Why does a Council cut grants to the disabled or closing a loved local facility?

[trousers]

Why does a Council end up cutting grants to the disabled or closing a loved local facility?

 

By johnredwood | Published: February 14, 2012

 

The public sector, as we have seen, likes to assume that all last year’s current public spending is a given and should be repeated next year. If you want something extra, as the public sector always does, when budgets are tight, you therefore have to cut something.

 

Council officials live in hope that their Councillors will raise taxes or car park charges or successfully lobby for higher government grants. So they pile on the nice to haves and the unavoidables extras in their budget papers. Councillors are often forced to say in return that they cannot find all the extra money “required”, and ask for some cuts instead.

 

The game playing officers will then often choose the most politically damaging or the least popular cuts to try to persuade the Councillors that they should look again at getting more money in from some source or other.

 

The same thing happens in some government departments. Officials reluctantly put forward cuts when they just want their Minister to go off and have a battle royal with the Treasury for more money. Why not, they reason, put forward a clumsy cut. The Minister may spot it and come to see he needs more money to avoid it. If he doesn’t, he may lose the cut in the execution. This may force the government to spend more money after a bruising encounter with Parliament and the media. Either way the department “wins”. It requires a strong and confident Minister to reject the budget paper, and say it is based on false choices.

 

I never recall as a Councillor or as a Minister receiving a budget paper which recommended cutting the administrative overhead unless I had insisted on it. I was never voluntarily offered big savings on paper, pens, administrative staff, pensions, early retirements, absentee rates, volume of reports, postage, staff travel , conferences and all the rest. On the contrary. I remember letters sent out in government urging Ministers to do more overseas trips and conferences. Some of those were good, but they were always popular with the officials. They wanted to make sure their department kept up its totals and spent a full budget.

 

In a competitive private sector company there is constant review of overheads. Management is always challenging itself to do more for less, or to do it better as well as cheaper. There is a common interest in buying better, in simplifying systems, in using talent better. In government there is often a common interest in maximising spend for no good reason other than that is what government does. Some politicians even send out claims that service X is better than service Y because more is spent on it, with no attempt to question how well the money is spent or what the users of the service think of its delivery.

 

http://johnredwoodsdiary.com/2012/02/14/why-does-a-council-end-up-cutting-grants-to-the-disabled-or-closing-a-loved-local-facility/

[Gingeletiss]

For the answer, see Poopey or Rangers, or Vodaphone etc etc etc

[badgerx16]

Exactly what I would expect the vulcan to write, and what his intended audience would expect to read.

[pap]

There's an element of truth to a lot of this. But then, he's not really telling the whole story - central government are just as, if not more profligate than local departments. If you want a recent example, check out the £500million project that has just been given to Accenture, an Indian outsourcing firm, to develop the system that'll underpin the benefits overhaul.

 

That's half a billion quid of your money given to a company with a track record of failure. Most of the money will go Accenture shareholders, and it is likely that the costs will overrun and we still won't have the system in place that is supposedly required.

[buctootim]

If a service is delivered in-house by a local council or NHS you have three basic costs - staff, management and equipment / buildings - just as in the private sector.

 

In order to have a chance of winning a competitive tender private companies need to undercut the existing inhouse council / NHS provider and all the other private bidders. In an open process this often means the winning tender price will be say 15-20% below the inhouse service. The public sector client now needs to employ contracts staff to manage the contract, people they never needed before. The private provider also needs to employ additional staff to manage the relationship with the client. By contracting out you are immediately loading on around 10-15% in extra cost (c5-7% on each side). To run this new service the private company needs money to take over the clients assets and provide working capital - they might be able to borrow this at 6%. Finally the private sector provider also needs to achieve a profit, say 10%, of the contract costs.

 

Add it all together and the successful new private sector service provider needs to achieve cost savings of c46% compared with the inhouse provider to make the contract worthwhile. How do they achieve this? Well as a rule they dont. In the beginning they sack a lot of staff, bring in cheap unskilled casuals, cut back on cleaning and maintenance and service quality dives. The provider disputes these for as long as they can (whilst benefitting from the savings). So the client issues warnings and penalties. Eventually the provider says they cant deliver the service for the price promised, its uneconomic and seeks to renegotiate - threatening to walk away (and causing chaos) if no new price is agreed.

 

There are times when contracting out is the right thing to doc - for cost, for expertise or for service quality. Too often however the driver is political and none of the promised benefits are realised

Edited 14 February, 2012 by buctootim

[pap]

If a service is delivered in-house by a local council or NHS you have three basic costs - staff, management and equipment / buildings - just as in the private sector.

 

In order to have a chance of winning a competitive tender private companies need to undercut the existing inhouse council / NHS provider and all the other private bidders. In an open process this often means the winning tender price will be say 15-20% below the inhouse service. The public sector client now needs to employ contracts staff to manage the contract, people they never needed before. The private provider also needs to employ additional staff to manage the relationship with the client. By contracting out you are immediately loading on around 10-15% in extra cost (c5-7% on each side). To run this new service the private company needs money to take over the clients assets and provide working capital - they might be able to borrow this at 6%. Finally the private sector provider also needs to achieve a profit, say 10%, of the contract costs.

 

Add it all together and the successful new private sector service provider needs to achieve cost savings of c46% compared with the inhouse provider to make the contract worthwhile. How do they achieve this? Well as a rule they dont. In the beginning they sack a lot of staff, bring in cheap unskilled casuals, cut back on cleaning and maintenance and service quality dives. The provider disputes these for as long as they can (whilst benefitting from the savings). So the client issues warnings and penalties. Eventually the provider says they cant deliver the service for the price promised, its uneconomic and seeks to renegotiate - threatening to walk away (and causing chaos) if no new price is agreed.

 

There are times when contracting out is the right thing to doc - for cost, for expertise or for service quality. Too often however the driver is political and none of the promised benefits are realised

 

So in other words, who are we kidding?

 

I've worked for Government loads of times, and the nature of my relationship with them changed each time. I have been a direct employee of the government, done ad-hoc work through design agencies and have worked on large projects through the likes of Capita, etc.

 

In my opinion, the public gets the best value for money out of direct hires. The web design agency work went fine, but there were a lot of hoops to jump through. The Capita stuff was a bloody disaster from start to finish.

 

Really, all that's happening here is a bit of financial prestidigitation. Departments are told to cut costs, and their first port of call is normally the permanent headcount, precisely because it is a direct cost and wiping those off the books looks great. Contractors and the like are retained because theoretically, they can be shipped off at any time and are therefore variable costs. In practice, the same amount (if not more) work needs to be done, so what actually happens is that permanent staff get booted to make way for the supposedly "easy to get rid of" service provider.

 

The net result is a complete waste of money from the taxpayer's perspective, and the permanent loss of huge tracts of knowledge to the private sector. We also lose the concept of long-term ownership.

 

Weird thing is, with the likes of Capita, Accenture et al - we end up losing even more money - as all of these firms have legal departments that'll keep the government tied up in knots, all at the expense of the taxpayer.

 

Would actually be more cost-effective to bring the vast majority of services in-house and pay people a decent wage.

[bridge too far]

Excellent summaries of the true costs of outsourcing Buctootim and Pap.

 

Thankyou

[Jonnyboy]

God save us from the tories hell bent on reliving past recessions.