Rhona Harper: Our councils cannot afford to be against outsourcing

In THESE times of austerity when we are all looking for ways to spend the limited funds we have more wisely and efficiently, many are looking at the government to ensure it is following suit and spending our taxes as carefully and effectively as possible.

This principle will also apply to local government in Scotland, which has just been presented with a tight spending settlement following the recent budget announcement by the Scottish Government. As part of the settlement, all local authorities are expected to continue with a freeze on council tax, which will impact on their ability to maintain service delivery in the communities they serve.

According to councils’ umbrella body Cosla, Scottish local government spending is going to be 7 per cent down over the period of this spending review. The local government body has also factored in £1 billion worth of demands on other vital services that authorities are expected to provide across the nation, claiming the reduction on income sits around the 15 per cent mark. Regardless of what the impact will be on local government, it is clear that there is a significant squeeze on resources, but does that automatically mean corresponding cuts to services? What alternatives are being explored to change the service delivery model in Scotland?

Research by my firm, conducted by Ipsos MORI, which spoke to senior decision-makers within Scottish local government, has shed some light on how they are responding to the funding challenges they are currently facing. While the research shows a high level of acceptance of the principle of collaboration or sharing of services between local authorities, it also highlights a reticence about outsourcing of services to the private sector.

The survey of 36 key decision-makers in Scots local authorities showed 95 per cent viewed collaborative working and shared services between public sector bodies as favourable or highly favourable. That contrasts sharply with 39 per cent who were favourable (with only 3 per cent highly favourable) towards outsourcing to private sector firms.

However, when you look at the recent developments around shared services in Scotland, these views could appear to be misplaced. Last June eight councils in the west of Scotland, covering a third of the country’s population, agreed to look at detailed proposals to share services including waste management, social care and social transport through the launch of the Clyde Valley councils partnership. It was claimed that the plan could save them millions of pounds over the next five years.

However, the shared services partnership seems to be souring, with two local authorities already announcing they are withdrawing from the partnership. This includes West Dunbartonshire Council, whose leader Ronnie McColl said: “We believe there is far more potential in seeking local bespoke partnership solutions for service delivery that can protect the quality of service, while providing better value for money for the taxpayers of West Dunbartonshire.”

The neighbouring authorities of East Dunbartonshire, Glasgow City Council and South Lanarkshire have also withdrawn from the support services pilot. Glasgow’s very clear rationale for pulling out was that the pilot would not save them money, and indeed in some activities it would cost them more.

The somewhat unpredictable path of shared services seems to contrast with the current focus on outsourcing by two of Scotland’s biggest local authorities, the City of Edinburgh and Aberdeen City.

Both councils had been in the process of engaging private sector providers to deliver a range of services (both back office and frontline) to realise savings for the 2012 financial year. While Edinburgh’s SNP group may be getting cold feet and could be set to reject these proposals, the potential for the council to realise savings of up to £72 million over seven years through outsourcing – as opposed to only around £45m through in-house delivery – is one they surely won’t want to pass up lightly.

Edinburgh council leader Jenny Dawe said: “The financial situation facing the council is unparalleled. We must, however, continue to provide maximum value for taxpayers’ money while delivering the quality frontline services that residents expect.”

She also highlighted the need for the council to transform customer service and secure “real, lasting efficiencies to free up funding for our key priorities of education, social care and economic development”.

Regardless of which direction Edinburgh pursues, the forces driving the need to cut costs will remain for it, Aberdeen and all other Scottish local authorities. Despite the £68m in efficiency savings claimed by City of Edinburgh Council over the past three years, a further £90m in cost reductions need to be found. Aberdeen, likewise, is preparing itself for an £80m or more cut in government grant funding between now and the 2014-15 financial year. It is now planning for the delivery of services in new, imaginative and more cost-effective ways, which look likely to include a high degree of outsourced services.

Given the current plight of the shared services agenda in Scotland, it seems surprising to see a high degree of support for it amongst the key decision-makers in our local authorities. So why is there still such widespread support for it and why is there such a lukewarm reaction to outsourcing?

Perhaps the answer lies in the perceptions about alternative service delivery arrangements. Local authority executives seem to agree that both shared services and outsourcing are concerns due to loss of accountability (80 per cent and 92 per cent respectively). In terms of public support, however, only 19 per cent think that introducing shared services would be accompanied by a lack of public support. This figure jumps to 56 per cent when asked about the potential impact of outsourcing services. Perhaps more tellingly, 39 per cent say a lack of political support would impact on shared services within their council, compared with 78 per cent for outsourcing.

Are these the real factors that are driving the views of local government decision-makers in Scotland? Is there a concern that the idea of shared services and collaborative working is, at present, sitting at the limits of political acceptance in Scotland while outsourcing, for most, is a step too far?

While the process of outsourcing is slowly coming to life in Scotland, it will be interesting to see whether the decisions-makers here will be swayed by some of the recent activities in England, where many local authorities seem more accepting of private sector service delivery.

Last year Suffolk County Council announced plans to farm out most of its services to external suppliers. Libraries, youth clubs and careers advice were among the first services that the Conservative-controlled county transferred to the private or voluntary sectors in a bid to reduce its costs by 30 per cent.

Would any authority in Scotland be prepared to take such a radical step? That remains a big question and one that, according to our research, looks unlikely to be addressed in the short term. There’s no doubt that local government eyes will be firmly on Edinburgh and Aberdeen to gauge the success of their outsourcing experience, although some might ask if they can afford to wait so long before addressing their own service delivery models in the face of diminishing resources.

Whatever the reason for Scottish local government resistance to outsourcing, it is an issue that they will need to face up to. While the faltering of shared services may just be a temporary teething problem, its failure to deliver tangible savings may force the hand of local authorities, pointing them towards outsourcing as a more viable alternative. Whether the existing concerns and resistance towards private sector service delivery are born out of political prejudice or simply worries about the practicalities of managing it, it seems inevitable that more is on the way.

Council chief executives may find themselves having to court a degree of controversy amongst their political masters and potentially taking some flak from the public they serve. However, given the current state of local government funding, they may have little alternative.

• Rhona Harper is head of government and public sector at UK law firm Shepherd and Wedderburn LLP