Transformation in thinking required to bring in budget cuts

Published on Wednesday 17 March 2010 20:51

STORIES about public sector budget cuts appear in the news with worrying regularity at the moment. It is inevitable that the next few years are going to represent a delicate balance of providing high-quality public services against often stringent budget reductions.

Recently, the Accounts Commission for Scotland advised local authorities to "think radically" to cope with budget cuts: merely reducing headcount is not enough.

But what does thinking radically mean? For many public sector bodies that have been doing this for some time, it is about a transformation agenda.

Transformation is about change: changing the way services are delivered, whether front-line services such as social care or back office services such as HR/payroll and accounting functions. Although transformation tends to be discussed in the context of saving money, it is important to remember it is also about service improvement and finding better ways to deliver services.

Transformational activity in Scotland has included the creation of new delivery models, both public sector only and public-private partnerships, shared services models and innovative property structures.

While transformation is not confined to local government in Scotland, Scottish local authorities have been engaged in the most radical transformation activities, with Glasgow City Council in particular now delivering services through a series of arm's-length organisations.

Transformation activities raise interesting issues around structures and delivery models, particularly where a shared services model is involved or where the public sector partners with a private sector supplier.

It is easy to be put off by the range of issues to consider, such as procurement law, state aid, vires, company law, governance… the list goes on.

However, our experience is it is possible to create innovative structures that address needs while remaining on the right side of the law.

In England and Wales, there are many good examples of transformational shared services projects. For example, the Cabinet Office created an IT shared services project with Fujitsu. The British Fire Service created Firebuy, which involves sharing of services among fire and rescue authorities, with project values of up to 600 million. We need to learn from these projects.

Scotland has some history of shared services projects: following Scottish Government funding, a number of local authorities embarked on projects to explore the opportunities.

Some good initial work emerged, but it has been hard to maintain momentum. At the end of last year, Sir John Arbuthnott produced a report on opportunities for shared services among the Clyde Valley councils. He recommended that the local authorities combine to run one service to maintain their roads and that they work more closely with health boards to integrate health and social care services.

The councils concerned are considering the findings of the report, but the radio silence following publication is causing growing concern among commentators that this report does not end up on a shelf. External pressure, such as from the Accounts Commission, should help to maintain momentum.

Meanwhile, Cosla argues that shared services are not a panacea in relation to funding shortfalls. That is probably true, but shared services and transformation must be part of the toolkit of public sector bodies: the funding situation is too critical to ignore options.

Councils in England and Wales are ahead of their Scottish counterparts in the use of innovative structures to maximise value from assets. Many are using local asset-backed vehicles (LABVs), which allow them to partner with private sector developers and invest surplus land and buildings while the developer injects cash.

This squeezes value from the local authority's property and land portfolio and either generates revenue or allows the authority to meet its affordable housing obligations. Scottish local authorities are beginning to recognise the value of LABVs.

The challenge is to deliver services efficiently and at a high standard, but for less money. Transformation both internally and by partnering with other public sector bodies and the private sector must form part of the solution, and we need to learn lessons from what has worked (or not) elsewhere in the UK.

&#149 Yvonne Dunn is a partner in Pinsent Masons outsourcing, technology and commercial group.