Creative Thought: Commerciality and cost-cutting in the Public Sector.

How LGAs can reduce expenditure and become commercially minded, without reaching breaking point

27 January 2015

In a party political broadcast late last year, David Cameron claimed, "We are paying down Britain's debts". Unfortunately for him, national debt is on the increase and, despite the continued recovery of the economy, shows no sign of abating. 

The national debt in 2012/13 stood at £1,185bn or £18,606 per person. In fact, it has more than doubled in the five years under this government.

Both the opposition and the press are having a field day at the expense of the coalition, whose unrelenting cuts and austerity measures bore no fruit.

The numbers do indeed point to poor management and a lack of understanding when it comes to the national purse, but in this individual’s opinion, the numbers illustrate beautifully how difficult running the UK Plc is, and how ill equipped the public sector is to bring about real change.

David Hodge, Conservative leader of Surrey county council, told BBC Radio 4: “There is a limit. You can only cut local government so far.”

Graeme McDonald, director of the Society of Local Authority Chief Executives and Senior Managers, said: “The financial challenge facing local government is immense. Cuts of up to 6.4% will push some authorities to breaking point.”

What’s the problem?

Organisational cuts often manifest in job losses and departmental ‘right-sizing’. Of course it’s sensible to review staffing and operational efficiencies as an ongoing diligence, but while being careful not to cut so deeply that performance is impacted.

The chairman of the Local Government Association (LGA), David Sparks, said: “We cannot pretend that [cuts] will not have an impact on local government’s ability to improve people’s quality of life and support local businesses.”

The problem for local government associations is one of time – The next round of cuts are said to equate to five years of reductions. Many LGAs are considering income generation through charged services and consultancy as a way to supplement dwindling central government support and capped council tax rates, but most have no experience of operating under a commercial premise. To add insult to injury, those able to exit their roles in search of job security elsewhere are doing so in droves – leaving behind disparate organisations with dwindling intellectual resources and commercial value.

The trending approach

Current thinking points to the streamlining of LGAs, to the point where what was once an organisation of around 4,000 employees becomes one of circa 150 coordinating officers. To do this, many services would need to be outsourced, privatised or turned into social enterprises.

On the surface of it, this looks like a sensible approach to a complex problem. The trouble is that there is no evidence that any of it would be cheaper to run or better for the public in the long term. 

In reality, it’s likely that accountability would be scattered amongst disparate providers, and finances even harder to control. Some sources within the public sector have commented that current outsourced services are not bringing the sea change of performance and savings that were anticipated, as these organisations are invariably large and cumbersome as a result, and ultimately mimic Public Sector processes.

Patently cuts have to be made, and it’s fair to assume that LGAs have never been the leanest of operations when compared to the private sector, but cutting every responsibility loose sounds kneejerk at best. Combine this with the fact that no LGA has ever attempted this level of commercialisation in the past and you have a recipe for disaster, which will cost more than is to be saved to rectify in the long run. 


Designing LGA Plc

Insource – not outsource

In our view LGAs cannot become more commercially aware without engaging with and understanding commercial organisations.

What will happen in the coming months is obvious – LGAs will retain top-flight professional services firms and ask them to map out the future of services to help them go to market. In my view this will provide no guarantees (that’s what professional indemnity is for).

Commercial success is not a matter of fact – Most private sector businesses fail in their first three years – success is a carefully planned, and orchestrated process and requires more than a hint of good luck.

Commercial success is not a matter of fact – Most private sector businesses fail in their first three years – success is a carefully planned, and orchestrated process and requires more than a hint of good luck.

LGAs should begin recruiting entrepreneurs in Non-Exec Director type roles by department to ideate and embed commercial values. Here quasi-voluntary roles could bring about real change within local government. This should be married to a review of working practices and cabinet member roles…

Leave it to the professionals

In many LGAs, cabinet members actively drive change on behalf of the voting public. This is democratically fair in general terms, but in our experience the cabinet member understands the challenges very well, but has no expertise in providing the solutions (despite what they may think).

Each LGA has the skill available to resolve most issues without having them drawn out through project boards and other prescriptive activities. Agility should be the new buzzword in delivery of cost-effective services.

Get good governance

It can be assumed that at some point, an organisation or investigative body reviewed LGAs in terms of efficiency and concluded there’s a lot of fat within them, ripe for the trimming. In our experience it’s not until operational reviews are undertaken that government bodies appreciate this. This points to poor governance in the first instance, and a lack of understanding of the costs to deliver services for the public.

Public services have historically outstripped inflation in their hunger for funds and standards maintenance, and the cost of having them has grown exponentially over the last decade. This is shorthand for poor management, but to be expected.

Better governance and effective benchmarking is a must here – understanding what is wrong with a service through performance indication is the best preventative cure.

Share and share alike

A pilot ‘Joint Property Vehicle’ scheme in Worcestershire aims to split property management between the public services of the police, fire service and local government – with a projected saving over £100m through shared resources and bulk-buying power.

Although the savings aren’t anything to get too excited about, the move itself represents a shift in attitude in the normally divided services.

Procure inclusively

Local Government procurement processes are necessarily long, thorough and rigid. The downside of this is that they automatically exclude those organisations that cannot afford the time to complete them. Clearly big businesses are better equipped to complete these assessments – but they’re not necessarily better equipped to deliver change quickly. LGAs should review and open up the procurement process and tier it to be more inclusive.

Extend digital by default

Most of the thinking around digital processes within local government is about saving cost-to-serve through digital transactional services – or channel shift. More consideration should be given to home working and intelligent use of spaces through digital platforms. It’s not just channel shifting customers that will bring savings.

If LGAs are going to make it through the next five years intact, they’re going to have to get creative. Or, better still, get creative thinking.

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Marc Rocca is managing director of Rocca Creative Thinking Limited and advisor to public and private sector organisations.