Spending cuts mean smaller and smarter government

Malcolm Prowle says the Welsh Government should downsize as a response to today’s Comprehensive Spending Review

Much of the debate around devolution has been too focussed on high level political principles and statements of national pride to the detriment of the detail of how to make the National Assembly work effectively for Wales.

Prior to the 1997 referendum, many people (including myself) misunderstood exactly what was to happen. Basically we anticipated the National Assembly would have looked something like a large county council, perhaps similar to the former Greater London Council (which after all had a population well in excess of Wales). This body would have had large scale devolved powers from Whitehall and would have been relatively small in size. It would have had: elected members, a chief executive and a professional management team.

Instead, we got elaborate governmental arrangements which in many ways, and rather ironically, broadly replicate the UK government system. It has grand constitutional arrangements, a separation of executive from legislature,  a presiding officer, fifteen Ministers and Deputy Ministers (out of a total of 60 AMs), a generous members expenses system. It also has a large supporting bureaucracy which is modelled on, and still part of, the UK Home Civil Service.

As we head towards a time of austerity, signalled by today’s Comprehensive Spending Review, we should examine alternative models more suited to our straitened financial circumstances.

The over-arching political and economic issue is the economic and fiscal challenges facing the UK. These are unprecedented and enormous. The size of the UK’s public budget deficit and the associated borrowing requirement (£149 billion in 2010/11) will take the national debt from its current level of £816 billion to a projected figure of £1.4 trillion in 2014. This equates to £24,000 per head of population. The UK coalition government is implementing a severe austerity policy which involves:

  • A reduction in UK public expenditure of £6 billion in 2010-11.
  • An emergency budget last May which announced tax increases, reductions to welfare benefits and provided an outline of the magnitude of public expenditure reductions that would be implemented over the coming four years.
  • The Comprehensive Spending Review, which will be announced today, will provide more detail on where the expenditure reductions will take place. However, the emergency budget indicated that after protection of certain departments such as health and international aid, the average cuts in departmental spending, over a four year period,  are expected to be an average of 25 per cent.

It seems reasonable to assume that the Assembly’s block grant will suffer a reduction of similar magnitude over the four years. This is unprecedented in modern times. The vast majority of politicians, civil servants and managers (within and outwith Wales) have been brought up in an environment of continuous growth in resources. This has now ceased.

Furthermore, there are other, longer-term problems that will not be resolved in just a few years. For instance, last year the Economist published IMF projections which suggested that the costs of the recent financial and economic crisis will be dwarfed by the costs of the ageing population in the UK and most other countries

In this context we need to consider how we can obtain more effective arrangements for the government of Wales. In my view there are four issues to consider.

Firstly there seems an over-emphasis in Wales on unsustainable ideological principles rather than what works best. While ideology is a key aspect of politics, for example equality versus freedom, there are situations where it seems the positions held in Wales are more to do with stubbornness and maintaining vested interests rather than being true ideological issues. To take just two examples:

  • A view that outsourcing the delivery of public services to the private sector is undesirable in principle. Most people would see this as a managerial rather than political issue, concerned with identifying the best approach to service delivery. In some case outsourcing might be best while in other cases it might not.
  • It sometimes seems that the Welsh Government adopts policies which are opposite to or different from those implemented in England almost as a matter of principle rather than on the basis of would works best. Examples include the failure to use the PFI effectively, and the absence of patient’s choice in the NHS. This is not to suggest that England is always correct in what they do only that sometimes it might be.

Secondly the structures for the delivery of public services in Wales are inappropriate. The Assembly inherited a structure of local government established in the 1990s comprising 22 relatively small local authorities, certainly when compared with other parts of the UK. This has remained unchanged.

In other areas there has been substantial change with the NHS Wales having gone through several reorganisations during the lifetime of the Assembly. Also, a number of Quangos such as the Welsh Development Agency and the Welsh Tourist Board were abolished and their functions absorbed into the Welsh Government.

Unfortunately there exist major weaknesses in the current arrangements including:

  • The small size of Welsh local authorities and their inability to deliver certain services effectively and efficiently.
  • A lack of co-terminosity between the various public bodies in Wales including local authorities, health boards, and police authorities. This is a major inhibitor of effective strategic planning.
  • Limited success of multi-agency partnership arrangements in coordinating the delivery of services.
  • A lack of clarity about economic development in Wales and the respective roles of the Welsh Government and local authorities.

One option to consider to resolve these problems would be the creation of a smaller number of larger local authorities which would also have direct responsibility for the management of health services.

The third issue is an emphasis on greater localism. The former UK foreign secretary, Robin Cook stated that the UK was the most centralised country in Europe and the Economist recently suggested that the UK is the second most centralised country in the developed world. UK governments habitually adopt a strongly centralised command and control approaches to the delivery of public services. Such central planning developed when it was fighting in World War II was retained in peacetime. Traumatised by defeat or collaboration, other European countries remade their states from first principles, often pushing power away from the centre. In the UK victory justified and strengthened Westminster and Whitehall.

Unfortunately, this centralisation is replicated in Wales. The Welsh Government operates a regime which is, arguably, even more centralised than that applied in England. Its bureaucracy has grown enormously over the years and as a consequence is stifling local initiative and focus. In some cases, central decision making is leading to wrong decisions being made at local level.

Such centralised command and control models just do not  work. The UK had a budget deficit of £149 billion last year and there are still high levels of dissatisfaction with public services. The new UK coalition government seems to have realised this and is pushing forward strongly on greater localism and providing greater discretion at regional and local level. Examples include: abolition of Government offices and Quangos, and the Audit Commission, together with reductions in the size of Whitehall departments. If the UK government sees the need to devolve power to the local level, the Welsh Government should do the same in terms of a much smaller bureaucracy and greater devolution of decision to the local level and.

My fourth issue is a growing consensus that  the existing civil service model needs reform. Many commentators have questioned whether the civil service is really up to the challenges now faced by the UK. Such views have recently been echoed by Francis Maude the Cabinet Office Minister with responsibilities in this area. Among the points made by him were that the civil service must:

  • Play a central part in deficit reduction, that is be smaller in size.
  • Provide better value for money and better service delivery for the taxpayer.
  • Build its skills and be agile to wrestle with complex challenges it faces.
  • Modernise itself as an employer.
  • Be clear on the limits of its role and innovate to enable others to deliver.
  • Be transparent and responsive.

These points will resonate with many in Wales who believe that similar arguments can be applied to the Welsh civil service. Reflecting this, some specific reforms which might be considered in Wales include having:

  • A much smaller Assembly civil service
  • An improved skill base with a stronger role for service professionals and technical experts.
  • A focus on developing effective public policy rather than protecting Ministerial reputations.
  • Greater transparency about decision making.
  • Enhanced innovation and reduced risk aversion.
  • Enhanced support to, as opposed to control of, local authorities and other agencies.

A failure to achieve such am overall transformation will, I fear, only lead to even greater apathy or hostility to the Assembly, irrespective of whether it takes on any additional powers.

Malcolm Prowle lives in Wales and is Professor of Business Performance at Nottingham Business School and a visiting professor at the Open University Business School.

6 thoughts on “Spending cuts mean smaller and smarter government

  1. The effectiveness of the Welsh Assembly relies upon appropriate funding.With Holtham being ignored and further massive reductions coming, the ability of the Assembly to plan its way out of this crisis is significantly reduced.

    Also, ‘political principles’ which you dismiss in your opening sentence are the backbone of any progressive Government. Without them, politics is just bland, sanitised management-speak.

    The Westminster Coalition Government would love for everyone to forget about ‘equality’ or the ‘value’ of public services – especially when they are about to take an axe to them.

    The Chancellors’ budget is as ideological as it comes. The challenge is not about ‘trimming’ the public sector and finding new ‘efficiencies’ – it needs to be about reducing the deficit in a managemable way and not too quickly. Progressive thinkers and politicians must oppose these cuts in their current form and argue for a sensible rebalancing of the economy.

  2. There are some very worthwhile proposals here and many are seriously being considered and implemented within the Welsh public sector already.

    However, Malcolm in his thoughtful article again strays onto a right wing political agenda that he obviously feels is something that Wales should accept. I disaggree.
    The very easisest option for dealing with poor public service is to talk of outsourcing or privatisation, but the better option in terms of democratic control of delivery is a fransformed service, based on best practice found in both the public and private sector, but delivered in-house with far more democratic control. I simply do not acceot the argument that just because an in-house service is failing, then it must be outsourced to succeed.

    In terms of 22 Council’s he is spot on. Let’s go down to say 7 regional Authorities based on the Health boards, but manage the change over 5 years in order to minimise disruption and changeover costs. This is a done deal already with both Plaid and Labour supporting it.

    If you want to be radical, why not talk about an all Wales Public Service, combining all our public sector services in order to minimise administration and maximise best practice. The cuts are huge so lets think big in terms of transfroming our public sector. Let’s aim for efficiency, the very best service delivery and no tolerance of sloppy services, in house.

  3. You make a compelling case for continuing devolution – subsidiarity to the lowest appropriate level of administration.

    Your point about the Welsh assembly government seemingly attempting to model itself on the failed Westminster model is also well made! Fewer civil servants, with terms of reference that are framed in the C21st rather than the C18th would be a start!

    There is one aspect of your piece that I have to take issue with, however – PFI!

    I am unaware of any instances in England where this has been a great success! It started as a piece of creative accounting to keep capital projects off the balance sheet, but ended up failing to do that, and at the same time committing the government to very expensive future contracts. It never made sense to me, as Governments can borrow at lower rates than public companies, and do not have to build in a guaranteed profit margin to their shareholders. so I think we did well to avoid that particular disaster.

    Apart from that, you do present a potential model that certainly needs consideration at the highest level.

  4. I will try and respond to the interesting comments made by a number of people. I am grateful to them for commenting on this item and I will certainly think about what they have said.

    I guess I am open minded about the elected executive/elected mayor model. I think it has merits and has worked well in some English local authorities

    I agree that additional funding would have been useful in working our way out of a crisis. Unfortunately, things have been left too late. Many public services (e.g. schools, health) have had massive investment over the last decade but there is strong evidence that the money has not been used well. NHS productivity has declined and schools have shown little improvement for the additional money spent. In future, I think we have to link additional funding to organisational and system reform but unfortunately we have no idea when any such additional funding will appear.

    I am not against ideology but I do believe (and I am not alone in this) that we need to balance ideological principles with competence and I think we need a bit more competence. For example, I am not convinced that exposing existing services (whether provided internally or externally) to market competition is a bad thing. I see it as a managerial means for deciding how to deliver services in the most effective and efficient manner. I distinguish this from forced outsourcing or privatisation which is clearly ideologically driven.

    I would agree that the budget deficit needs to be managed in such a way as to avoid damaging the underlying economy and that means a slower pace of cuts

    I have to emphasise that I am not right wing – whatever that term means today. I am in favour of market competition (as was Adam Smith who was, of course, admired by Marx) and I am hostile to monopolies. I am not in favour of blindly copying England but neither am I in favour of rejecting policies initiated in England as a matter of principle, which I think we sometimes do.

    As noted above, I draw a distinction between the use of competition and the use of forced outsourcing or privatisation. However, there are often good economic reasons for outsourcing as consequence of economies of scale. Furthermore, there have been many studies which have shown that exposing in-house services to competition leads to the in-house units finding efficiency savings which they may not otherwise have done. We need to be cautious of provider self-interest in the delivery of public services.

    I am happy to think about transforming public services but equally I am not hostile to the idea of the private sector delivering public services where that is the most appropriate way. Let us not forget that the public and private sectors of our economy are inextricably interlinked. The private sector is a huge supplier of goods and services to large parts of our public sector and the direct delivery of public services is an extension of this.

    A year ago I did some research and published a paper on PFI which suggested that on the basis of available evidence the jury is out of PFI. I am open minded on this but I have to say that through the PFI a large amount of public infrastructure was created which might otherwise not have happened because of an absence of public funding. Also, anecdotally, I was in a PFI hospital in England last week which seemed to be operating pretty well and with no serious complaints from staff and patients. There is some evidence (from IPPR0 that PFI can give better value for money but that it is worse in some sectors than others. Clearly there have been some very badly negotiated PFI deals but also, I think, some good ones. Overall I suggest that we should not take an ideological position on PFI but focus on using PFI where no other funding sources are available and where

  5. Malcolm,
    As someone who works in the public sector and has done so for 20 years, I have worked often with the private sector and continue to do so. However, this is predominately Contractors who can carry out work designed and managed in house. It is the best solution for what I do (Civil Engineer) and with the skills that we have. However, if for instance we outsourced all our design, then it would actually owrk out no cheaper, due to the loss of direct control over the works and a huge loss in demonratic control. I am fortunate enought o work in a very efficient office, largley based on a Consultant’s structure. This allows us to match the quality and responsiveness as well as cost of a private alternative, but also with the faster and more consistent response to the internal Client’s needs.
    I am never going to defend poor in house service but with a few exceptions, I genuinely believe that in-house is better for public services, when the expertise and quality of service delivery is a constant priority. I will admit that this is sadly not always the case.

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