Counting the cost of public sector cuts

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In the first of our series looking at what the coming years hold for the Capital, we examine the prospect of outsourcing services

Quite simply, the Capital is running out of money.

Take the case of the city council, which alone spends more than 1 billion every year on keeping Edinburgh running, but unless it can make savings of more than 90 million by 2012 it will be forced to slash core services.

It is a similar plight felt in local authorities across the UK and it is forcing them into some painful decisions.

In Edinburgh, city leaders have begun a process - expected to be repeated across the UK - that could see front line services effectively privatised.

City leader Jenny Dawe, who called in private contractors to collect refuse when industrial action by bin men started to bite last year, is now considering making them a permanent fixture in the Capital.

That is only the beginning of the possible changes affecting the public sector across the Lothians. The headline-grabbing phrase "public sector cuts" has not just struck fear into the heart of council workers, with police and health service staff also feeling the heat.

Lothian and Borders Police have introduced a recruitment freeze on its 1400-strong civilian support staff, replacing only "critical" positions, and cut police officers' overtime in an anticipation of harder times ahead. The force is expected to look at merging some of its operations with other forces. Indeed, it has even been suggested that a single Scottish police force should be created, something which Strathclyde Chief Constable Stephen House has lobbied for in recent weeks.

At NHS Lothian, an estimated 70m funding shortfall means the workforce will be cut from 29,000 to 27,000, with 333 nursing positions among those to go.

The fact that major changes are on the horizon is clear, but many questions remain about how public bodies will - and should - cope with having so much less money.

"Only two things are certain," says Councillor Dawe. "The first is that there will be less money which will mean that all public sector organisations are going to have to change significantly.

"The second is that we'll all have to live with those changes, which is one of the reasons we've launched our biggest ever budget consultation."

While carefully avoiding the use of such emotive words as "cuts" or "privatisation", Cllr Dawe is realistic about the ominous impact of the looming funding crisis.

"Finding simple efficiencies on its own won't be enough, especially as we have already made record savings in Edinburgh," she adds. "We have to look further ahead, and that means being smarter, working better and carefully choosing our priorities.

"There are difficult choices and times ahead, but I'm still confident that by working with our partners and the public we can ensure that Edinburgh emerges stronger."

Though most agree that savings have to be made, there are still deep divisions on how it should be best achieved in order to ensure value for money while protecting essential services.

Council chiefs have short-listed 15 firms to take part in talks about running everything from bin collections to school meals and payroll.

The companies involved include tram contractor Carillion, BT, IBM and Seafield plant operator Veolia.

They have also not ruled out sharing council services with other councils to save costs.

The ruling Lib Dem-SNP coalition is being advised that savings of between one and 15 per cent may be possible based on the experiences of other UK local authorities, a hugely significant sum.

Yet doubts remain about the potential savings, with David Price, senior research fellow for Edinburgh University's International Public Health Policy, warning that the benefits of "outsourcing" are frequently over-egged.

He says: "This is a policy which has been disguised as a success. There is no systematic evidence to suggest that service is more efficient, or even as efficient. Indeed, there is actually evidence to suggest it costs a lot more."

When the NHS began privatising parts of its service in 1990, admin costs were around six per cent of expenditure, only to rise to 15 per cent in 2005, he points out, while adding they are likely to have increased significantly since.

"When services move outside of the public sector, the level of public scrutiny decreases and you are effectively giving private bodies control of public funding. There is no evidence to suggest that costs will be cut," he says. "It is simply an ideological assumption that private management is more effective than public management."

Badly-drawn contracts and other pitfalls can make the process disastrous, as John Stevenson, president of Unison's Edinburgh branch, points out. He points to Bedfordshire Council being forced to terminate its facilities contract due to poor performance, costing taxpayers 6.75m, while in Barrow-in-Furness the Audit Commission inspection gave the outsourced Benefits Service the lowest possible rating.

He adds: "We have a whole local economy built on public sector workers. What will outsourcing vital services to a call centre in Liverpool do to the shops and businesses here?"

At the same time, it is clear that the status quo is unsustainable. Some painful decisions will have to be taken before the city can be assured that its public services can be reshaped without the need for dangerous front line cuts.

Parallels threaten tough times

Gina Davidson

KNOWN as Canada's festival city, Edmonton has a lot in common with Edinburgh. It's the capital city of the Alberta Province, and is known for its greenery, golf, culture and history.

But while all might seem rosy to visitors, those living in the city have experienced a lot of personal financial pain - pain which might well be inflicted in Edinburgh.

The government of Canada is similar to that in the UK, with federal, provincial and municipal levels - like Westminster, Holyrood and the council. And just like here, budget cuts are passed on down the line.

In the mid-1990s, the Tory provincial government of Alberta - led by Ralph Klein - implemented cuts to deal with a state deficit of $2.4 billion (1.5bn) thanks to the worldwide recession and a slump in oil prices.

It introduced the 1993 Deficit Elimination Act, which committed the Alberta government to clearing its deficit within four years, without raising taxes, and it passed the buck straight to city councils.

In the first year the impact was described as "devastating" and thousands of people took to the streets to protest.

The cuts saw the provincial (read Scottish) education budget slashed by 12.4 per cent (and further education by 15.8 per cent), healthcare by 18 per cent, family and social services by 18.3 per cent, and a massive 48 per cent cut in the municipal government's dedicated budget.

In Edmonton it meant school budgets were massively reduced, police budgets were hit, social workers were left unable to help the vulnerable, and there was a rise in the numbers using charitable and voluntary organisations, including soup kitchens. Wealthier pensioners were forced to pay higher rents for council housing and there was a 15 per cent pay and benefits cut for public sector staff.

All of this when the deficit equated to just $6000 (3800) per person - chickenfeed compared with the deficit here, which stacks up to around 22,000 per person across the UK.

The speed and depth of the cuts left people reeling. There were street demonstrations by public sector staff and thousands of high school students walked in protest (in response the Alberta government threatened parents with jail and fines.)

But schools did find themselves with no staff to help special needs students, shortages in equipment and books, and no money to upgrade technology. Teachers had their salaries cut by five per cent.

Parents were suddenly expected to fork out around $600 (380) a month for previously free state nursery places.

In social work, front line staff said they were forced to "violate professional ethics" because of the cuts.

The then president of the Alberta College of Social Workers Jake Kuiken said the cuts forced social workers to "yank" services with little or no notice from clients and that troubled teens and families caring for disabled youngsters were thrown into crisis as a result.

He even alleged that the belt-tightening delayed investigations into suspected child abuse.

As for the impact on the police, Erwin Anders Edmonton's deputy police chief at the time, said the budget cuts forced his force to find ways of reducing expenditures with minimal impact on street operations, including officers on foot patrols.

In order to prevent cuts at street level, the force eliminated a deputy chief's position and phased out inspectors.

"We were left with 16 fewer managers," he said. "The key was the understanding that funding was an issue and that front line policing was being protected.

"Everyone knew if cuts to management weren't made the impact would have to be at the operational level," he said.

As a result of the cuts, thousands of jobs were lost. An estimated 50,000 went in health throughout the province, 16,000 public administration jobs went and ultimately oil-rich Alberta suffered the second-highest rate of poverty in Canada.

Despite it all though, Klein and his Tory party maintained their popularity with voters.

"Klein invoked a kind of wartime psychology in which the message was everyone must do their share, making it unusually difficult for special interests to plead their case," says Roger Gibbins, a political scientist at Calgary University.

Michael Bliss, a professor of Canadian history and politics at the University of Toronto agrees: "It was a powerful lesson for other governments that you can do this and get away with it."