Radical things are happening in several Conservative-controlled local authorities. Councils are considering exactly what services they must provide and how. The result 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 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 and 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 potential funding gap 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 that believes it has 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. Various approaches are advised, 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 potentially 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 clients the London boroughs of Bromley, Hounslow and Southwark, plus Barrow Borough Council.
Early outcomes include cutting Bromley’s benefits processing time from 144 days to 27 days. It is predicted to save £1m a year for Houslow. Across England, savings in local government would add-up to about £500m in just the largest councils.
“All parties and most commentators are saying there will be 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 is 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.”
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“The areas where we are starting to see looked at now include flexible New Deal, of which we have three, to get long-term unemployed back into work. Market testing publically-run prisons.
“Serco has a joint venture established with Guy’s and St. Thomas’s Trust to deliver pathology services to that trust and we are having discussions with other trusts, including Bedford.
Richard Marchant, local government strategic partnership director, says that it is “a non-political statement” to say that whoever wins the General Election that there is bound to be an increase in outsourcing in central and local government services to reduce costs and improve efficiencies. “The die is cast now,” he adds.
“What we are not seeing in local government is organisations hanging around waiting for the next election. 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 having to start thinking about more radical ways of delivering their services. That driver won’t go away.”
Until now, it has mostly been back office services that have been outsourced, such as IT, HR, payroll and what are termed ‘finance and exchequer services’, which include 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 about a third are comprehensive multi-service arrangements. Yet with about 400 local authorities in England alone, that means that no more than 10% of councils have so far chosen to outsource their back office services.
Capita believes that both the number of local authorities contracting-out service contracts will increase and that the range of those services will increase substantially. “We are now finding in some partnerships that not just back office, but also middle office – the arms and legs of the business – but also the front office.”
For example, says Marchant, Capita has 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.
“What we are finding is that services are starting to broaden. With the long term strategic partnerships we have we are becoming an extra executive department for the authority.”
Capita is also increasingly involved in property management for council clients. “For example, in Birmingham’s transformational programme, taking an opportunity where a lot of buildings due for lease expiry, creating an opportunity to go decision about rationalising their property estate. Councils often have buildings not fit for purpose, some buildings maybe 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 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.” 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. There are a lot of people in local authorities who need to be out seeing customers out of the office, so do they all need a desk? So it’s about looking at different ways of working, going forward.”
Having rationalised services, persuading local authorities, NHS trusts and local public bodies, Capita also sees opportunities to provide shared property management services. While this could be achieved better if all the potential sharing agencies sold their properties and leased back more suitable accommodation, ?? says the state of the current property market means this is difficult to carry out 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. Total Place can in all liklihood only be successful if it is backed by a level of government mandation 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 persaude Whitehall to revert to type and tell local authorities and NHS trusts what to do.
A recent report from Deloitte, ‘Stop, start, save’, argues that councils will have to be told 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 it] 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.