Public Sector Matters

Welcome to the Public Sector Matters blog

PwC — Fri, 17 May 2013 15:30:10 +0100

Welcome to PwC’s Public Sector Matters blog which I am hosting to bring you the latest thinking from our senior partners and directors on the issues that matter to government and the public sector.

Ahead of next month's Spending Review, our Senior Economic Adviser Andrew Sentance considers the challenges facing the UK and other western governments as they seek to get public spending and borrowing under control in a difficult economic environment. How might reducing the burden of government expenditure be achieved, in a world where demographic trends and public expectations are pushing in the opposite direction?

Paul Cleal
Government and Public Sector Leader, PwC
Email Paul Cleal

Rethinking government in the ‘new normal’ economy

PwC — Fri, 17 May 2013 15:28:42 +0100

By Andrew Sentance, Senior Economic Adviser, PwC

Public spending is under pressure. Across the western world, and especially in Europe, governments are struggling to contain high levels of public spending and borrowing. According to the OECD, the UK government spent 49% of GDP in 2012, and across the euro area public spending totalled 49.4% of GDP. Demographic pressures and rising expectations of the level of provision in key areas like education and health are making the challenge of managing government spending and public services even more difficult.

In the case of the UK, the impact of disappointing growth on tax receipts now means that public borrowing is forecast to be £108bn in the last year of this Parliament – around 6% of GDP. This is around three times the forecast for government borrowing originally set out in the 2010 Budget when the Coalition Government launched its deficit reduction programme.

This is the background to the 2013 Spending Review, the results of which are due to be announced in the summer.

There is no easy way out through a strong rebound in economic growth or tax-raising. Most western economies have seen a slowdown in economic growth associated with the post-financial crisis ‘new normal’ world. And in an increasingly globalised world economy, raising taxes is not a solution either. Higher taxes on the income of companies and individuals will undermine competitiveness, and encourage economic activity to relocate. And higher taxes on consumers will intensify the squeeze that households are already feeling as a result of rising energy and food prices.

That leaves governments with only one option: reducing the burden of government expenditure. But how might this be achieved, in a world where demographic trends and public expectations are pushing in the opposite direction?

In the UK, we have already deployed some of the more obvious measures in the 80s and 90s – such as the privatisation and restructuring of state-owned industries. These policies were important contributors to deficit reduction in those decades. But new ideas will be needed to rethink and reshape government to meet the challenges of the 21^st Century.

There is unlikely to be a single obvious and easy solution. The public sector in a mature western economy like the UK is a large and complex legacy business, which has been accumulating and developing its activities since the beginning of the 20^th Century.

To meet the challenges of the 21^st Century, there is likely to be a need to consider more radical options. First, government may need to withdraw from the provision of some public services altogether – leaving these to be provided by the private sector. Second, benefit and public service entitlements which are available for the better off members of society might have to be withdrawn so that public funds can be focused on the more needy. Third, government needs to improve its delivery model, so that public services are provided much more efficiently and effectively to those who need them.

This is a massive agenda for public sector restructuring and reform. But the benefit of embracing it is that government is freed up to deploy resources to invest for the future – in skills, technology and infrastructure. Governments which are encumbered by high debts and deficits do not have the flexibility to do this, as Britain found out to its peril in the late 70s and early 80s.

In the UK, we have probably only scratched the surface so far in terms of radical reform of the public sector. The 2013 Spending Review will give an indication of the government’s appetite for radical change. Or it might suggest that it is deferring difficult decisions until the next Parliament.

Follow @asentance

Andrew Sentance:
Read profile | Contact by email | Tel: 020 7213 2068

An eye to the next Election?

PwC — Wed, 08 May 2013 14:55:06 +0100

By Nick Jones, Global Director of PwC’s Public Sector Research Centre

The Queen’s Speech, the quaint tradition by which the government of the day sets out its annual legislative programme amid much pomp and no little ceremony, contained few surprises. Nevertheless, it was still of real interest in showing the direction for the remainder of this Parliament, combining as it did some necessary long term welfare reforms alongside more populist proposals - with the next Election very much in mind.

Following on from the Coalition’s Mid Term Review, which we previously covered on this blog, the focus for the next 12 months was always going to be on the welfare agenda - with two landmark reforms on pensions and social care included.

The introduction of a single tier, flat rate weekly pension has long been trailed while the social care bill marks a milestone in the long period of debate and wrangling on the funding of social care costs (enacting the principles of, if not the actual level of cap requested by, the Dilnot Commission). See here for PwC’s thoughts on the implementation of Dilnot’s recommendations.

The focus on pensions and social care is unsurprising, given the rapid ageing of the population (see Figure below) and that support to the elderly and the vulnerable form a significant part of the third of public spending that is spent annually on benefits.

Figure: Proportion of 75+ relative to total population in England

But also of interest to those watching for signals in the forthcoming Spending Review, there is no planned legislation on the requirement to spend 0.7% of Gross National Income on aid. There were also a few lower profile proposals which play to the growth agenda including legislation to cut business costs including NICs on new employees for small employers, further de-regulation and steps to support apprenticeships and traineeships (see here for our contribution to this agenda). A paving bill for HS2 will also allow preparatory work to be done, although we are still many years away from actual construction, a real impact on jobs and the hoped for boost to productive potential.

Politically, strengthening immigration laws is a clear indication of the continuing attempt by the Conservatives to counter the UKIP surge, while the plan to legislate for a transferable tax allowance for married couples is, again, intended for the heartland Tory voters. And the LibDems can also claim measures proposed in the Queen’s Speech form a ‘radical social reform’ agenda.

However, this legislative programme forms the important backdrop for the forthcoming Spending Review where all eyes will again focus on deficit reduction and the implications for growth and the funding of public service provision. It is the Coalition’s performance on achieving good growth, particularly in our cities which are the engine of sustainable growth, together with jobs for the young and controlling the cost of living which will ultimately hold the keys to success or failure at the next Election.

In advance of the Spending Review, PwC will provide regular updates and analysis on the developments to date, the economic environment, and key decisions to be made. Keep up to date at @pwc_ukgov

Nick C Jones:
Read profile | Contact by email | Tel: 020 721 31593

The road to recovery

PwC — Fri, 26 Apr 2013 11:10:35 +0100

By Andy Key, Central Government partner, and Quentin Cole, a business recovery partner

Austerity is biting across the public sector. The next Spending Review is fast approaching and the scale of the challenge means that efficiency savings are no longer enough. Radical change is needed if services are to truly deliver “more for less”.

The Government sees opening up much of the public sector to a diverse range of providers - competing to offer a better service - as a key part of the solution. Yet new models of service delivery, greater devolution of power and budgets, and ever-growing demand, shines a brighter spotlight on what happens if a provider was to fail.

Planning for failure – human, financial or service - may seem counter intuitive. But it can certainly be argued that the existence of failure mechanisms has a role in improving services by allowing new providers into the market, fostering innovation or drawing attention to wider systemic failure.

With new providers entering and incumbent suppliers under pressure, it is important that the possibility is not only considered, but planned for – and mitigated. The real challenge is to prevent failure in the first place and to put in place a plan for turnaround at the earliest opportunity.

Early intervention helps to limit the negative impacts of failure, giving an organisation every chance to recover. This requires far more active and effective monitoring, spotting underperformance earlier, so that signs of things going awry are seen and acted upon. This is of course preferable to fighting fires when failure happens, by which time it may be too late and the costs are often higher.

This is why the public sector needs effective performance regimes and turnaround processes in place, which can be drawn upon when service providers show signs of severe underperformance or distress.

Critically, management needs to buy in to the turnaround strategy right from the start.

This is partly a matter of self-belief. Public sector leaders need to recognise the skills they can apply to turnarounds, inspiring a workforce and driving recovery, which may have been used in different ways at other times in their professional lives. The trick is to unlock the capacity that already exists within the public sector workforce.

This belies the idea of a skills gap in the Civil Service. There is no shortage of skills, but there may well need to be more focus on how to make best use of them when an organisation starts to struggle.

At the heart of successful turnarounds is the need for agility. Public sector leaders have to be fleet of foot when it comes to dealing with the challenges that arise, drawing on proven turnaround strategies, methods and skills, so that effective change programmes can be developed and implemented - before it is too late.

A version of this blog first appeared in Civil Service World.

Andy Key:
Contact by email | Tel: 020 7804 3720

Quentin Cole:
Contact by email | Tel: 020 7212 6784

How focused is the public sector on delivering the outcomes people need?

PwC — Wed, 24 Apr 2013 15:47:40 +0100

By Scott Bailey, Partner, PwC

With June's Spending Review likely to usher in another round of cuts, organisations across the public sector are under intense pressure to make savings while continuing to deliver good outcomes for people.

Removing complexity can be key to both improving efficiency and delivering better outcomes, but there is often a mismatch between how organisations see their operations and the views of those who use their services.

Do you really know what's going on in your organisation? What would people using your services say? The results of our analysis, which includes both the private and public sector, show the true picture of an organisation's activities versus what their customers value.

Scott Bailey
Contact via email | Tel: +44 (0)7771 816002

Beyond the cuts: what will local government look like by 2018?

PwC — Wed, 24 Apr 2013 15:44:34 +0100

By Andy Ford, Partner, PwC

There’s no getting away from it. By 2018, local government will look very different from today, with some predicting as much as a 50% cut in council budgets since the last spending review. With the next round of spending cuts looming, local government has a small and closing window of opportunity to think proactively and shape a positive vision for its future.

Last week we launched Gaming the Cuts, a new report from the New Local Government Network (NLGN). The report is the culmination of a ‘war gaming’ exercise which brought together senior local government officers to battle over the future of the fictional council of Anyborough, setting budgets and strategic priorities up to 2018. It was the cuts, rather than each other, that the teams were battling and both ended up making very similar decisions for Anyborough. The council largely got out of leisure, recreation and culture services and reduced and commercialised its education support services. Health and social care was integrated, but while we might have assumed this led to improved outcomes for Anyborough residents, in the longer term it didn’t halt rising social care costs. So far, so gloomy.

More than anything the game highlighted that a line-by-line approach to managing local government’s financial predicament is not going to be sufficient. As the spending cuts deepen, more of the same will not be enough, as many councils are already realising. The initial findings from our annual Local State We’re In survey show that councils have exhausted back office efficiency savings and are now turning to the frontline.

The challenge facing councils is therefore a more profound one about what they exist to do and the value they provide their local communities. Councils need to proactively – and urgently - define a new role for themselves, focusing on leading places and enabling good outcomes rather than directing and delivering services. Key to this will be managing demand - focusing on early intervention and prevention – and pursuing good growth strategies as well as savings. Fundamental to both demand management and enabling growth will be closer partnership working, with councils playing a pivotal role in bringing together the wide range of public and private sector actors operating in any place, as well as their local authority neighbours.

While the news headlines are likely to continue to focus on service cuts and cutbacks, councils must grasp this fleeting chance to proactively define their longer term role to ensure that a reduced budget doesn’t mean the retreat of local government or a backward step on growth.

Andy Ford
Read Profile | Contact via email | Tel: +44 (0)20 7213 5239

How can the NHS use information to drive improvements in care?

PwC — Thu, 18 Apr 2013 17:05:34 +0100

By Sunil Patel, partner and Janet Dawson, healthcare lead partner

One of the biggest changes over the history of the NHS is the increase in information available to commissioners and providers. We now know more about what the NHS does and how that impacts on health than ever before – which offers both opportunities to improve care and a challenge to organisations about how they manage and respond to this.

There is an increasing commitment to using information to drive change from those at the top of NHS England – including national director for patients and information Tim Kelsey and medical director Professor Sir Bruce Keogh. The current debate on mortality information and the use of increasingly sophisticated methods of identifying outliers is highlighting how much information is available.

However, provider boards are not yet fully utilising the information they have, as indicated by failures to react to early warnings and use information to drive improvements. Part of this may be overload and the difficulty in determining what is and isn’t important. For many trusts this will be a capacity issue: do they have the capability and expertise to sift through multiple data sets and distinguish what needs to be acted on? And is this then reflected in what is drawn to senior managers’ and boards’ attention?

But there may also be a cultural issue around accepting the validity of data and basing decisions on it, with a tendency to explain away ‘bad’ data and challenge its accuracy. Clinicians are often more willing to use data positively as it fits into their evidence-based model, suggesting that clinical commissioning groups may be well placed to take the opportunity to use information to monitor providers and drive radical decisions on the quality of services.

Another part of this picture is information flowing from the public. Websites such as Patient Opinion allow patients and their families to give feedback about their experience of healthcare, and social media such as Facebook and Twitter are also used to share information – and may influence other patients’ choices. Yet not all trusts monitor the public strands of these media, let alone respond to concerns or use the feedback positively.

Much of this is real time information – patients tweeting about delays in clinics, for example – and offers a chance to proactively engage with patients. And it’s a two-way dialogue: there are opportunities for the NHS to get across its own key messages around sensible use of its services and self care. NHS organisations need to recognise that patients are choosing to use these channels and develop a digital strategy to make these media work for them rather than against them.

The information revolution won’t go away and the speed of change over the next decade is only ever likely to increase. Commissioners and providers need to harness the potential this offers to drive change and to shape a new relationship with patients and the public.

As our programme of research, debate and public consultation on the future of the NHS shows, it’s clear that whatever the public and demographic issues, improving the use of information will be essential for the longer term sustainability of the health service.

Join the debate www.pwc.co.uk/nhs75

Sunil Patel:
Read profile | Contact by email | Tel: 020 721 23484

Janet Dawson:
Read profile | Contact by email | Tel: 020 721 35244

Good Growth in the South East

PwC — Fri, 12 Apr 2013 15:47:31 +0100

Our research over the last two years on good growth has shown that the UK public believes there is a wider scorecard of factors beyond GDP which can be used to measure economic wellbeing, whether at national, regional and/or city levels (see this previous post). But what’s the view of those in the region that comes out with the highest ranking in the Demos-PwC Good Growth Index?

In the last few months we’ve taken our research on the road across the South East, from Norwich in the east to Reading in the west. The cities in the South East are above average for ‘good growth’ in our Index. They tend to do relatively well on the most important indicators of jobs, income and health, as well as providing for the future and the environment. However the results suggest there is a price to be paid for this relative success, seen in relatively low scores for work-life balance and housing affordability.

So what’s been the view of those we met, ranging across businesses, councils, educationalists, Chambers of Commerce and LEPs? Well, perhaps of most interest is in none of our discussions has there been any complacency despite the relative economic success of all of these places. Indeed, you often sense a feeling of frustration, that there’s a constant struggle to tell with one voice the story of a place which engages with the outside world, be that regionally, nationally or internationally.

Indeed, all of the places we visited have many world class business brands working in their vicinity and a heritage of which to be proud. And yet, many still find it hard to project their city brands in ways which are attractive to the people and businesses, brands which they feel that their places, with their quality of life, merit. Two underlying questions emerge: what do we want our place to be known for, and who exactly do we want to attract and retain (from businesses to home grown talent)?

Another consistent message from our discussions is the challenge of putting in place the infrastructure needed for any place to survive and thrive in the modern global economy, whether that’s reliable transport, affordable (and suitable) housing stock or superfast broadband. And to achieve the outcome of good jobs, it’s also obvious that developing the right skills, and matching work-ready people with opportunities, is a real opportunity to further progress.

Finally, it’s clear that building on success requires real leadership across a place, inspiring local stakeholders to work towards a common outcome and telling a consistent message about why a particular city is a great place to live, work, and possibly even retire! Achieving good growth is therefore all about policy choices, focusing on the things that matter most to the public, and the businesses that provide the jobs and income essential to prosperity.

Looking ahead, there are many opportunities with which leaders in a place must engage, including the proposed Single Local Growth Fund as well as City Deals and Community Budgets. The challenge will be to use the measures of good growth to improve decisions on the allocation of scarce resources and prioritisation of investments locally, and develop and tell the stories of a place of which residents can be proud!

A budget for growth?

PwC — Wed, 20 Mar 2013 16:28:00 +0000

The test for this Budget was always going to be whether it will deliver the growth the country needs. To start with the positives, there were some good things on this front such as the reduction in the headline corporation tax rate to 20% and of employer NICs for the first £2000 of costs. And no doubt house-buyers and hard-pressed parents with children will also have something to cheer, although it is less clear as to where many of the new homes will come from or the new school buildings.

And yet the debt dragon has not yet been slain, the fiscal deficit continues to roll ever further forward and growth forecasts continue to drift out, increasingly looking like the hockey stick forecasts of a struggling business.

The Budget left some significant holes. For instance, what does the 'aspiration nation' means for NEETs? How much of the switch from current to capital spending will be 'shovel ready'? And is there a risk, as Ian Mulheirn points out, of a new bout of unsustainable house inflation and an effective inter-generation transfer of equity from the young to the old as house prices are artificially inflated?

A number of other areas have been stored up for the Spending Review, as I discussed in my pre-Budget blog. For instance, the Heseltine ‘single pot’ could make a once in a generation difference to regional economic development and the much sought-after spatial re-balancing, but the devil will be in the detail in terms of how the funds will be dispersed and the size of pot itself. Of real interest will be how AME limits are put in place leading to real control of this expenditure, which comprises over half of the Total Managed Expenditure. This could be one of the most significant aspects of the next Spending Review.

Finally, there are some big unanswered questions for public sector leaders. In particular, although £11.5bn of further savings will be sought in the Spending Review can there continue to be no change to ring-fencing protection? And how will the morale and productivity of public sector staff be maintained in the face of a real wage squeeze and further changes to pensions?

So, some steps in the right direction, but still a gulf to be bridged to deliver growth to an aspirant nation.

Click here to follow our analysis on Budget day and beyond.

Stepping stones to growth

PwC — Tue, 19 Mar 2013 11:06:28 +0000

Nick C Jones

So, now we have seen the Government’s response to Lord Heseltine’s report. What’s more, it’s a generally positive outcome for those who have supported the thrust of the report’s recommendations, the vast majority of which have been accepted (although notably a quarter only ‘in part’).

I’m pleased, in particular, to see that the response focuses on many of the levers we’ve identified as important for good growth - transport, housing and some elements of skills. It’s particularly to be welcomed as it represents potentially a seismic shift in the decentralisation of economic power – perhaps the greatest since the Act of Union - with the plans for the devolution of sweeping powers and a holistic refocusing of Westminster departments on regional outcomes alongside the work-in-progress devolution in Scotland Wales and Northern Ireland.

Of course, we need to know more about implementation to judge how these proposals will really contribute to re-vitalising the push to devolution and delivering local growth. Will the Budget reveal more detail? Whilst possible, it’s unlikely as more of the details are likely to emerge with the Spending Review - to be announced on 26 June.

But we can expect the next few months to be filled with behind-the scenes debates on what’s in and what’s out of the pot -as well as details on how the fund will work in practice. And, of course, the key missing detail at the moment of the actual size of the pot itself.

Optimists will hope that this will be close to the £49billion identified in Lord Heseltine’s report. But as public services across the board are increasingly expected to do more for less; and with further cuts in non-protected budgets like local government anticipated deep into the next Parliament, it’s likely that the pot will be more modest/ That will particularly be true if ring-fencing in health, schools and international development means further real - and deep - cuts of 20%-25% in other departmental budgets.

Given that it will be 2015 before it comes into operation, there’s still scope for many of the fundamental issues to be aired. Such as, will the resources put back into local hands actually generate the jobs and incomes that the squeezed public really need? Who’s really accountable for local growth? And will the issue of Mayors bubble up the political agenda, and become a real issue in Election Manifestos?

As the Government’s response rightly asserts, to ensure its commitments are fully implemented: “This will require the right cross-Whitehall machinery to be in place to ensure effective working between all relevant departments.” In that sphere alone, there’s little doubt that thinking is required on the design and administration of the fund to ensure outcomes are achieved.

As we all know, making change happen, particularly across departmental silos, is always a challenge but in this case, it will be essential to unlock the growth potential of our cities.

Click here to follow our analysis up to and on Budget day.