It is not long now before all of the political parties – and the rest of the country – find out. MAY 2013

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■ Why the centre can’t hold, by Roger Latham and Malcolm Prowle ■ Where there’s muck, there’s brass, by Michael Ware ■ Missing the whole picture, by Mark Williams

Opinion ■ Roger Latham ■ Malcolm Prowle

Why the centre can’t hold ‘Command and control’ is the default position for politicians and public service managers. But, as the tragic failures in Mid-Staffordshire show, it is a deeply ﬂawed delivery model It is amazing how unprepared most new governments are when they take ofﬁce. The current one had 13 years in opposition before winning power, while the previous Labour Government had to wait 18 years. Even so, they are often slow to grasp how policy-making and the levers of power work in practice. Tony Blair admitted his first term in office was less than effective because of this latter problem. The usual response by impatient politicians to this failure to effect change has been to increase centralised, command-and-control decision-making. The late Lady Thatcher, as many commentators have pointed out, was not exempt from this tendency. On assuming office, one of the issues she faced was how to reform local government finance. The Layfield Report had suggested councils might be given tax-raising powers via a form of local income tax. But this was too much for the centralist Thatcher, who declared that she wanted local government to be financed 100% from the Exchequer. When told by colleagues this just wasn’t compatible with local democracy, she opted instead for the ‘poll tax’ – and the rest is history. In the US, we might also ask whether President Barack Obama, despite his great rhetorical skills, has ever really understood the levers of power. An earlier US president, Harry S Truman, 14

clearly did. He said that he didn’t get results by issuing orders from the White House. Instead, he spent time ‘kissing backsides to make things happen’. Modern-day politicians, by contrast, fail to recognise that just issuing instructions from Whitehall rarely produces any responses, let alone the ones they want. More sophisticated approaches are needed. But governments in many countries remain addicted to ‘command and control’. Those who have seen the TV series Yes, Minister and Yes, Prime Minister may recall civil servant Sir Humphrey urging minister James Hacker to resolve a particular problem with the words ‘Centralise, minister, centralise’. This series still remains a great primer for those who wish to understand Whitehall. The roots of command-and-control lie in the military. It can be described as management based on the idea that people do what you tell them to do, and if they don’t, you yell at them until they do and if that doesn’t work, you apply some form of punishment. This probably sounds familiar to public service managers today.

An aberration or systemic? The problems at Mid Staffordshire are typical of command-and-control systems

But such a hierarchical, bureaucratic model is no longer fit for purpose in complex, sophisticated public services. In fact, it is often counter-productive. We see this in many failures of public policy. A prime example is the highly publicised scandal at the Mid Staffordshire NHS Foundation Trust, now in special administration, whose key weaknesses were exposed by the Francis Inquiry. One of the inquiry’s conclusions was that it was difficult to apportion blame because it was hard to see who was actually in control. This is a typical feature of hierarchical commandand-control bureaucracies. At Mid Staffordshire, those at the top tended to be thought of as the ‘planners and thinkers’; those at the sharp end were the ‘doers’. Unfortunately, this asymmetry meant that senior managers had a restricted view of what was going on, while those at the bottom received inadequate instructions. Another common factor in these hierarchies is that government and senior management respond to this lack of control by setting minimum performance standards. However, this target setting, and the monitoring and inspection that goes with it, is costly and ineffective. The data and systems are often distorted to indicate apparent compliance. In the case of Mid Staffs, it was clear that targets set on accident and emergency waiting times meant patients were seen according to time constraints rather than clinical need. In these circumstances, as it remains difficult for senior management to find out what is going on, there is a tendency to displacement of objectives. In the case of Mid Staffs, patient

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‘Centralise, minister, centralise’ was Sir Humphrey’s advice to James Hacker. Yes, Minister, remains a great primer for understanding Whitehall wellbeing was replaced by a ‘standard’ to indicate good performance: namely, achievement of trust status by management. Staff were rewarded for their efforts only when trust status was actually achieved. The assumption was that trust status was a reasonable proxy for patient care – it was not. Where a command-and-control bureaucracy is a virtual monopoly supplier (as in NHS trusts) and clients are at an informational disadvantage compared with the professional (as in health care), organisations are frequently taken over by a ‘producer culture’. Those who manage and are employed in the organisation often believe that their interests and objectives are what matters and that they coincide with the public interest. Such organisations find it difficult to cope with significant change. Instead they are best at delivering repeated levels of the same service. This means they are often poorly prepared to deal with natural variations in demand (as in the NHS), and find it difficult to implement multiple changes. Meanwhile, the relentless pressure from senior managers to achieve performance targets and change Photo: Rex

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management programmes, creates stress in the organisation. Hierarchical bureaucracies often tolerate dysfunctional behaviour because it is confused with strong and dynamic management, and indeed can promote behaviour that is bullying, self-seeking and deaf to complaints. Perhaps the key issue at Mid Staffordshire was whether the situation was unique to that trust. In our view the command-and-control approach to running the NHS contains the seeds of such disastrous events. Robert Francis’s conclusion that what happened in Mid Staffordshire could happen elsewhere seems entirely probable. One of the government’s responses to the Francis Report has been to commission a series of inquiries into other NHS trusts that show higherthan-expected death rates. No doubt it hopes that demographic factors, socioeconomic issues or the mix of conditions being treated will provide an explanation. However, by restricting the inquiries to the present rather than to historical problems, it has cut itself off from information from previous ‘whistleblowers’ in the organisations under investigation.

Depending on the outcome of those inquiries, the government will face a real dilemma. If the results show that Mid Staffs really was an aberration due to individual management failings, then the clamour from patient groups for someone to be held responsible will become more strident. On the other hand, if it is shown that the situation in Mid Staffs is replicated elsewhere, it implies a serious systemic problem. Ministers will have to address whether the pattern of organisation in the NHS is fit for purpose. And whether the current reforms – which involve trying to substitute patient and community interest for producer interests – will make a sufficient change. The command-and-control model is an ineffective way to manage public services and cope with the demands for change implied by a prolonged period of financial austerity. New and radical models are needed.

Malcolm Prowle and Roger Latham are respectively professor and visiting fellow at Nottingham Business School. They are also authors of Public services and ﬁnancial austerity: getting out of the hole MAY 2013

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Opinion ■ Michael Ware

Where there’s muck, there’s brass Councils need to radically change their attitudes to rubbish. It’s not just stuff to be collected, it’s an opportunity to make new things, boost the local recycling economy and earn some extra income My teenage daughter now has a Saturday job at a major coffee chain. She won’t let me reveal it but it’s the one that is named after a character from Moby Dick and that doesn’t pay as much tax as perhaps one would expect. I go in occasionally and every time I am astonished by how they freely give away cinnamon. The reason for my incredulity is because up until the last 200 years, this used to be an enormously valuable commodity and now we live in an age where big US corporations give it away for free. To put this largesse into perspective, in Roman times, a pound of cinnamon used to cost about a year’s wages for a labourer which, if the work recently done on my house is anything to go by, was about £100k plus a lot of sugary tea. I was thinking of this sea change in attitudes to spices when I read that the UK still recycles only 39% of its municipal waste and either buries or sets fire to the rest. A good proportion of the stuff we don’t recycle still has intrinsic value. This week, for example, the price of scrap paper was £62 per tonne, plastic bottles are going at £350 and aluminium cans are edging towards £850. So we have the perverse situation of cash-strapped councils laying off frontline workers while destroying things they know have value. If the public sector were running a chain of shops selling overpriced hot milk, they wouldn’t give away valuable cinnamon, they would pay somebody to take it away and bury it. So why does this happen? I think the language councils use to talk about waste betrays their view of the issue. They describe it as a public health issue, with ‘stuff’ needing to be collected and disposed of. I think this 16

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One person’s junk is another’s goldmine: councils should take a more active, innovative approach to waste disposal

paradigm persists because, at a fundamental level, councils are not in the business of dealing with materials. It isn’t in anybody’s job description to see the potential in stuff, to see how material A can be transformed into product B and sold in shop C. This was fine when waste was another public health problem to be solved but it isn’t

Waste is no longer a health issue to be solved, it is a valuable source of raw materials that councils mainly truck away and bury in big holes

anymore. It’s a valuable source of raw materials that councils mainly truck away and bury in big holes. I recently had a good insight into the alternative when I visited a waste wood collector. Councils pay them to take away waste wood in the form of old IKEA wardrobes, etc and they turn it into bedding for gerbils and hamsters. Apparently, because of the recession, sales of products for little pets are going through the roof. There is a sort of logic here. This is you going home and saying to your kids, we cannot go on holiday this year, but never mind, you can have a rabbit. And call him Peter. However, the real point here is that the clever people who ran the plant lived and breathed the process of transforming stuff. They didn’t see it as a waste product, they just saw it as a product. No adjective required. They thought constantly about how they could turn the wood they received from Photo: Alamy/Sam Kesteven

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pfOpinion the councils back into something useful. But the problem these people have is that they have to rely on the insular councils to get access to their raw materials – and how they are collected impacts hugely on their ability to recycle. It is much harder to recycle wood from commingled black bag waste than if it is source-separated. The indifferent council sitting between them and the waste stream hinders the development of new markets for other products. So my big idea is to break up the public sector monopolies on the collection of waste. Carve out the cost of waste collection and disposal from the council tax and give the money back to householders. Back this up by introducing more pay-by-weight schemes, which are commonplace in Europe. But, most importantly, do what all the other utilities do and give the consumer a choice about who collects their rubbish, in what form and at what cost. Overnight this will transform a moribund collection industry stuck in the mind set of waste as a problem into a cottage industry of small recyclers. Now the most common objection to consumer choice about waste collection is that it encourages fly tipping. But you could construct the same argument to say that charging people for rail tickets encourages fare dodging. I don’t think as a society we should shy away from good ideas just because they encourage criminality at the very margins. So, in conclusion, the way councils in this country think about waste hinders recycling. The public sector is not in the business of transforming materials into products and still regards waste as a question of transportation rather than transformation. This paradigm crowds out and stifles the recycling market. At its cultural heart, the public sector does not think about waste as potentially valuable stuff that can be turned into products, it thinks about it as a problem. This outdated thinking is the problem in itself.

Michael Ware is corporate ﬁnance partner at BDO

■ Mark Williams

Missing the whole picture The Public Accounts Committee wants the Treasury to increase the use of Whole of Government Accounts in Whitehall. How might this inform June’s Spending Review? The second set of UK Whole of Government Accounts, covering the year ending March 31, 2011, was published at the end of October 2012, but received limited coverage. In fact, WGA failed even to get a mention in the Budget 2013 documentation. This was surprising, as these accounts provide a consolidated position for central government, including health bodies, local government and public corporations. It is a powerful tool to help understand historic UK government ﬁnances and aid decision-making with respect to the future. It is true that the WGA is detailed, running to around 240 pages; that being published 18 months after the year ending limits its usefulness; and that we only have two years of trend information. However, it does provide very relevant insights on matters such as government debt, asset management, liabilities, the nature of government expenditure, the boundary of government – in short, matters that are central to the government’s austerity programme.

Equally important for current austerity measures is the use of accounting principles and tools, including balance sheet position, cash flow, ratio analysis and payback period. Several government policy areas would look different considered in the context of accounting principles, rather than economic arguments around market failure. This point was made by the Public Accounts Committee in April. Chair Margaret Hodge said departments must be made aware of what the headline figures mean for them, with the accounts considered regularly by all departmental management boards. With the Spending Review due on June 26, covering the period beyond April 1, 2015, there are a number of ways in which WGA might inform the process. ● Longer-term planning horizons, especially for contractbased public bodies, would avoid the costs associated with stop/start programmes. Year-end flexibility has rightly been removed for bodies that fail to spend their budgets but can lead to perverse outcomes when the cause is just private sector slippage ● Understanding the nature of government assets, and considering how they might be used more effectively if there is surplus capacity, helps re-imagine how value

might be realised beyond a straightforward disposal ● Recognising that although postponing spending can save money, it can also be a cost if the project is a ‘spend to save’ one. Energy efficiency projects are a case in point ● Many ‘spend to save’ projects cut across departmental boundaries, in particular some of the early intervention ideas associated with outcome-based contracting and social impact investment. The use of some form of pooled budget/projectbased ledger that runs across departments would be useful in promoting these types of projects ● Finally, there is continued interest in new delivery models, such as GoCos (governmentowned, contractor-operated companies), joint ventures and mutuals. These provide opportunities for public bodies that are already very commercial to unlock more value and potentially leverage private investment. Accelerating the WGA process (particularly with just a one-year Spending Review) will require signiﬁcant work and investment – but it will be worthwhile.

Mark Williams is a member of the CIPFA central government panel. See the CIPFA central government ﬁnance guide for further information

Margaret Hodge: Whitehall must consider what Whole of Government Accounts mean for them

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OpinionLetters You can e-mail your letters to letterstoeditor@publicﬁnance.co.uk. Please include your name and address and a daytime phone number. The editor reserves the right to edit letters

pfObituary James Watts 1927–2013

Flaws in the ointment: with 50% fewer staff in the new CCG than its predecessor, audit will be affected

Help expose CCGs sham Noel Plumridge’s opinion piece, ‘CCGs – the real deal’ (PF, April 2013) should be read by all employees of the new Clinical Commissioning Groups. I’m a member of our local CCG Health Forum Committee, having been elected by the public to represent their interests. I make it my business to promote their aspirations and expose the weaknesses in the new commissioning process. Are there others out there who want to see what’s going on from the inside? If so, they should become involved rather than throwing stones. Since I am a retired hospital consultant, our CCG may see me as having a conflict of interest. I don’t see it that way. I am not paid for my services, and have no employment contract. I am not prepared to accept policies as an issue of faith. If audit and research can’t support policies, then I shall oppose them. However, our local CCG has 50% fewer employees than the primary care trust it replaced. It is becoming apparent 18

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that its ability to carry out proper in-depth audit will be limited. Assessment of quality will be the most difficult part of this exercise, and since the CCG does not have the authority to examine data linked to identifiable patients, this will be a sham. This flaw in the audit process has to be changed. MARK AITKEN Colchester

Tax system needs a total reformation I enjoyed Peter Wilby’s recent article, ‘Tax avoidance truths’ (PF, April 2013). It summarised in a few hundred words the problems with the UK tax system and why there is no realistic prospect of it being fixed. I agree with Peter’s analysis, and believe we are stuck with politicians making marginal changes to our tax system rather than fully reforming it. Unfortunately, making minor changes and closing loopholes won’t alter the culture of avoidance. While things are more or less as they are now, there’s going to be a market for those with

James Watts – or Jim to his colleagues – died on February 6, 2013 at the age of 85. Jim passed away at St Richard’s Hospital in Chichester after fighting a succession of serious illnesses, which he had very bravely borne. He leaves behind his wife, three children and five grandchildren. Jim was born in Brighton in 1927. When he was 11, he secured a scholarship at Varndean School in Brighton, where he remained until the age of 16, after which he got his first job at Brighton Council as a finance officer. After two years of national service, Jim went to Stevenage Council to take up a finance position. Following that, he took on a role with the Crawley Development Corporation, which was a very challenging time with the founding of the New Towns. Jim qualified as an accountant with the Institute of Municipal Treasurers and Accountants, the forerunner to CIPFA, at West Sussex County Council in 1957. Following a three-year stint with Reigate Council, Jim attained his first job with the London Borough of Croydon in 1959 as an auditor. He remained there for 30 years, working his way up the career ladder to achieve the position of director of finance in 1979. He held this position for ten years and was held in high regard by councillors and officers alike. After retiring in 1989, Jim took on a finance advisory role for the Lingfield Epileptic Hospital School as a non-executive director, where he remained for a number of years. Because of his strong Brighton roots, Jim never lost his love of the sea and the Sussex Downs. He shared a love of the outdoors with his wife, Barbara, enjoying walking, cycling and travelling, right up until his illnesses. Jim will be sadly missed by family, friends and colleagues alike. Tony Watts

the knowledge to help people and companies to reduce their tax bills. A total change of the system might not change the culture of tax avoidance either, but it stands a better chance. Rebuilding our tax system (and setting tax rates seen to be fair) could incentivise the ‘right’ behaviour. But which chancellor would use all their political capital (and more) to achieve it? GARY BANDY Freelance consultant, Derbyshire Photo: Alamy

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Nations NEWS FROM THE DEVOLVED ADMINISTRATIONS Scotland

Green bank seeks funding extension BY KEITH AITKEN IN EDINBURGH

The Edinburgh-based Green Investment Bank is in talks with ministers about extending its funding for at least a further year, Public Finance has been told. The bank, the first of its kind in the world, has been set up to pump £3bn of public money into clean energy projects over three years. It became a fully operational public company last October. Group Operations Director Rob Cormie told PF the bank has already invested more than £500m. ‘We think it’s been a great success, frankly, from a standing start,’ said Cormie. ‘To invest that amount of money within a year is incredibly impressive.’ He added that the bank was in discussion with the government in the run-up to the June Spending Review. ‘In effect, we’re looking for a one-year extension with additional capital – we don’t know what that [will be], but that’s a process that’s ongoing.’ GIB is still operating out of temporary offices in Edinburgh, which was chosen as the location for the headquarters against competition from 19 other towns and cities. Some saw the location as a spoiler for Scottish independence, although Cormie insisted it reflected Scotland’s strengths in both finance and renewable energy. The bank also has a financial team in London. Its mission is to bridge funding gaps for projects in key green energy sectors – primarily offshore wind, waste recycling and energy efficiency. It can also invest money in wave and tidal, biomass, carbon capture and heat networks. It must provide less 20

On the horizon: director Rob Cormie says the Green Investment Bank needs additional capital to help it realise its aims

than half a project’s finance, and cannot be the biggest funder. Under European Union additionality rules, the bank must become involved only when it is necessary for a project to happen. Investments must be made on market terms and rates, although the bank has no formal targets for leverage levels, overall rates of return or project survival. ‘We need to be seen to be crowding in capital, not crowding it out,’ Cormie said. ‘The perfect scenario for us is a project that has 75% of its funding but has had a market competition and failed to raise the last piece, so we are able to fill the gap.’ Cormie said GIB’s mix of environmental and financial expertise makes it

exceptionally good at judging the viability of funding bids, and so sends positive signals about successful bidders. ‘We are very, very aware of our responsibilities to our shareholder, the taxpayer. We are a guardian of their funds, and we will be rightly criticised if we invest unwisely. To invest wisely, we need a clear strategy and the structures in place to make sure we make informed decisions.’ Around 60 of a likely 100-strong workforce are now in place, including all the senior management team. According to Cormie, the staff are a diverse mix, and have been drawn from backgrounds in banking and finance, environmentalism and the civil service.

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InBrief FUNDING IS IN THE BAG Carrier bag levy to help fund projects Northern Ireland launched a 5p carrier bag tax in April. The Single Use Carrier Bag Levy is expected to cut the 250 million carrier bags used in Northern Ireland each year by 80%. The levy will apply to bags made of paper, starch and natural materials as well as plastic. Levy proceeds will be used to help fund environment-focused community projects.

NO REOFFENCE INTENDED £7.7m to tackle high reoffending rates Six projects will receive a share of £7.7m to develop mentoring schemes to help

tackle Scotland’s high reoffending rates. The Scottish Government’s Reducing Reoffending Change Fund investment will be shared between local authority, charity and social enterprise projects.

COMMUNITY LIFELINE ‘Vital’ Welsh post ofﬁces get grants Thirty-nine Welsh post offices are being given grants worth almost £400,000 to expand their businesses and improve services to communities. Communities minister Huw Lewis said: ‘Post offices provide a range of services to local neighbourhoods. Their closure can threaten communities with social or

Scotland

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SO MUCH FOR THAT, THEN Scotland’s dream of BoE bliss mocked A House of Lords economic affairs select committee report has ridiculed the Scottish Government’s vision of an inﬂuential post-independence relationship with the Bank of England. It said Scotland could inherit a share of UK national debt – including public sector pension liabilities – of up to £93bn (23% of Scottish GDP). Peers urged both referendum campaign sides to publish non-negotiable ‘red line’ positions on currency, debt and defence.

communities by private sector providers co-locating other provision within the same premises. ‘For example, some of the facilities may include a pharmacy or a Citizen’s Advice Bureau. Each facility would be tailored to meet local needs, and the hubs will offer a much greater range of services to the communities in which they serve.’

GDP report shows Scots have more to spend on welfare Scotland is better placed economically than the rest of the UK to afford pension commitments, benefits and other social welfare costs, according to a Scottish Government report. The report concluded that Scotland devotes significantly less of its economy to public expenditure than other parts of the UK. Deputy First Minister Nicola Sturgeon used the figures to argue that a yes vote in the independence referendum on September 18 next year ‘will allow us to take welfare and pensions into Scotland’s hands, and to use the full strength of our economy to provide the support people across Scotland deserve’. The report, which is based on Scottish gross domestic product figures, will form part of a larger pre-referendum analysis of Scotland’s financial position in comparison with both the UK and other European Union countries. It found that total public spending accounted for a lower share of economic output in Scotland than in the UK last year, and in each of the past five years. The report concluded that ‘spending on social protection – which includes welfare, pensions and social services – is more affordable as a share of Scotland’s economy than it is across the UK’. Sturgeon commented: ‘Compared to the original 15 member states of the EU, 13 of them use more of their national wealth to pay for social protection than Scotland does.’

ﬁnancial exclusion.’ The grants would provide practical support, he added.

Wales

Government gives £22m for cuts gap Hub capital: Health minister Edwin Poots is seeking private sector involvement to help fund new community health ‘hubs’ Northern Ireland

Poots urges publicprivate ‘synergies’ Two new £40m community health centres have been given the green light by Health Minister Edwin Poots. The centres – located in Newry and Lisburn – are being financed through a public-private partnership known as the Third Party Development (3PD) mechanism. The centres will act as health ‘hubs’ for their local communities, and will include GP services, diagnostic services and imaging, and children’s services. Completion is scheduled for 2016. Poots said that, given restrictions on the capital funds available to him, the ‘active involvement’ of the private sector could make a significant contribution. He added: ‘I am of the view that synergies can be developed within local

Some 330,000 households in Wales are to be protected from cuts in Council Tax Benefit after the Welsh Government provided £22m to plug the gap this year. Under its welfare reforms, the coalition government is cutting the funding available for council tax support by 10%. The changes also require local authorities to design and implement their own schemes, and have prompted concerns that many poor working-age households will have to start paying council tax. The Welsh Government has been working with councils to develop new support arrangements and minimise the impact on vulnerable claimants. The £22m will ensure benefit payments are maintained in 2013/14, despite the cuts imposed by Westminster. Local Government Minister Lesley Griffiths said: ‘In collaboration with local government, we have introduced schemes to provide vital financial assistance to approximately 330,000 households in Wales. The additional funding we have provided means some of our most vulnerable individuals will be protected from the UK government’s cuts in funding for council tax support.’ MAY 2013

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Watchdog

Watch W H AT ’S G OING ON IN TH E WOR LD OF R EGU L ATION A N D INSPECTION Audit Commission Local audit contracts worth £25m a year are to be retendered in a bid to find further savings, the Audit Commission has announced. The local authority and primary care trust contracts were outsourced to private ﬁrms in 2006 and 2007, before the watchdog’s abolition was announced in 2010. They represent around 30% of the total audit work carried out at local bodies in England. The Audit Commission’s in-house work was outsourced last year. This is expected to bring in savings of £250m over ﬁve years and allow statutory audit fees to be cut by up to 40%. In the light of these expected savings, the commission has decided to terminate the earlier contracts and retender them, giving the required two years’ notice. The contracts are currently held by Deloitte, Grant Thornton, KPMG, PricewaterhouseCoopers and PFK. New arrangements will come into effect for the 2015/16 accounts.

hospitals, modelled on the inspection regime used by Ofsted for schools. Measures would also be developed for individual hospital services, such as cancer treatment and maternity care. The chief inspector would also assess hospital complaints procedures and act as the NHS’s ‘whistleblower-in-chief’, raising concerns about care quality. A parallel chief inspector of social care is also being established to ensure the same rigour is applied to care homes and to introduce performance ratings. Further reforms will be made to the CQC to ensure it undertakes ‘rigorous and challenging’ reviews of both hospitals and care homes. A new statutory duty of candour will also be introduced, placing every organisation regulated by the CQC under an obligation to be honest and transparent when mistakes are made. Hunt said these ‘radical’ measures were needed to change the health and social care system.

Care Quality Commission Health Secretary Jeremy Hunt announced changes to the inspection and regulation of NHS services following the care failings at Mid Staffordshire trust, which has now been put into special administration. Responding formally to the public inquiry, chaired by Robert Francis, Hunt said a new chief inspector of hospitals post would be created under the Care Quality Commission to detect problems in care. The chief inspector would introduce a performance rating for 22

Accounts Commission Scottish councils face a continuing spending squeeze in the coming financial year and it will be a ‘tall order’ for them to maintain services, the Accounts Commission has warned. The annual examination of the local government sector, prepared for the commission by Audit Scotland, found the 32 councils spent £21bn providing local services in 2012/13. However, cuts in grants from the Scottish Government will leave substantial funding gaps over the next three years, the watchdog said. Funding from Holyrood to councils is set to fall by 2.2% in real terms from April. In response, authorities would now have to consider decisions, such as cuts to services, that had previously been ruled out, the auditors concluded. For example, councils were increasingly charging for some services, but they needed to weigh these decisions against the impact on service users. Accounts Commission chair John Baillie said councils had coped well with the ﬁnancial strains of recent years but the pressure was not abating. ‘They need to continue to review existing services as well as identifying fresh ways of providing them – working with their partners, sharing skills and resources and keeping a close tab on budgets to ensure every pound is spent wisely.’

National Audit Office

Radical measures: Health Secretary Jeremy Hunt is bringing in chief inspectors for hospitals and care homes

The National Audit Office has urged the government to ensure that people without internet access do not lose out as public services are moved online.

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COMINGUP… The right move? The National Audit Office is assessing the beneﬁts of the BBC’s relocation from London to Salford

MEDIA MOVE The National Audit Office is to examine the BBC’s relocation to Salford. Several of the broadcaster’s operations, including sport, children’s programming and Radio 5 Live, moved to Salford’s MediaCityUK complex. The aim was to increase approval of the BBC in the north of England, improve value for money and bring some economic benefits to the region. The NAO will evaluate how well the move was managed and if the expected benefits are being provided.

TAMIFLU CHECK Reporting on Whitehall’s ‘digital by default’ strategy, the auditors found there was broad public support for the target of putting 82% of all central government transactions online. Ministers have estimated this would save £1.8bn a year. Digital Britain also found that around 83% of people regularly used the internet. However, 17% did not and almost three-quarters of these – 72% – did not intend to. Given the scale of this ‘digital exclusion’, the watchdog concluded that the government needed to take action now to avoid a ‘them and us’ divide developing in the provision of public services. In another study, the NAO slammed the Department for Communities and Local Government’s management of the £1.3bn New Homes Bonus programme, warning that many councils would lose out. Auditors found the department had not adequately monitored the impact of the scheme and the signs were ‘not encouraging’ that it would lead to extra homes. Launched in November 2010, the bonus is intended to provide a funding boost to town halls that approve new housing developments. Ministers said it was expected to lead to 140,000 additional homes over ten years. The bonus is paid to local authorities for every home added to their council tax register, minus any homes that have been demolished. Whitehall matches the additional council tax from the new homes until 2016/17. Both new-build homes and empty properties brought back into use qualify for the funding. However, the NAO said the scheme Photos: Rex/Wikipedia

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The National Audit Office is looking at the way medicines are approved and licensed and the NHS’s decision to

stockpile the Tamiflu drug, which is used to treat swine flu and avian flu. The study will attempt to determine whether medicine regulators have access to all the clinical trial evidence when licensing and appraising new drugs for use in the NHS. MPs have raised concerns that clinical trial data showing Tamiflu to be ineffective have been sat on by the manufacturer.

ONE FOR ALL Auditors in Northern Ireland are to review Account NI, a shared financial processing service for 12 government departments and 19 other public bodies. The service, one of several provided by the Department of Finance and Personnel’s Enterprise

posed a ‘substantial’ financial risk to authorities whose areas were not attractive to developers. Meanwhile, the auditor general has qualified the last accounts of Firebuy, the now-defunct organisation set up to improve procurement at the fire and rescue service. Firebuy, a limited company and nondepartmental public body of the Department for Communities and Local Government, was formed in September 2005 to negotiate national contracts with suppliers. It ceased trading in July 2011 following the coalition government’s quango review and its functions were transferred to other bodies. Auditors found it went into liquidation without having prepared financial statements for 2010/11 or the relevant period of 2011/12, contravening Treasury requirements. Morse also qualified his opinion of the 2011/12 accounts of the Royal Armouries after it increased the salaries of two staff members in defiance of the public sector pay freeze. The NAO found ‘insufficient evidence’ that either due process was followed in awarding the pay hikes or that the increases were justified.

Office of Rail Regulation London’s Waterloo station remains the busiest in Britain, according to statistics published by the Office of Rail Regulation. Station usage ﬁgures for 2011/12

Shared Services Branch, pays invoices, makes grant payments, keeps accounts and prepares management reports. The Northern Ireland Audit Office’s study will consider whether the service has achieved expected efficiencies and helped to improve financial management in the Northern Irish civil service.

WELSH OVERVIEW Before the autumn, the Wales Audit Office plans to release reports on European Union structural funding and the Welsh Government location strategy. It will also publish follow-up reviews of child and adolescent mental health services and one on chronic conditions management.

Keeping busy: more passengers go through London’s Waterloo station than any other UK railway station

estimated that there were 94 million passenger entrances and exits at Waterloo, an increase of 2.5% on the previous year. Second busiest was London Victoria, with more than 76 million entries and exits, up 3.6%, and third was London Liverpool Street, with 57 million, a 2.4% rise. Eight of the ten busiest stations were located in the capital. Birmingham New Street and Glasgow Central were the two provincial stations to make the top ten. Helensburgh Upper, which serves Glasgow, Wainﬂeet in Lincolnshire and Cosford in Shropshire were the three stations with the biggest drop in passenger numbers, although in Cosford’s case the station was being rebuilt for much of the year. MAY 2013

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C OV E R F E AT U RE

Spending Review 2013 S

THE

STATE

OF THINGS

TO COME

The June Spending Review is going to slice Whitehall’s funding cake so thinly that departments will be left ﬁghting over the crumbs. So how are public services meant to cope? Words: Tony Travers

THE RECENT PASSING of Margaret Thatcher

Then and now: the cuts yet to hit the public sector far exceed Margaret Thatcher’s efforts to roll back the state and slash spending 26

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provided Britain with a fascinating reminder of the way in which government – or, in her case, a powerful government leader – can affect the ways we think about the state and public expenditure. No prime minister in modern times was more associated with concepts such as ‘good housekeeping’ and ‘rolling back the frontiers of the state’. Her government drove down public spending as a share of gross domestic product and cut tax as far and as fast as it could. Mrs Thatcher remains a powerful influence on the way British politicians

think about spending and tax. The chancellor is currently preparing a Spending Review for 2015/16, which will be published on June 26. As a result of the timing of the 2013 spending plans, and whatever the outcome of the next general election, there will need to be a further review for the years 2016/17 to 2018/19. Given the short time between an election in, say, May 2015 and April 2016, we can confidently predict this next review will be published in October 2015, by which time the funding cake will have shrunk even more. Cabinet ministers have been Photo: Mirror/PA/Shutterstock

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What lies within? Chancellor George Osborne has revealed the headline spending levels up to 2017/18 but not a departmental breakdown

THE 2015 SPENDING REVIEW WILL EITHER HAVE TO REMOVE THE RING-FENCES FROM PROTECTED SERVICES OR CONTINUE THE POST-2011 PATTERN OF CONCENTRATED CUTS TO A LIMITED NUMBER OF SERVICES

furiously lobbying to avoid further cuts to ‘unprotected’ services. Theresa May (Home Office), Chris Grayling (Justice), Philip Hammond (Defence) and Eric Pickles (Communities & Local Government) are widely reported to have said ‘enough is enough’ in relation to the protection given to the NHS, schools, international development and welfare spending. This so-called ‘National Union of Ministers’ has argued that further rounds of spending cuts must be spread across a wider range of provision. May and Pickles were partly successful in protecting police and local government MAY 2013

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Spending Review 2013 S

Schools out? Departments in the front line of cuts say it’s time to end the funding protection given to the NHS, schools, international development and welfare

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from an additional spending reduction in 2013/14, although they seem likely to have to make a further cut to their budgets in 2014/15. Councils already face deeper cuts in 2014/15 than this year as the result of previously set plans. The prognosis for the future is not good for local government, the police, fire & emergency services, the justice system, defence, the environment and business support. The 2015 Spending Review will either have to remove the ring-fences from protected services or continue the post-2011 pattern of concentrated cuts to a limited number of services. It is worth remembering that Labour was expected to publish a Spending Review in 2009 but postponed it until after the general election. At the time, there was deep concern within Gordon Brown’s government about the cuts that would have to be revealed by such an awkwardly timed publication. When the 2015 election is held, all the parties will be fighting on the basis of unknown detail about future spending plans. Chancellor George Osborne has revealed headline totals for spending up to 2017/18, but there is no departmental breakdown. It will be possible for the Conservatives (and perhaps the Liberal Democrats) to challenge Labour as to whether they would keep to the overall total of expenditure. But Labour leader Ed Miliband and his shadow chancellor Ed Balls will doubtless argue that they must wait until they see the books before they determine their tax and expenditure plans. The odd couple of Vince Cable and Liam Fox have also called in their different ways for a removal of ring-fences from the protected services. Speaking on the BBC Radio 4 Today programme, Business

and Skills Secretary Cable stated: ‘The problem about ring-fencing as an overall approach to policy is that when you have 80% of all government spending ringfenced, it means all future pressures then come on things like the army, the police, local government, skills and universities [and] the rest that I’m responsible for. So you get a very unbalanced approach to public spending.’ Former defence secretary Liam Fox, an economically ‘dry’ Conservative, has argued for the removal of ring fences to make room for tax cuts. It currently seems likely that local government, along with other non-ringfenced services, will face real-terms reductions of at least 50% in expenditure over the period 2011/12 to 2017/18. It is interesting to muse on how different things might have been by the end of 2014/15 if the NHS, schools, international development and welfare expenditure had fallen in line with local government revenue spending over the period since the 2010 Spending Review. These four ‘protected’ current budgets totalled £327bn in 2010/11, rising to £360bn in 2014/15. In the same period, local government’s current spending power will have declined, on average, by about 15%. Had spending on the protected services fallen by this same 15%, it would be £278bn in 2014/15. If this had happened and other things being equal, the deficit would have been £80bn lower in 2014/15 than currently projected. Alternatively, if there had been no ringfencing and the government’s overall Total Managed Expenditure had grown at the rate it has, local government, the police, justice, business support, the environment, defence and other unprotected services would be spending 10%–15% more in 2014/15 than, in reality, they will. Conversely, expenditure on the NHS and welfare would be substantially lower than currently proposed. Total Managed Expenditure is the grand, overall, figure for all on-balance sheet spending by the public sector. It’s made up of Departmental Expenditure Limits (DEL) – spending by departments and their agencies that can be limited from year to year – and Annually Managed Expenditure (AME), which is generally demand-driven, such as welfare spending. While the rules for allocating such spending can be set in advance, actual levels will depend on economic and social factors. One of the reasons welfare spending will have risen by £20bn more Photo: Alamy

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publicﬁnance.co.uk/features Back to what future? The bleak outlook for the economy means no end in sight for austerity

than the coalition expected over the period 2011/12 to 2014/15 is that it falls within AME. Chancellor Osborne recently quipped that AME is ‘annually unmanaged expenditure’, probably reflecting his desire to reduce it. The reality with this spending is that although ministers can change entitlement rules and/or benefit levels, they cannot control the number of people claiming benefits. However, in the Budget, Osborne made the radical announcement that: ‘The government will strengthen the public spending framework by introducing a ﬁrm limit on a signiﬁcant proportion of Annually

EVEN IF AN INCOMING GOVERNMENT IN 2015 SLIGHTLY INCREASED PUBLIC SPENDING, BRITAIN WOULD NOT RETURN TO A PERIOD OF GENEROUS GROWTH IN PUBLIC PROVISION MAY 2013

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THE GOVERNMENT AND THE OPPOSITION SENSE THE PUBLIC WANTS RADICAL REFORM AND LOWER SOCIAL SECURITY SPENDING

Beneﬁts on the line: Politicians have used the tragic Philpott case in their continuing war of words over the welfare system

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Managed Expenditure, including areas of welfare expenditure.’ After more than three years in office, the chancellor has decided to try to get a grip on the overall size of the welfare budget. But such a step is fraught with danger, particularly because over half of the overall amount paid in welfare is to pensioners. It seems likely that ‘areas of welfare expenditure’ that would be ring-fenced would include pensions. A culture war is currently under way in relation to the future of the welfare system, including a thread of debate about ‘strivers’ and ‘scroungers’. The baleful case of Mick Philpott and the killing of six of his children in a deliberately started fire acted as a catalyst for a further struggle between politicians. Labour, although it has criticised the government’s rhetoric and welfare changes, has begun to think radically about the reform of the system. Shadow work and pensions secretary Liam Byrne has spoken of linking welfare entitlements to previous contributions. Those who had paid more in taxes might, for example, qualify for social housing ahead of those who had paid less.

The government and the Opposition sense the public wants radical reform and lower social security spending. The Francis report into the Mid Staffordshire hospital trust has also affected debate about the future of public services. Health Secretary Jeremy Hunt has appointed a new chief inspector of hospitals and increased the importance of patients’ experience within the NHS. While there is no evidence that the public has fallen out of love with the NHS as a result of the Mid Staffs scandal, it seems likely that ministers will feel emboldened to continue with the programme of reform that took effect on April 1. The future of the NHS, the reform of the welfare system and the post-2015 pattern of public expenditure form part of a longer-term challenge for governments of all parties. As the post-2008 ‘near-depression’ continues across Europe and the United States, it appears inevitable that there will be insufficient economic growth to lift tax revenues to anything like the degree necessary to eradicate the UK’s public sector deficit before, say, 2018. Even were an incoming government in 2015 to increase public expenditure slightly (and thus, of course, the deficit), Britain would not return to a period of generous growth in public provision. If Labour took office, it would be under massive pressure to increase real expenditure on the NHS and schools. Miliband would find it hard to reduce spending on welfare and international development. There would be a risk that the currently ‘protected’ services would be the ones where additional resources were concentrated. All political parties find it hard to raise the level of tax. George Osborne, like Gordon Brown and Alistair Darling before him, projects the UK tax take at 38% of GDP for each year up to 2017/18. No government appears willing to raise Photo: PA/Getty

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The odd couple: Vince Cable and Liam Fox have found themselves in agreement over wanting an end to ring-fenced funding for protected services

this percentage, even though the average longer-term level of public expenditure is closer to 42% of GDP. Unless and until the tax percentage can be lifted, it is inevitable that public spending as a proportion of GDP will need to fall back towards 38%. Governments are afraid of the electorate and, in particular, fearful of raising perceptible taxes for anyone apart from the rich. The suppression of council tax is almost certainly popular, simply because it is so easily understood. If the UK is to support public expenditure at between 42% and 45% of GDP, it would be necessary to raise taxes as a share of GDP to broadly the same levels. There is no way it would be possible to deliver such a big rise in taxation without increasing the taxes paid by average earners. The UK is thus in a position where pressure on public expenditure will continue for several years to come. Even when the deficit is gone, there will still

be the problem of the need to finance a bigger state than taxation at 38% of GDP can sustain. This issue, in microcosm, will be tested at this year’s local polls on May 2. There are elections in the counties, a number of unitaries and districts in England. Last time these authorities voted, the Labour Party was at a low ebb. This time, there is likely to be a big swing from the Conservatives and LibDems to Labour. However, unless there is a full-scale meltdown of the Tory and LibDem vote, it will still suggest that Labour has a long way to go to convince the electorate it can be trusted with the economy. Conditions could hardly be better for an Opposition party, but Labour’s opinion poll lead is relatively modest. Miliband needs, among other things, to produce convincing policy about the future of public services at a time when there will be little or no additional resources. Although we are well past Thatcher’s

era, her legacy lives on in the struggle to contain contemporary public spending and improve services. The 2013 Spending Review will create a portal to the more complex one after the next general election. It seems likely that budgetary protection will have to be reduced, at least for expenditure on benefits. Some kind of Plan A+ may yet find its way onto the agenda, at least with regard to spending on infrastructure. The longer-term outlook for public sector current spending remains bleak. The cuts made so far and those that lie ahead far exceed anything Mrs T achieved. David Cameron, Nick Clegg and Ed Miliband are indeed her heirs.

Tony Travers is the director of LSE London, a research centre at the London School of Economics examining local government and public ﬁnance. He will be speaking at this year’s CIPFA conference, being held in London on July 9–11 MAY 2013

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FE ATURE

Monetary policy

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publicﬁnance.co.uk/features

W E N R E D UN

MANAGEMENT It’s all change at the Bank of England with a new governor about to take over the reins and a revised remit from the chancellor. So can Mark Carney deliver? Words: James Zuccollo

THE UK IS in an economic hole. It remains mired in the

longest recession for more than a century, and growth forecasts have again been revised down. The government’s 2013 Budget appeared to hoist the white flag, with the Office for Budget Responsibility assessing that it would have no effect on growth. All eyes are now pinned on the much-heralded arrival of Mark Carney as the new governor of the Bank of England. He takes the reins from Sir Mervyn King at the end of June and will be the first foreigner to lead the Bank since its establishment in 1694. In his current role as governor of the Bank of Canada, Carney has been credited with shepherding the economy through the financial crisis relatively unscathed. His use of unorthodox instruments, such as a year-long commitment to low interest rates, has been emulated by other central banks around the world. That boldness has generated intense speculation about the course UK monetary policy might take under his leadership, which has culminated with the release of an updated remit for the Bank of England alongside the Budget. Announcing the 2013 Budget, Chancellor George Osborne said the ‘central plank of our economic plan

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FE ATURE

Monetary policy

THE CHANCELLOR HOPES A NEW REMIT MEANS THE BANK OF ENGLAND WILL BE ABLE TO RESUSCITATE THE ECONOMY. BUT HE MIGHT HAVE OVERESTIMATED ITS EFFECTIVENESS [is] that a tough and credible fiscal policy creates the space for an active monetary policy’, a clear call for looser policy from the Bank of England. Of course, the Bank has not been idle since the crisis began. Since 2007, it has cut interest rates to historically low levels, conducted £375bn of quantitative easing and attempted to provide cheap lending to retail banks. Despite this, the economy has stubbornly flatlined and inflation has twice exceeded 5% since 2008. Against this backdrop, the new remit for the Bank has two notable elements. It encourages the use of ‘forward guidance’, and clarifies that the target is ‘flexible’. These tools have always been available to the Bank but the chancellor has now highlighted them and, in particular, asked the Bank to report back to him on the use of forward guidance. Forward guidance involves the Bank publicly committing itself to a particular course of action, as the Bank of Canada did in 2009 under Carney’s leadership. The idea is that a rule-based commitment allows people to act with more certainty about future economic conditions, which can help boost confidence and growth. It has been recently used in the US, where the Federal Reserve (the Fed) has committed to keeping interest rates below 0.25% as long Controlling as unemployment remains above 6.5% and inflation inﬂuence: the expectations remain below 2.5%. change in the Bank Essentially, the Fed is promising not to put the of Japan’s inﬂation brakes on until the economy is well on the way to target from 0% to 2% recovery. In the UK, under the current governor, the after decades of Bank of England has steered clear of binding its hands stagnation sent the in any way, but the chancellor is clearly hinting that Japanese stock market soaring he thinks it should reconsider its stance.

The new remit also confirms the Bank’s policy target as 2% inflation under the Consumer Prices Index. The chancellor has clarified that this means the Bank should always aim to return inflation to 2% in the medium term, not that inflation should be 2% at all times, regardless of economic conditions. That is welcome because it means that the Bank need not respond instantly to every wobble in the CPI. As deputy governor Paul Tucker has said, ‘we don’t have to create recessions to get inflation back to target quickly in the event of an oil price hike.’ The Bank’s tolerance of spikes in the CPI over the past five years has been heavily criticised by some economists for breaching the target. The chancellor’s statement represents a strong rebuttal of that view. With a new remit, the chancellor hopes the Bank of England will be able to resuscitate the economy. However, he might have overestimated its effectiveness. While the remit reaffirms the 2% inflation target, it does not provide any tools that were not available before the Budget. In essence, Osborne has simply hinted at what he would do if he were running the Bank. He appears to be hoping that a nudge towards further monetary easing and a new governor will be a sufficient impetus to alter the current direction. Carney appears to share these hopes, but both he and Osborne may be disappointed. Decisions at the Bank are not made by a single person, and the governor has only one vote. Monetary policy at the Bank is decided on by the nine-member Monetary Policy Committee, and Sir Mervyn King has voted in favour of further quantitative easing at the past two meetings. King has a reputation as a forceful advocate for his views so it is unlikely that Carney will be better able to persuade the MPC to ease policy. It is neither the current governor nor his tools that are holding back monetary policy: the constraint is the target the chancellor has set. A flexible inflation target might be the theoretical ideal but its implementation in the UK demonstrates its practical limitations. To see the problems with the inflation target, we have only to look at the minutes from the MPC’s March meeting. They begin by pointing to ‘a degree of slack in the economy’, which is exactly what monetary policy exists to avoid. Of course, the committee must also heed inflationary dangers, but they note: ‘Higher output growth would not necessarily lead to any material increase in inflationary pressure.’ This suggests an immediate need to loosen monetary policy yet the committee eventually concluded that ‘there was a risk that [loosening] could lead to inflation expectations drifting upwards’, and

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publicﬁnance.co.uk/features

To boldly go: Mark Carney’s use of unorthodox instruments, such as a year-long commitment to low interest rates, has been emulated by central banks around the world

decided not to act. Essentially, they judged that the risk of a possible rise in inflation expectations matters more than the near certainty that the UK has persistently deficient demand. In the current economic circumstances, it would be far better for the MPC to place its emphasis on assisting the economy to reach full capacity. That requires reframing its decision with a new target that shifts the balance of its attention. The debate around appropriate monetary policy targets has flourished over the past five years and a number of alternatives were available to the chancellor. The most obvious alternative, championed by prominent economists such as Simon Wren-Lewis of Oxford University, would have been to give the Bank a dual mandate that requires it to consider both growth and inflation. The Fed, for example, is required to both control inflation and reduce unemployment. That would change the balance of the MPC’s decision when weighing the risks to inflation against the costs of chronic demand deficiency. It would also be a relatively small change from the present regime and has the advantage of being well tested overseas. In the present circumstances, it is almost certain that such a policy change would result in the MPC loosening monetary conditions. However, some commentators, such as HSBC chief economist Stephen King, complain that the Bank is out of ammunition because the headline interest rate is already close to zero and quantitative easing has been disappointing. That complaint is a fair one in current circumstances but does not account for the powerful effect of committing to a new policy regime. In the UK, markets are unconvinced by the Bank’s efforts to stimulate the economy precisely because they know the MPC’s key concern is not growth but inflation. Cheap money today is a punch bowl that will be pulled away at the first sign of rising inflation, making it completely ineffective as a policy tool. A change in the policy regime changes the rules of the game. The best recent example is in Japan, which has experienced two decades of economic stagnation. In that time, the Japanese government has racked up the Photo: PA

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world’s highest public debt (well over 200% of GDP) in an attempt to stimulate the economy. However, the Bank of Japan leaned against the stimulus and kept inflation at 0%, resulting in the lost decades. Late last year, the government changed tack and instructed the Bank of Japan to pursue 2% inflation; a massively stimulatory programme of monetary expansion compared with the previous policy. Since the announcement in November 2012, the Japanese stock market has risen 45% on expectations of future growth and the yen has depreciated by 20%, graphically illustrating the power of a policy change. A more drastic change in target for the UK would have been a switch to targeting nominal output instead of inflation; so-called NGDP level targeting. Economic professors Michael Woodford, of New York’s Columbia University, and Scott Sumner, of Bentley University, Massachusetts, are notable proponents of nominal output targets, which have rapidly gained prominence since the onset of the recession. Nominal output comprises GDP growth and inflation so it is somewhat similar to a dual mandate, only with a fixed ‘weighting’ between inflation and growth. Proponents of this target claim that its advantage over a dual mandate is that it provides a firm anchor on market expectations. Rather than having to guess at the MPC’s future actions, people can rely on a particular rate of income growth when setting prices. It is unsurprising that the chancellor decided against a nominal output target since no central bank has yet implemented one, despite its popularity among economists. So a lot rests on the appointment of Mark Carney. The news that he is to replace Sir Mervyn King as the governor of the Bank of England has been met with almost universal praise. It is seen as a coup for the chancellor and an opportunity to lift the UK out of five years of recession. But rather than seizing the moment, the chancellor has left the new governor with all the weight of public expectation and little hope of fulfilling it.

James Zuccollo is senior economist at the Reform think-tank MAY 2013

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FE ATURE

Public sector pay

WHAT ABOUT THE

Local government employees have been hit by a double whammy. Already underpaid and undervalued compared with other sectors, they are now bearing the brunt of public service cuts

Words: Heather Wakeﬁeld

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WOR of a further year of public sector pay restraint – pegged at 1% until 2015/16 with no additional increments – has pushed the question of public sector pay bargaining further up the agenda for public service unions like my own, Unison. It seems that, without a fight, there will be little scope for sector-wide pay negotiation at all until after the 2015/16 pay round. Even then, Labour also has its colours pegged to the 1% limit, so there’s no imminent solace to be found for the many low-paid public service workers struggling to make ends meet. With Retail Prices Index inflation predicted to exceed 17% from now until 2017, the impact of the policy on most public sector workers will at one level be simple. It will be a significant real-terms pay cut, on top of another real-terms pay cut – an average pay loss of around £603 since 2010. In addition, pay and conditions for similar jobs vary significantly across bargaining groups so further earnings austerity will impact differently, creating more hardship for some groups than others. Local government workers are being hit hardest. One noticeable difference in approaches to pay before and under the coalition is between local government and all other public sector groups. In 2010, the chancellor announced that public sector workers earning less than £21,000 would receive a one-off £250 payment for both years of the pay freeze. A shocking 60% – over 1 million – of local government workers fall into that pay bracket, yet Local Government Employers refused to make the payment. This means that council staff – excluding teachers – have had no pay increase at all since 2009, with a dispute hanging over a 1% offer with ‘strings’ for 2013/14. THE CHANCELLOR’S ANNOUNCEMENT

Two questions then arise. Is local government subject to government pay policy or not? The answer to that seems to be ‘when it suits’. And why are local government workers treated less favourably than others in the public sector? Hovering above those two puzzles, a major longer-term question straddles all public services. How could – and should – public service jobs be valued and remunerated, both within the public sector and in relation to the private sector? Amid what might still appear to governments and policy makers to be monolithic, inflexible pay systems, there is significant UK-wide, national and local variation in both pay and conditions within and across sectors. In addition, recent local bargaining led by employers has had a significant – and generally detrimental – impact on conditions of work. This applies particularly to local government, where the employers issued Reducing Workforce Costs in 2010, urging councils to worsen pay and conditions – by imposition if necessary. Local assaults on conditions are starting to appear in other sectors, too. Let’s consider the cross-sector issues. First, there is the inequality in basic pay. A cleaner or catering worker in the police force earns £2,600 more a year than her local government counterpart. The annual pay gap between an NHS and council catering assistant is over £2,000. Control-room staff in the Fire Service earn almost twice as much as equivalent council administrators. Local government pay is considerably lower from top to bottom than earnings in all other parts of the public sector for equivalent jobs. And only in councils do the bottom six pay points fall short of the Living Wage of £7.45 an hour. When the National Photo: Alamy

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KERS? MAY 2013

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FE ATURE

Public sector pay

LOCAL GOVERNMENT PAY IS CONSIDERABLY LOWER FROM TOP TO BOTTOM THAN EARNINGS IN ALL OTHER PARTS OF THE PUBLIC SECTOR FOR EQUIVALENT JOBS

Minimum Wage was introduced in 1999, the lowest council pay rate was 25% higher. Today it stands in danger of being overtaken by the next NMW increase. The recent transfer of responsibility for public health to councils has shown that this inequality within the public sector is equally true for ‘professionals’. A report for Unison by the New Policy Institute last year showed that only in local government were professionals such as lawyers, planners and accountants paid less than their private sector counterparts. Then there are the conditions. Around half of councils have moved employees onto HM Revenue & Customs car allowances, leaving ‘high mileage’ users like social workers subsidising their employers. Unsocial hours payments have been hit hard too, along with redundancy pay and free car parking. All in all, being a council worker means you face a double whammy – hit hardest by the selective application of government pay policies and subject to the harsh approach to workforce issues that has characterised local government for at least the past 15 years. During that time, annual pay rises fell below inflation seven times, while some conditions, including annual leave and parental rights, now hover just above the statutory minima. So what have council workers done to deserve bargain-basement treatment? There are some structural explanations. First, coalition cuts have clearly hit councils hardest, with some facing a loss of half their income. Secondly, local government finance is a combination of government grant and council tax income, while funding of pay elsewhere in the public sector comes direct from the Treasury. Raising some revenue from local people seems to attract harsh scrutiny and a strange penalty. Thirdly, a largely female workforce is ‘governed’ by predominantly male councillors and chief executives. During pay negotiations once, an ex-miner Labour councillor questioned why I was asking for more pay for women doing the same work as his wife did at home ‘for nowt’. Then there is the issue of politics. Local government is by definition a more directly 40

politicised employer. Conservative dominance for more than a decade has inevitably brought the influence of market-dominated thinking to bear on the workforce. There is central government, too. Setting aside the evident insouciance of the current secretary of state, Eric Pickles, for his own subjects, the Department for Communities and Local Government and its predecessors have never seen the workforce and their rations as worthy of interest, let alone strategic direction or respect. The link between how employees are treated and how services are delivered has at least been recognised in the departments of Health and Education – although a stringent universal pay policy and moves to clamp down on union facilities may mean goodbye to all that. Poverty pay and inequality in the public sector would suggest the need for a fresh approach to bargaining and its accompanying set of values. These should recognise the social and preventive value of much of the work undertaken by public sector workers and the importance of rewarding work of equal value with equal pay and conditions. In 2009, the New Economics Foundation produced A bit rich? – a thorough analysis of the social return on investment in a range of jobs. This showed that a childcare worker or hospital cleaner generated £7–£9.50 for every £1 invested in her, compared with the £47 destroyed by a tax accountant for every £1 invested in him or the lost £7 for every £1 spent on a highly paid investment banker. It’s time that all public sector workers enjoyed the products of effective bargaining with properly resourced trade unions, reflecting their invaluable contribution to our wellbeing.

Heather Wakeﬁeld is head of the local government service group at trade union Unison

Not worthy? Eric PIckles and the DCLG have shown a lack of respect for the local government workforce

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S P O N S O RE D C O LU M N : RI S K RE V I E W

Supported by

■ Andrew Jepp

Rules of engagement These austere times call for fresh approaches to local public services. Councils need to transfer more responsibility to communities and take more risks DEEP PUBLIC SECTOR cuts combined with increased demand for services leave councils in a tricky position. In March, a report from think-tank Demos considered how responsibility for local services could be rebalanced between the state, the individual and local communities. Control shift, written in collaboration with Zurich, concludes that a more collaborative approach is needed and identifies ways that communities can take on more responsibility. ‘Risk’ will play a central role in the transfer of this responsibility. New partnership models will have to be innovative, creative and test the limits if local authorities are to negotiate the challenging funding landscape. This can represent a considerable departure from established practices embedded over many years, and so local authorities’ attitude towards risk must be revisited. They will need to demonstrate a sufficiently flexible relationship with it to provide the dynamic public services required in the long term. Control shift finds that a major barrier to innovation and community participation is the continued risk aversion of many local public services. The rise of the ‘compensation culture’, the threat of media outrage in the event of an incident and political scrutiny over poor performance can understandably make councils defensive in their outlook. But if councils are to shift their role from being default provider of services to enabler, they will need to develop sensible approaches towards risk. Risk is widely misunderstood. Although it is commonly portrayed as a negative, in reality an appropriate capacity for risk-taking allows communities to take responsibility for their welfare and to develop local resilience. Equally, a low-risk appetite can result in missed opportunities for growth in public services and in community involvement. Effective data management is essential. 42

Community chest: Lambeth has launched a website to help local people and organisations set up initiatives

The London Borough of Lambeth, for example, has embraced ‘open data’, making as much information as possible available for groups wanting to start their own initiatives. It also provides online help and a website forum to encourage dialogue between residents, local groups and the council. Early results include the Food Partnership, which launches in May with the aim of cultivating a healthy local food culture. However, beyond implementation, local schemes need to be able to produce proof of performance. Evidence of success can be used to build in financial inducements for communities that provide valuable services and can result in real savings for the council. Aligning incentives through ‘community cashback’ can help promote enduring relationships between councils and local groups, bringing continuity to service provision and a more appealing risk balance in the longer term. Control shift concludes that we must hold public conversations about risk. There needs to be a neutral space for the discussion and promotion of policies and the risks entailed. The report recommends

that the government establish a ‘risk commission’ to help overcome misunderstandings and put long-term issues above immediate partisan concerns. The commission would conduct policy audits of government initiatives to identify the unintended consequences and risks of new proposals. If the public sector is to thrive through a tough spending settlement and policy environment, it is important that local authorities focus on creating the right conditions for success and growth. Communities that take responsibility for themselves allow councils to take a long-term and holistic approach that goes beyond the day-to-day issues. The resilience of local authorities and their communities are interconnected, and ultimately one cannot succeed without the other. The real risk therefore lies not in relinquishing control of services now, but in not enabling communities to stand up for themselves tomorrow.

Andrew Jepp is director of public sector at Zurich Municipal

PublicFinance MAY 2013

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NEED TO KNOW

Smart thinking? ▪

John Thornton

Better together Community Budgets show how effective joinedup funding and working can be in tackling social problems. But sharing data brings fresh challenges THE FOUR PILOTS for Community Budgets,

which pool various funding sources for particular local priorities, have been very successful. The Local Government Association conservatively estimates that if the same approach was used nationally, it could save £10bn–£20bn, net of investment, over four years. In the Budget, the chancellor pledged to push ahead with the expansion of pooled funding to ‘drive the transformation of local public services’. Local Government Secretary Eric Pickles says Community Budgeting could save up to 20% in some areas. So, why the slow progress and do we have the systems to operate in this joined-up, multi-agency environment? The idea of ‘pooling’ is not new. It builds on at least two earlier initiatives – Local Area Agreements and Total Place. Total Place helped to reveal the scale of the challenges. Its pilots showed, for example, that there were 47 funding streams for social housing in Durham and 49 different public sector agencies in Luton/central Bedfordshire. To be successful, pooling needs to be

about much more than money. Ideally, it works by combining local knowledge, assets, efforts and budgets to redesign local services and deliver a more effective and uniﬁed approach. At the heart of the Community Budgets initiative has been work with ‘troubled families’. You will no doubt recall a lot of the press coverage estimating that about 120,000 families, less than 1% of the population, face multiple problems that together cost the Exchequer more than £4bn a year. At present, there can be as many as 20 different public and voluntary sector professionals working with each family on different, though not necessarily recognised as related, issues. The London Borough of Hounslow estimates that a family that is supported early and therefore does not become troubled costs around £1,478, while a family whose problems escalate costs an estimated £64,000. Another London borough, Barnet, has saved more than £1m (in terms of costs avoided) after six months work with its ﬁrst 18 families. The council projects

As Community Budgeting moves into more complex and higher-volume areas, it will need better models for assessing ‘cause’ and ‘impact’ Illustration: Angus Greig

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savings in the region of £8m for 100 families. So the results of Community Budgets can be impressive. But to meet these expectations requires collating and sharing a lot of information. This can be difﬁcult in terms of both information governance and technology. To achieve this, Hounslow has developed Mash – a Multi-Agency Safeguarding Hub that ‘sits at the front door’ of children’s services. A team of professionals from core agencies, including housing, police, children’s services, health, adult social care and probation, has been brought together to provide an integrated service with the aim of researching, interpreting and sharing relevant and proportionate information. This provides a pragmatic, ‘swivel-chair’ approach to accessing multiple databases and sharing pertinent information between different agencies. As Community Budgeting moves into more complex and higher-volume areas, it will need to be able to identify and manage costs, processes, outputs and outcomes. This will require the development of better models for assessing ‘cause’ and ‘impact’, as well as greater understanding of the relationships between resources consumed and outcomes achieved. Do you have the tools and expertise to do this – and the systems needed to operate in the joined-up, multi-agency environment required to make use of the new business models that might result? This could include sharing access to key systems such as customer relationship management, ﬁnancial management, HR and procurement. It will most probably mean starting a transaction in one organisation and completing it in another, thereby seamlessly integrating the ‘supply chain’ and processes for service users. It will almost certainly require integrating websites, information systems and reporting systems. Are you ready for the expansion of Community Budgets?

John Thornton is an independent adviser and writer on business transformation, ﬁnancial management and innovation MAY 2013 PublicFinance 43

18/4/13 11:26:20

NEED TO KNOW

Management development How to manage in cyberspace As technology advances and pressure mounts on the public sector to cut costs, virtual meetings are a possible solution. But to work effectively in this uncharted territory, leaders will need to adopt skills that may seem alien to them. Ghislaine Caulat advises Virtual working has become increasingly common in recent years thanks to globalisation, growing concern for the environment and the need for organisations to find savings. It has been enthusiastically adopted by ‘Generation Y’ employees who have grown up in a digital world – and by those who are seeking to achieve a better work/life balance for themselves and their teams. In the public sector, it is attracting increasing interest, especially with the pressure to cut costs and the increase in remote working. Restructuring has also resulted in more geographically dispersed teams. Despite the pressure, many managers continue to regard virtual working as second-best – a last resort for when you cannot travel or meet face to face. They struggle with the concept of leadership in the virtual space and managing the performance of people they rarely see. But virtual working is not something to be done purely out of necessity. It is a highly advantageous way of conducting business that allows organisations to deploy the best brains to the task in hand, regardless of where they may be located. Managing effectively in an online world does, however, require new approaches. In a virtual environment, leaders need to put more emphasis on relationships than tasks. They need to find new ways to motivate people, build trust and facilitate communication between remote workers. So here are ten ways to maximise the potential of virtual working and get the best out of remotely located teams.

ADAPT TO YOUR NEW ENVIRONMENT

It’s important to recognise that in the virtual workspace, everything is amplified. As a consequence of this, leaders will find themselves more exposed. Personal traits and behaviours are more visible in a virtual environment than they may be face to face. People listen more intently and can see the flaws in arguments more easily. Leaders need to develop a stronger self-awareness of how they manage their emotions, react to situations and express themselves when communicating to their staff. 44

PublicFinance MAY 2013

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LEARN TO LISTEN DIFFERENTLY

Most managers have been trained to be alert to body language and to pick up visual cues when in meetings or while speaking one to one with members of their teams. Body language, however, often distracts us from what is being said. To work effectively in the virtual space, leaders need to learn how to listen in different and more attentive ways. They will have to develop a kind of seventh sense that will allow them to connect with people at a deeper and more intuitive level.

CREATE A LEVEL PLAYING FIELD

Getting the team dynamics right in a virtual meeting requires that everyone is linked in, both virtually and independently. Combining virtual participants with others sitting face to face round a microphone simply doesn’t work. Trust can quickly become eroded. For example, it is very easy for someone who is isolated on the end of a line to misinterpret a silence and worry that the people at the other end are ‘ganging up’ on them. The separation in distance can create an emotional gulf between the participants of the meeting. Illustration: Natalie Wood

17/4/13 17:09:57

1. Change your approach 2. Ensure a good work environment

DON’T

3. Listen properly

CONSIDER PEOPLE’S SCHEDULES

Managers working with shift-orientated teams will often arrange virtual meetings at a time convenient for them, without taking account of those who are working on different schedules. There may also be a need to consider time zones – for example, where services have been outsourced overseas. Finding a time for the virtual meeting that suits everyone is not always possible, but it’s important to be transparent about the way meetings are scheduled so that no-one feels disadvantaged. It may mean alternating who has to be available at unsocial hours.

GET THE BASICS RIGHT

KEEP A SENSIBLE PACE

HELP PEOPLE FOCUS

People taking part in a virtual meeting should be in a quiet room, alone and undisturbed. They should be equipped with headphones and should ideally use a telephone line rather than more unreliable computerbased lines. Invite people to log in at least ten minutes before the start of the meeting so that any technical issues can be resolved. These small technical details may seem obvious, but often make a big difference to the success of the meeting.

Communication is about more than just speaking; silence doesn’t mean that people are ‘absent’

Don’t squeeze virtual meetings back to back with face-to-face meetings. Plan a ‘buffer’ before and after the meeting and ask other attendees to do the same. Allow the participants to settle in and connect rather than jumping straight to the task in hand. Close the meeting by allowing people to disengage from the virtual environment, perhaps by saying something before they sign off, like a virtual handshake.

Use a focusing exercise to help participants ‘tune in’ to virtual meetings. This might involve getting people to relax, making sure they are sitting comfortably and thinking about

1. Forget you are part of a team 2. Lose focus 3. Fail to build relationships

the colleagues they are about to interact with. People may find this strange at first, but it will help them disconnect from their immediate environment and concentrate on the meeting.

PLAN FOR SUCCESS

LEARN TO WORK WITH SILENCE

Think carefully about how people might need to prepare before the meeting. Send out an agenda in advance outlining key steps, activities and timings, then ask for feedback. If you are using slides, prepare not just ‘content’ slides but also ‘process’ slides containing questions that encourage people to engage with the issues and each other.

Many people find silences uncomfortable and try to fill them by repeating information or asking others why they are quiet. It’s important to recognise, however, that the communication process is about more than just speaking. Being silent doesn’t mean people are ‘absent’, they are more likely to be considering their response and you need to give them time to do that.

BUILD AND NURTURE RELATIONSHIPS

Relationships are the pillars of virtual leadership, so building and nurturing them is essential. Managers need to spend time on a one-to-one basis with each member of their team, perhaps by following up on a point raised at the previous virtual meeting. Some virtual leaders have experimented successfully with concepts like ‘virtual coffee corners’ – meetings with no set agenda, where people are invited to come together and talk about whatever is on their mind.

Ghislaine Caulat is an associate at Ashridge Business School, specialising in virtual teams and virtual leaderships. She is also the author of Virtual leadership: learning to lead differently MAY 2013

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NEED TO KNOW

CIPFA Events CIPFA hosts events around the UK for members and non-members alike. These events range from small workshops for local CIPFA members through to large conferences, and are directed towards professionals across most disciplines in the public sector.

Cybercrime and Computer Security (former head of economic crime for Northumbria Police), a national head of commercial litigation and a global procurement fraud adviser. They will examine the risks and threats associated with procurement, possible solutions to these issues and systems designed to protect the whole procurement process.

CIPFA REGIONS Regional events developed by CIPFA volunteers allow members and students to share best practice, network and explore how strategic issues apply locally. Many are free or at a nominal cost. For more info on the Regions visit www.cipfa. org/regions

May 10

Gateshead

www.cipfa.org/events

June 7

Gosforth

CIPFA in the North East golf tournament The CIPFA in the North East golf tournament is being held at the Bridle Path Gosforth Golf Club. The day starts at 9.30am and will be followed by the Lady Lambert Trophy.

Joint CIPFA in the North East and the North East Fraud Forum procurement fraud masterclass

www.cipfa.org/Events

This joint procurement fraud masterclass will include presentations from the intelligence and research development manager at NHS Protect, the director of external relations at Newcastle University’s Centre for

CIPFA in the Midlands ‘Question Time’ style debate

CONFERENCES

CIPFA holds conferences across a range of areas in the field of public finance. The events include technical guidance and debate provided by leading experts and commentators. Search under ‘conferences’ at www.cipfa. org/events for our full listings

May 22–23

York

CIPFA annual audit conference This event is an ideal opportunity to hear from thought leaders in the ﬁeld of governance and audit. Delegates will be told about the latest Public Sector Internal Audit Standards developments and how

June 19

Birmingham

The series of popular ‘Question Time’ style debates continues with insight, debate and commentary from speakers in the public and private sectors. The topic and

they will improve internal audit across the public sector. The release of CIPFA’s Local Government Application Note will also be explored. The Department for Local Government and Communities has said that it now considers its use alongside PSIAS to be ‘proper practice’. Visit the events web page to view the full programme and to book. Rikki Ellsmore 020 543 5746 rikki.ellsmore@cipfa.org www.cipfa.org/events

June 19

Birmingham

CIPFA IT audit and information security seminar This seminar will feature a range of speakers to help IT specialists identify the challenges facing their organisations and direct IT audit towards the areas of greatest value. The talks will address the risks that arise from cloud computing, the strategies required to manage those

panel will be announced nearer to the time – make sure to check the event page online. www.cipfa.org/events

September 18

Birmingham

CIPFA in the Midlands ‘Question Time’ style debate This will be the fourth in the series of popular ‘Question Time’ style debates which are being held in the Midlands Region. Details of the topic and panel to be announced shortly online. www.cipfa.org/events

October 18–19

Warwick

Conference for the regions – 20/20 vision Register your interest to attend this year’s conference for the regions – ‘2020 Vision’ and help shape the future of CIPFA Regions. Sessions will be held on a range of subjects, including ﬁnancial management and tax avoidance. It will also provide opportunities for networking and engaging with CIPFA staff and volunteers on strategic issues around CIPFA membership and business growth. www.cipfa.org/events

risks and the IT audit implications of the government’s broadband delivery project. Rikki Ellsmore 020 543 5746 rikki.ellsmore@cipfa.org www.cipfa.org/event

July 9–11

July 18

Birmingham

Local authority accounting technical update conference This seminar will highlight strategic issues arising from developments in local authority accounting and ﬁnancial reporting within the public sector. Speakers include Karen Sanderson, from the Treasury discussing Whole of Government Accounts; Lynn Pamment, chair of CIPFA LASAAC. The event details and booking will be available online shortly. Rikki Ellsmore 020 543 5746 rikki.ellsmore@cipfa.org www.cipfa.org/events Dates for your diary For more information contact our events team on 020 7543 5892, cipfabookings@cipfa.org or visit www.cipfa.org/events shortly.

September 11

Birmingham

Procurement and contract audit conference The annual event for public sector auditors who want to keep up to date in the ﬁeld of procurement and contract audit.

September 11 September 25

Liverpool London

Central government conference

London

CIPFA annual conference – ‘Beyond austerity: designing the future state’ For the first time in many years, CIPFA’s flagship event is being held in London. There will be highprofile speakers, workshops, a thriving exhibition and networking throughout the event. Visit the website for the programme and to book your early bird discounts. www.cipfaannualconference.org Juliette.bond@redactive.co.uk

July 17

local authorities can move forward their housing business plans.

London

Joint housing & treasury management conference This conference focuses on how

Attending this conference is a great opportunity to get up to date with the latest developments in central government.

September 25

Belfast

CIPFA Northern Ireland annual conference This event will provide an analysis of what needs to be done for the Northern Ireland public sector reforms to succeed. Details will be online shortly. kate.mckay@cipfa.org

September 26

London

Insurance summit This event offers an opportunity to hear from insurance experts on the key challenges in a time of record numbers of insurance claims in era of stringent efﬁciency targets.

46 PublicFinance PublicFinanceJUNE MAY 2013 46 2011

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NEED TO KNOW

On account ■ Nigel Keogh

False economies? The Treasury’s plan to cut public sector pension costs by raising staff contributions has been stymied by workforce cuts and a related surge in early retirements IN JUNE 2010, the chancellor’s terms of reference for Lord Hutton’s Independent Public Service Pensions Commission included a request to ‘consider the case for delivering savings on public service pensions within the Spending Review period… to contribute towards the reduction of the structural deficit’. When the commission produced its interim report in September 2010, it concluded that the only discernible change that could take effect within the Spending Review period would be a rise in employee pension contributions. In the unfunded, pay-as-you-go public sector schemes – which include those for the NHS, teachers, civil service and armed forces – today’s pensions are paid from contributions made by today’s employees and their employers. Any shortfalls are funded by the Treasury. Increasing the amount raised from staff contributions therefore reduces the call on public funds. Acting on the interim report, the chancellor’s 2010 Autumn Statement

Poor prognosis: the NHS Pension Scheme has lost more than 110,000 members since 2010

Photo: Alamy

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announced that employee contributions would be increased over the Spending Review period to generate an additional £2.8bn income. This would help reduce the Treasury top-up funding from the £10.3bn forecast in the June 2010 Budget to £7bn per annum by 2015/16. However, the latest figures from the Office for Budget Responsibility suggest that these savings are no longer expected to materialise, with the Treasury top-up figure now set to be higher than the June 2010 forecast. The reason for this reversal is that the impact of public sector staffing reductions over the past two years has been under-estimated. While savings might be being made by cutting staff across Whitehall and the NHS, this is pushing up costs elsewhere for the Treasury. Since 2010, the number of contributing members in the NHS Pension Scheme has fallen by 110,000 (8%), the first recorded fall in membership of the scheme. Over the same period, membership of the civil service scheme has also fallen by 51,000 (around 9%). With so many fewer members, total employee contributions have fallen. In addition, this fall in membership occurred before the first of the phased increases in contributions came into effect on April 1, 2012. At the same time, there has been a dramatic rise in pensions in payment. This in itself is not surprising. In avoiding the use of compulsory redundancies, both central government and the NHS have used voluntary early retirement schemes as a means of reducing head count. This in turn has swelled the numbers taking up their pensions. Historically, in the NHS scheme, the number of pensions in payment has grown at a rate of around 3% per annum. In the past few years, however, this has grown to 5%. In the

year ending March 31, 2012, 44,300 new pensions came into payment, more than double the number in 2002/03. This surge in retirements has caused a spike in the pensions bill for the unfunded schemes. It will rise to £35bn per annum by 2015/16, some £2.1bn higher than forecast in June 2010. Taken together, these two effects – falling contributions and rising pensions payments – have combined to increase the net call on Treasury funding by £3.6bn per annum above that forecast at the 2010 Autumn Statement. This more than cancels out the impact of the contribution increases. There is no reason to assume that this drop in membership of the NHS and civil service pension schemes has now ended. Public sector employment continued to fall in 2012. With further public spending cuts to come, the downward trend is likely to continue. The Treasury acknowledged in October 2010 that it was ‘possible that a small number of individuals will choose to leave their pension scheme as a result of these changes’. But it judged that, ‘given the generosity of the schemes, there is little economic rationale to do so, and policy will be designed to mitigate these impacts’. Certainly, the contribution increases have been structured to protect the very low paid. But anyone with a salary of over £15,000 per annum will be paying more in contributions, some significantly more. Set against a backdrop of continuing pay restraint, rising inflation and subsequent declining living standards, many public sector employees may already be considering whether they can afford pension scheme membership, no matter how generous. Taken together, further workforce reductions and scheme opt-outs could yet add to the decline in contributing members, placing greater strain on Treasury funding. So, while increases in employee pension contributions may have mitigated the various adverse pension cost pressures, they haven’t been the panacea the Treasury envisaged.

Nigel Keogh is technical manager for pensions at CIPFA MAY 2013 PublicFinance 47

17/4/13 20:06:00

NEED TO KNOW

Statistics

Numbers game United States

Eurozone

Japan

Canada

3.0 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0

2012

2013

2014 Source: IMF

UK QUARTERLY GROWTH RATES 2009–2012 (%)

0.6

0.7

0.6

0.4 0.4 Q1

0.1

Q4 Q3

0.9

0.6

0.5

Q4* Q3

–0.2

–0.1

Q1* Q2

Q4 Q3

–0.1 –0.4

–0.4

–1.5

–0.3

*latest revisions

2009

2010

2011

2012 Source: ONS

AVERAGE BAND D COUNCIL TAX, ENGLAND*

1,414

1,439 1,439 1,444 1,456

1,373 1,321 1,268

Annual % increase

1,214

There was more bad news for the chancellor from Washington this month. The International Monetary Fund followed the Office for Budget Responsibility in revising down its expectations for UK growth. Adding insult to injury, the economists singled out George Osborne’s austerity approach for criticism. According to the IMF’s latest World economic outlook report, the UK economy will grow by just 0.7% this year and by 1.5% in 2014 – revisions of –0.3 percentage points in both cases. Chief economist Olivier Blanchard said that in the face of weak private demand, it might be time for the UK government to consider adjusting its fiscal consolidation plans. Osborne will be hoping that growth in the first quarter of 2013 (figures unavailable as Public Finance went to press) delivers some muchneeded good news and helps him avoid the ignominy of a triple-dip recession. Some minor upward revisions to the scale of the economic contraction seen at the start of the double dip will be fairly cold comfort. The economy shrank by 0.1% in both the fourth quarter of 2011 and first quarter of 2012, up from earlier estimates of –0.3% and –0.2%. An increase of 70,000 unemployed people took the jobless rate from 7.7% to 7.9% in the three months to February. This prompted the Work Foundation to observe that the labour market was finally reflecting the stagnant economic reality. Youth unemployment, now edging towards 1 million, is a particular concern. With only 60% of town halls taking up the government’s third council tax freeze grant, average bills in England are beginning to creep back up, although annual increases are still a long way from the heights seen a decade ago. Data from the 2011 census suggests that, by 2021, councils will be responsible for just over 2 million extra households. However, this is a reduced rate of growth than earlier assumed.

GROWTH PREDICTIONS: ADVANCED ECONOMIES (%)

£ bn

PF’s monthly roundup of statistics covering the public finances, economic growth, unemployment and more

6.5

1,167

IMF UK GROWTH PROJECTION, 2013

1,102

0.7% 48

976 2002/ 03

2003/ 2004/ 2005/ 2006/ 2007/ 2008/ 2009/ 2010/ 2011/ 2012/ 2013/ 04 05 06 07 08 09 10 11 12 13 14

*Including parish precepts

Source: DCLG

PublicFinance MAY 2013

PFMay13.048_049.indd 1

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Dec 2011– Feb 2013

Mar–May 2013

2,563

2,493

2,528

2,577

2,634

UK UNEMPLOYMENT (000s)

Jun–Aug 2013

Sep–Nov 2012

Dec 2012– Feb 2013

The number of unemployed people grew by 70,000 to stand at 2.56 million in the three months to February 2013. This represents a fall of 71,000 on a year earlier YOUNG PEOPLE IN LABOUR MARKET (AGED 16–24)* Employed, in full-time education (FTE) Employed, not in FTE

Economically inactive, in FTE Economically inactive, not in FTE

Unemployed, in FTE Unemployed, not in FTE

7.24m

701

820

31,000

2008 Projections 2011 Projections

29,000

28,000

1,896 2,844

Source: ONS

INTERIM HOUSEHOLD PROJECTIONS 2008–2023 (000s)

30,000

Total 100%

*December 2012– February 2013 (000s)

Source: ONS

27,000 26,000

670

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

309 Source: DCLG

INFLATION 2012/2013 Consumer Prices Index (%)

Retail Prices Index (%)

3.5

21.1%

3.0

3.2

3.1 2.8

2.8 2.4

2.9 2.6

2.6 2.7

2.5

2.7

3.3

3.1

3.0 2.7

2.7

3.3

3.2 2.8

2.8

2.2

Youth unemployment rate

Apr 12 May 12 Jun 12

Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13

Source: ONS

MAY 2013

PFMay13.048_049.indd 2

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Recruitment To advertise in Public Finance or pfjobs.co.uk please call 020 7324 2762

chief executive £six figure salary - London The Chartered Institute of Public Finance and Accountancy is the world’s only professional accountancy body exclusively dedicated to public finance. There is no doubt that austerity and the global financial crisis have focused the attention of governments and professionals on the importance of our work. With this attention comes an exceptional opportunity to grow our membership, strengthen our voice and drive the organisation forward. As Chief Executive, you will be the definitive voice for public financial management and governance in the UK and globally. Under your leadership, CIPFA will be seen as more relevant than ever. You will build on the great progress we have made so far and develop further our commercial success, strengthen partnerships and expand our influence. That’s going to require an exceptional balance of personal commitment, leadership, commercial acumen and public service know-how. So if you share our commitment to developing the public finance profession and want to build a world renowned membership organisation discover more at www.cipfa.org/ceo or contact our retained consultants Jonathan Swain (07500 961727) or Julie Towers (07764 791736) of Penna. Closing date: 15th May 2013.

CIPFA is an equal opportunities employer. The Chartered Institute of Public Finance and Accountancy Registered with the Charity Commissioners of England and Wales No. 231060

PublicFinance MAY 2013

PFRecruitmentMAY13.indd 46

www.pfjobs.co.uk

18/04/2013 09:59

MONMOUTHSHIRE COUNTY COUNCIL CYNGOR SIR FYNWY Assistant Head of Finance â&#x20AC;&#x201C; Deputy Section 151 OďŹ&#x192;cer, Business Support & Financial Accountancy (Post Id: RFN 40) Salary: ÂŁ45,175 - ÂŁ49,035 per annum. Assistant Head of Finance â&#x20AC;&#x201C; Revenues, Exchequer &Systems (Post Id: RFN 39) Salary: ÂŁ41,616 - ÂŁ45,175 per annum.

Central Accountancy Finance Manager (Post Id: RFN12) Salary: ÂŁ38,042 - ÂŁ41,616 per annum. All posts are 37 hours per week, based at Magor working in an agile manner. We are facing challenging times, but here at Monmouthshire we are looking at what opportunities this brings to rethink the shape of public service in the County. We are looking for dynamic ďŹ nance professionals who can join our ďŹ nance team and support the Council and its wider community in delivering its vision. The Assistant Head of Finance roles will form part of the ďŹ nance leadership team and be responsible for: â&#x20AC;˘ Providing a comprehensive range of ďŹ nancial management services to managers and elected members, including accounting, budgeting and planning â&#x20AC;˘ Improving the performance in council tax, business rate and debt collection, cashiering, creditors and ďŹ nancial systems administration Whilst suitably qualiďŹ ed, we are looking for individuals with a keen sense of drive and the ability to challenge and inďŹ&#x201A;uence at all levels.

.SV\JLZ[LY *P[` *V\UJPS /LHK VM -PUHUJPHS :LY]PJLZ *PYJH Â&#x2030; 2 WS\Z )LULĂ&#x201E;[Z Reporting to the Corporate Director of Resources, youâ&#x20AC;&#x2122;ll be responsible for the OHDGHUVKLS DQG RSHUDWLRQ RI WKH FRXQFLOĂ˘V Ă°QDQFLDO VHUYLFHV LQFOXGLQJ Ă°QDQFLDO planning, management accounting, technical accounting and procurement. Youâ&#x20AC;&#x2122;ll also be a key member of the councilâ&#x20AC;&#x2122;s senior team, contributing to corporate planning and strategy. $V WKH OHDG DGYLVHU RQ DFFRXQWDQF\ PDWWHUV DQG 'HSXW\ 6 RIĂ°FHU \RX ZLOO ZRUN FORVHO\ ZLWK WKH *ORXFHVWHU OHDGHUVKLS WHDP HOHFWHG PHPEHUV DQG SDUWQHU organisations.

The Central Accountancy Finance Manager will be responsible for: â&#x20AC;˘ The ďŹ nancial accountancy service, producing the statutory accounts, co-ordinating budget monitoring and development of the medium term ďŹ nancial plan, treasury management and capital accounting. We are seeking a highly motivated individual with the ability to manage teams to deliver work to deadline and of a high quality. As a qualiďŹ ed accountant you will be the main point of contact for the external auditor.

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For any speciďŹ c queries please contact: Joy Robson (Head of Finance) on 01633 644270 Closing Date for all posts: 12 noon on Friday 10th May 2013 Application forms for these posts can be obtained via : www.monmouthsire.gov.uk/jobs | 01633 644198

We fully recognise that this is indeed a challenging role. But for the right person, it RIIHUV WKH SRWHQWLDO IRU VLJQLĂ°FDQW OHDUQLQJ DQG D PDMRU FUHGLW RQ \RXU &9 )RU DQ LQIRUPDO FRQYHUVDWLRQ SOHDVH FDOO 3HWH *LOOHWW RQ )RU PRUH LQIRUPDWLRQ DQG WR DSSO\ SOHDVH HPDLO MREV#JORXFHVWHU JRY XN

Monmouthshire County Council is an equal opportunities employer and welcomes applications from all sections of the community

Principal Accountant

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The Police & Crime Commissioner for Cumbria ensures that the Constabulary 15/04/2013 14:53 maintains its high standards of operational police effectiveness, whilst at the same time giving value for money and being increasingly efwcient.

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ÂŁ46,723 per annum

Head of Commissioning & Contract Management

Ref: 1325005 Closing date: 30 April 2013

Salary: up to ÂŁ48,579 37 hours weekly

To ďŹ nd out more and apply, please visit www.surreycc.gov.uk/jobs Making Surrey a better place

The post holder will have overall responsibility for the strategic direction, planning and management of commissioned services. Services will take into account the priorities of the Commissioner and the need to hold to account the Constabulary and wider public and private sector partnerships. The post holder will be conwdent working in a complex statutory environment and be an experienced commissioner/contract manager able to manage and inyuence relationships at a senior level. For an informal discussion regarding the post please contact: Ruth Hunter, Chief Finance Ofwcer on 01768 217734. Closing date: Interview dates:

Senior Accountant ÂŁ36,306 - ÂŁ38,961 per annum

Ref: HFH 190 Closing date: Tuesday, 30 April 2013 To find out more and apply, please visit

www.homesforharingey.org/jobs

For an application pack please e-mail: commissioner@cumbria-pcc.gov.uk or telephone 01768 217734. Applications must be returned to either, The Ofwce of the Police & Crime Commissioner, 1-2 Carleton Hall, Penrith, Cumbria, CA10 2AU or via email to: commissioner@cumbria-pcc.gov.uk

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22nd May 2013 30th & 31st May 2013

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PublicFinance 51 12/04/2013 10:44

17/04/2013 15:30

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