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November 2018
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Can Political Leaders Deliver On Public Sector Cuts?

Hot on the heels of Audit Scotland’s timely publication on the need to improve public sector efficiency comes the call for written evidence from the Scottish Parliament Finance Committee on what preparations are required by the public sector to deliver efficient public services during a time of tightening public expenditure. The evidence period extends to the end of March but the key themes are not hard to discern.

There is now a consensus across politicians and senior public sector leaders that a radical response to the new economic reality is required. As Audit Scotland put it -the scale of the financial challenges facing the Scottish public sector means that a new approach is needed that fundamentally reviews services and priorities.” The general acceptance that major change is required provides a real opportunity for recreating a public sector focussed on priorities and delivering high quality services. As they say, the first step in dealing with any addiction is to accept you have a problem.

So what should the response to these challenges be? The delivery of anywhere between 7% and 13% real cuts in public spending (based on Scottish Government Department Estimates) over the next few years requires radical change.

Firstly, there needs to be an acceptance that some spending commitments are unaffordable and require, at best, to be delayed until better economic times. A political consensus is also required regarding the priorities and outcomes which should be funded and an acknowledgement that channelling money into these areas means even greater savings are required in non-priority ones. In order to inform the difficult decisions required between competing priorities, it is vital that there is accurate costing and performance information. This needs to be brought together in effective, up to date management accounting reporting which links activities with their respective costs and outcomes. Audit Scotland has consistently identified limitations in the information public sector bodies use to manage their finances and performance. This flaw must be rectified.

A whole system approach to looking for savings is required. So, for example, the connection between policing resources, the number of prosecutions, court availability and prison capacity needs to be considered as a whole. Without a full understanding of these inter-dependencies, driving savings in one spending area may just lead to more unavoidable demand for public spending in another area.

Reducing the demands for public sector services is also essential to reducing costs. This means more innovative approaches and interventions are required at an earlier stage to reduce the demand for services such as health and justice.

A political drive is also needed to force through collaboration and shared services. It is clear that some of the current mergers of institutions and organisations are being driven by financial or estates reasons. These could be in the best interests of users but these motivations will not necessarily lead to the optimal service delivery structures. It is widely accepted we have too many public sector bodies in Scotland and with 32 local authorities 14 health boards and 8 police forces it is hard to argue that geographically services are not unduly fragmented. What is needed is an informed but politically driven initiative to simplify the public sector landscape and a removal of barriers to more innovative ways of working.

With around 52% of all public sector expenditure in Scotland spend on staff costs there will inevitably have to be significant reductions in staff costs if the savings proposed are to be delivered. Tackling the high public sector earners will bring some savings but much more is required including the comprehensive reform of public sector final salary pension schemes. Again, there is an acceptance by most commentators that these are not affordable going forward but they also question if there is a lack of will to do more than tinker with the issue.

Significant redundancy programmes may save money for one side of the public sector but adding to the jobless total increases the spend on benefits which will in turn lead to further squeezes on other discretionary spending. To deliver the savings without major job losses requires not only an acceptance of a period of little or no wage increases but also an imaginative and flexible approach to employment. Despite the impact of the recession on the private sector the unemployment levels have not reached the levels of previous down-turns because private sector employers and employees have accepted changes in working practices to protect jobs. So, shorter working weeks, periods of unpaid leave, and job-sharing are now common-place in the private sector as a response to recession. The public sector needs to follow this example.

The challenges and opportunities are certainly there to overhaul public sector service provision in Scotland and deliver the substantial savings required. But change will require leadership from politicians and senior public servants. The challenge to our politicians must be whether they have the foresight and vision to meet these challenges when faced with forthcoming elections.

Contact Nick Bennett: nick.bennett@scott-moncrieff.com or 0131 473 3500

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