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PublicFinance

The business monthly of the public sector

publicfinance.co.uk

Issue 01/02 January/February 2014

JANUARY/FEBRUARY 2014

Reality check Claudia Wood on TV’s depiction of welfare claimants

A cunning plan Peter Wilby calls on Labour to seize the high ground in education

Sir Michael Lyons The king of commissions tells PF about his latest review into housing

ALL IN THIS

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Can integration and pooled budgets rescue health and social care?

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PublicFinance

CONTENTS

January/February 2014

22

Features

‘THE VISION OF INTEGRATED CARE SERVICES PRESUPPOSES A STEADY WITHDRAWAL OF FUNDS FROM NHS HOSPITALS’

22 COVER STORY Winter pressure politics With pledges to protect frontline services wearing thin as ambulances queue outside A&E departments, Noel Plumridge asks what are the obstacles to integrating health and social care?

28 Fixing the roof Sir Michael Lyons says people have been ‘sold a pup’ on home ownership. Judy Hirst talks to the doyen of public sector commissions about how to fix the housing supply

32 The day of reckoning The NHS is under pressure to raise standards after the Mid Staffs crisis. But the bills still have to be paid, says Andy McKeon

36 The digital imperative It’s not just about systems, argues Carl Haggerty. Council digital leaders need investment too

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Regulars 4 Leader Potholes and procrastination 5

Second thoughts Peter Wilby tells Tristram Hunt not to go over the top in the First World War rows on education

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8 Opinion Claudia Wood on TV ‘poverty porn’ and benefit cuts; Rob Whiteman on integrating health and social care

Need to Know

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41

Smart Thinking? Touch-screens open up the world for young adults with profound disabilities

18 Restless Nation Iain Macwhirter asks if the Velvet Divorce offers lessons for the UK

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Professional Development Making the most of property assets Numbers Game Cipfa Events

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Readers’ letters

14 Voice of the Nations CIPFA Scotland is to publish a ‘balance sheet’ for the independence vote

43 On Account How do you put an accurate value on the network of local roads?

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6 News Labour puts council tax reform on agenda; ministers urged to streamline devolution policy

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

20

Watchdog Watch Local authority accounts, housing for asylum seekers and regional differences in education under the microscope

Scan here to subscribe to the leading magazine in public finance...

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CONTACTS

Leader Up close and personal

S

o, after an age of prepping and procrastination, is the public sector finally ready for its close-up? Are the Berlin Walls and silos about to come tumbling down, as service managers accept it would be easier just to get on with it and move in together? Judging from the excited talk about pooled budgets and service integration, it would seem so. Nowhere is this more evident than in health and social care, where a £3.8bn Better Care Fund is lubricating the process. Jointly controlled by councils and the NHS, and with 14 integrated care pioneers (see cover feature, pages 22-27), it’s all leading to a ‘quiet revolution’ in provision, says care minister Norman Lamb. It’s also, everyone hopes, going to save some much-needed cash. The chancellor’s ‘hard truths’ New Year message was that, post-2015, there’s another £25bn of cuts to come. Other than quibbling over the small print, the Opposition has not demurred. There’s a strong economic case then for public services to cuddle up closer together. For ministers, there’s a political one too. Health and care services – as Rob Whiteman argues (page 10) – have been like ‘ships in the night’. They need to get their act together over issues like hospital discharge if the government wants to avert even worse A&E headlines. With all these factors stacking up in favour of integration, what, you may ask, could possibly go wrong? Plenty, if past experience is any judge – and not just in the NHS. ‘Whole system’ working has been a government aspiration for decades. But Community Budgets have been painfully slow to take off, and the less said about Whitehall’s ‘transformational’ shared services the better. The mere fact that Sir Michael Lyons’ housing commission (page 28) is having to address the ‘right to grow’ housing across authority boundaries speaks volumes about the barriers to cooperation. As for health and social care, turf wars have already broken out, with NHS England’s medical director Sir Bruce Keogh channelling fears that councils will use the Better Care Fund ‘for filling in potholes and other significant things.’ The truth is that personalised, integrated services don’t come cheap. And the fund is not new money: the bulk of it will come from acute sector budgets. In these circumstances - and with councils wanting payback after years of cuts – what’s more likely? Lamb’s peace-breaks-out quiet revolution or, as one adult social services director puts it in PF, ‘a right barney’?

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

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Second thoughts pfOpinion

■ Peter Wilby

War of words on education The spat with Michael Gove over the teaching of First World War history shows it’s time Labour’s Tristram Hunt seized the high ground on education policy You are shadow education secretary. Interviewed by the Times, you wear a navy blue Barbour and say teachers should be re-licensed every five years. Offered space by the Sun, you write short sentences and promise ‘behaviour experts’ to stop kids messing about in school. Invited to contribute to the Observer, you quote four scholarly historians and put the boot into Michael Gove over his ‘crass’ comments on teaching the First World War. In the age of round-the-clock media, Labour’s Tristram Hunt plays his part with more confidence and style than his predecessor Stephen Twigg who, when I interviewed him last year, pleaded guilty to nuance, thus summing up in a word why he made little impact. Gove, a journalist by trade, approaches the position of Education Secretary as though he were still writing columns for the Times. He spins thin ideas, fit for 800 words on a quiet Monday morning, into pompous homilies that can be dressed up as policy. Hunt strives to

match him, column for column, headline for headline. Only one of them has power but it is less than he pretends. Gove may have taken more control over schools than any single person in English history but even he cannot bug every classroom to ensure that the First World War is taught as a patriotic triumph. Nor can he order the destruction of every recording of Blackadder with its incorrect (in Gove’s view) portrayal of the war as ‘a misbegotten shambles’. As for Hunt, his position is impossible. Education policy has been essentially bipartisan for more than 25 years. Parental choice of schools (within limits); a high-stakes regime of tests and exams, with published league tables; a growing role in state education for the private sector; a diminishing role for local authorities and an enhanced one for central government; a harsh, managerial attitude to the teaching force: this framework is not seriously contested. Many of Gove’s schemes – creating more academies and free schools, for example – elaborate policies pursued by Labour when in power. The Labour leadership, cautious to a fault, gives Hunt little scope for radical departures, even if he were so inclined.

EVEN MICHAEL GOVE CAN’T ORDER THE DESTRUCTION OF EVERY RECORDING OF BLACKADDER

He is reduced to arguing over nomenclature – his free schools would be called ‘parent-led academies’ – and offering content-free soundbites on matters that are no business of his. An education secretary’s job is to ensure the legal framework allows teachers to keep discipline and that it protects children’s and parents’ rights. Likewise, the law should ensure that heads and governors have powers to dispense with incompetent teachers after due process. Schools do not (or should not) require ‘experts’ to stop children, as Hunt puts it, ‘chattering on the back row’. A bureaucratic licensing system is not (or should not be) needed to check that teachers can teach; they are not self-employed professionals like GPs, vets and accountants. Yet there are real issues for Hunt to highlight without violently upsetting the consensual applecart. To his credit, he has made a central theme of Gove’s ruling that academies need not employ qualified teachers and his virtual dismantling of college-based teacher training. Tories do not believe that teaching requires discrete skills and knowledge; a graduate with an upper second, a personable manner and a smart suit can just breeze in and do it, they think. Parents, however, dislike the idea of unqualified teachers. Equally, they fear schools falling increasingly under the control of privatised chains and a Tory government eventually allowing them to make profits. Nor are they enamoured of the relentless regime of tests and exams. Gove is a smart journalist but a poor policy-maker. By refusing to compete for headlines and instead highlighting issues of substance, Hunt can seize the high ground for himself and his party. Peter Wilby is a writer, commentator and former editor of the New Statesman

Photo: Rex

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News Local government finance

Labour adds council tax reform to agenda BY RICHARD JOHNSTONE

Labour will consider reforms to council tax as part of its commission on town hall finances, shadow local government minister Andy Sawford has revealed. In an exclusive interview, Sawford told Public Finance that any local authority ideas for raising money through the changes to the tax base, such as banding, would be examined ahead of the next election. As part of Labour’s local government innovation taskforce, launched last September, Sawford is undertaking a review of council finances, looking at revenues and Whitehall funding alongside public service reforms. ‘There are issues around the council

tax base in terms of the number of houses in different bands and the nature of the banding system,’ he said. ‘We are not proposing, at this stage, a different broad local tax. But what we are saying is that council tax – historically a way that local authorities could themselves determine a particular revenue stream – clearly became very difficult over time because it was going up and up.’ Although it would be ‘wrong at a time when people are feeling stretched to put council tax up’, there could be reforms. ‘There has got to be some change if we are not to see the poorest people in the country particularly impacted by the cuts, in terms of the loss of very

Double whammy: Andy Sawford said some communities that received the biggest cuts in grant had the least ability to raise business rates

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significant services to them,’ he said. For example, Sawford said, there had been above-average government cuts in 29 of the 30 communities with the highest black and minority ethnic populations. These included eight where cuts had been at double the national average Councils should come forward with suggestions to the commission, which would be considered as part of Labour’s work to ensure local needs are reflected in future settlements, he said. This was something Sawford claimed the coalition had abandoned after its own finance changes. ‘What the government has done has clearly reduced the extent to which deprivation is reflected in the final settlement,’ he said. ‘This recent experiment has been the departure from an accepted needs-based approach to local government finance, so we would be about putting that back at the heart of the financial settlement.’ As part of Labour’s focus on fairness, the coalition’s flagship local government finance changes – part-localisation of business rate growth to town halls and the New Homes Bonus – would also be up for review. Sawford said he supported the principle that authorities receive a share of business rate growth, but the incentive had been offset by the government’s austerity programme. ‘It’s actually a bit of a double whammy for some communities that have the biggest cuts in grant but the least ability to raise business rates,’ he said. ‘That’s actually been made more difficult by these cuts, rather than being incentivised by the business rates. One has outweighed the other.’ Labour would look to achieve a better balance between local rates retention and grants. ‘We ought to have a look at this over the next 18 months with a view to maintaining some kind of incentivisation in the system, but one that works for all parts of the country.’ An examination of the New Homes Bonus would also be undertaken, he said, as there was evidence the policy

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LocalismDrive ■ Richard Johnstone

Key Cities urge ministers to set out clear vision for devolution was both unfair and ineffective. A number of local authorities have said the top-slicing of council funding to pay for the NHB had hit poorest areas hardest, and Sawford said there had been an ‘unfair swipe’ of resources. Responding to the comments, Jonathan Carr-West, the chief executive of the Local Government Information Unit, said that at some point a government would have to reform council tax, which is based on 1991 valuations. ‘Given the shift in property values over more than 20 years, there is no doubt that council tax’s relation to its original reality is a very distorted one.’ Labour should conduct a local government finance review where ‘nothing was off the table,’ Carr-West told PF. ‘We talk about reform of council tax, but we talk about that as being something central government will do to local government. We don’t talk about freeing up local government to determine how property tax works locally. ‘We talk about reforming the system of business rate redistribution, but we don’t talk about allowing councils to vary the rates, as they can do in the US and other places. ‘These aren’t necessarily the answer, but they are all things that work in other places and we should at least think about here.’ Measurement

CIPFA takes a yardstick to ‘local spending’ BY MIKE THATCHER

CIPFA is examining ways to improve public financial management by developing a method of measuring spending across public services in different areas of the country. Plans for the new spending framework will be developed over the next six months covering expenditure by town halls, Whitehall, the NHS and beyond. It will enable duplication to be identified and, in the longer term, assess the Photo: PA /Getty

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A senior council leader has urged the government to streamline its localism initiatives and set out more details about preferred structures for devolved powers. Paul Watson, leader of Sunderland City Council and chair of the Key Cities Group of 22 mid-sized cities in England, called on ministers to ‘grasp the nettle now’ in bringing devolution policies together. The cross-party group, founded last June to strengthen the voice of cities across England, published a Manifesto for Growth in January setting out a host of reform priorities. The manifesto called for cities to be freed from Whitehall control, with greater powers to raise and spend money locally, and design services specifically for their areas. Watson told Public Finance the devolution agenda was now accepted by most in the government. The issue was where this would take place. Local Enterprise Partnerships have been established across England to work with councils to support growth, while City Deals have either been reached or are being negotiated with 28 areas. In addition, 18 local authorities are working on Community Budget spending packages after four trials, and more than 100 neighbourhood pooled spending initiatives are being developed.

Building bridges: Sunderland’s council leader wants more spending freedom But Watson said there was now such a mix of schemes that ‘you would not start from here if you had the choice’. He told PF: ‘We would want to see more coherence and streamlining to the things that are there. We understand that there are some good things about Community Budgets and good things about the LEPs, but it just hasn’t got that coherent voice for the way they can all contribute meaningfully.’ The government needed to set out a unifying approach, which also brought together plans being developed for combined authorities across England, he added. ‘They need to grasp the nettle now,’ Watson told PF. ‘They need

benefits of early intervention and public health programmes. The initiative was discussed at a recent round table held at CIPFA’s London headquarters and chaired by chief executive Rob Whiteman. ‘We are all very interested in transparency and local accountability, but there isn’t a yardstick or an industrial way of reporting how much spending takes place across the whole of central government, local government and health,’ he said. CIPFA will build on initial work by Essex and Staffordshire County Councils. Andy Burns, Staffordshire’s director of finance and resources, said that £7.5bn was spent on public services in the county in 2012/13. This included £1.3bn spent by the council, £2.1bn by

to take the lead and actually say what they want it to be. I think there has been a bit of a delegation of responsibility in terms of saying, “this is what our vision is”.’ The Centre for Cities thinktank agreed there was a need to bring existing schemes together. Chief executive Alexandra Jones said reforms to boost economic growth, such as City Deals, and public service reforms, including Community Budgets, were two sides of the same coin. ‘They have to be thought of together, and that has to be the next stage. Given we know we’ve got to get the deficit down, and austerity is going to continue, bringing them together has to be where we go next.’

the NHS and £2.7bn by the Department for Work and Pensions. Burns said that, as Section 151 officer, he had previously seen his responsibility as overseeing the council’s spending. Now it was just as important to influence how the £7.5bn was spent across Staffordshire public services. ‘I don’t buy the argument that there is no cash about. There is a huge amount of cash, but actually it’s not spent correctly. The debate should be on how well we spend it, not how much we spend,’ he said. Whiteman said that measuring total area spending would be the first part of CIPFA’s programme. The second part required finding a means to measure value, quality and, ultimately, the outcomes of that improved spending. JANUARY/FEBRUARY 2014

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■ Keeping it real on welfare, by Claudia Wood ■ Brave new world disorders, by Rob Whiteman

Opinion ■ Claudia Wood

Keeping it real on welfare TV ‘poverty porn’ and depictions of feckless families are shaping public debate about benefit cuts. Meanwhile, local councils, charities and social housing providers must pick up the pieces The furore over Channel 4’s Benefits Street programme brings to a head an argument over the portrayal of benefits recipients that has been raging since the government’s radical welfare reform agenda kicked off in 2010. Many critics have accused ministers of actively encouraging public antipathy towards benefit claimants as a way of garnering popular support (and justification) for controversial cuts. Certainly for those in the Treasury – tasked with wiping tens of billions of pounds off the benefits bill each year – public misperception about levels of fraud within the system and the generosity of payments have made their job easier. Within the Department for Work and Pensions, though, the motivation to cut benefits is less about

cash and more about morality and behaviour. Concern regarding benefits dependency, fatherless households and moral decline is sincere – not a cover to cut spending. The tensions this has caused between the two departments, and the in-principle arguments for or against cuts to benefits, will become more pronounced in the run-up to the general election as politicians fight to capture public opinion. Unfortunately, such discussions – and, some would say, reality TV ‘poverty porn’ – cast more heat than light on effective ways to tackle the impact of welfare reform on local communities. Alongside voluntary organisations and housing providers, local authorities will often find themselves picking up the pieces, and expense, of families in crisis after a benefits cut. Big moral questions posed by welfare reform seem less important when battling more immediate problems. What will the future hold for those charged not with debating the principle, but addressing the reality of welfare reform?

Pickles paradox: The office of the Communities Secretary has warned that eviction costs may outstrip savings from the ‘bedroom tax’

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Some of the earliest changes will now be bedding in. This year, the Personal Independence Payment will roll out in earnest to replace Disability Living Allowance, leading to about 600,000 disabled people losing their eligibility to financial support and passported services, such as Motability. The transfer of people from Incapacity Benefit to Employment and Support Allowance will be finalised this year, and the time limitation of contributory ESA for those in the Work-Related Activity Group will start to bite in large numbers this spring. Both changes will see many people lose eligibility for ESA, and experience a significant reduction in income. Many will be in poor health and many will have been unemployed for a considerable time. Yet they will be relying on Jobseeker’s Allowance and the mainstream Work Programme (not proven to be effective in helping hardto-reach groups) to get them into work. The sudden reduction in incomes will no doubt see spikes in poverty-related social problems among these households where ill-health is a complicating factor. Evictions, homelessness and rehousing needs will become more obvious in the next year as the ‘bedroom tax’ takes effect. Two-thirds of those involved will be disabled – again, adding the complicating factor of poor health to the support such families will need. Worryingly, Communities Secretary Eric Pickles’ office warned that the costs associated with evictions (often borne by local authorities) could soon outstrip savings made by the policy. This year will also see eligibility tightened so that new European Union migrants cannot claim benefits for three Photo: Channel 4

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If Benefits Street (above) has shown us anything, it is that poor mental health, poor skills and substance abuse are often bound tightly in families with long-term reliance on benefits. There is no quick fix to end this reliance months. This will make new arrivals more vulnerable to homelessness or exploitation, with local support services charged with tackling these issues. The impact of these changes – increasing the numbers of people in poverty and at risk of homelessness (particularly among those in poor health) – needs to be addressed, but local authorities also need to prepare for Universal Credit, which may increase demand for debt and budgeting advice (as managing larger monthly payments challenges those accustomed to weekly budgeting), and digital inclusion as online access becomes the norm. Beyond the general election, scrapping Housing Benefit for the under-25s, the latest controversial suggestion by George Osborne, will be particularly problematic for care leavers and vulnerable young adults. The impact of the welfare reforms will vary – different local circumstances,

combined with different roll-out rates mean no two councils will experience the changes in the same way. Inevitably, local authorities with the highest rates of unemployment, poverty and poor health will face the greatest challenges. There are other difficult truths. First, food banks will not be enough. Localisation of the Social Fund and increased benefits sanctions have seen many local agencies refer families to food banks as a form of emergency support, but as welfare reform beds in, unpaid rent and heating bills, and the need for clothes and furniture, will be just as pressing. Alternatives to the doorstep lender will need to be found. Second, while the intention of many welfare cuts is to incentivise behaviour change (whether to downsize, find a job or work more), local factors such as the availability of jobs, smaller homes and the presence of family ties means those most affected by benefit cuts (the long-

term unemployed, low-skilled or in poor health) will struggle to react to these ‘incentives’. Local authorities will need to help tackle these external obstacles to people coping with benefits cuts. Finally, if Benefits Street shows us anything, it is that poor mental health, poor skills and substance abuse are often bound tightly in families with long-term reliance on benefits. There is no quick fix, financial or otherwise, to end this reliance. Simply cutting off their cash will usually exacerbate, not reduce, these problems. It is falling to local authorities, social housing providers and charities to pick up the pieces, and bear the costs, of welfare reform. But as the debate becomes more abstract and increasingly politicised in Westminster in the election countdown, will their voices be heard above the din? Claudia Wood is deputy director of Demos JANUARY/FEBRUARY

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Opinion ■ Rob Whiteman

The waiting game: health and social care seem like ships in the night, only making passing contact over issues like discharge from hospital

Brave new world disorders Do local government and the health sector have sufficient financial stability to deliver greater integration at the pace and scale desired? Models of delivery and funding have already been identified for the integration of social care and health. But 15 months away from the general election, the context is still one of uncertainty and pressure in the two sectors. To understand the prospects for success, we need to look at the two areas in their entirety. To some extent health and social care are ships that pass in the night, communing only around the points of direct contact – hospital discharges into social care, public health and acute pressures. Other parts within the whole system, such as housing, 10

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regeneration or mental health services, are integrating even less frequently. And back-office services tend to have sector specific directives to achieve efficiency and economies of scale. The question remains: will integration save hard cash in real budgets? Or is the business case presently opaque on whether earlier intervention or service coordination is better for users? Will integration only assuage rising demand without necessarily reversing it? In estimating the prospects for savings, does each sector understand the financial position of the other? Local government finance is in a sorry state. For 2015/16, the Department for Communities and Local Government is considering reducing from 2% to 1.5% the maximum amount by which councils can increase council tax without seeking approval from

residents. Councils that have settled just below 2% to avoid a referendum are labelled ‘democracy dodgers’ and no doubt the same will be said for any maximum, however much smaller that may be. To the accountant on the Clapham omnibus this looks like crude and universal capping. Most councils are clear that while they can balance the books next year, 2015/16 looks a very difficult prospect. If local government could be said to already know the extent of its own troubles, the health sector has a more nuanced set of problems that are harder to articulate. After decades of centralised national and regional control, the old NHS order has been dismantled (again), but at this stage many do not understand whether or even how the new regime will work. Andrew Lansley’s profound reforms Photo: Alamy

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A DIGEST FROM THE WEB are, however, no longer the subject of debate. Thanks to high-profile scandals, public attention is more focused on the legacy problems of unacceptable quality and culture. In terms of morale, the NHS is used to being supported by its political masters when the going gets tough but now, like local government, finds the motivation and capabilities of its officials under close media scrutiny. Another point here is that while local government is now less regulated by inspection, the health sector finds that inspection is seen as part of the solution. Will inspectors be overzealous to compensate for past errors? The government’s assumption is that, though there might not be enough money, local government will make do. Conversely it appears to take comfort from the idea that there is enough money in health, even though it might not be in the right places. I personally think the risks here are greater than realised. Local authorities vary by a country mile in the way they deliver and organise services, whereas health bodies until now operated more to a blueprint. So if conditions or financial prospects take a turn for the worse, history tells us that the scale and momentum of financial woe can quickly escalate. It is against this difficult context that good practice is being developed. Some of the £3.8bn Better Care Fund money will be redirected within clinical commissioning budgets toward social care and health integration. Everybody recognises that with councils cutting to the bone, protecting social care budgets and investing in integration is needed; equally, health budgets are under pressure too and need to fund new service design and alleviate acute pressures. But with uncertainty surrounding the new order, it is not yet clear whether NHS transformation will happen. Already the sentiment is that the efficiency challenge is not signed, sealed and delivered and it is not clear who is taking the lead to iron out developing problems. Some good trusts have acquired problematic ones, but find that it is stretching their organisation. Professionals are asking, what will happen next? In the medium term, I believe that integration at scale is deliverable, but there is not sufficient evidence that this

pfBlogs

‘In current political debate, it seems any policy affecting retirees is now viewed as evidence of the UK’s powerful “grey vote”. This is unlikely to change any time soon, but even a cursory glance at the numbers shows it to be a myth’ James Lloyd, director, Strategic Society Centre

‘Higher education financing took a further step into accounting fantasy in the Autumn Statement. What did the chancellor mean when he said that new loans will be financed by selling the student loan book? This is the language of the Ponzi scheme promoter’ Alasdair Smith, research professor of economics, University of Sussex

‘The earnings of local government and school support workers have plummeted by 18% in real terms since the coalition took power, while they have carried on doing the work of their 450,000 colleagues who councils have had to “let go” ’ Heather Wakefield, head of local government, Unison

‘More and more of us are now living perilously on the never, never, and the problem is getting worse. As a nation, we seem to have as much of a savings problem as a debt problem. The British seem to be world-class at spending and second-class at saving’ Paul Hackett, director, Smith Institute

Everybody recognises that with councils cutting to the bone, protecting social care budgets and investing in integration is needed

can easily be accomplished in the short term, for two reasons. First, we must develop tools to pool, plan, analyse and apportion the costs and benefits of integration on an industrial scale. CIPFA is commencing a technical project for all local spending to be mapped and reported on between all agencies in a consistent way as a foundation to this. Second, sustained transformation needs stability, certainty and clarity to embed ongoing learning around agreed priorities; ones that are not at risk of being knocked off course. We cannot be certain that these financial or indeed political conditions will exist over the next 15 months. Meanwhile, we must keep focused and get on with learning from best practice. Our best hope is that the contextual conditions do not deteriorate and that – in the medium term – they will improve the prospects of success. Rob Whiteman is chief executive of CIPFA JANUARY/FEBRUARY 2014

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OpinionLetters Cuts are out of proportion for the poorest It is now clear from statements from ministers and officials that tried and tested grant principles of meeting need and resource equalisation have been replaced by ‘incentivisation’. The specific decision to allow council tax resource equalisation to be cut every year from 2014/15 is a dramatic change. It formally moves away from a fundamental principle that was applied to the council tax system in 1993/94 by the last Conservative government, continuing the principle of resource equalisation that had been accepted for decades. The dramatic consequences of this decision can be seen in the spending power figures published by the Department for Communities and Local Government, which we have visibly shown in our heatmap of the change in spending power in the next two years. This shows large cuts in spending power in the poorest, most deprived areas and increases in the wealthiest areas. The hugely disproportionate pattern of cuts looks set to continue each year. This will accelerate the point in time that councils will fail to be able to meet their statutory responsibilities and become unviable once their reserves and assets have been exhausted. In my view this will have much wider consequences and deepen the crisis facing the whole of local government. The government has used a crude comparison of difference in spending power between councils like Newcastle and Wokingham to justify the fairness of its grant settlements, with no regard to differences in circumstances or service pressures. I have modelled the impact of the new system, which appears to result in the spending power for areas facing high service pressures falling below that of Wokingham and other wealthier areas during the next parliament. At some point this will mean that the government can no longer claim that its settlement is ‘fair’, testing the 12

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Spending power: Newcastle upon Tyne fears it will lose out to wealthier areas like Wokingham in the grant settlement

sustainability of the new grant system. I do not believe that the government has adequately consulted on this key change in principle and hope that even at this late stage this issue can be revisited and council tax resource equalisation can be restored for 2015/16. This would help deliver more equitable cuts and delay the crisis facing councils. PAUL WOODS Resources director Newcastle City Council

Why councils need bonds agency Your article (Bonds agency could be ‘strangled at birth’, p8, Public Finance, November) succinctly highlighted the challenges facing the local government bonds agency. Nonetheless, there is a need for more diverse funding streams so bonds should not be written off yet. The fact that the Treasury can continue to change the Public Works Loan Board (PWLB) borrowing rate is a strong reason in favour of local government exploring a diverse range of funding streams. These include tax increment financing, ‘earnback’ models

in the mould of Greater Manchester’s, and utilising local authority pension funds. The formation of a wellresourced British investment bank with a regional allocation of funds would further improve investment capacity. The article raises a more fundamental issue, namely whether local government should have greater fiscal autonomy in terms of borrowing and tax-raising powers. Local government should be able to take independent borrowing and investment decisions within the limits of the prudential code. This is particularly the case for borrowing used to promote growth or reduce public expenditure. The evidence points to local government having a better track record on investment compared to UK central government, which tends to favour consumption. Greater tax-raising powers would create stronger incentives for local government to try to boost local economic performance and so increase revenue. If the decision-making powers and spending of local government were more closely aligned to revenue-raising powers, it would increase the sense of accountability of local government. IPPR North has looked at how this might be achieved through measures Photos: Alamy/iStock

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publicfinance.co.uk/opinion 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 such as reducing central government interference with council tax and business rates, to including a percentage of the income tax take being assigned to sub-national levels of government. With local government being asked to deliver more and more at a time when central government grants are being cut, it is imperative that local government is given increased fiscal autonomy. GRAEME HENDERSON Senior Research Fellow IPPR North

Success will be in cheaper borrowing Reducing borrowing costs is a key issue for local authorities, so the creation of a local government bonds agency is a potentially exciting development. Offering an additional source of finance to local authorities not only provides greater opportunities to borrow, but also puts more powers into the hands of local government. Councils will no longer have to rely on the Treasury and the Public Works Loans Board alone for finance. It is now widely expected that the Treasury will simply undercut the rates of the new agency. But if the aim is to get cheaper borrowing, does the means by which local government gets there really matter? If the creation of a local government bonds agency puts enough pressure on the Treasury into offering cheaper borrowing rates through the

Treasury rate: Whitehall could undercut bonds agency

WILL WERRY 1 May 1929 – 25 November 2013

Will Werry joined District Audit in 1948 and ‘retired’ as District Auditor in Birmingham in 1989, when he embarked on his second career as CIPFA’s guru on all aspects of competition. In a generally conservative organisation, Will’s unconventional approach stood out. His colourful bow ties, corduroy jackets and trademark greeting of ‘Wotcher!’ became legendary. He could always be relied upon to express forthright views pithily, and with great humour and wit. A visionary and innovator, who recognised that audit should be about more than ‘doing the books’, he was a pioneer of value for money audit and led the introduction of the system of classifying local authorities for the purposes of inter-authority comparisons. One of his particular

interests was competition between local authorities’ direct labour organisations and the commercial sector. He initiated the Competition – subsequently Commissioning – Joint Committee (CJC), an independent group, sponsored by CIPFA, representing more than 40 organisations involved in the commissioning of services. It sought to establish and maintain standards for all aspects of the competitive tendering process and to bring the rules together and explain them in terse, plain English. Only Will could have brought together, let alone managed, such a diverse and unwieldy group, but under his energetic leadership the CJC flourished and he stamped an indelible mark on its output. His unrivalled knowledge and reputation meant CIPFA was always present in discussions with government about

competitive tendering and commissioning. With his retirement in 1989 this role became almost a full-time job. He also helped set up the CIPFA Competition Advisory Service and became its principal consultant. In 1993 CIPFA awarded Will the prestigious Sir Harry Page Award in recognition of his technical work for the Institute. He remained a passionate supporter of District Audit and became chair of the association of retired District Audit staff. His interests outside work included developing world architecture and archaeology, collecting Just William books, church music and travel. Will was a consummate professional who will be remembered with respect and affection by all who worked with him. Martin Evans

Chief sub who took pains with copy

PWLB, this is a great outcome for local government. Perhaps the real question is whether it matters who does the lending? When NLGN asked finance directors about their main consideration when accessing debt, their top answer was the cost of debt, not the source of funding. Whilst a local government bonds agency could give a degree of autonomy from the Treasury, local authorities would still vote with their feet and take the cheapest rates. So if the scheme fails before it even starts, because the Treasury undercuts the rate that the local government bonds agency offers, at the very least the Local Government Association has managed to push down the cost of council borrowing.

I was shocked to read the sad news of Anne Lawton’s death (A champion of accuracy and clarity in the chief sub’s chair, Public Finance, p9, December). Although we never met, Anne and I had many conversations by phone and email concerning my articles for PF. I always found Anne to be the consummate professional. She was always able to cut my submission to the required size without losing the meaning. This is because she took pains to understand the substance of the article. My subsequent thought was always: ‘Why didn’t I originally write it like this?’

LAURA WILKES Head of Policy and Research New Local Government Network

PROFESSOR MALCOLM PROWLE Nottingham Business School Nottingham Trent University JANUARY/FEBRUARY 2014

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Voice of the

Nations Scotland

‘Balance sheet’ for referendum NEWS FROM THE DEVOLVED ADMINISTRATIONS Scotland S Scotland cotland BY KEITH AITKEN IN EDINBURGH

CIPFA Scotland is poised to intervene in Scotland’s most charged political debate for decades, by stepping in to redress what it believes is a lack of objective information about the implications of the independence referendum for the public finances. In an exclusive interview with Public Finance, the new head of CIPFA Scotland, Don Peebles, revealed plans to publish a series of contributions in coming months intended to give Scottish voters the reliable and impartial data they need to reach a measured decision when they go to the polling booths on September 18. Peebles, who took over from Angela Scott in November, said he believed voters were waiting for a balance sheet. ‘What we’re likely to do is to take a sample of the huge streams of information that are being produced by

Strictly impartial: Don Peebles believes there is an appetite for CIPFA Scotland to contribute to the referendum debate

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the different sides of the debate, assess the veracity of that information, and try to break that down for dissemination in the debate.’ He acknowledged the exercise would be politically delicate, given intense arguments over the reliability of key indicators, including projected oil revenues or Scotland’s share of UK debt. Part of the aim would be to suggest different ways of arriving at such figures, Peebles said, adding that Scotland needed more transparency in its public finances, whatever the outcome of the vote. ‘I think we are aware, rather than wary, of the political risks,’ Peebles said. ‘But there is no bigger single public finance or constitutional issue that we will face in our lifetimes. We are not going to allow the rawness to stop us becoming rightly involved in this debate. ‘We sense that there is an appetite for

a view from CIPFA, and we have had approaches already from organisations seeking a CIPFA opinion in the debate.’ The Scottish Government had invited CIPFA to participate in informal talks on some of the implications of its independence White Paper. ‘At no time will anyone be able to say that CIPFA supports one side [of the debate] or the other,’ Peebles stressed. ‘That will never be the case and we will jealously safeguard our own independence in this debate. ‘But our Royal Charter also requires us to serve the public interest, and at the moment the public interest is perhaps not being served. The public need help to find their way through to the finances of whatever the situation will be.’ Peebles has reshuffled portfolios at CIPFA’s Scottish office, bringing in Dr Eleanor Roy, formerly with the Welsh Assembly, to take charge of the independence analysis. He expects to begin with a substantial publication in the first quarter of 2014: ‘That will look at what we may see as the key areas for consideration and try to place an interpretation on what seem to be competing streams of information.’ More specific topics for inquiry might include state pensions, where the Scottish Government has said it is confident of an independent Scotland’s capacity to meet current obligations, while a House of Lords report last year took a contrary view. ‘If you are a member of the public, what do you actually believe? Where does the truth lie? If there’s a pathway through all that, we would hope that by using our sound financial management approach we can start to make matters clearer for the public,’ Peebles said.

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publicfinance.co.uk/news

InBrief TALKS ON JOBS FUTURE Partnership approach Welsh Government ministers held a meeting with council representatives and trade union leaders in an attempt to agree a common public sector workforce development approach amid Westminster’s austerity programme. First Minister Carwyn Jones said the highly challenging funding settlement made it vital to find ‘common ground’ in employment plans.

WILLING TAXPAYERS Poll finds Scots back local spending Nearly two-thirds of Scots would be willing

to pay more council tax if money raised was guaranteed to boost local services, according to a poll for the Convention of Scottish Local Authorities. In a survey, carried out as part of Cosla’s Commission on Strengthening Local Democracy, about 65% of people polled agreed either strongly or slightly that they would be willing to pay more. Tax rates have been frozen since 2007.

BELFAST PROTECTED Flooding work gets underway Work has started on a £2.7m project to improve flood protection in East Belfast after flooding over the Christmas and New

Debt guarantee ahead of vote on independence

Photos: PA

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SPEEDIER PAYMENTS Welsh councils back scheme Flintshire, Swansea and Torfaen councils are to adopt a Welsh Government scheme to hasten payments to construction firms via ringfenced Project Bank Accounts.

extensive clean-up operation can be met. ‘We must avoid a situation where local services are made to suffer because local councils have been forced to raid other departmental budgets to help cover the cost of the extensive repairs that are now required.’

Scotland

The Westminster government has pledged to guarantee all UK public sector debt even if Scotland votes for independence. This assurance comes amid concerns that financial markets could start charging the Treasury more for borrowing due to uncertainty ahead of the September poll. A Treasury policy paper stated that the continuing UK government would honour the contractual terms of the debt issued by the public sector ‘in all circumstances’. An independent Scottish state would then become responsible for a negotiated ‘fair and proportionate share’ of the UK’s liabilities. Instead of a share of the outstanding debt instruments being transferred to Scotland, the two governments would sign a contract for payments to be made to the Treasury to cover the Scottish share. Scottish First Minister Alex Salmond said the publication showed ‘the Treasury are starting to come to terms with reality – they have issued the debt and therefore have the responsibility for it’. He added: ‘This is a case of the London Treasury being hoist on their own petard as they have effectively endorsed the approach proposed by the [Scottish Government’s] Fiscal Commission a year ago and that we outlined in the Scotland’s Future paper published last November.’

Year. Rural Development Minister Michelle O’Neill said the storms had reinforced the need for the work. ‘I hope this latest development will bring some comfort to residents, businesses and property owners who have been vulnerable to flooding and who have experienced considerable stress as a result of the coastal storms.’

Northern Ireland

Hamilton’s ‘optimism’ for Northern Ireland Repair bill: A Cardiff Bay resident is flooded out Wales

Welsh councils count cost of storm damage Stretched council finances in Wales face further pressure after storms over Christmas and the New Year caused several million pounds worth of damage, the Welsh Local Government Association has warned. WLGA deputy environment spokesman Andrew Morgan said the storms had left a significant repair bill in their wake, and called on the Welsh Government to provide support to authorities to avoid services suffering. Coastal defences, roads and public buildings are among the areas where repair work is now needed, he said. ‘While councils do everything they can to maintain emergency budgets, this repair bill represents a sum of money that local councils simply do not have at their disposal, and local councils and the Welsh Government will now have to work closely together to ensure that the significant costs associated with such an

Northern Ireland’s Finance Minister, Simon Hamilton, has said there is ‘justifiable cause for optimism’ in the economic recovery in 2014, but stressed the Executive would continue investments intended to boost growth. Speaking at an event organised by the Kilkeel, Newcastle and Warrenpoint Chambers of Commerce, Hamilton said many economic indicators were showing the best figures since the financial crisis. He cautioned: ‘Just because things like unemployment, business activity and consumer confidence are improving, it doesn’t mean that we can stop investing in the skills and infrastructure we need for the dynamic and innovative economy we desire. ‘We must balance our investments as an Executive between assisting those businesses that are still struggling whilst continuing to help companies who can, to avail [themselves] of the opportunities that growing economies around the world present.’ Hamilton said Chancellor George Osborne’s statement that the UK would face an extra £25bn in public spending cuts by the end of 2017/18 showed that challenges would remain for many years and underscored the need for reform. JANUARY/FEBRUARY 2014 PublicFinance 15

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Voice of the Nations

Debate Public Finance/Northern Trust debate

The Yes effect on councils A vote for independence would require Scotland’s 32 councils to be given more autonomy too, their finance directors agreed at PF’s recent dinner debate of continuing reform in local service Scotland’s municipal heads of finance delivery; and fears of political instability believe that local authorities will need if Scots vote against independence. extra powers and greater autonomy if the Wishart and Black were joined on the country votes for independence in expert panel by Scotland’s Auditor September’s referendum. General, Caroline Gardner, and Queen They voted by an eight-to-one Margaret University Professor of margin in favour of additional powers Management Richard Kerley. after a lively discussion at the annual Delegates held a card vote on a Public Finance debate in Glasgow, amid question from Ian Lorimer, chair of the warnings that the council tax freeze was Directors of Finance Group for Scotland, eroding local democracy. as to whether councils would need Columnist Ruth Wishart, who served further powers and greater autonomy in on the Christie Commission on public the event of a Yes vote. The result was 23 service reform, summarised the mood to three in the affirmative. when she said: ‘I want a Scotland where Black, stressing his view that the need local democracy isn’t greeted with such to restore powers was there regardless of consummate indifference by the the referendum, predicted that a Yes vote electorate. What the people are saying is might push along the agenda for restoring that local authorities are not making powers, while Gardner thought there enough of a difference.’ were cultural barriers to innovation that Glasgow council chief councils could already executive George Black be eradicating. went further. ‘Irrespective Kerley agreed that of whether the vote is for some councils made independence or not, insufficient use of everybody in local existing powers, though government would be he supported increased looking for more powers autonomy regardless of and incentives to be the vote, while Wishart devolved to local level,’ said it was an anomaly he said. that most Scots The debate, sponsored consistently expressed by Northern Trust, also a preference for ‘devo heard concerns about the max’, increased future of the Barnett devolution within the Formula for distributing UK, but that option had public spending; calls for not been allowed on to power to be devolved the ballot paper. beyond councils to Black complained at GEORGE BLACK, GLASGOW COUNCIL CHIEF EXECUTIVE communities; predictions a lack of reliable BY KEITH AITKEN IN GLASGOW

‘IRRESPECTIVE OF WHETHER THE VOTE IS FOR INDEPENDENCE OR NOT, EVERYBODY IN LOCAL GOVERNMENT WOULD BE LOOKING FOR MORE POWERS’

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information on the implications of independence for council finances, especially on whether the council tax freeze would give way to repatriation of fiscal discretion. Gardner judged it unlikely that either referendum outcome would impact greatly on the need for austerity, since the fiscal outlook was tight up to 2020, while Kerley thought it possible that a proindependence vote might give councils ‘more headroom space’. ‘Independence might stop the power flow from local government,’ Kerley said. ‘On the other hand, any change is likely to be extremely costly. We don’t know what the costs will be exactly, but they will put pressure on pre-existing public services.’ Wishart argued that it was likely that the Barnett Formula would disappear, regardless of the vote. She also hoped relations between councils and Holyrood would improve in the event of a Yes vote. ‘I suspect that, if there were a No vote, Scotland would slip off [Westminster’s] radar quite quickly. As far as local government is concerned, I suspect that national government in Scotland would be dealing with an ever-tighter budget without any increase in its borrowing capabilities,’ she said. In answer to a question from the audience, she said she hoped a ‘robust’ relationship would emerge postreferendum between Edinburgh and London. The referendum campaign, she said, had been dispiriting: ‘A lot of civil servants have been beavering away in Whitehall to come up with a weekly scare story about independence.’ Kerley thought a No vote might settle

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