Public Services Reform: Shared Services, Outsourcing and Mutualisation?

Originally, scheduled for January, the Cabinet Office has now delayed the publication of the Public Services White Paper until after the local elections in May.

It seems that the White Paper will “expand employee ownership of public services by increasing the number of new structures including co-operatives, mutuals and spinouts, and provide details of how to establish a right to mutualise.”

This is the first of a series of blogs which will look critically at the Government’s Public Services Reform.

Over the last couple of months, this blog has taken a hard look at Shared Services in the Public Sector. Themes have included:

Unless there is some fundamentally new ingredient into the mix, the business case for increased investment in Shared Services looks a high risk option in order to achieve serious cost reductions – in this regard 40% cost reduction is the norm in the Private Sector but I established earlier that even 20% cost reduction is likely to be wiped out by the materialisation of the risks.

So far, the overriding focus of this Coalition Government has been: (1) Reducing the Budget Deficit; and (2) Reform.

The blog has established that the operationalisation of the Reform Agenda into well crafted transformation programmes is so far not well evidenced. Given the Government’s very real commitment to transparency, it must be assumed that the evidence is not yet available.

The Public Services White Paper is one of the critical reforms of the Coalition Government. Although not as publicly sensitive as Healthcare Reform, it is likely that the Public Services White Paper will receive enormous attention in the media, plus trade unions and public sector employees.

It is widely expected that the Public Services White Paper will signal the departure from “Big Government“, the approach of the Labour Government, which also favoured centralised control. It will be interesting to see the approach to the existing Back Office Shared Services programmes, which according to the National Audit Office have not achieved acceptable business benefits. Here are some of the potential options:

  • Existing Shared Services proposals will be allowed to continue
  • Greater consolidation of Shared Services will be encouraged across departments and between local authorities, and other public sector bodies
  • Existing Shared Services will be rejected in favour of some form of outsourcing
  • Other hybrid models proposed

Under the Labour Government, the argument for rationalisation after Peter Gershon‘s review was more Shared Services, investing in large centres, with economies of scale, deploying standardised and shared processes (Big Government). Many major consulting firms were involved under the previous Government and would have argued that this was Best Practice, and provided lowest transaction costs against standardized and quality assured services.

Given Progressive Conservatism under David Cameron and the finely balanced Coalition with the Liberal Party, the details of Public Services Reform are hard to call.

The Coalition Government seems to have a fundamental dichotomy. On the one hand, they are neoliberal wanting to use market forces to devolve Big Government. On the other hand, there seems to be a desire to restrain neoliberal processes and promote concepts of localism and mutualisation. Indeed it is hard to see the savage cost savings mandated by George Osborne being achieved with localism and mutualisation.

Whereas Margaret Thatcher was an unrestrained neoliberal, with a clear vision for privatising vast state-owned industries, the Coalition Government’s Big Society agenda seems to muddy the waters.

Over the coming weeks, I shall revisit the challenges.

3 responses

  1. The Big Society and Localism are an attempt to call the bluff of those who say they want “local democracy”, by shifting the responsibility for service delivery onto them.

    Obviously, this if put into practice, would create diseconomies of scale and would end up costing council tax payers more money.

    If, for example, local people were to make decisions about the best way to fund Adult Social Care which accounts for 50% of local authority budgets at County Council, City Council, Unitary Authority and London Borough level, what would they do?

    On the one hand they say that they are concerned that their elderly relatives should be properly looked after, treated with “dignity and respect”, given “appropriate” care etc.

    On the other hand, they do not have the money to pay for Adult Social Care (80% of people in the UK have less than £500) in their bank accounts at any one time (Source :GE Money -2007).

    This has almost certainly got much worse since the banking crisis, whilst nursing home fees have risen dramatically and morbidity, particularly in women has worsened, as they have lived longer and longer.

    Worse still, the current obesity crisis, (our woman are the fattest in Western Europe and our men 4th fattest), means that we are storing up even more problems for the future, to the point where NHS and Adult Social Care costs will overwhelm local authority budgets and the NHS.

    Saying that people will have to sell their houses will not solve the problem either because with greater longevity(87 for woman and 82 for men), the average stay in an old people’s home could well go up to 10 years.
    At say £500 gbp a week, that is £25,000 a year or £250,000 over 10 years.

    The average UK house price is £163,000 and nursing home fees are rising much faster than inflation.
    Localism will not deal with this problem and people in the UK are unlikely to adopt the Mediterranean approach of looking after their own.

    Currently the UK’s economic growth rate has averaged 1.4% per year when 3% is the minimum needed for full employment, so there isn’t the tax revenue to pay for these choices anyway.

    David Cameron knows all of this but is too careful a politician to give the public this sort of information straight from the shoulder.

    Last week he came close by saying that the welfare system had “encouraged “our people not to take jobs which “others”(code for Poles and Eastern Europeans), were willing to do.

    In plain English he was referring to our lack of productivity as a nation (we are 15th in the World) and to people’s laziness, although he was too polite to use the word.

    What does this all mean?

    It means that to achieve the savings necessary to prevent budgetary implosion, Executive Interim Managers will be needed to effect radical transformation of the kind that civil servants do not understand. Big 4 consultants cannot implement and Government Ministers want but cannot achieve with the inadequate tools at their disposal.

    The public are largely blissfully ignorant about the necessity for all this because the politicians have deemed rightly that they are by and large incapable of handling this much home truth in one go.

    The number of local authorities, police forces and NHS Trusts will have to reduce to enable scale economies to be created and steps will have to be taken to get the elderly to retire outside of this country so that they can be cared for at low cost.

    The rest of them without money will have to be subjected to “tough love” and made wherever possible, self sufficient, rather than requiring up to 25 people, either at work or responsible for an aspect of their care to effectively keep them.

    The Japanese have thought about the problem rather more than we have, and are already using care robots to care for large numbers of elderly people, feed them, make beds, change them, hoist them out of bed (in cases where there is a poor range of movement), dispense drugs, wake them up and so on.

    In short, these are interesting times but the Government’s current approach will prove to be inadeqate.

    • John,

      Many thanks for your detailed response.

      I too struggle with Localism offering lower costs & better services. Whilst I accept the principle of devolving power from the state, that does not necessarily mean the same as local delivery.

      The Government seems to urgently need a strategy which takes the best of neoliberalism, devolves power, yet keep delivery in economic and customer focused units – this is most likely to be Shared Services or Outsourcing – I reserve my opinion on Mutuals until I see the White Paper



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