Targeting regulation: Accounting & Business

Posted on December 29, 2009 · Posted in Accounting & Business

 

What is the correct response to regulatory failure? Is it to strengthen regulation – at higher cost – or to say that regulation doesn’t work, so let’s minimise it?

 

These are questions relevant to public services, just as much as for financial services. After 12 years of target-setting and a mostly command-and-control approach to public sector management, there remain serious failings across much of the UK’s public services. This is especially true in social care, where strong regulation did not prevent well-publicised system failures – such as the death of Baby P.

 

Public service regulation not only did not prevent catastrophe: it is also very expensive. Analysis just published by the Economic and Social Research Council concludes that schools and child welfare regulator Ofsted costs the equivalent of an extra 5,000 teachers. The budget of the Care Quality Commission could employ 4,000 nurses.

 

With the betting still on a Conservative Government this spring, there will be a new emphasis on reducing the cost of regulation (see box). The question then is whether this will lead to poorer regulation – or whether regulation can be both cheaper and better.

 

The new Audit Commission-led, cross-sector regulatory system, the Comprehensive Area Assessment, could be the first to be scrapped. Davy Jones is a freelance consultant and former senior manager at the Audit Commission, with responsibility for its Area Profiles project that was a forerunner of the CAA.

 

I didn’t believe the Conservatives at first when they said they would get rid of CAA, but I do now,” says Jones. “The fundamental issue is that the public like some form of independent assessment. They don’t like either private or public sector organisations policing themselves entirely and I think they have a point.”

 

Modern Conservative philosophy brings together several themes. One is support for the market; another is greater consumer involvement in public services; and the third is cutting the cost of public services. Bringing these principles together suggests there could be a big role for the public in assessing the performance of public services, with, perhaps, the privatisation of services that fail to meet a minimum threshold of approval.

 

Jones believes this could be part of a Conservative government approach. “I think the problem is that the Conservatives will want things to be entirely web-based,” he says. “The problem with that remains that a lot of poor and older people are not regular users of the web. So it becomes a small, self-perpetuating, group of middle class people [who would make the assessments].”

 

Jones predicts that alongside the abolition of the CAA, a Conservative government would retain and expand ‘Total Place’ – a project to cut costs by integrating local public services.

 

If the Audit Commission faces a big threat to its size and perhaps even its existence,

there are, arguably, more fundamental problems with other public sector regulators, including Ofsted. While Ofsted is widely credited as having driven-up teaching standards, its style has upset teachers and school principals and it has run into strong criticism for its handling of an expanded role in overseeing child welfare.

 

Jones says: “There’s an issue of whether Ofsted is up to doing what it was asked to do and I think it probably wasn’t.” A similar view is put forward by the Association of Directors of Children’s Services, who have published a damning report of Ofsted’s regulation of local government children’s services.

 

The general feeling is that the system is not working,” says Kim Bromley-Derry, president of ADCS. “We want to be inspected, to be judged on what we do well and what we don’t, but we need a system that admits its limitations, acknowledges the expertise of those working in the sector and clearly articulates both the challenges and the improvements in a language that the public can understand.”

 

ADCS is now developing its own proposals for better regulation of children’s services. Other public sector representative bodies are also scenting a change in mood, as well as anticipating a change in government. Like ADCS, the Local Government Association is producing a regulatory review.

 

We have a real opportunity over the next few months to streamline the current system of targets, performance monitoring and inspection, to secure real freedoms that will help councils and our local partners respond more effectively to the challenges we face locally,” says David Parsons, chairman of the LGA Improvement Board and the Conservative leader of Leicestershire County Council.

 

Gillian Fawcett, head of public sector at ACCA, believes that change has become inevitable. “I think there will be some rationalisation of regulators,” she says. “There has been a move to a risk-based approach – a dumbing down of regulation. It will be more light touch, a more proportionate approach.”

 

Meanwhile, there is already a move away from centrally imposed performance targets. “A couple of years ago authorities were reporting a thousand or so targets,” says Fawcett. “With local area agreements, there has been a reduction in targets.” That trend will continue, she believes, whichever party wins the coming General Election.

 

Where any government must hesitate, though, is in constantly tinkering with regulation. The repeated restructuring of care service regulation has meant that regulators have been forced to focus on internal governnance and structural issues, at the expense of service oversight. “How can you have effective regulation?,” she asks. “Good practice was thrown out of the window” by ministers in their emphasis on changing structure rather than substance, says Fawcett.

 

But the bigger question, argues Fawcett, is how we move from a retrospective form of audit and regulation, to one that is capable of preventing service failure. The aim must to raise service standards, not to condemn mistakes.

 

Fawcett points to analysis carried out that examined the background to Audit Commission public interest reports – where service standards collapsed to a very serious extent. In each case, there had been breaches of the Nolan standards in public life prior to there being a crisis. This suggests, says Fawcett, that preventative regulation is possible if it focuses on the culture of organisations, to ensure they operate in an honest, accountable and responsible manner.

 

Ironically, though, academic review of the Audit Commission’s performance assessment regime shows that it is effective. An ESRC report ‘Leadership change and public services’ concludes that there is a strong correlation between negative assessments of local authority services by the Commission and subsequent changes in local political control.

 

This is a good news for local government,” says George Boyne, professor of public sector management at Cardiff University. “It shows that local democracy works, with poor performances leading to change in political leadership and management. That is what is supposed to happen.”

 

Another policy paper from ESRC – which also, paradoxically, reveals the high cost of performance monitoring – similarly stresses that performance assessment changes behaviour. It points out that waiting times for elective surgery fell faster in England, which used high profile performance indicators, than in Scotland, which did not. But there are clearly political as well as financial costs associated with management by performance indicators: GPs have prioritised activities that were incentivised, over those that were not.

 

Overall, suggests the ESRC, there will be a tendency for an incoming government to focus on targets and systems that cost least and produce the most obvious performance benefits. “The key challenge for the 2010s,” says the paper, “would seem to be more one of how to use PIs more intelligently in the context of better performance regimes than of doing away with them altogether.” It added, “the extent to which ranking exercises need to be conducted by the state’s own organizations may come to be questioned, particularly when the public has little trust in official statistics, and rankings of hospitals, universities and cities are carried out by private or independent organizations in some countries.”

 

Colin Talbot, professor of public policy and management at the Manchester Business School, is doubtful whether a Conservative government would in practice make the radical changes it is now suggesting. “There is very little detail of what they are going to do,” he says. “I have been trying to get something from them about public service agreements, but I have not got much from them.

 

There is a lot of rhetoric, but I think it will be difficult for them to deliver. For populist reasons there is all this rhetoric about getting rid of targets, but in practice it is very difficult to do: for example, I don’t think in England they would be very popular if they stopped publishing school results. There is a lot of rhetoric, but in practice I think it won’t come to very much.”

 

 

Box

 

Conservative plans

 

A spokeswoman for the Conservative Party confirms that a Tory government would cut back on public sector regulation. “We would be giving more power to the public to determine which regulations are the most burdenseom on different sectors,” she says. “And we would cut back on the number of quangos.”

 

In its policy paper ‘Regulation in the Post-Bureaucratic Age’, the Conservatives say that excessive regulation was a problem for the private and public sector. “The burdens on public sector organisations like schools and hospitals, and on charities and voluntary groups in the third sector, are extremely high too – hospitals face regulation and inspections by more than 40 different organisations, for example.” It adds: “A Conservative government will publish cost and value comparison measures for local councils that allow the public to see exactly how well their council is delivering on its value for money remit. This will replace the bureaucratic and expensive system of Audit Commission inspections and reports.”

 

In another policy paper, ‘Control Shift’, the Tories pledge to ‘abolish all process targets applied to local authorities, and free councils from intrusive and ineffective inspection regimes by abolishing the Comprehensive Area Assessment’.

 

Ten for 2010

 

Possible changes to public sector regulation this year

 

  1. Scrap Comprehensive Area Assessment

  2. Abolish public sector targets

  3. Scrap local area agreements

  4. Use public opinion to survey public sector performance

  5. Privatise services that fail to meet minimum thresholds of public support

  6. Extend Total Place to integrate the provision of local services

  7. Limit the role of the Audit Commission to the auditing of accounts

  8. Limit the role of Ofsted to the performance assessment of schools

  9. Merge the Audit Commission and the National Audit Office

  10. Privatise the Care Quality Commission