Friday, 24 June 2011

Whither (Wither) Welsh Local Government?

In 1996 local government in Wales was re-organised but prior to this reorganisation comprised a binary system of 8 county councils and 38 district councils with a distribution of functions largely similar to that in England. Reorganisation involved the abolition of those existing authorities and their replacement by a structure of 22 unitary authorities based largely on the boundaries of the existing district councils or some amalgamation of those smaller district councils.

These arrangements left a legacy of concerns including the following:-

• Although comparisons are often difficult because of the differences in structure, it is generally the case that Welsh local authorities are significantly smaller in terms of population than English or Scottish local authorities, Also, they display a wide range from Cardiff (population 336,000) to Merthyr Tydfil (population 55,000). This situation generates concerns that such small local authorities cannot deliver services efficiently and have difficulty in adequately resourcing some specialist services (e.g. adoption).
• The local government arrangements implemented in Wales left a lack of co-terminosity between local authorities and the various other public bodies in Wales including health boards and police authorities etc. This lack of co-terminosity is often argued to be a major inhibitor of effective strategic planning
• The local government arrangements coupled with the absorption of the former Welsh Development agency into the Welsh Assembly Government (WAG) left a lack of clarity about the critically important issue of economic development in Wales and the respective roles of the different organisations.

For some years now various multi-agency partnership arrangements have been in existence in Wales (similar to those in England) aiming to overcome some of these concerns and to improve the in coordination of the delivery of services, but this is seen as having limited success.

Fast forward now to 2011 and we hit the consequences for Wales of the UK fiscal and public debt crisis. The revenue support grant settlement for Welsh local authorities announced by WAG left Welsh local authorities, in 2011, with an average reduction in grant of 1.4%, ranging from a rise of 0.1% in Cardiff to a ‘floor’ of -1.7% for most other authorities. In future year’s Welsh local authorities can expect small increases in the cash amount of grants but this still implies significant reductions in real terms funding. In England, councils are facing cash reductions significantly larger than being felt by the hardest hit authorities in Wales but even so the impacts of such reductions in Wales have major implications for organisations used to receiving annual growth in resources.

In the light of this, not surprisingly, there has been much debate about where Wales should go with regard to local government. A limited number of options seem to present themselves:-

Abolition/Curtailment of functions
One radical option might be to abolish local government in Wales and have the Welsh Assembly Government manage all existing services directly. This is not as outlandish as it might seem because Wales is a small country. In England there are already several local authorities serving populations of around 1.5 million people compared with the population of Wales of around 2.9 million people. A variation on this theme might be to retain local authorities with a service profile similar to English district councils but transfer the delivery of major strategic services such as education and social care to WAG.
It has to be said, such a proposal does not even seem to be on the horizon. For one thing, I doubt if WAG with its civil service culture would have the ability or will to directly manage locally based services in an effective and efficient manner and WAG Ministers would not then be able to blame local councillors for the failings in such services.
Enlargement of functions
This is effectively the opposite of the previous approach and would involve Welsh local authorities expanding their role by taking on responsibility for other existing public services. The obviously example here would be for responsibility for the Welsh NHS to be transferred from WAG to Welsh local authorities. In theory this might improve multi-agency working between health and other public services and might improve efficiency since certain central overheads (e.g. finance, IT) could be spread over a much larger base.
However, the chances of this happening are nil. The NHS is such a politically hot topic that WAG would not want it handed over to local government in any circumstances. Also, the current local government arrangements in Wales mean that there would still be a lack of co-terminosity with the boundaries of the Welsh health boards. Finally, when I was a young researcher with the Royal Commission on the NHS in the 1970s, I always remember being told that the medical profession would never countenance the NHS being part of local government. They could never accept the idea of doctors being accountable to local councillors. The way in which the medical profession has just demolished the UK government’s planned health reforms for England shows the immense political power the medical profession still has in health politics. They are unlikely to allow the NHS in Wales to become part of local government

Organisational Mergers
There is considerable support in Wales for there to be a merger of many of the existing local authorities in order to create a smaller number of bigger units which might overcome the alleged problems of small size. This might result in a reduction of Welsh local authorities to around perhaps a dozen organisations.
Unfortunately, even though this is an idea dear to the hearts of many politicians in Wales, there are serious problems:-
• Because of the way such mergers are conducted in the public sector (as opposed to the more brutal approaches in the private sector) the process tends to be rather long winded, disruptive and immensely expensive. Research by Michael Chisholm, a member of the Local Government Commission in the 1990s, showed that the financial cost of the 1994-5 reorganisation of English local authorities was greatly underestimated and that it was unclear whether this was ever recouped through any subsequent efficiency savings. As someone who was involved in the 1996 local government reorganization in Wales, I can concur with this.
• Quite often, in the public sector the merger options developed are (for political reasons) completely the wrong options and no-one should subsequently be surprised that they do not produce the benefits intended. Many examples of this can be quoted.
• The killer is that unfortunately what research is available (e.g. Cardiff Business School, DCLG) suggests whatever theory might suggests, in practice, there is little evidence to link size of local authority with performance. While this may be strange and unexpected, what I have anecdotally observed is that when such larger units are created the lack of a market discipline leads them to introduce much more elaborate and complex management structures the costs of which outweigh any savings that might otherwise be made.

Consortia arrangements

The fourth option is basically to stick with the existing structure of local government in Wales but to develop a network of consortia, involving several local authorities, for the delivery of certain specific services. This would aim to overcome the problems of small size. This is not a new idea and has been undertaken in various parts of the UK and several consortia already exist in Wales. It currently seems to be the preferred way ahead in Wales with various consortia springing to life covering a wide range of services.

However, like so many of these initiatives, there does sometimes seem to be a certain lack of thinking around the creation of such consortia. For example:-

• What benefits should the consortia generate and how are these to be realised. Wishful thinking won’t do it.
• What are the costs associated with forming and running the consortia. Often these are hidden and understated.
• Do the proposed consortia arrangements make sense for the particular services involved or are there better options available. Somebody once said that if you merge together two weak organisations you end up with one weak organisation.
• What are the management arrangements for the consortia? Presumably one local authority will be the host with managerial control over service provision but what will be the role of the other members of the consortia and how will this operate.
• What are the governance arrangements for the consortia? How will elected members from several councils discharge their responsibilities in a multi-authority consortia
• How transparent will the consortia be? Will it be understandable to the average member of the public

Furthermore, while they may be merit in such consortia it is probably better if they grow organically building on existing relationships rather than being forced, from on high, by unwilling partners.

Conclusion

In conclusion, it doesn’t seem to me that any of the above options are likely to deal with the problem of squaring increasing demands for local government services (e.g. as a consequence of the ageing population) with a declining resource base. As a former management consultant I was always taught that structure should follow process and culture and not the other way around. Thus rather than tinker with structural issues in Welsh local government we would be better of focussing how to make the existing arrangements work better through improvements in culture and management effectiveness. The focus, as always, should be on the triple issues of: vision, leadership and performance management. Unfortunately, these are issues which don’t really excite politicians so don’t expect the structural debate to go away any time soon.

Monday, 13 June 2011

Public sector innovation

The recently published report by the Work Foundation is to be welcomed, emphasising as it does the importance of the public sector carrying out its own innovations, rather than relying on the private sector to innovate through outsourcing.

When, oh when, will we stop seeing outsourcing as a panacea for public services advocated usually by people who have most to gain from outsourcing? In the right circumstances outsourcing can be beneficial but sometimes the benefits claimed for outsourcing just cannot be believed.

However, getting the public sector to innovate is not always that easy. There are a number of key features which will be needed if innovation is really going to thrive.

Support from the top for innovation is vital – not disdain as sometimes happens. So is a shared responsibility for innovation across the organisation, and a positive attitude towards risk taking – particularly from central government. Not all innovations will succeed as the private sector knows only too well.

There also needs to be a climate which encourages experimentation and evaluation, plus a rewards systems that encourage innovation. And the involvement of people from different backgrounds (rather than a closed shop of service professionals) will be essential. Last but not least, the provision of resources for innovation has to adequate.

How many public sector organisations can truly claim to have all of these features in place?

The perils of blind outsourcing

The news that Suffolk County Council has halted its controversial plans to outsource all its services after public opposition to spending cuts and a collapse in staff morale should come as no surprise. However, one might also question whether there was always something wrong about a policy that appears to see outsourcing as an ideological aim to be pursued in its own right rather than something that evolves from a market testing exercise concerned to establish the optimal approach to service provision.

Market testing should fundamentally be seen as a managerial issue not a political one. There should be nothing politically wrong with a Labour council exposing in-house services to market competition (and possibly outsourcing some of those services as a consequence) and nothing politically wrong with a Conservative council accepting that a market testing exercise has confirmed the retention of in-house service is a better option to alternative private sector provision.

It is not a case of whether private provision is better than public provision (or vice-versa) but what gives better value for money to council tax payers. However, as usual, a good argument often gets in the way of the facts.

Market testing is a managerial process that involves exposing existing (in-house or external) service provision to external competition (from public, private or third sector providers) in the belief that competitive forces will improve service provision. However, care is needed here and it is important to think carefully about the longer-term implications of outsourcing as well as potential short-term gains.

Outsourcing all aspects of service provision and closing down, completely, the in-house operation could mean a council burning its boats and in certain circumstances being left at the mercy of a private sector monopolist with no alternative in-house provider to fall back on. This could be because the existing provider market is immature and has a limited number of suppliers or because existing providers operate illegal cartels to reduce competition (for those who doubt this, I refer them to Office of Fair Trading investigations of collusion in the building industry in relation to public sector contracts).

I am a supporter of the principle that in-house service provision should be exposed, periodically, to external competition and, if appropriate, services might be outsourced. However in considering outsourcing, let us not delude ourselves as to the nature of private business.

Fundamentally private business does not like competition and will take actions, where it can, to reduce the level of competition. Witness the cool response from businesses to David Cameron’s speech, last year, to the CBI conference that proposed a tougher competition regime. Eliminating all in-house service provision can leave a council at the mercy of a rapacious and virtually monopolistic private contractor and leave them up the proverbial creek without a paddle.