Councils may have cracked efficiency targets when it comes to cashable savings, but now they must turn their thoughts to the prize of non-cashable costs. Mark Conrad reports
Later this summer, the Treasury will publish its final figures for central and local government ‘efficiencies’ achieved under the banner of the Gershon review between 2005/08, with local authorities expected to contribute £6.7bn to annual savings of £23bn.
Impressive though these figures appear, there has been widespread scepticism about the Treasury-led programme ever since Gershon, the former chief executive of the Office for Government Commerce, published Releasing resources to the frontline in 2004.
Much of the controversy centred on the Treasury’s decision to allow ‘non-cashable’ efficiency gains to form half of its £21.5bn annual savings target for the programme, including the £1.5bn in non-cashable gains expected from, and subsequently surpassed by, councils.
Gershon did not invent non-cashable savings, of course. As LGA chair, Sir Simon Milton, has said repeatedly, councils have successfully identified, targeted and achieved them for years.
But Gershon focused minds on what had previously been a poorly-defined and often misunderstood phenomena.
Impressive though these figures appear, there has been widespread scepticism about the Treasury-led programme ever since Gershon, the former chief executive of the Office for Government Commerce, published Releasing resources to the frontline in 2004.
Much of the controversy centred on the Treasury’s decision to allow ‘non-cashable’ efficiency gains to form half of its £21.5bn annual savings target for the programme, including the £1.5bn in non-cashable gains expected from, and subsequently surpassed by, councils.
Gershon did not invent non-cashable savings, of course. As LGA chair, Sir Simon Milton, has said repeatedly, councils have successfully identified, targeted and achieved them for years.
But Gershon focused minds on what had previously been a poorly-defined and often misunderstood phenomena.
To a large degree, he also politicised efficiency drives by insisting that billions in savings would not be immediately calculable, and transparent, in the way that ‘cashable’ savings such as a reduced price for office printers are.
There was no better example of this than the highly-political, and still unresolved, debate over how to accurately reflect qualitative improvements – or declines, as occurred across the NHS in 2006 – in productivity across locally-delivered services, such as education and health. Such was the furore surrounding these subjective non-cashable efficiencies – and the exposure of declining NHS outputs – that the chancellor, Alistair Darling, steered clear of including them in local government’s efficiency requirements for the current Spending Review period. The realities of councils’ ever-tightening finances also contributed greatly to the chancellor’s focus on purely cashable gains.
Consequently, the £4.9bn in new savings that local authorities must make by 2011 must be cashable and auditable.
But was that a mistake? Many local government experts now believe so – and not because, as the sceptics claim, the inclusion of non-cashable efficiencies would have allowed town halls to falsely inflate their achievements through clever accounting.
Peter Bishop, former programme director at the new Regional Improvement and Efficiency Partnerships – formerly the Regional Centres of Excellence – says the reduced priority for non-cashable savings over the next three years could mean that senior officials will lose focus on substantial, money-saving mechanisms.
‘I’m sorry the concept of non-cashable savings has been dropped, because although they are difficult to justify, I think they do add real value to local authority business and make a big difference to an authority’s financial health,’ Mr Bishop told The MJ.
Mr Bishop claims political rows over the Office for National Statistics’ subjective productivity measurements drew attention away from other non-cashable savings which should be pursued by all councils.
In the construction sector, for example, town halls have made hundreds of millions of pounds in recent non-cashable savings that could be put at risk as attention turns to more easily-quantifiable gains for the 2008/11 period. One of the biggest construction issues that costs local authorities time and money, and often hinders the delivery of new buildings, is simply paying people on time. ‘If a construction firm... knows that a local authority will take months to pay for a project, the firm must factor that into its tender for the job, or it’ll go bust quite quickly,’ Mr Bishop says.
‘If you ask tenderers [sic] up front, they’ll often deny that. But the reality is that firms have got to keep their cashflow going somehow, or borrow money from the banks, which involves interest.
‘So they factor these considerations into their price. But, if the firm knows a local authority will pay up swiftly, you avoid delays, and there has to be a non-cashable benefit to that certainty. It’s difficult to quantify, because the authority doesn’t know how much it’s saving from what it would otherwise have been charged. But it is a saving.’
Mr Bishop cites a long list of other non-cashable gains which may be at risk.
The avoidance of costly legal disputes through watertight contracts and a non-adversarial relationship with contractors features highly. As does getting procurement projects right first time, such as eliminating faults from IT products during the design phase or ensuring the correct design for new schools without the need to renegotiate with contractors.
Brian Standen of 4Ps, the Treasury offshoot set up to help local authorities handle major procurement projects, indicates the value of these savings. ‘Our confidential peer gateway reviews produced evidence of significant savings – between 3% and 5% on average, against whole-life costs,’ Mr Standen claims. Continuing with our construction example, Mr Bishop says a procurement centre set up (by Hampshire CC) to manage local authority construction projects across the South East has now overseen projects worth £1bn.
So, if Mr Standen’s figures are accurate, that means the South East could have saved up to £50m of scarce local government funding from construction projects alone.
With such potential gains at stake, at a time when councils are assuming greater responsibility for costly services, such as social care, without an equivalent increase in grant funding, Mr Bishop questions whether local authorities can afford to take their focus away from non-cashable gains.
Of course, local government finance and procurement officers, not to mention elected members, are acutely conscious of potential non-cashable savings when they spend taxpayers’ cash.
So, it is unlikely that they will simply ignore the years of best practice to which Sir Simon Milton alludes. Certainly, CLG officials are adamant that the sector’s new savings targets will not sweep general value-for-money programmes aside across town halls until 2011.
But Ellie Greenwood, senior policy officer at the LGA, shares some of Mr Bishop’s concerns. Ms Greenwood claims that a bi-product of the Treasury’s short-to-medium term savings targets is that local government decision-makers ‘simply have to focus on more immediate and easily-proven savings’. Ms Greenwood is confident about councils’ ability to meet the Treasury’s demand for cashable savings, and adds that a timely reform of local government’s procurement support network could yet prevent a loss of focus on non-cashable efficiencies – the addition of the sector’s improvement agenda to the work of the new RIEPs.
As Mr Bishop says, efficiency has become so embedded in much of local government’s work over the past few years, that it is now seen as an inherent part of the improvement programme that ministers want RIEPs to promote. ‘Hopefully, the continuous search for efficiencies, including non-cashable savings, will be picked up through that improvement agenda. And certainly, the local government directors we have spoken to since the change to RIEPs see it that way,’ he explains.
David Pointon, chair of the Society of Procurement Officers in Local Government, concurs. He claims attitudes have changed in the post-Gershon climate and the continual search for value for money is now part of local government’s DNA.
‘Procurement officers now have partial responsibility for all major external spending programmes, which wasn’t always the case just five years ago. So, the knowledge gained from seeking large, non-cashable efficiencies before and throughout the Gershon programme should be embedded in most councils’ spending,’ Mr Pointon explains.
If Mr Pointon is right, there is cause for optimism. But it will be interesting to see which, if any, councils take their eye off their non-cashables over the next few years.
There was no better example of this than the highly-political, and still unresolved, debate over how to accurately reflect qualitative improvements – or declines, as occurred across the NHS in 2006 – in productivity across locally-delivered services, such as education and health. Such was the furore surrounding these subjective non-cashable efficiencies – and the exposure of declining NHS outputs – that the chancellor, Alistair Darling, steered clear of including them in local government’s efficiency requirements for the current Spending Review period. The realities of councils’ ever-tightening finances also contributed greatly to the chancellor’s focus on purely cashable gains.
Consequently, the £4.9bn in new savings that local authorities must make by 2011 must be cashable and auditable.
But was that a mistake? Many local government experts now believe so – and not because, as the sceptics claim, the inclusion of non-cashable efficiencies would have allowed town halls to falsely inflate their achievements through clever accounting.
Peter Bishop, former programme director at the new Regional Improvement and Efficiency Partnerships – formerly the Regional Centres of Excellence – says the reduced priority for non-cashable savings over the next three years could mean that senior officials will lose focus on substantial, money-saving mechanisms.
‘I’m sorry the concept of non-cashable savings has been dropped, because although they are difficult to justify, I think they do add real value to local authority business and make a big difference to an authority’s financial health,’ Mr Bishop told The MJ.
Mr Bishop claims political rows over the Office for National Statistics’ subjective productivity measurements drew attention away from other non-cashable savings which should be pursued by all councils.
In the construction sector, for example, town halls have made hundreds of millions of pounds in recent non-cashable savings that could be put at risk as attention turns to more easily-quantifiable gains for the 2008/11 period. One of the biggest construction issues that costs local authorities time and money, and often hinders the delivery of new buildings, is simply paying people on time. ‘If a construction firm... knows that a local authority will take months to pay for a project, the firm must factor that into its tender for the job, or it’ll go bust quite quickly,’ Mr Bishop says.
‘If you ask tenderers [sic] up front, they’ll often deny that. But the reality is that firms have got to keep their cashflow going somehow, or borrow money from the banks, which involves interest.
‘So they factor these considerations into their price. But, if the firm knows a local authority will pay up swiftly, you avoid delays, and there has to be a non-cashable benefit to that certainty. It’s difficult to quantify, because the authority doesn’t know how much it’s saving from what it would otherwise have been charged. But it is a saving.’
Mr Bishop cites a long list of other non-cashable gains which may be at risk.
The avoidance of costly legal disputes through watertight contracts and a non-adversarial relationship with contractors features highly. As does getting procurement projects right first time, such as eliminating faults from IT products during the design phase or ensuring the correct design for new schools without the need to renegotiate with contractors.
Brian Standen of 4Ps, the Treasury offshoot set up to help local authorities handle major procurement projects, indicates the value of these savings. ‘Our confidential peer gateway reviews produced evidence of significant savings – between 3% and 5% on average, against whole-life costs,’ Mr Standen claims. Continuing with our construction example, Mr Bishop says a procurement centre set up (by Hampshire CC) to manage local authority construction projects across the South East has now overseen projects worth £1bn.
So, if Mr Standen’s figures are accurate, that means the South East could have saved up to £50m of scarce local government funding from construction projects alone.
With such potential gains at stake, at a time when councils are assuming greater responsibility for costly services, such as social care, without an equivalent increase in grant funding, Mr Bishop questions whether local authorities can afford to take their focus away from non-cashable gains.
Of course, local government finance and procurement officers, not to mention elected members, are acutely conscious of potential non-cashable savings when they spend taxpayers’ cash.
So, it is unlikely that they will simply ignore the years of best practice to which Sir Simon Milton alludes. Certainly, CLG officials are adamant that the sector’s new savings targets will not sweep general value-for-money programmes aside across town halls until 2011.
But Ellie Greenwood, senior policy officer at the LGA, shares some of Mr Bishop’s concerns. Ms Greenwood claims that a bi-product of the Treasury’s short-to-medium term savings targets is that local government decision-makers ‘simply have to focus on more immediate and easily-proven savings’. Ms Greenwood is confident about councils’ ability to meet the Treasury’s demand for cashable savings, and adds that a timely reform of local government’s procurement support network could yet prevent a loss of focus on non-cashable efficiencies – the addition of the sector’s improvement agenda to the work of the new RIEPs.
As Mr Bishop says, efficiency has become so embedded in much of local government’s work over the past few years, that it is now seen as an inherent part of the improvement programme that ministers want RIEPs to promote. ‘Hopefully, the continuous search for efficiencies, including non-cashable savings, will be picked up through that improvement agenda. And certainly, the local government directors we have spoken to since the change to RIEPs see it that way,’ he explains.
David Pointon, chair of the Society of Procurement Officers in Local Government, concurs. He claims attitudes have changed in the post-Gershon climate and the continual search for value for money is now part of local government’s DNA.
‘Procurement officers now have partial responsibility for all major external spending programmes, which wasn’t always the case just five years ago. So, the knowledge gained from seeking large, non-cashable efficiencies before and throughout the Gershon programme should be embedded in most councils’ spending,’ Mr Pointon explains.
If Mr Pointon is right, there is cause for optimism. But it will be interesting to see which, if any, councils take their eye off their non-cashables over the next few years.
