Friday, 23 July 2010

Wales and the public expenditure cuts

The recent emergency budget announced by the Chancellor of the Exchequer was one of the most significant political and economic events in the UK for many years. The Chancellor made many controversial changes to the tax system and the structure of welfare benefits all which will impact on Wales as part of the UK.

The Chancellor also announced huge cuts in public expenditure, over a four year period, which will average some 25% for all government departments (excepting health and overseas aid). Although we, as yet, know little detail (this will come out of the Comprehensive Spending Review in the autumn) it is reasonable to assume that the block grant payable to the National Assembly for Wales will reduce by something of the order of 25% over four years in line with UK government departments.

How then is the Welsh Assembly Government (WAG) going to deal with cuts in public funding of this magnitude? Radical solutions are needed. We can’t just chop 25% of everybody’s budget and hope for the best. There are major issues to consider

• The Economy – the Welsh economy is hugely dependent on public sector employment and the public expenditure cuts will have a massive impact on employment and lifestyles in many communities. There is a need to stimulate private sector jobs in Wales to take up the slack but this is difficult. For too long Wales has tried to replace large corporate public sector industries (e.g. coal, steel) with large corporate private sector industries (e.g. cars, electronics). Foreign direct investment has an important role to play but the key to new jobs is increased rates of small business formation and increased entrepreneurialism. WAG must be in a position to promote and assist small business formation with training, loans, advice etc without getting into a situation of subsidising non-viable businesses. However, WAG also needs to be seen to be more business friendly and to help get rid of a common perception among many in Wales that private business is something that is not really nice.

• Health – the health budget in England is to be given some protection from the cuts although the precise details of this “protection” remain to be seen. Most international commentators argue that this “protection” is a mistake and there is no need for WAG to go down this road. The key issue in the Welsh NHS is root and branch reform which is something that will upset doctors and nurses but the only other alternative is poorer services. In England there have already been substantial cuts in administrative and management staff and there are more to come. In Wales we have recently had a major reduction in the numbers of NHS organisations but, if the rumours are true, there have been little or no job losses and some people had large pay rises.

• Local Government – clearly local government needs to search for efficiencies but it is unlikely to be able to deliver what is needed to deal with the funding cuts. Hence local authorities will need to go back to their core businesses and ask if certain services are really necessary. Do we really need libraries in the digital age with freely available internet? Forty years ago, local authority leisure services were in their infancy but have grown enormously. Do they need to be so large or is leisure not something that can be left to the private sector?

• WAG costs – the UK government is planning huge cuts in civil service manpower across all government departments. WAG needs to do the same. We cannot afford to have cuts of this magnitude being dealt with by cuts in front line services while the WAG bureaucracy remains largely untouched.

Some of the above suggestions will seem shocking to many people but opinion polls show that a large proportion of the UK population have yet to understand what lies ahead. Politicians need to be preparing the public for the future pain not trying to convince them it won’t happen.

Right to buy council houses may be abolished in Wales

The Conservative Government under Mrs Thatcher gave more than five million council house tenants in Britain the right to buy their homes. Council tenants who had lived in their home for up to three years were given a 33% discount on the market value of their home, increasing in stages up to 50% for a tenancy of 20 years.

This was a controversial policy. The then government maintained that the measures would transform the social structure of Britain for good (the term “property owning democracy” was used a lot) and Michael Heseltine, the then Secretary of State for the environment, said: "This bill lays the foundations for one of the most important social revolutions of this century." Leaving aside these somewhat grandiose statements, the policy was a clear vote winner for the Conservatives.
However, the policy was fiercely criticised at the time with Shelter, the organisation for homeless people, insisting that the move would increase the number of homeless people and decrease the number of homes available to accommodate them.

Perhaps surprisingly the subsequent Labour Government accepted this policy as a given and made no attempt to reverse it – it would probably have cost them many votes among their core working class vote. Now this policy debate is to be re-opened in Wales. The stock of council homes in Wales has fallen by nearly half since the scheme was introduced in the 1980s and there are more than 80,000 people are on waiting lists for social housing in Wales. Consequently, the Welsh Assembly Government intends to apply for powers from the UK government to suspend tenants' "right to buy" in some areas, such as in rural Wales as part of its bid to tackle the shortfall of affordable housing. The aim is to ensure that people on modest incomes can still find houses to rent in the areas where they live.
The author is not often a fan of policy actions taken by WAG since too often they seem to be trying to do something different from England as a point of principle rather than practice. However, in the current fiscal climate and with huge reductions in public expenditure being planned we might well ask why the state should be providing such large financial subsidies to enable people to buy their council house. Given that the construction industry is in the doldrums might it not be better to encouraged council tenants who can afford to buy to purchase their own house on the private market. Possibly some small financial sweeteners might be used to facilitate this.

Unfortunately, in Wales, this change in policy might be a little too late since many local authorities have already undertaken (or plan to undertake) housing stock transfers to other agencies. In 1980, there were around 300,000 homes in council ownership, now, that is down to around 156,000. Thus the impact of the policy might not be as great as desired. However, might this be a policy that the Lib-Dem Conservative coalition might consider as a solution to the problems of homelessness and a dormant construction industry?

Monday, 12 July 2010

Handing NHS commissiong budgets to General Practitioners - a good or bad idea?

Under the last government, for many years the NHS had record growth in funding but statistical evidence indicated that the additional monies provided were not used to good effect with the NHS showing declining productivity over a number of years. Given that growth in resources to the NHS will now be extremely limited it is vital to undertake major reforms to the NHS to enable it to operate in a much tighter fiscal climate.

The new coalition government seems to recognise this point and has announced a raft of reforms one of which seems likely to involve passing the budgets (totalling some £80bn) for the commissioning of hospital and community services from health service managers, in SHAs and PCTs, to general medical practitioners (GPs). On the face of it, this has merit in that it should save large amounts of expenditure on managerial staff and, at the same time, gives doctors greater control of the NHS purse strings which is what they often state they want.

However, such proposals are not new and they have been tried several times before, albeit on a smaller scale, and thus we know there are substantial risks and difficulties involved with such a policy. In the early 1990s, the then conservative government introduced the idea of GP fund holders who held commissioning budgets and the author had a strong involvement in the implementation of these arrangements. GP fund holding was subsequently abolished by the successor Labour Government who some years later introduced their own policy of practice based commissioning which was similar. The present government will no doubt claim that what they are proposing is different from what has gone before and in terms of detail it will be. However, the broader philosophy of enabling GPs to make decisions about the use of NHS funds remains the same.

Clearly, and almost by definition, the proposed changes do give GPs the opportunity to exert much more influence on the commissioning of health services for patients. Unfortunately, experience from the previous approaches suggests a number of difficulties:-

GP commitment - for the new system to be effective GPs must make informed decisions which could mean making changes in the pattern of commissioning between NHS Trusts. To do this requires an awareness of the merits of the different services in different Trusts and unfortunately while some GPs will do this enthusiastically others won’t. Examples can be quoted of GPs referring patients to consultants who had retired from practice – hardly an awareness. Thus for the new system to be successful it requires GP commitment which may not always be there.
Inequity - while many GPs will use the commissioning freedoms to benefit their patients others will be less enthusiastic and consequently the care offered to their patients might not improve at all. Many will argue that this is unfair and the quality of hospital care received by a patient should not depend on whether their GPs have done their homework. Some will argue that patients should press their GPs to use the new freedoms for their benefit but that is easier said than done.
Accountability - while many GPs will welcome having the power to make commissioning decisions they must also recognise that hand in hand with this responsibility comes the accountability for the use of public funds. This may involve various tasks of submitting financial returns, answering audit queries etc
Administrative burden - some years ago, a survey of GPs found that many of them already felt over-burdened by “administrative tasks” at the expense of face to face patient contact. Included in what they termed “administrative tasks” were the tasks of administering individual patient referrals to hospital. Involvement in the new commissioning system is likely to make this worse not better.
Demand management - one of the key themes in NHS management is that of demand management which concerns controlling the flow of patients to hospitals such that NHS commissioning budgets are not exceeded. This process was undertaken by PCTs but presumably will now fall to the GPs themselves. No doubt the Department of Health and HM Treasury will need to be assured that effective financial controls are in operation to avoid major overspends.
Strategic change – with the current commissioning system the key role of GPs has (understandably) been to meet the need of their existing patients. However, PCTs have had a longer term commissioning consideration namely that of reshaping local health services to meet the needs of future patients. His longer term role is vital and must, somehow, be incorporated into the new commissioning system.

It would appear that the new system will operate by GP practices working not individually but in groups or consortia to commissioning services. No doubt they will want some level of administrative support to make the system work and the trick is to ensure that these administrative costs are lower than what was being incurred by PCTs.

GPs wanted more power over commissioning and under the new arrangements they will have it. However, they have a conundrum. For the new system to be meaningful it is imperative that GPs get fully engaged in how the commissioning decisions are made and this will inevitably encroach on their patient contact time. On the other hand if they only get lightly engaged and leave the detail to the managerial support staff then it would seem that little of substance will have changed and the managerial staff will still be the main influence on commissioning decisions.

Past experience suggests there are huge risks for the government in going down this road. In particular there is a major concern about keeping control of NHS expenditure under such a system. So what might the government do if things go wrong and NHS expenditure starts to go out of control or patterns of commissioning lead to major financial problems in NHS Trusts etc? An option would be to revert to something similar to the current model with lower GP involvement and stronger managerial control. This might be difficult to achieve and a major political U-turn.

The alternative might be to get the private sector involved to take over some of the commissioning roles in a manner similar to the Health Maintenance Organisations (HMO) in the USA. Several firms are already active in the UK in an advisory capacity and would welcome the opportunity to get more involved in operational commissioning. If such a move took place, this might be a first step towards substituting a health insurance model for funding the NHS in place of the current tax-funded model. Fanciful – maybe, but something has to be done about the financing of the NHS.

Friday, 2 July 2010

Implementing the cuts - key concerns

Last week’s ‘emergency’ Budget shed light on the direction of some aspects of government policy towards the deficit. Details of tax changes were released as well as changes to welfare benefits. Also the government indicated the size of the savings that will take place in government departments (an average of 25%) over the next four years, but the details of exactly where these reductions will take place will have to await publication of the Comprehensive Spending Review (CSR) in the autumn.

While accepting that these changes have to take place I have three particular concerns about the process of cutting public spending within public sector organisations:

Timing – some relatively ‘small’ cuts (£6bn) in public spending will take place in 2010-11, but the larger cuts will start in 2011-12. However, we are only nine months away from the start of that year and by the time the results of the CSR are known we will be only five months away. Couple this with the fact that it seems the government wants large cuts made early on, then public sector managers have only a short period of time to identify and implement cuts by the start of the financial year 2011-12. In these circumstances, it seems unlikely that there will be much sophistication involved and quick fixes will be needed such as reducing buildings maintenance, freezing staff numbers, reducing organisational overheads and dropping preventive programmes.
Forward planning – The above situation could be seriously exacerbated by the fact that some public sector organisations seem to be doing little in the way of forward planning and are awaiting the results of the CSR before doing so. Why they are waiting is unclear since in the majority of situations they can be pretty certain now that the have to plan for significantly less money next year and the following years. The detailed plans can be firmed up after the CSR, but some early thinking is vital.
Risks and governance – the level of cuts faced in public spending is unprecedented for most public sector organisations. Couple this with the pressures of time already referred to and it seems that there will be many risks associated with the expenditure decisions being made. In recent years there has been a huge emphasis in the public sector on risk management and governance and these issues will become more not less important with major changes to service levels and the means of delivery. Thus, public sector organisations need to consider how they will enhance their risk management and governance processes to deal with this.

How well are public sector partnerships performing

The government recently announced the abolition of Comprehensive Area Assessments, which the Audit Commission oversaw, and further cuts are likely. CAA was a bureaucratic and expensive process concerned with assessing how effectively local services and partnerships were working. There may be a need for some degree of external assessment, but there is a trade off between external inspection and internal governance. Too much inspection and regulation inhibits the development of good internal governance. We need a lot less of the former and a lot more of the latter.

Over the past ten years or so, local and regional partnerships have become one of the main vehicles for delivering public services. However, there have always been concerns and debates about what value is actually being added by the partnerships themselves over and above that being delivered by individual service programmes under their remit. This is especially relevant when one considers that:

There will be substantial (but probably unknown) costs associated with running the partnership
The services that fall under the partnership remit are actually delivered, by and large, by a series of implementing agencies and not the partnership itself
Many partnerships have focused their effort (as they were encouraged to do) on identifying progress in relation to internal matters such as structures and processes rather than the more difficult task of assessing the impact they have had on service outcomes
To demonstrate their value added and to improve internal governance, partnerships need to have a robust but workable approach to demonstrating their performance. This approach needs to consider both the value for money actually delivered by partnership-led services and the value added by the partnership itself. If more progress isn’t made on this issue then the future of partnerships themselves may be called into question.

A copy of a paper on the issue of assessing partnership performance can be obtained, free of charge, by emailing a request to