It's time to look beyond the back office in the search for savings through sharing, says David Rees.
Local government has found itself at the forefront of current public sector spending cuts, leading to a renewed focus on sharing back office functions as the best way to make these cuts and protect the front line. However, experience shows that the promise of cost savings and other benefits from traditional approaches to shared services are not easy. Different thinking is needed; thinking that builds on the lessons of the past.
The starting point must be a willingness to look beyond the back office. As a recent report from the New Local Government Network found, these functions only account for approximately 8.9% of total council expenditure. Even if back office costs were significantly reduced, local government would not be able to fully respond to current financial challenges. This is not cost reduction – it is tampering.
Local government needs to look at sharing a broader range of services. This will require different responses depending on the authority, but critically all will need to think more radically and make changes to the ways front line services, such as waste collection, adult social care and children's services are delivered.
There are four key questions local authorities need to answer if they are to succeed:
What should you share?
Social care represents, by far, the biggest proportion of spending for top/single tier authorities, at on average 57% of total controllable revenue expenditure. Despite this, only 15% of these councils surveyed by NLGN were sharing these services. However, the fact that even a small minority of councils have gone down this route demonstrates that it can be done. For example, the Association of Greater Manchester Authorities (AGMA) plans to collaborate across all service areas including integrating children's services and adult social care and aims to make £116m savings over the next three years through shared services.
How should you share?
Many approaches and models exist including sharing contracts, establishing joint ventures or special purpose vehicles. The most appropriate will depend on a number of criteria including size and type of council, its financial situation and the type of service being shared. Although a variety of models are being used, there is a growing ambition to establish arm's length entities to deliver front line services.
A good example is Essex Cares, an independent trading company established by Essex County Council and its partners to provide adult social care services. In its first nine months it has proved more cost effective than its predecessor and service levels have improved - 66% of people receiving its 'reablement service' needed less ongoing support.
Who should you share with?
Sharing does not mean every partner needs to make the same contribution or receive identical benefits. A focus on what is needed to secure the desired outcome rather than demanding equal contributions can facilitate a more open dialogue.
A good example is the South London Waste Partnership (SLWP) where the London boroughs of Sutton, Kingston, Merton and Croydon - authorities of different size and demand - work together in different ways to reduce costs (making gross savings of £3.5m to date) and improve services.
This approach need not be restricted to local government. There are examples in Herefordshire of geographic clusters where the local authority, primary care trust and emergency services are coming together and sharing field management or contact centre services. The resulting single point of contact drives efficiencies and transforms service delivery.
When to share?
Getting several sovereign bodies to act under collective control requires determination and an understanding that, though quick wins can be achieved, the main benefits will come later. The key to success is to build a portfolio of sharing opportunities with short, medium and longer term payback.
The Tri-Borough arrangements involving Hammersmith & Fulham, Westminster city council and Kensington & Chelsea will see estimated savings of £2.4m in 2011/12 through proposals for shared approaches to education, adult social care and children's services. This will rise to £20.4m by 2014/15. Within this arrangement partners are realistic about what and when they contribute.
It is evident that local government will have to undergo dramatic changes to meet financial pressures. This will require effort, strong leadership and a change in mindset. They will need to ensure that shared services are sustainable over the long term and not just a short term reaction to current pressures and go beyond the back office solutions.
This means a focus on desired results, a full consideration of the options and an acceptance that individual returns may be unequal in the immediate future. Then, and only then, will the true gains from shared services be achieved.
David Rees is head of local government services at PA Consulting Group.
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