Donald Anderson: Public sector reform crucial to driving economic recovery

It may not have seemed like it, but the decade from 1999 to 2009 was a golden age for public sector services. There was plenty to do after years of under-investment, but a cursory look around Scotland shows the results in bricks and mortar. Services are better and are better funded.

With the financial collapse of 2008-9, the whole basis on which public sector expansion was built has gone. Scotland and Britain no longer have a private sector that can support current levels of public spending. That raises a formidable challenge in terms of supporting economic growth, and a need to overhaul public services.

Most people don't understand public services, or what drives the costs. When I used to describe the round of budget discussions in Edinburgh Council as being like "feeding seagulls", most people didn't get it.

The primary cost in public services is staff. That is where most of the money goes, and a huge proportion of staff get two pay rises per year. First, an inflation award, and also a move up whatever "spinal column" they are on, and there is no measure of efficiency before staff move up a grade.

That is why each year councils and health boards face a cost increase of anything between 6 and 9 per cent just to stand still. Even in the good times, budgeting was always tough.

Councils are now looking to develop alternative models of service delivery and Edinburgh is to be commended for setting out a bold vision for re-engineering structures and services to cut costs and secure new investment.

But it will take more than that and pensions are another area where public sector costs are dysfunctional, especially in the uniformed services such as the police, where staff often leave at the peak of their knowledge and ability.

The irony is that the substantial lump sum that accompanies their retirement reduces if they stay. It is calculated on the basis of the estimate of how long they will live after leaving. Stay on and your lump sum reduces – an absurd situation. The conclusion: the gap between public and private pensions is simply unsustainable.

So what's the answer? A fundamental rethink of the structures and functions of the public sector is essential, not to cut the services but to make them affordable. Growth can still be achieved, but the public policy focus has to be about wealth creation and public sector reform.

On Monday, Edinburgh Chamber of Commerce has organised a debate on public sector reform with the major political parties. It is unlikely that many politicians will boldly embrace reform so close to a general election, but with MSPs discussing a pay freeze, we know they are listening.

This is not simply a debate for the business community. Those who care passionately about the public sector must realise that without a strong private sector or an affordable public sector, services will decline.

Grasping the nettle of reform will not be easy, but it is better than the alternative. Taxation is unlikely to feature as heavily as an issue in this election, but public sector reform will.

Getting it right is vital for the future of Scotland. Growth has to come first, and the Scottish Government has taken bold steps to create an environment in which investment can flow.

But there also needs to be a bold vision for the future of the public sector. For that, we will need clear leadership from the government on public sector reform.

Donald Anderson is director of PPS Scotland and former leader of the City of Edinburgh Council