How councils are addressing the financial challenge

In this short discussion video, Neil Davies, Chief Executive at Medway Council, talks to Paul Cleal and Andy Ford about the findings from our latest report ‘The (local) state we’re in’.

Almost 90% of council chief executives believe that in the next three years, one or more councils will get into serious financial difficulties. That shows real concern in the sector about the financial pressures they’re facing.

As councils look for new and innovative ways to deal with their financial challenge we hear about some of the ways Medway Council has sought to improve local public services while cutting cost. The Council’s ‘Better for Less’ programme, created to address both funding and demographic challenges, has generated significant benefits. The programme looks at every service across the council and proposes to dramatically change the way the organisation works in order to improve outcomes for local residents, protect vital front-line services and find cost savings.

The (local) state we’re in highlighted concern in the sector about financial failure. Andy Ford, PwC, discusses some of the risks for councils and how these pressures could shape the future of the sector. It will be crucial for local authorities to focus on their public service offer, defining what the council is there to do in the future. There will be greater focus on managing and reducing demand, and making wider use of partnerships for service delivery.

 

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Our latest survey, The local state we’re in, reports that 90% of local councils are confident that they can achieve the savings required by the spending review or the year ending April 2102. Indeed, a third of them are saying they could go further than that and make greater savings. There is also great confidence that the future savings targets will also be met. Neil, in Medway what have you been doing to meet these challenges?

Neil: Well Medway has existed as a Unitary for about 12 years and over that term it’s never really enjoyed generous funding and that’s why, I guess, we’ve had some of the lowest council tax levels in the country. The cumulative effect of the current CSR presents Medway with a £50m challenge, and that includes demographic increases too. Now, inevitably, confronted by that scale of challenge one has to explore a range of measures to add both short term and long term impact. So, we’ve looked at cost reduction efficiency programmes, income generation, shared services, sweating assets more; better procurements etc. There is also, as one would expect, a real focus on back office support services. But certainly for budget setting for the current financial year, it has been necessary in Medway to focus on some of those front line services, and if I can give you just one example. We’ve looked very closely at our Adult Social Care and whist the internal provision is very good and rated ‘excellent’ by external inspectors, the unit costs are very high. So we’re exploring, currently, an opportunity to either outsource or indeed an outsource and partner, where the private sector providers still provide the same level of services, but be more efficient. We’ve really embarked on an exciting change management programme and we’re calling that Better for Less. And essentially, we’ll look at every service of the council over four phases - each one nine months - so over a three year term, we propose to dramatically change the way the Council works and we are seeing very significant benefits arising from that, cumulative benefits of around £14m. And of course were they not to arrive, it’s highly likely that would be an impact on frontline services into terms of service cuts.

Indeed, well, I think that’s a good example of how local authorities are meeting the challenge, Andy. Interestingly though, the survey also says that 90% of respondents believe that one or more councils are going to get into serious financial difficulties in the next three years. So, what’s your perspective on that?

Andy: Yes, I think that’s quite a serious risk. If we look at what the next spending review might present for local authorities I think there is a general consensus now emerging that it’s going to be as tough, if not tougher, than the current spending review period, that said, I think it’s unlikely we will have what I would describe as a “Lehman’s’ moment”. I don’t think we will wake up in the morning and heard on the radio that a council has gone best I think it’s more likely that pressure will build up n the system and if expression in terms of service failure or some form of operational failure. It might be an inspectorate report. It might be local public reaction. It might be politicians just feeling that it‘s gone beyond the bounds of acceptability. So that’s how I see that playing out and I think a lot of councils are already alert to that, and the report did flag that up as well. And I think councils are really beginning to build a set of responses that, in addition to actions already being taken in Medway and other councils. So, I think what we’ll see is a lot more focus around what I would describe as a public service offer - what are councils there to do in the future? And redefining personal responsibility and community responsibility. I think there will also be a focus around demand management, councils looking to intervene earlier, particularly round prevention to basically limit the demand build up in the system that might impact upon them later on. And I suspect also, that we will see a lot more of councils looking to engage in a wider range of new forms of service delivery and partnerships to see them through the next period.

It would be interesting, Neil, if you feel that’s how things will go on Medway?

Neil: I would agree entirely. Just to give a few examples again that we’re exploring at the moment. Special education need – very costly out of area placements – we’re looking to actually create and invest in that provision in Medway, and possibly doing that with neighbouring authorities to create that facility to avoid the costly out of area placement and indeed if there is a spare capacity there to sell some of those services to neighbouring authorities. Category management presents a really exciting opportunity to Medway so we want to analyse our spend, our third party spend in excess of £250m to manage that market very, very carefully; look at opportunities to consolidate spend, to actually rationalise our suppliers, to challenge that supply more closely in terms of the prices they’re offering, through the tendering process, and to achieve real efficiencies. You referred to demand management. I think the sophisticated way, going forward, has been habitually we focus on cost reduction and efficiencies but a supplier process almost. If we look at the demand for our services currently, and engage in a different form of conversation with our service users to change their expectations of our services and indeed in doing so we either work upstream a little bit more – with a prevention agenda and preventative opportunities. And indeed, for example, in the context of Adult Social Care again, using that information once across all the councils and using it very sensibly, doing a standardised form of assessment, ensuring that our social care staff have the necessary skills to make assessments very quickly and appropriately and, of course, thinking about the exit arrangements so that older people services users, exit our services with dignity. I think that’s the way forward in terms of opportunities.

Yes, so I think it’s fair to say, in summary then, that whilst perhaps we read in the media more about financial pressures and meeting those demographic and financial challenges through job cuts and that sort of thing, really we’re talking about a much richer set of responses. And we’ve heard a lot about those today haven’t we? In terms of managing demand and expectation for services as well as the cost of delivery, finding new and imaginative ways of delivery in partnership and being a smaller and agile organisations. It’s fascinating. Thanks Neil, thanks Andy, for your contributions.

Thanks very much for watching this. If you’d like to learn more about our survey – The Local State We’re In – then please download it from the PwC.com website.