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The business monthly of the public sector

Issue 10 October 2013

PublicFinance OCTOBER 2013

On the money

The quiet revolution

States of emergency

Colin Talbot wants MPs to flex their fiscal muscle

How Eric Pickles upstaged IDS on welfare reform

David M Walker on hard US lessons from Detroit

How the government’s infrastructure plan hit a few snagging issues

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October 2013


Features 24 COVER STORY Shovel ready? The coalition’s infrastructure plan is said to be the biggest programme of public works since the Victorian era. The only issue is getting it off the drawing board, says Mark Hellowell

30 American nightmare A spectre of financial mismanagement is haunting US cities. David M Walker explores Detroit’s recent bankruptcy and calls for radical change from the country’s leaders

34 The other October revolution Eric Pickles has upstaged Iain Duncan Smith when it comes to pushing through radical benefit reforms. Peter Kenway explains how Council Tax Support, not Universal Credit, became the big welfare story this month

38 Productivity watch You can’t always see it, let alone measure it. But public sector productivity is key to how services are going to survive the tough years ahead. Ed Roddis reports


Regulars 4

Leader Nurturing the green shoots of recovery


Second thoughts Colin Talbot says it’s time for MPs to fight the good fiscal fight




News Exclusive interview with local government minister Don Foster; DIP proposals raise legal concerns


Need to Know

News analysis Vivienne Russell considers the arguments for and against spinning out public services into mutual businesses

42 43


Cipfa Events

Opinion Vidhya Alakeson on the female factor and Neil Cole on African finance, plus readers’ letters and blog comments

On Account Codes and consultations


Management Development How to handle those difficult conversations with staff


Voice of the Nations Interview with John Baillie


Smart Thinking? Why digital projects provide essential training for tomorrow’s leaders


Numbers Game

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Restless nation One year to the referendum


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18/9/13 21:12:57


Leader Grow your own


reen shoots of recovery appear to be sprouting up all around. Growth is on the up, employment is at record levels and manufacturing is said to be ‘booming again’. This is welcome news, but the recovery is still very fragile, and nothing should be taken for granted. Momentum must be maintained, or we could all too easily return to negative growth. A Keynesian stimulus may seem out of the question, but infrastructure investment offers one route to longer-term prosperity. It is reassuring then that the coalition has embarked on what ministers describe as the ‘biggest programme of infrastructure development since the Victorian era’. Launching the National Infrastructure Plan in June, Treasury Chief Secretary Danny Alexander promised £300bn of investment before the end of the decade. Schemes include the High Speed 2 rail line, a new schoolbuilding project and a number of offshore wind farms. It’s a great-looking plan, but how much of it will actually come to fruition? As Mark Hellowell points out in this month’s cover feature (pages 24–29), only seven out of 576 projects have so far been completed. Business leaders, such as the CBI, believe that too many investment decisions are being pushed back to beyond the next election. Meanwhile, our road and rail networks continue to deteriorate, and there is increasing concern over future energy supplies. Britain is now ranked 28th by the World Economic Forum for the quality of its infrastructure – below our main international competitors, as well as countries such as South Korea, Saudi Arabia and Barbados. Something needs to be done – not just to improve our transport, energy and digital networks – but also to give our recently resuscitated economy a new lease of life. John Armitt, chair of the Olympic Delivery Authority, has suggested the creation of an independent national infrastructure commission in a review commissioned by the Labour Party. This could evaluate the country’s needs looking 25–30 years ahead and avoid short-term political infighting. Similarly, the London School of Economics Growth Commission has called for a national infrastructure bank to help increase the supply of private finance. Both of these ideas may not fit with the government’s antipathy to quangos and state interference. But tangible successes have been few and far between, and the current approach is clearly not working quickly enough. It’s hard to see how we can turn the initial signs of economic regeneration into something more robust without taking a long-term approach.

■ Mike Thatcher EDITOR


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18/9/13 21:16:52

Second thoughts pfOpinion

■ Colin Talbot

Assertiveness training There are stirrings of a new mood in Parliament – now MPs need to square up to the executive on tax and spend After the vote on Syria that saw David Cameron’s policy defeated in the House of Commons, many commentators have started to speculate about a resurgence in the power of Parliament, as against that of the government. They point out that this was the first defeat on an issue of war and peace in, well, a very long time. The highly newsworthy hearings of various select committees, pillorying the bankers, News International and the BBC have also been cited as evidence of a new and more assertive mood in Parliament. This has been put down, in part, to the loosening of the dead hand of the Whips’ offices over appointments to select committees. There have also been some rather more hidden changes going on. The National Audit Office, which used to work exclusively for the powerful Public Accounts Committee, has gradually spread its support to other select committees. It now regularly provides them with background briefings on departmental spending, value-for-money and performance

issues, and carries out specific valuefor-money studies. The creation of the Scrutiny Unit in 2002 to support House of Commons select committees has also, in a modest way, increased the analytical support available to committees. So select committees have become more independent of parties, and have more backup at their disposal. And they have certainly shown a greater appetite for more robust scrutiny of the government, beginning about a decade ago under the Labour government and no doubt increasing under the coalition. But this must all be placed in the context of a weak Parliament vis-á-vis the UK executive. Take one of the most important decisions any government makes: getting and spending public money. Here, Parliament is extremely restricted in what it can do. There is a widespread view that only government can propose taxes or spending, and that any defeat on a ‘money’ resolution is tantamount to a vote of no confidence. Numerous textbooks repeat this formula in various ways, even though it’s not strictly true. Of course, if a government couldn’t raise taxes (most of which are annual) or spend money (ditto), it would be


effectively powerless. But Parliament has never used this ‘nuclear option’. If it wants to get rid of a government, there are simpler ways of doing it (for example, in 1979, when Labour lost a straightforward confidence motion). Standing Order 48 (which is apparently 300 years old) says that only the Crown (government) can propose public spending. Although this only applies to spending, it is also taken as applying to taxation. So it is impossible to propose amendments to either finance bills (taxes) or supply bills (spending) that increase either of them. MPs can propose amendments to reduce taxes or spending in specific ways, but this is also hedged about by procedural barriers. In practice, there have only been about 20 successful amendments in almost 100 years – about one in every five Budgets. As Philip Cowley, professor of government at the University of Nottingham, has pointed out, none of these was actually treated as a ‘confidence’ motion – somewhat giving the lie to the widespread belief that all ‘money’ votes are confidence issues. In fact, Parliament could play a much more active role in amending proposals for tax and spending than it does – the only real barrier is its own standing orders and the widely held view that this would be somehow ‘unconstitutional’ or a ‘confidence’ issue, when it is neither. Plenty of other legislatures play a more active role in these issues. Only when Parliament begins to take real power away from the executive will we really start to see a genuine rebalancing of power in our system. There are stirrings in this direction – but so far, that’s all they really are.

Colin Talbot is professor of government and public administration at the University of Manchester Photo: Getty, Illustration: Thea Brine

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News PF exclusive interview

Neighbourhood budget rollout backed by Foster BY RICHARD JOHNSTONE

The government’s neighbourhood Community Budgets programme, which is intended to give local areas greater control over public spending, could be rolled out across the country, local government minister Don Foster has revealed. In an exclusive interview with Public Finance, Foster said the programme, which brings local people and service providers together to identify where improvements could be made, had

been successful in 12 pilots. Among the projects taken forward are plans to integrate public spending in White City in the London Borough of Hammersmith and Fulham, which hopes to utilise greater local decisionmaking to find efficiencies. A second successful programme would coordinate health spending in Birmingham’s Castle Vale area. In July, Foster announced that the government would support 100 new projects to further test the idea, now

Model community: a plan to integrate public spending and increase local decision-making in White City is in development


renamed Our Place. Around £4.3m would be available to ‘build up’ the rights of local communities to become more involved in local spending decisions, he said. The minister told PF that the government would soon announce plans to appoint an organisation to distribute the money to local schemes. ‘We’re looking to agree who is going to take on the running of the next stage of this scheme. We will have a body that will have access to the funding we’re making available, and that will also provide the help and support.’ This could lead to the scheme being rolled out nationally, Foster intimated. ‘It could go nationwide, it really could,’ he said. ‘If you look at opinion polling, people are increasingly wanting to be engaged in their local community, and they want to have a say. We’re finding ways to do that through a variety of routes – of which Our Place is a very important one – to help people look at services that are delivered in their area.’ The pilots required public spending data to be broken down to a very local level, Foster noted. This was completed in a way that had not been done before and the process had identified potential new savings. ‘They look at all of the money and what it was spent on, and work out how they could save a significant sum of money by co-locating different services, by avoiding some of the duplication and by doing things differently,’ he explained. This local analysis of spending could be further rolled out alongside the government’s other ‘whole place’ Community Budget scheme, which covers entire local authority areas, Foster added. This would improve the coordination of local public spending through ‘much more sensible working’. ‘One of the things we have to start recognising, at both the local and the macro level, is that there’s going to have to be much more partnership working.

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LocalGovernment ■ Richard Johnstone

Furore over finance officer dismissal protection scheme ‘At the level of local communities, that requires people to think differently about the whole issue of governance.’ Ahead of the launch of the extended pilots, Foster predicted that many councils would embrace the idea of giving communities more of a say in spending decisions, and expected to have many places to come forward. However, he admitted that some councils had only demonstrated an interest in reaction to central government funding cuts. ‘It would be very dishonest of me to say that some councils have come to this approach because of a great belief in doing so. For some of them, the finances have put this upon them.’ There were a number of councils that were involved in the neighbourhood Community Budgets because they believed in it, but those that ‘did it because they had to’ were increasingly working with their neighbourhood or their communities because they see it as right, he added. Responding to Foster’s comments, Peter Fleming, chair of the Local Government Association’s Improvement and Innovation Board, said local areas should have greater control over the way public money is spent. He said Our Place was one way of providing this. Fleming told PF: ‘A key element of any wider roll-out is ensuring that public money is well spent and that the new structures are subjected to democratic oversight and accountability at a local level. ‘It is important that this isn’t treated like the start and finish of the drive to take power out of Whitehall and place it into the hands of local people. Ultimately, the aim has to be rewiring services around the people who use them and the places where they live, and that requires a fundamental rethink of the way the public sector is structured.’ Laura Wilkes, the Local Government Information Unit’s policy manager, was involved in the neighbourhood budget pilots. She told PF that any attempt to Photo: Alamy

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Councils could face a slew of employment claims unless ministers back down over plans to scrap the protection against dismissal given to chief finance officers, a senior lawyer has warned. Local Government Secretary Eric Pickles announced earlier this year that the government wanted to take action to stop senior local government officers, such as chief finance officers, receiving large payoffs if they were dismissed. Pickles announced a consultation on changes in the current local government standing orders to remove the requirement for a ‘designated independent person’ to review cases before senior officers holding statutory positions are dismissed. Pickles said this ‘bizarre bureaucratic ritual’ had led to larger payoffs for officers including chief executives, and said only a council vote should be required. Following the consultation, which closed in March, an announcement from the Department for Communities and Local Government about whether the provision will be removed is expected soon. But a senior local government lawyer told Public Finance that ministers would face difficulties in implementing the change. Sarah Lamont, a partner at law firm Bevan Brittan, said it would be impossible to impose the reforms, as they require changes to individual employment contracts as well as to standing orders. Model contracts for senior officers in local government have been ‘built around’ the DIP process, she said. ‘So they [senior officers] could

DIP denier: Eric Pickles wants to end ‘bizarre’ rules that prevent dismissals well have a claim if the council was to dismiss them for lack of competence or conduct. They could sue the council for breach of contract for failing to follow an expressed procedure,’ she told PF. Lamont added that, as individual contracts need to be changed to remove the DIP provisions, it would be many years before the reforms had any impact.‘Unless you get your senior officers to change their contract – and why would they if they have that protection in their contract? – or take up new roles, it’s still going to be there as a protection.’ CIPFA has raised concerns that removal of the DIP provisions would erode safeguards that protect the duty of the chief financial officer to represent the interests of the local ratepayer to councillors. Lamont, who specialises in local government employment cases, added that the safety net of the DIP provisions was important. ‘[Councils] can’t, on a whim, get rid of a chief finance

roll out the scheme nationally would also need a mechanism to ensure that lessons and best practice were shared across the country. ‘I think that’s a real challenge for the sector. If one area innovates around services and develops something exciting, there are certainly questions about how that becomes scaleable across the rest of that local area, and how that

officer who’s questioning some finance arrangement. That’s going to give CFOs a level of protection and encourage them to carry out their duties and say what needs to be said.’ CIPFA chief executive Rob Whiteman warned that the removal of the DIP had the potential to weaken the ability of a CFO to represent the interests of all parties in the council and robustly defend those of the local taxpayers. ‘At a time when councils are increasingly finding themselves having to make very sensitive decisions about service cuts and delicate funding decisions are in the balance, it seems unwise at best, if not to say reckless, to withdraw the safeguards that are designed to ensure a degree of fairness in, and the long-term sustainability of, public finances at a local level,’ he said. A spokesman for the DCLG said: ‘The government is considering its response to the consultation, and we hope to make an announcement shortly.’

can be shared across the sector. ‘I hope there will be one thousand flowers blooming, but at the same time, there is that age-old problem [of] duplication in the sector and inefficiencies. ‘I hope that there will be capacity in the programme for areas to learn from each other, and if there is any really good innovation, that this is shared.’ OCTOBER 2013

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Analysis Public service mutuals

Getting into the spin-out of things Public service mutual spin-outs appear to offer staff a greater say in the way their organisation runs, which in turn increases motivation. But not everyone is persuaded, says Vivienne Russell The National Audit Office recently delivered an early verdict on one of the government’s flagship projects: the MyCSP mutual. Auditors concluded that despite some early teething problems, the organisation, which administers the civil service pension scheme, was on track to deliver projected savings of 25%. The Cabinet Office, which has taken on the role of Whitehall’s public service mutuals’ champion, was quick to hail the NAO’s findings as a testament to the success of the employee ownership model. Giving staff a greater say over the running of their organisation leads to better quality and better-value services, it says. ‘Public service mutuals are appearing all over the country because nurses, social workers, probation officers and other frontline staff want the freedom to do their jobs in the way they know is best,’ says a Cabinet Office spokesman. ‘With over 70 mutuals now delivering more than £1bn of public services, we are witnessing a quiet revolution in our public services.’ It’s a view echoed by Iain Hasdell, chief executive of the Employee Ownership Association and a member of the Cabinet Office’s Mutuals Taskforce, which has issued recommendations on ways to boost the size and scope of public service mutuals. He says there is consistent 8

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evidence that each time a public service spins out into a mutual, service quality, productivity and staff fulfilment all increase. ‘The advantages are compelling, clear and, to those who have insights, incontestable,’ he tells Public Finance. Hasdell makes the striking observation that the current climate of cuts and insecurity in the public sector has helped to sharpen interest in employeeownership models. ‘It’s precisely because people think that they can take some control of their own destiny and build a business that does protect their jobs, as opposed to waiting to be a victim of circumstance,’ he says. ‘The demand has risen almost because of austerity, which is quite an interesting trend.’ Talk to those working on the front line in public service mutuals, and the attraction of wresting some control of your own fate comes through strongly. Sam Boulton is marketing and sales manager at Aspire Sussex, an adult education provider that ‘spun out’ of West Sussex County Council in September last year. Asked what the impetus behind mutualisation was, he offers the observation that: ‘We wanted to be at the forefront of choosing our own destiny. ‘Staff have a much greater opportunity to support the strategic direction of Aspire. It’s very different to a department

within a county council because there, you’re a small cog in a big organisation, and staff tend not to see the top level of how things are running. ‘Now that we have a staff representative group, everyone has an opportunity to put their ideas forward.’ At the other end of the country, operating from a base in Hull, is City Health Care Partnership, which spun out of the local NHS and into a mutual in June 2010. It employs around 1,500 people who provide a range of primary and community care services in Hull and beyond. Since spinning out, it has seen annual growth of 10% through acquisition of other services, diversification and service efficiencies. Chief executive Andrew Burnell, who led the spin-out process, says employee ownership offered a good way to preserve Photo: Alamy

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QuoteUnquote ‘People think they can take some control of their own destiny and build a business that protects their jobs, as s opposed to waiting to be a victim of circumstance.’ Iain Hasdell, chief executive, Employee Ownership Association

‘There is very little evidence that our members are interested. They’ve seen what happens to people who have int been outsourced to the voluntary and private sectors.’ bee Heather Wakefield, head of local government service He group g gr o Unison

Learning curves: adult education providers report rising staff motivation from gaining mutual status


public sector values in an organisation that needs to behave like a business. ‘It’s about creating a psychological and emotional construct with the organisation,’ he tells PF. ‘I firmly believe that our success is down to that view.’ Both Boulton and Burnell emphasise the greater freedom mutual status has brought to their respective organisations. Boulton points out that Aspire Sussex can now draw up and define its own procedures and guidelines, and apply for extra funding it was not able to access when it was part of the county council. Geographical barriers have also been torn down, and both Aspire and City Health Care Partnership have expanded operations beyond their old public sector boundaries. City Health Care, for example, recently won a contract to provide services in Knowsley, Merseyside. ‘We have the freedom to be different and do things differently,’ says Burnell. ‘One of the beauties of this is it takes the best of the public sector and splices it to the best of the private sector. If you get the leadership right, you unlock great potential in your workforce.’ But other voices sound a far more sceptical note. Heather Wakefield, head of local government at the public sector trade union Unison, tells PF there is ‘very little happening’ on the mutual front in councils. ‘Mutuals and co-ops are hugely time-intensive; they require technical resources, they require money, and most of all, they require motivation by the people involved,’ she says. ‘There is very little evidence that our members are interested. And why would

they be? They’ve seen what happens to people who have been outsourced to the voluntary and private sectors. ‘To be honest, we’ve got the longest working hours in Europe in this country, and it requires people to put in a huge amount of their own time.’ Wakefield acknowledges that mutuals might have a role to play in a particularly niche service area, but she adds: ‘I can think of no reason why it should happen otherwise, or why services should be spun out.’ The Trades Union Congress recently joined with Cooperatives UK to warn that staff should not be strong-armed into going down the mutual path. It put forward a set of best-practice guidelines that should be followed if public sector mutuals are to offer genuine employee ownership and representation. But at the Employee Ownership Association, Hasdell says there is ‘no evidence’ that public service spin-outs are being forced through against the will of the employees concerned. ‘The evidence is that these are entrepreneurial employees who wish to break free and set up a business,’ he says. Trade union opposition can make public sectors commissioners reluctant to encourage and pursue mutual options, Hasdell notes. He stresses that for mutuals to take hold and become a mainstream part of public sector provision, it will take a radical shift in commissioning attitudes. ‘The real key to this is changing the skill and will of commissioners,’ he tells PF. ‘But it needs to be done at a relentless pace if it’s going to make any difference. This isn’t some minor tweaking of behaviour. It’s really fundamental.’ OCTOBER 2013

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■ Women and children first?, by Vidhya Alakeson ■ Out of Africa, by Neil Cole

Opinion ■ Vidhya Alakeson

Women and children first? At this season’s annual party conferences, the race has been on to court the all-important female vote. But recent difficulties with childcare policy-making indicate how far they still have to go Over the past five years of the economic downturn, women have been on the front line of the struggle to stay financially afloat. They have borne the brunt of public sector job cuts and pay freezes. Too many have seen their employment rights eroded, and yet they are still the ones, in the majority of households, who have to balance the household budget in the face of falling wages, rising costs and reduced support from government. But now the economy has begun to recover, women will be looking for reassurance from each of the three main parties that they and their families will benefit from growth. At their annual conferences, each party has been tailoring its message to appeal to women voters, and so stand a chance of victory in 2015.

No single issue has become more of a battleground for the female vote than childcare. UK parents spend more on childcare than those in most other developed economies. With more families needing to have two people in work just to get by, the exorbitant costs of childcare are frequently cited as a major barrier to women seeking employment. In an attempt to woo working women, the government announced nearly £1bn for childcare at this year’s Budget. The bulk of that money – £750m – will pay for a new system of childcare vouchers for better-off parents who are not eligible for Universal Credit. The intention is to target support towards those families that currently receive limited help from the state and for whom childcare costs can feel like a second mortgage. From 2015, these parents will be able to claim up to £1,200 a year in childcare support. But a policy that was intended to build bridges between Conservatives and female voters, and to partially compensate those who had lost child

Critical care: Childcare Minister Liz Truss’s proposals on staff/child ratios have come under attack


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benefit, backfired because traditional Tory supporters rejected it. The new childcare voucher is only available if both parents work, fuelling accusations that the government is pushing women out to work and does not value stay-athome mothers. Arguably, the policy does the reverse: it gives those parents who would like to work but cannot afford to because of the high costs of childcare the same choices about whether to stay at home or go to work as parents who are more affluent. But the policy provoked more of a row about the appropriate role of women than it achieved in terms of voter support for the Tories. In response, the party quickly announced its plans to introduce a married person’s tax allowance in this year’s Autumn Statement. While this may satisfy those the party has angered the most, it will put off many of the working women it seeks to reach, as they will likely consider it out of touch with the reality of today’s diverse families. When it comes to child- and femalefriendly policies, the Liberal Democrats have generally fared better. Although it was a policy initiated by the previous government, they have claimed as their own the introduction of free childcare for disadvantaged two-year-olds, and have won the support of parents and the childcare sector for quashing childcare minister Liz Truss’s proposal to loosen ratios of nurseries and childminders. As part of the Budget deal, the LibDems secured £250m of childcare support for less-well-off families who would otherwise have been overlooked – although the way that money will be targeted is perverse, as it tends to favour the higher earners within the group over Photos: PA/Alamy

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Not child’s play: With most UK families needing two people in work just to get by, the exorbitant costs of childcare present a major barrier to women seeking employment

those on the minimum wage. The LibDems have also pinned their colours to the extension of flexible working and the introduction of shared parental leave, both popular policies with women. However, with a significant number of new jobs still only part-time or temporary, it will be some time before employees are willing to exercise these rights in the workplace without fear of repercussions. Overall, both sides of the coalition have been let off lightly because Labour has failed to make the running on childcare. Despite being an area where Labour should expect to lead the polls, they have so far said very little about

what they would actually do regarding childcare if they were to win in 2015. They have not even identified it as one of their top policy priorities, which is clearly a problem. While the gender divide among voters is greatest for the Tories, Labour cannot take the female vote for granted. At the very least, the party should be arguing to spend the £1bn the government has already identified differently. It could win significant support by focusing on the very youngest children – one-yearolds – where there is currently a gap between the end of maternity rights and the LibDems’ new free childcare for two-year-olds.

The new childcare voucher is only available if both parents work, fuelling accusations that the government is pushing women out to work and does not value stay-at-home mums

Childcare for one-year-olds is expensive and needs skilled carers, but that is the critical year where women become disconnected from work – and all too often, struggle to ever get back. Some enhanced support for less-welloff parents at this point would at least make it clear that politicians really understood the challenges facing working mothers. This conference season brings a lot to play for, as all parties are no doubt aware. As well as childcare, there are other opportunities to court the female vote: care, low pay, uncertain employment, and a solution to high rents and insecure tenancies are all issues that affect both women and families, and that need to be addressed. This is just the beginning of the race to 2015, but so far, there have only been a few false starts, and Labour has been left standing in the blocks.

Vidhya Alakeson is deputy director of the Resolution Foundation


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Opinion ■ Neil Cole

Mind the gaps: the Cabri seminar, held in Nairobi at the end of August, discussed the ‘missing links’ in public financial management reform and offered some potential remedies

Out of Africa Africa has made some progress on its public financial management reforms, but there is still a long way to go THERE HAS BEEN, and still is today, no shortage of attempts at administrative and governance reforms in Africa, dating back to the early days of independence and democratisation. Some of these have improved systems and been embraced wholeheartedly, while others have not resulted in any positive change. Public financial management reform efforts across Africa have focused on three broad themes: fostering marketfriendly governments through privatisation, deregulation and trade liberalisation; emphasising greater discipline in civil service and budgetary regimes; and modernising and formalising government processes through fiscal rules, Medium-Term 12

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Expenditure Frameworks, internal audit regimes and decentralisation. Where reforms have not brought about an improvement to the budget system, it could be that the move was intended merely to make the government look good to the donor community. Public Expenditure and Financial Accountability scores appear to indicate that, despite the myriad reform programmes across the continent, several challenges remain. These reveal that about 90% of African countries have de facto gaps, meaning they score lower in implementing laws than they do in passing them. Countries such as The Gambia, Seychelles and Ethiopia do not have

de facto gaps; meaning their implementation of laws is stronger than the laws themselves. The Pefa data also reveals that 93% of African countries have gaps when it comes to decentralising regulation, meaning those who have to implement the rules score lower than those who pass laws and introduce processes. However, Botswana, The Gambia and Niger do not have these gaps. Their concentrated agencies (such as central government departments) appear to be less effective than their implementing agencies (including local government). Furthermore, 78% of African countries have ‘downstream’ gaps, meaning budgets are formulated better

Despite myriad reform programmes across the continent, about 90% of African countries have de facto gaps, meaning lower scores for implementing laws than for passing them Photo: Getty

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A DIGEST FROM THE WEB than they are executed. The countries whose budget formulation processes are not as strong as their budget execution processes are: Chad, Seychelles, Mauritius, Tanzania, Cote d’Ivoire, Niger, Ethiopia and Congo. Similarly, the Open Budget Index – a measure of budget transparency, participation and oversight – reveals comparable gaps. About two-thirds of countries have a transparency gap, especially in the sense that budgets are more transparent at a central level than where they are being implemented. These issues were discussed recently at the ninth annual seminar of the Collaborative Africa Budget Reform Initiative. Senior budget officials from 26 African countries met over three days in Nairobi to examine critical challenges in public financial management reforms. Delegates unpacked the reasons many African countries have moved from one budget reform to another without making the system more functional. The seminar aimed to explore the ways senior budget officials can promote change and embed the reforms in a way that improves budget systems, and to do so in the context of: leadership challenges; scarce capacity; poor pay; inefficient bureaucratic processes; donor pressure; and weak incentives. The underpinning analysis for the seminar was based on work undertaken by Matt Andrews, associate professor at Harvard Kennedy School of Government. Andrews’ premise is that reforms fail because: the contextual realities are often overlooked; ‘best practice’ interventions are often beyond the reach of developing countries; and reforms often focus on narrow groups of

‘Proposals from the Department for Communities and Local Government to remove safeguards for local public finances could, in the long run, precipitate a whole variety of serious problems for local government finance and governance ’ Rob Whiteman, incoming CIPFA chief executive

‘The government has successfully framed all economic debates on its own terms, with a powerful narrative that is resilient to different cicrumstances. If the economy is strong, the medicine is working; if the economy is weak, we need more medicine ’ Carys Afoko, head of external affairs, New Economics Foundation

‘We are emerging from the depths of the worst downturn since the Great Depression, but nothing has fundamentally changed. Corporate profits are up largely because payrolls are down ’ Robert Reich, former US Secretary of Labor and professor of public policy at the University of California at Berkeley

‘The National Audit Office has show that IT is causing a major headache for the government’s Universal Credit scheme. But if the delay is used to address future problems, the computer saying ‘no’ could be a blessing in disguise ‘ Nigel Keohane, deputy director, Social Market Foundation

champions, which results in implementation problems later on. Officials present at the seminar identified a number of ‘missing links’ in their reform programmes, including: ● insufficient reflection on fundamental problem and priorities; ● reform content driven by international ‘best practice’ and not aligned with local constraints;

Common cause: senior budget officials from 26 African nations discuss the challenges to financial reform at the Cabri seminar

● inadequate communication with stakeholders and political leadership on reform needs and objectives; and ● persistent capacity constraints at different stages of the process. But they did offer some potential remedies, such as: ● using clear strategies, adequate feedback and strong coordination; ● introducing parallel public sector reforms, since PFM reforms are not likely to work without these; and ● inclusion of the implementing institutions, which are often located at a decentralised government level. Clearly, while progress has been made on public financial management reforms in Africa, there is still a long way to go. We hope to see some positive strides by the time we meet next year for the tenth annual seminar.

Neil Cole is executive secretary of the Collaborative Africa Budget Reform Initiative OCTOBER 2013

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

All joined up? Clive Betts (News, 2 September) says, correctly, that combined authorities could act as a basis for greater collaboration in other city regions. But I can’t help wondering what this means for the rest of the country. He is also right to say that it will be interesting to see how it works. The relationships between nearby local authorities in these city regions – as in other parts of the country – have not always been, to put it delicately, as mutually supportive as one would hope. So will the prize of regional coordination be big enough to trump what are often decades-old political (with a small p) disagreements? But let’s be optimistic, and assume that all goes well with the new arrangements. Even if the next couple of years see a succession of successful applications for combined authorities, both from the ‘Core Cities’ and even some of the nascent ‘Key Cities’, there

Better together? the South Yorkshire combined authority

will still be a very large number of councils – including some very big ones – who will not be part of this, being either urban but part of a smaller municipality, or rural but not adjoining a major city. What does the future hold for them, then – are they to become just the ‘spaces in between’ cities? Or will it be combined authorities for all? In which case, the sooner everyone knows they should be thinking about

who they should be joining forces with, the more likely places are to be ready to seize the opportunity when it comes. And what will this mean for the capital – shouldn’t the boroughs also be thinking about forming sub-London combined authorities? Mr Betts hints at the concept of combined authorities playing a new and vital role in providing the democratic underpinning for local enterprise partnerships when he suggests that they would help ‘shape the governmental arrangements to fit the economy, rather than the other way around’, although it is also likely to require some reconfiguration of LEPs as well. Therefore, this is not just a question of technicalities – if CAs and their associated LEPs are to prove the basis for future central-local negotiations over devolution of powers and funding, this becomes a pretty fundamental question for the future of local government. ALEX THOMSON Chief executive, Localis


Responses to blogs on Austerity stories Carys Afoko argued that government critics need to tell a more convincing story to counter the chancellor’s claims EDWARD HARKINS:

Well called. Some social housing professionals have seemingly swallowed the coalition’s line on ‘fairness’ on the bedroom tax – as in it’s not fair some poor people suffer less than their next-door neighbours, so the ‘fair’ 14

answer is to cut the benefits. Hearteningly, recent polling indicates the UK public may be starting to reject this false idea of what is fair. Moreover, part of the coalition’s ‘fairness’ is that if you are a rich landowner or landlord, it’s fair you benefit from state welfare.

Taxing questions Dan Corry said new plans to encourage social enterprises raise difficult issues HEIDI HARRIS:

Social enterprises

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are fundamentally not-for-profits. They are making profits, but unlike traditional businesses, they use those profits for social good. Therefore, tax relief that supports organisations to increase sales, expand, trade more and generate more profits is potentially viable for investors, and creates additional benefits in communities. Also, it is likely the relief would be directed towards loan rather than just share investments, as the majority of social enterprises and charities are

limited by guarantee, and therefore cannot accept share investments. This would result in some form of Enterprise Investment Scheme for loan investments, and, unlike Community Investment Tax Relief, the investor would choose which organisation receives the investment.

Not in my back office Michael Ware wrote that nimbyist objections to using commercial property

for housing should be overruled ROGER HINTON:

Interesting ideas, but you make no mention of the recent change to permitted development rights, which hugely simplifies the process of obtaining permission to change a property from offices to housing. In Brighton, a former department store is being developed for student housing, and there are numerous applications to change empty office buildings to blocks of flats, all without the inducement of a costly 130% tax allowance. Photos: Alamy

18/9/13 19:27:16

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17/09/2013 13:02

Voice of the

Nations Scotland

Baillie calls for review of Aleos NEWS FROM THE DEVOLVED ADMINISTRATIONS Scotland S Scotland cotland BY KEITH AITKEN IN EDINBURGH

The powers of Scotland’s local spending watchdog, the Accounts Commission, should be reviewed to take account of councils’ increasing use of arms-length external organisations (Aleos), the commission’s outgoing chair has told Public Finance. In a valedictory interview, John Baillie, who retires this October after ten years on the commission with six as its chair, also revealed that the watchdog would be looking afresh at its ability to ensure best value in council spending, and extending its audit programme for Community Planning Partnerships (CPPs). PF last month reported mounting concern in Scotland’s voluntary sector over charitable status for Aleos and the extent to which they enable authorities to evade due scrutiny of their activities. The Scottish Council for Voluntary Organisations plans an inquiry into the behaviour of a selected sample of Aleos.

Baillie’s approach would draw on the commission’s duty to police the delivery of best value by councils, he said. ‘One of the matters we’re looking at just now is the power the commission has to assess the best value afforded to a council or a CPP by Aleos,’ he said. ‘We should be able to say, “show us how this is delivering best value”.’ Baillie pointed out that the commission had established a key principle in its 2005 paper Following the public pound that councils had a duty to achieve best value for all their public money, regardless of how or where this was being spent. There was, he acknowledged, a growing debate about the effectiveness of councils’ supervision of Aleos, which therefore raised a question: ‘Should the Accounts Commission have additional powers to gain direct access to information from an Aleo, including direct access to its people?

Powers police: outgoing chair of the Accounts Commission John Baillie urged a review of the watchdog’s powers to determine whether councils and CPPs deliver best value


‘We could also enhance our power to look at the governance issues around Aleos,’ Baillie added, arguing that the proper scope for such powers might be ‘governance of whether it’s achieving best value rather than the governance of the Aleo itself.’ Since the commission’s remit is limited to local authorities, the way ahead would likely involve finding the logical parameters of its existing powers, rather than seeking a new Aleo remit, he said. Baillie also revealed that the commission has decided to look at its best-value powers again. This review was likely to place greater stress on the pace of improvement, he said. ‘It’s a much more targeted approach. Risk assessment in each council now informs the process better. It’s the stuff that we see as more risky that we would target for a best-value visit.’ The commission has pioneered methods to monitor CPPs, and published three pilot CPP audits earlier this year. Baillie said it would shortly embark on a further five, this time geared towards looking at the partnerships’ forward plans rather than their historic willingness to develop the sort of collaboration demanded by ministers. ‘One of my mantras is “fair and proportionate” – if we lose the reputation for being that, then people will stop taking us seriously,’ he said. Baillie, a former KPMG partner, also recently stepped down after nine years on the Competition Commission. He retains a private practice and a visiting professorship at Edinburgh University, but admitted that he hopes to find some new public sector role, ‘because I find it fascinating, and I think I’ve got something to offer’.

PublicFinance OCTOBER 2013

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