Radical things are happening in some Conservative-controlled local authorities. Councils are re-examining exactly what services they must provide and how. The result of their deliberations is that many more are outsourcing a range of back and front office services, while at least one is considering introducing two-tier services – the basic option is free, while the affluent will pay for the luxury version.
The big question now is whether this approach to service provision is likely to be a blueprint for central government – particularly a Conservative administration – after the forthcoming General Election.
One of the most fundamental rethinks of local government is taking place at Essex County Council. The authority has adopted a programme with the grand name of ‘Transformation Programme EssexWorks: Customers First’. It is informed by the reality that the authority faces increased service demands from an ageing population, simultaneously with a potential decrease in income.
Before the global financial crisis, Essex assumed it was facing a potential funding gap of £200m by 2013: the UK fiscal catastrophe and related cuts in central government grant to local authorities has increased the forecast deficit by 50%, to £300m. Things, it was agreed, just had to change.
In October the council agreed with IBM an outline eight year partnership agreement for a range of services to be outsourced – with the objective of saving the council the necessary £300m. The areas covered will include the authority’s back office, website and procurement systems.
Lord Hanningfield, leader of Essex County Council, says: “With the additional capacity, capability and skills that IBM will provide we are now looking forward to working with them as we move towards a more efficient, customer-focused organisation, providing first class front-line services. Working together we will also be able to keep council tax low and deliver real value for money for Essex residents. This is the most ambitious project that the council has undertaken, and finding the right partner to help us deliver it is a vitally important step.”
The London Borough of Barnet is another Conservative-led council whose budget predicts an immense funding gap – a £25m annual shortfall, in the case of Barnet. It is examining moving to a what it has termed an ‘EasyCouncil’ model – charging consumers for add-on services. Other councils are considering charging for services that for generations have been assumed to be a citizen’s free right – in particular, for waste collection.
There is a clear direction of travel towards more service charges and cutting costs through much greater contracting-out. A recent CBI report, Doing more with less, argued that the public sector could make £136bn in efficiency savings in the period from 2010/11 to 2015/16 – if it adopts substantial change in the way it operates.
Various approaches are advised by the CBI, with £63bn of potential savings identified from radically redesigning the delivery of public services; £27bn from private sector approaches to workforce management; £16bn from improved procurement practices; and £30bn from outsourcing ‘non-core’ activities to the private and third sectors.
Of course, this begs the question of what is a ‘core’ service. “Ministers and civil servants should focus on their core tasks – deciding policy, rather than running the back office or service delivery,” argues the CBI report. Removing all back office functions and direct service provision would substantially reduce the size of the directly employed public sector.
The CBI proposal is not merely for outsourcing, but improving efficiency by rationalising service delivery through sharing service provision. One example put forward in the report is of a shared service operated by private equity-owned contractor Liberata, which runs a service centre in Barrow-in-Furness for several clients – the London boroughs of Bromley, Hounslow and Southwark, plus Barrow Borough Council.
Early claimed outcomes include cutting Bromley’s benefits processing time from 144 to 27 days. The contracting is predicted to save £1m a year for Hounslow. If the same approach was taken across the largest councils in England, says the CBI, annual savings in local government would add-up to about £500m.
“All parties and most commentators are saying that increased use of the private sector will be looked at,” says Marcus de Ville, spokesman for leading public service contractor Serco. “This is international – we are seeing increasing opportunities to deliver services because of fiscal pressures. Our approach is to maintain the public service ethos and combine that with commercial acumen.
“The areas where we have been very successful has been in increasing commercial income, for example, the national physical laboratory – where we have increased commercial income by something like 100%, while reducing the overheads by 30%. We are improving processes, using technology and taking a commercial approach. It’s about the service we are delivering, rather than cutting anything.”
Recent developments for Serco include three contracts it has won to deliver flexible New Deal – to get long-term unemployed back into work. It also expects to see the market testing of public sector prisons. Serco has recently signed a joint venture agreement with Guy’s and St. Thomas’s Trust to run its pathology services, which it hopes to replicate with several other trusts.
Capita also expects to gain substantial extra business after the General Election. Richard Marchant, its local government strategic partnership director, says that it is “a non-political statement” to predict that whichever party wins the General Election, there is bound to be an increase in outsourcing of central and local government services to reduce costs and improve efficiencies. “The die is cast now,” he suggests.
“What we are not seeing in local government is organisations hanging around waiting for the next election,” explains Marchant. “That is something that may not be the case in central government, but you can’t accuse local government of this. They must know looking forward at their settlement that from 2011/12 they will have to start thinking about more radical ways of delivering their services. That driver won’t go away.”
Until now, many of the outsourcing contracts concentrated on back office services such as IT, HR, payroll and what are termed ‘finance and exchequer services’ – including accounts payable, accounts receivable, general ledger, debt collection and revenue and benefits administration.
However, while Capita is the market leader in the provision of these back office services it only has about 30 contracts, of which only about a third are comprehensive multi-service arrangements. That means that no more than 10% of English councils have so far chosen to outsource their back office services.
Capita believes that both the number of local authorities contracting-out services will increase and that the range of those services will vary much more. “We are now finding in some partnerships that they cover not just the back office, but also the middle office – the arms and legs of the business – and the front office.”
Marchant points to Capita’s contracts with both Swindon and Southampton councils to run customer reception services. “Sometimes we are running one-stop shops, for example in Swindon,” he explains. “The staff in those are all Capita staff. We are starting to move into those areas, as well as back office.” With some authorities, Capita is in addition operating as an executive arm of the council – providing policy advice, including the potential for further efficiency savings.
Capita is also increasingly involved in property management for council clients. “For example, in Birmingham’s transformational programme, because a lot of buildings were due for lease expiry, this created an opportunity for decisions about rationalising their property estate. Councils often have buildings not fit for purpose, some buildings may have been built a hundred years ago, which are not up to modern standards.”
In fact, says Marchant, there are lots of opportunities to rationalise office accommodation, bringing together various public bodies into shared local offices. The chances of taking forward this agenda are being increased substantially by the pilot Total Place project – designed to achieve efficiency savings by integrating local public services across existing organisational boundaries. It looks likely that Total Place will be extended to take place nationally, whether the Conservatives or Labour win the General Election.
“Total Place is helping to enable that to happen, making the business case,” argues Marchant. Capita sees clear market opportunities in extending its services into property rationalisation activities. “I work in a building in London, where we have hot desking. We are looking at more agile offices,” says Marchant. “There are a lot of people in local authorities who need to see customers out of the office, so do they all need a desk? So it’s about looking at different ways of working, going forward.”
With more rationalised services – persuading local authorities, NHS trusts and local public bodies to share facilities – Capita also sees opportunities to provide the shared property management services. While this could be achieved better if all the potentially participating agencies sold their properties and leased back more suitable accommodation, Capita recognises that the current state of the property market means this is difficult to achieve at present.
What is interesting – and probably highly significant – is that Total Place is moving away from the assumption that public bodies will voluntarily adopt cost-cutting programmes. In fact, Total Place may only be successful if it is backed by a level of government obligation on local public bodies to work together.
For all the talk by the two major parties of ‘localism’ – devolving power and responsibility to the grass roots of civic society – the reality may well be that the fiscal crisis will persuade Whitehall to revert to type and tell councils and NHS trusts what to do.
A recent report from Deloitte, ‘Stop, start, save’, argues that councils will have to be instructed to enter into shared service arrangements if the potential savings from economies of scale and shared staffing are to be achieved. Mark Lawrie, a local government partner at Deloitte, says he is “convinced” that mandation is the “only way you will get real value out of shared service projects”. “Politicians were not elected to run the payroll,” he argues. “If you ask the electorate they will probably say they if it lowers their council tax [by outsourcing] they don’t care.”
In fact, whether the majority of taxpayers do care or not, an increase in public service outsourcing is beginning to look not only inevitable, but also substantial.
Current government policy
In the Pre-Budget Report, Chancellor Alistair Darling indicated that the present Government is also committed to re-shaping public service delivery, with most of the public finance deficit reduction coming from real terms reductions in public spending. The Treasury and the Department for Communities and Local Government stated as part of the PBR process that public bodies must reorganize their services to reduce costs, improve efficiencies and reduce the costs of senior management. Public bodies, said DCLG, would be expected to “[build] on the Total Place pilots being taken forward across the country – which should ensure that spending by government in local areas is more efficient, coordinated and tailored to the unique needs of communities”.
£79bn – revenues generated PA by private sector contractors to public bodies
130% – growth of private sector contracting to public bodies from 1996 to 2008
1.2 million – number of people employed by private sector contractors to public bodies