After the downturn

Let me draw your attention to a joint paper by CIPFA and SOLACE on the Pre Budget Report – a paper that tries to start the discussion on how Local Authorities will have to start planning for public spending cuts. A bit like the PBR, it neither identifies specific areas for change, nor the levels of cuts, but discusses the strategies that LA’s will have to adopt over the coming years.

The paper focuses on two scenarios, one envisaging a 7.5% cut in real terms over 2011-14, the other 15%. Whilst the 7.5% cut is possible, I believe that the 15% cut scenario is much more likely, and I believe it may even be more than 15% – particularly as I believe the ability for LA’s to increase Council Tax will be substantially reduced over the same period.

I won’t repeat the contents of the paper here, other than to say that I strongly agree with the need to re-think the delivery of services, and the paper’s three options of:

1. redefining the relationship between the state and the individual
2. a significant de-layering of the public sector
3. a major initiative to maximise economies by much more effective collaboration between public bodies

After the ‘ring fencing’ of some key services, I believe that many LA’s will have no choice but to terminate or almost remove some other services (e.g. the library service is one area that could be under threat in some areas). However, de-layering of the public sector, combined with more effective collaboration between public bodies, in my mind, potentially gives the greatest potential for savings.

Perhaps severe cutbacks in funding will force organisations into sharing services, and the government into more ‘vertical integration’ of services (e.g. between national, regional and local bodies). This will inevitably lead to more out-sourcing, but if the public sector was to think more in an out-of-the-box way, perhaps we will see the more innovative use of out-sourcing to commercial operations where true synergy is possible – e.g. local supermarket chains, or even banks (or can some of them be already regarded as part of the public sector?).

Congratulations to CIPFA and Solace on their paper. Hopefully it will encourage the public sector to discuss the major shifts in service delivery that the current crisis in public sector finance demands.