The coalition government last month announced £6.2bn in cuts to public spending to start reining in the huge fiscal deficit. It is clear that more cuts will follow, with further departmental reviews to take place in the autumn. With some commentators expecting the initial cuts to equate to 50,000 job losses, this will be the biggest programme of change the public sector has faced in decades.
It has been such a long time since the public sector has had to undertake a big cost reduction exercise that old hands with experience of making cuts without compromising service quality may be hard to find.
Interim executives are the UK’s most experienced group of change managers and efficiency experts. In our recent survey of nearly 1,500 interim managers, they gave their views on how these cuts can be achieved without jeopardising quality. Their proposals challenge the approach set out by ministers.
Because interims are appointed on a contract basis to push forward organisational change or to introduce cost-cutting programmes, they have an unusually broad experience of dealing with exactly the issues the public sector needs to grapple with. Having collectively run efficiency programmes across thousands of public and private sector organisations, interims are definitely a constituency worth listening to.
The top method of cutting spending without jeopardising quality identified by interims was to step up outsourcing of public sector work to the private sector; 30% identified this as the top priority. Outsourcing to the private sector may be anathema to the trade unions, but it is widely recognised that a well-executed outsourcing programme really can deliver streamlined costs, while smart contractual drafting can guarantee service delivery.
Outsourcers’ share prices took a hit after the government announced it would delay, stop and renegotiate existing contracts and projects to find £1.7bn in savings. But as the government looks to reduce costs elsewhere, outsourcers are likely to see a wave of new business. New agreements cannot be made overnight so they are not likely to figure in the first wave of changes, but they can deliver significant savings over the five-year period of parliament.
The long-standing debate on targets was reignited during the election with calls to scrap them altogether because public sector workers play the system to manipulate results. Interims actually identified more or tougher targets as the second most effective measure to cut costs. One in five said more targets were important, while fewer than one in 10 said that abolishing targets completely would work – the lowest ranking result. In the private sector, the idea of scrapping targets would be seen as blue-sky thinking gone mad.
Technology and relocation
Cost overruns on high-profile IT systems like ID cards have dampened government’s appetite for the use of technology. Savings announced include £95m through cuts to IT spending. But interims disagree, ranking investment in IT as the third most important measure. One-fifth of those we talked to recognised that well-implemented IT projects can generate big reductions in staffing costs.
The Smith Review, published alongside the 2010 Budget, suggested relocating 15,000 Whitehall staff from the South East in the next five years to reduce costs. But only one in 10 interims thought this should be a priority because it can take so long to see the benefit.
Cutting the use of consultants and other contract workers has also been widely touted, with a freeze announced on new work with management consultants. However, most people recognise that in a modern economy it is a rational decision for any organisation to use external contractors and consultants who can bring the required skills to a project. When there is a risk of cost overruns, interims can be a cost-effective way of managing consultants and ensuring they provide value for money to the taxpayer.
The coalition government has started the process of deficit reduction. Now it needs to make sure that service standards don’t fall in line with budgets.
Doug Baird, managing director, Interim Partners