A partial hiatus

Chubby Cat's blogs will be a little less frequent for a while and will be focused away from the world of local government finance while his possibly fictitious alter ego Alan Finch is on secondment to the Local Government Association.    Thanks to my many readers from around the world for bearing with me.

Stockton: lessons for the UK?

The City of Stockton, California, lies about eighty miles west of San Francisco.  One of the largest municipalities in the state,  its population of just under 300,000 is about the same size as a typical London Borough.  

Other parallels exist.  The size of Stockton’s debts is about $1bn, and like most UK authorities, the lion’s share of this is pension liabilities.  The budget deficit was about $26m last July, and at that stage $90m in savings have already been found. The city-wide budget for 2011/12 was about $600m (*). The budget deficit was about $26m last July, and at that stage $90m in savings have already been found since the crash.  In terms of its size, its liabilities and the deficit it faces, Stockton is the equivalent of a fair-sized unitary authority in England.

Last Monday, which in the UK brought the unfortunate conjunction of Easter Monday and April Fool’s Day,  the City of Stockton’s application for bankruptcy was approved by a federal judge.   The judgement buys the city some time to negotiate with counter-parties to bring the debt down, although creditors concern is that, thus far, Stockton has not promised to do anything about the pensions debt. 

It’s a story that brings home the irony that Stockton City Hall is in North El Dorado Street.  

The tale is important in the US because, although Stockton is not, by a very long way, the only municipality ever to enter bankruptcy, in the current crisis it is the first in a line of similarly large authorities that could go the same way.   The issue is not without controversy. Has Stockton’s capital development programme been too large? Have employee benefits been too generous?  Should tax rates have been increased? The city says its citizens and employees have given enough, and its time for creditors to chip in.

US cities are much more exposed economically than their UK equivalents.  They are far more dependent upon local taxes, largely property taxes which have been hit hard by the credit crunch.  In the UK, authorities still get a large proportion of their funding direct from Government and are at least partially protected from economic factors. 

Ah, there’s the rub.  English local authorities might not be exposed as cruelly to taxbase changes as cities in the US,  but government grants have been reduced over time on a similar scale.   The difference is that in the UK this has been a managed process, not dependent upon the overnight impact of economic downturn on local economies but fed through over time and – although I know some will disagree with this - distributed more or less evenly across the country.

But it is also the case that changes in the way English authorities are funded will make authorities much more reliant on tax income in future.  The Business Rates Retention and New Homes Bonus systems both take us in that direction.  Unchecked, the system will gradually make authorities whose local economies are growing richer relative to all the others and it remains to be seen the extent to which the regular resets of the business rates scheme addresses this issue.  

This is not necessarily bad news for English authorities.  We have lobbied for many years for more fiscal autonomy and that long-term aim shouldn’t change just because current economic forces are against us.  We need to bear in mind that more financial freedom comes with responsibilities as well as powers and anything that encourages better financial governance is good news in my view, never more so than when finances are tight. 

The way in which the change of emphasis from government funding to local tax is significant. At the moment, the government seems to want to hand the risks down to local government but keep a lot of the powers for itself.  The benefits and risks of both business rates and council taxbases rest largely with local authorities, but the government retains substantial control over setting the rates of tax for each.  In the case of business rates it sets the rate itself; in the case of council tax it does everything it can legally and politically to restrain local increases.

This is important because the way we manage our liabilities in local government in this country relies on the idea that local authorities have tax raising powers but that the Government is the lender of last resort.  It’s a finely balanced system in which we treat local authorities as kind-of financially independent and kind-of supported by the government.  Were this not the case, actuaries would have to take a different view when it came to the time they allow to recover those pension fund deficits. It is a typically British compromise that kind-of works, but could easily be disrupted. 

So we do need to think about a ‘whole system’ approach to financial reform.  At the moment, as far as I can see, there is no formal system of bankruptcy that applies to local authorities in England.  If a local authority fails – and it’s supposed to be prevented from happening by various checks and balances – then the current system allows the Secretary of State to intervene under the ‘best value’ provisions.   The trouble is this is a blunt edged threat.  The Secretary of State cannot intervene too readily because, while intervention might solve a governance problem, it doesn’t directly address the political and financial issues.  It is question either of the Council sorting out the problem itself or the Secretary of State doing it. No Minister is going to be too eager to take that one on. 

The approach to constitutional matters in this country has always tended to be to make things up as we go along.  At the moment there are no English local authorities saying they face immediate insolvency unless they can renegotiate their debt or liquidate some of their assets, so there is no immediate problem to solve.  The question arises if the 'kind-of this and kind-of that' system breaks down and other agencies start to take a harsher approach to the future financial viability of authorities.  In the longer run, perhaps we will need some clarity – as in the US- over what happens when an English authority gets itself in a pickle.

(*) The current exchange rate is about 2 pounds Sterling to every 3 US dollars. 

The Chancellor's Budget; why bother?

In the lead up and the immediate aftermath, there was a lot of talk about whether the annual set-piece Budget statement by the Chancellor should be scrapped.  The argument is that it destabilises the economy, encourages speculation and is never the Government’s finest hour in terms of attempts to spin.

There would be something in this were it not for the fact that much of what was in the Budget this time had already been pre-announced in one form or another.  The main exception was the Help to Buy scheme, which was such a rabbit out of the hat that it seems to have surprised quite a few Government Ministers, including the Chancellor, who found themselves unable to explain it in detail.

If the rush to meet the deadline for the Budget has led to poor policy-making (a pasty, anyone?), then that is probably the best reason of all not to have it, but as far as the rest of the Budget Statement was concerned, one gets the impression that those commentators calling for its demise were probably speaking more out of ennui than anything else.

But there is a good reason to have a annual Budget Statement from the Chancellor and it is to do with a couple of things we seem not to give enough attention to these days; accountability and governance.  Our public finances are built on the back of an agreement between the Government and taxpayers and it is important that Government sets out, at least once a year, how it intends to change the terms of that contract.

Politicians of all stripes have had quite a lot to say recently about the moral issues in the tax system – it is our moral duty to pay our taxes and Government’s moral duty not to overtax.  With all that moral high ground being fought over, why then should the Chancellor not take a measured moment to set out clearly and simply for us all how he wants things to change?  The hoo-hah is the price we pay for getting this important policy debate out in the open and properly aired. 

As taxpayers we adopt a number of different relationships with Government, each of which is complex in its own right and overlaps and entwines within itself.      

The Taxpayer as Consumer is happy to pay his taxes as long as he gets something in return;  we want our bins collected and our streets cleaned, hospitals to be ready to receive us when we are ill and the police and fire service to turn up in an emergency.  It might not always be a pound for pound exchange of value, but the important part of the contract is that it is something for the money.

The Taxpayer as Benefactor recognises that there are people less fortunate than herself, and while we also get some comfort from living in a society in which we know we will be looked after if we fall on hard times ourselves, we don’t necessarily support care for people with physical or learning difficulties, or support overseas aid because we can see ourselves needing the same one day.  We do it because that is the kind of society we want to live in.

The Taxpayer as Citizen pays taxes to get the benefits of living in a free society, relatively safe from harm and to project the interests of the community or the nation state more generally outside its borders.  The benefits are less tangible, but this part of the contract is no less important; because it supports the rule of law it is probably the part that gives us confidence that the rest of the contract will be honoured.

The final relationship, the Taxpayer as Investor is perhaps the one that has tended to receive least attention over recent decades. In the Nineteenth Century, when our infrastructure was being built, there was constant tension between people who wanted sanitation and lighting in our cities and those who wanted cheap rates.  Recently things have been more ambiguous; the Private Finance Initiative usually seemed to be more about the Taxpayer as Consumer than the Taxpayer as Investor, although in fact it was about both.  

But it is to the Taxpayer as Investor that the Chancellor is seeking to appeal with the Help to Buy Scheme.  As he said during the budget statement;

“Because it’s a financial transaction, with the taxpayer making an investment and getting a return, it won’t hit our deficit”.

OK, so at one level perhaps this is a bit of political flummery designed to put across the message that the scheme has no whiff of Plan B about it, and to lance the accusation that it might actually make the deficit worse. The inference that there is no long-term cost to this scheme – in fact an implied benefit- may not be right. You have to ask if it’s such a great investment, why isn’t the private sector already doing it?

But more importantly it is asking the UK taxpayer to see things slightly differently in our relationship with the Government.  Given that the Budget also included announcements of further cuts and benefit changes, this is asking us all to see ourselves less as consumers and benefactors and more as investors in the UK's future, putting our money at risk to help boost the economy. Others better qualified have commented on the pros and cons of this particular approach, but there it is nevertheless, in the Chancellor’s own words.

The Government’s contract with the taxpayer is important if we want people to have faith in the public finance system and be more or less happy to keep paying.  We have seen what can happen in countries where a culture of tax avoidance is more prevalent than it is here.  If the Chancellor of the Exchequer in the UK has one role, it is to ensure that taxpayers can have ultimate faith in the way the public finances are governed. Is it not important that we get a chance once a year to hear from the Chancellor’s own lips and in summary his thoughts on such matters? 

Scotland the brave

I have spent the last few days in Scotland, where on Wednesday First Minister Alex Salmond announced the date of the independence referendum; 18^th September 2014.   The main reaction seems to have been a certain resignation and weariness at the idea of a 546 day campaign, which some seem to feel has been cynically designed by the SNP to bore those least fervent for separation  into a state of torpor. 

As a visitor, Scotland certainly does not appear to be a country bursting with revolutionary fervour.  Admittedly the friends I spoke to may not be typical Scottish voters- as business people they are mainly concerned that they will still have access to the much bigger and more lucrative markets of England and the rest of Europe if the accident of independence should come to pass. It underlines how important it is for the SNP to be able to confirm that an independent Scotland would lose none of its economic leverage and would be, for example, a member of the EU.

Fortunately, the question of whether Scotland should be independent or not is not one in which I will have a say, which is lucky because if I was Scottish and living in Scotland, I am really not sure how I would vote.

As a local government man, I have great sympathy for any people wanting to make their own decisions locally.  In the case of Scotland, the political culture has always been distinctive and, if anything, has grown apart from the rest of the UK over recent years.  The Conservative Party, which has spent most of the last hundred years governing the UK, now barely exists in Scotland.  According to one theory, the long, slow death of Toryism in Scotland dates back to the formal merger of the Scottish Unionist party with the Conservative Party in 1965, which is seen as the moment when Scottish Conservatism lost its soul and became simply a branch of a tree with its roots in London.  It was an historic mistake, which the party might well want to dwell upon before it reacts to criticism from Conservative local government leaders on the subject of cuts.

One Scottish friend has a theory that David Cameron will deliberately undermine the unionist campaign because he realises that getting a Conservative majority in a UK without Scotland will be a lot easier than it is now.   Perhaps, but to me that under estimates the visceral adherence to the union that lurks in the hearts of many Tories, and also ignores the fact that Cameron himself is of Scottish descent.   For Machiavellians, you might equally argue that it would be in the interests of the SNP to undermine their own campaign, because who in an independent Scotland would need the SNP?

Indeed there is also a strong thread of Unionism in Scottish politics. Lots of Scots describe themselves as being British, which you might argue is simply a fact of geography for mainland Scots – they won’t ceased to live in Britain just be leaving the UK – but actually underlines the fact that in three hundred years of political union and four hundred years of a shared monarchy, the Scots, the English and the Welsh have been through a lot together.    

It is disappointing that in a country which should have a strong grip on the importance of devolution and subsidiarity, the draft constitution currently circulating does not have more to say about the importance of local government to a strong, independent Scotland.  Bearing in mind that the adoption of a final constitution will have to wait until independence is declared,  I suspect that if I was Scottish that would weigh heavily upon me.  Would I be voting for a transfer of some last remaining powers from Westminster to Holyrood and no further?

Scottish practicality might yet be the factor that saves the union.  As another friend put it to me, the scale of what would need to be done in order to set up an independent Scotland are an enormous challenge and have not really been thought through.  There would need to be a cast-iron case for doing it as far as many Scots are concerned, not just a romantic ideal of an independent nation. At this moment in the history, with so many ifs and buts to be resolved around the economy, the future of public services, security and Scotland’s role in the greater Europe,  this may be the time when Scots say that in regard to independence we’ll get back to you later on that question.

Ultimately the union potentially means much more to Scotland than it does to England. There is no Union Street in central London, but there is one in Aberdeen, which I joked with a friend would have to be renamed Alex Salmond Boulevard  in the event of independence, and there is also one in Glasgow,  which it easier to imagine being reborn as Donald Dewar Street.   A real son of Glasgow. Dewar’s image seems to be everywhere in that city, which, it must be remembered represents about half the nation’s population.  It might be significant in the end that Donald Dewar, currently regarded at least in Glasgow as the true father of the nation, apparently always opposed independence.

The case for central government

Next week the Chancellor George Osborne will stand once again before the House of Commons and tell us our national fortune.   For local government folk, it is rarely any use listening to the actual speech; the message will be buried in the thousands of pages of accompanying material which, fortunately, is readily available these days on the internet.   If the Chancellor follows recent practice, then deep amongst the numbers will be more bad news for local government – we will be asked once again to find more than our fair share of the deficit reduction.

Of course central government always behaves as if local government is a tool that is at its disposal.  Constitutionally that is indeed the position; local authorities exist at the behest of Parliament and the party that controls Parliament therefore controls local government. Constitutionally, local government people have been arguing for a long time, the UK hasn’t got it quite right. 

Draw back from the question of governmental structure and think about what local government is about.   Walk to the railway station or drive to the shops and the public services you encounter are almost all provided by local government.   On my fifteen minute walk to the shops I see roads, street lighting, traffic signage,  a library, a fire station, a civic theatre and what used to be called a bottle bank.   I also pass a GP’s surgery, which is nominally a service provided by central government, but only through carefully constructed local arrangements, and a few bus stops, which belong to a service ostensibly privatised in my part of the country but in fact quite generously subsidised by local government. 

The point is that, when it comes down to the services that affect people’s everyday lives, all government is local. In fact the existence of national and global regional government comes from a recognition that there are some things communities cannot readily do locally rather than the other way around.  Back in the days when nation states were being founded, we needed a bunch of rich guys on horses to defend us from attack.  The one in charge- the guy with the biggest horse and the shiniest helmet-  had the money to pay lots of soldiers and raise an army, and what he couldn’t pay for himself he bullied others into paying for instead.   We called him king.

In the meantime, most of us peasants went about our lives without ever clapping eyes on the king, unless it was as a vague shiny presence that day he turned up and told us all to take our pitchfork off down the road and stick it into the first Scotsman or Frenchman we came across.  We were familiar with the courts leet and the hundred, which sorted out little local difficulties and we met amongst ourselves to deal with issues concerning the commons. We got on with it, as we continue to do to this day. 

All government began local, and at the end of the time, when George Osborne’s successors have finished with us, the last vestiges of government will also be local.  In the meantime, we let central government live on in that hazy misconception that somehow they are in charge.

Nevertheless, I think we can let central government carry on for a bit; there are still useful things it can do. 

Central government is in a good place to put frameworks in place to tackle wicked issues across a range of different interventions and involving a lot of agencies. Local government, however, is vital because it can hold the ring at local level for a great deal of the actually delivery and it can oversee how agencies work together in localities to make a difference to individuals, families and local communities.

There is no need for central government to try and reach down into every local detail in order to deliver policy, because local government is already in place to do that.   Central government needs to see local government as partners in delivering outcomes and as a valuable resource in the battle for public service reform and service improvement.

If central government is accountable to populations in a ‘top-down’ way, local government is accountable ‘bottom-up’.  The trick, which we have never quite mastered is to make sure these two forms of accountability mesh satisfactorily in the middle.

It remains to be seen whether the government continues its renovation of the economy next week by continuing to hack away at its local foundations.  If it does, it will be because central government does not understand what it would lose if it lost strong, accountable, innovative local government.  It's up to us, local government people, to make the case. 

When is an incentive not an incentive?

The Council Tax Freeze Grant is simple as Government grants go; agree not to increase Council Tax and the Government gives an authority the equivalent of a 2% increase in cash.   What could be easier?

Why then is it reported that at least 40% of authorities in England and Wales are not taking up the offer this year?   There are probably a number of reasons.

The first and most obvious is that the grant offer is time-limited but the Council Tax Freeze has an ongoing effect, so the deal has never been a ‘no-brainer’  as far as authorities are concerned.   But that has always been the case with this grant scheme. In spite of the obvious flaw, in the first year of the grant virtually every authority took advantage and last year around 90% did so.  

Secondly, you can point to the difference between this year’s scheme and last year’s much more popular offer.   In 2012, the Government gave a one year grant equivalent to a 2% rise in Council Tax and was criticised for not making it more permanent.   This year they appear to have tried a psychological trick.  The grant is equivalent to a 1% rise but lasts for two years.  In other words, exactly the same amount of grant but spread over a longer period.   The trick hasn’t worked.

The reason is that there are two ways of looking at this year’s offer, neither of which make it look attractive. 

One way to look at it is as a 2% offer spread over two years. The problem is that we all know it can be better to have a smaller sum of money now than a larger one in the future.  Something very like this is embedded in human psychology;  every child knows that a bird in the hand is worth two in the bush.   Any offer that looks likes pain today and jam tomorrow is therefore peddling uphill.  

To many, though, the second year’s grant is not a big enough incentive to keep the Council Tax down this year because next year there will be another Council Tax setting process and another decision.   The second year’s grant is factored into the 2014/15 forecast and therefore relates to next year’s decision, not this year’s.    

Thirdly, and most interestingly, as the financial climate for local authorities gets increasingly difficult and savings become harder to find,  more authorities seem to be making the choice in favour of tax increases rather than further cuts.. Authorities are probably also thinking about the Chancellor’s announcement that austerity will continue on the same trajectory until 2018 and considering the need not to close off too many financial options,  educating their communities (and the Government) that tax rises might be necessary if services are to be preserved.

This is something that George Osborne might want to note.  Local authority members are pretty close to their communities, and the growing failure of Council Tax Freeze Grant may be an early sign that the public’s views about tax increases as against spending cuts may be starting to change.  

A tale of two sustainable Cities

Today Bradford City and Swansea City meet at Wembley in one of those rare and romantic sporting occasions on which the underdog is bound to win.  Neither club has a glamorous name or a trophy-rich history, but each has built up a deserved reputation for financial sustainability, especially Swansea, which has matched its fiscal rectitude with more than the usual degree of success.

Football and local government have a lot in common.  Both are businesses in which there is an imperative for quick success and where the current year or two often seems to looms much larger in planning than the next ten.   Both are largely driven by cash expenditure and income while long-term investment can be a bit of an after-thought.

The National Audit Office’s recent report ‘Financial sustainability of local authorities’ is the central government watchdog’s contribution to the West Somerset Question. West Somerset, it will be recalled, is the tiny District Council which was the first to admit that it might not have a future if funding cuts go much further.  It is an episode that has left many in local government asking who is next?

The NAO is in a difficult position when it talks about local government.  It is responsible for auditing the distribution of grants to local authorities but doesn’t have a role in what happens when the money reaches local level: that was the job of the Audit Commission, of blessed memory.   As such, the report is understandably limited in scope but nevertheless it is an interesting and worthwhile bit of number crunching which ends up exhorting the DCLG (if I can paraphrase) to have a little bit more thought before it acts.

What the report doesn’t contain, to my surprise, is a definition of financial sustainability.  To fill the gap, here then are my suggestions for five defining factors. 

1.            Where are we?

It helps to start from a good place.  The strength of the balance sheet, and in particular for the medium term the level of reserves is a signal of how well set up an authority is to suffer the slings and arrows of the next Spending Review.   Authorities also need to understand what their costs are and how these are affected by events.

2.            What happening? 

The external environment is also important.  There are many strands to this but a key one is the growing gap between those authorities where the local taxbases are growing (which is rewarded under the new system) and those where it isn’t (which is punished in relative terms).  The other side of the equation is the demographic time bomb as exemplified by the Government maligned Graph of Doom.   There is a limited amount local authorities can do to alter these trends, and nothing at all in the short to medium term. 

3.            How do we know?

It is necessary for every organisation to have a good early warning system.  The obvious manifestation of this is good information management- not just a good financial information system but people who know how to turn data into knowledge.   Good governance is also an aspect, reflected in transparency and trust: if decisions are made behind closed doors on the basis of no business case, the chances that one will turn bad are that much higher.

4.            What do we do?

Planning, in a word, is the key.  Knowledge of where we are and what is happening out there is one thing, but a sustainable authority needs to have a sense of how it will respond. That involves everything from a vision of where we want to be, the route we will take, the ‘business architecture’ we will need to make it happen and the detailed plans that will get us there.   To be truly sustainable an authority needs to have its eyes on the short term, the medium term and the long term simultaneously.  Not easy; order the special glasses.

5.            How do we make it happen?  

Finally, financial leadership will be the difference between authorities that look sustainable on paper and those that are still actually thriving in ten years time.   In local government we look to elected members for leadership but in difficult times Members look increasingly to officers too.  The reality is that everyone, from the leader to the most junior manager with a budget, needs to understand the problem, the solution and what it takes to move forward, and act every day in the interests of delivering that outcome.

I think there are two lessons from this; firstly, number crunching is not the whole of the answer, but what you do with those numbers is just as important; secondly,  whilst the Government can make things a whole lot worse by getting  the distribution of grants wrong, a big part of the outcome rests with local authorities themselves.  The Local Government Association’s sector-led improvement programme will have a big role to play,  but for most authorities – those not doomed by their circumstances – the path to survival and being in good shape once they have survived will depend upon what they do. 

As to whether financial sustainability should be put ahead of short term success, local government may want to have a word with the supporters of Portsmouth and Glasgow Rangers about that. 

They won't let us, so we'll find another way

As local authorities set their budgets in the next few days, many will be mulling over the Government’s offer to provide a temporary grant to cover two years worth of a 1% Council Tax increase, the latest manifestation of the Council Tax Freeze Grant which I have written about on this blog before.

If the Council Tax Freeze grant is the carrot, the stick is the legislative blunt instrument that requires any authority pondering a Council Tax increase of 2% or more to put the matter to local referendum.  There is a wealth of legislation and guidance setting out how the figures need to be calculated, how the ballot should be conducted, the question to be asked and so on.

It should not come as a surprise that Governments like to keep control over matters for which ultimately they will be held responsible. For all the localist rhetoric, it is interesting the extent to which our current Government’s relationship with the doctrine of localism harks back to the Victorian era.  Localists also need to learn lessons from the Nineteenth Century.

It was the Victorians, remember, who invented modern local government, from the 1835 Municipal Corporations Act (OK, pedants, that was two years before Victoria came to the throne)  to the Local Government Act 1894.  All the features of modern local government and the way it is governed from the centre came into being in that sixty year period, which was typified by ongoing debate about the extent to which local government should be independent of Government.

Even the simple idea of local decision making by centrally imposed ballot has its parallels.  Take the Public Libraries Act of 1850, the first piece of legislation that empowered local authorities to set up public libraries in the UK.  To those who live with the idea that the Victorian era was a golden age of localism, a look at the details of this particular piece of legislation provides a palliative.

The legislation was restricted to places of ten thousand inhabitants or more, limited expenditure to the product of a ha’penny rate and, bizarrely, forbade spending on the provision of books, which consequently had to be donated.   Moreover, a public library could only be provided in an area if a two-thirds majority of ratepayers agreed to it at a public meeting.  Despite this desperate attempt by some Parliamentarians to prevent the rise of the public library, twenty five towns subsequently set up libraries under the Act until it was replaced with a more enabling piece of legislation in 1855, testament to local government’s capacity for getting things done irrespective of the hurdles.

The main debate in 1850, as it always should be in matters of public expenditure, was about the balance between cost and utility.  As Colonel Chatterton, MP for Cork put it in the debate for the Third Reading;  “Though professedly for the amusement and instruction of the working classes of the people, (the Bill’s) real object now turns out to be actual, permanent, and forced taxation. …. I object to it, as it would not be of the slightest benefit in the city I have the honour to represent; for it cannot be imagined that a peasant, fatigued after his daily toil, could be so impressed with the love of literature, or the study of the antique, as to set off, even under the influence of a bright summer evening, to walk six or seven miles to improve his mind, and then walk back to ponder over and digest what he had seen and heard”.

Colonel Chatterton lost out, and in due course local authorities gained the right to set up libraries without strings, even to buy books, with the all the benefits that subsequently brought to the peasantry during the Nineteenth and Twentieth Centuries.

The degree to which Parliament and government will be prepared to enable local authorities will always be severely curtailed.  The power of general competence enacted last year only provides for local authorities to do things that are not otherwise prohibited, and central government through Parliament retains final control over what local authorities can and cannot do.    We live with the legacy of the way local government was formally established in this country during the Victorian age, arguably with the aftermath of a thousand years of growing central control, and continue to have the same debate.

The response in the Victorian era was often for civic leaders to take the limited powers they had been given and put them to good use, by degrees convincing Parliament that it was in its interests to allow local authorities to invest in localities and provide services for citizens.  The lesson should be learned by our local government leaders today, even in these seriously curtailed circumstances. It isn’t just Parliament that stands in the way at the moment, but the reality of economic circumstances.   A constitutional settlement for local government is a laudable aim, but it is not about to happen;  responsible, innovative and creative local  leadership may just convince central government that more trust in local democracy may be just what is needed.

The Jenga approach carries public services to the edge of collapse

The first instinct of many local authorities to cuts has been to adopt the Jenga Principle to reduce costs.   The problem is this is not a sustainable solution.

Many people will be familiar with the game of Jenga ®.   Fifty or so wooden blocks are stacked into a tower and the idea is to withdraw the blocks one at a time without the tower falling over. It sounds simple, but it is surprisingly compelling.   The game works because wooden blocks, even if they are engineered to be the same size, are all slightly different, so when they are built into a tower there are always some that are loose, and others that bear the weight of the tower.   

The critical thing is that as the game progresses the centre of gravity of the tower changes, so a block that was loose a couple of turns ago, and was consequently withdrawn, might later turn out to have been crucial to maintaining the integrity of the tower as it’s weight shifts and ….whoops! Game over.  

And in case the boys and girls at Jenga get cross with me for using their registered trademark to make a point, let me just say that the game is enormous fun for players of all ages.

There is a useful analogy here for the way organisations behave when cutting costs.   The temptation is to go for the easy targets- the loose bricks.   In our latest round of public sector cuts, deleting the posts of senior and middle managers has been a common recourse, as has doing away with temporary workers and cutting back office functions in general.     Voluntary redundancy is another Jenga Principle stalwart, especially in the public sector where we tend to pride ourselves on workforce-friendly employment practices and don't like telling people they are not needed. 

There is nothing wrong with this approach up to a point, but there are clearly limits to the extent to which it can work.  In the real world situation, just as in Jenga, it isn’t possible to say with certainty when the tower is going to collapse for want of a crucial piece. At times, an external influence can precipitate a collapse; say, when someone puts their drink down heavily on the table. 

As time goes by, however, it does become increasingly evident that the organisation/ tower is not as resilient as it once was.   As the game progresses, players become more risk averse, taking much longer over their moves,  prodding the tower gently to see what happens, desperately looking for the next ‘easy win’.  These tactics are fine in Jenga but it is exactly the wrong thing to be doing inside an organisation, because in times of change risk management is called for not risk aversion, innovation not more of the same.

Authorities that have done the Jenga Principle to death need to identify the risk and move on.   The mistake, of course, in carrying the Jenga approach too far is to assume that the organisation needs to stay the same shape but with fewer blocks in it.  The alternative approach is to rebuild the tower using fewer bricks.    In practice this means rethinking the way we delivering services and redesigning  service delivery and customer interfaces around more efficient models.  This can either be done as you go along or in one go, although the scope and complexity of local authority services I think tends to favour the incremental approach.   

This might be called the ‘Tower of Hanoi’ principle after the puzzle that requires the player to move the tower from one point to another in the fewest possible moves without putting a larger block on top of a smaller one.

One thing is certain. Whether organisations adopt the Jenga approach or the Tower of Hanoi principle, the next phase will be harder and more towers will be in danger of collapse.  It will take all the skill of public sector managers to prevent that happening. 

Government in a pickle over the financial message

One of this week’s more amusing media stories involved the response of the UK Statistics Authority (UKSA) to David Cameron’s gaffe when he told his audience in a party political broadcast that the Government was ‘paying down Britain’s debt’.

The public spending deficit – and hence the UK’s borrowing requirement - is still at historically high levels, so Britain’s debt, far from being ‘paid down’ is still climbing at an eye- wateringly unsustainable rate.

The UKSA received a request for clarification from the Labour Party after the broadcast and Chair Andrew Dilnot publicly wrote back to explain the difference between debt and deficit, copying in Downing Street for good measure. 

The PM’s words were especially surprising when you consider that actually the growing debt problem is something the Government should want people to know about, because it is the justification for the Government’s approach to the economy.   Having heard Cameron’s words people may have been entitled to ask, ‘So if debt is shrinking  then why austerity?’ Can’t we find money for more public spending out of all that debt interest we must be saving?’

It is highly unlikely that the Prime Minister would have deliberately misled in such a way because he was bound to get caught out.  Much more likely is that this is evidence of disorganisation at the heart of Government.  Who in the Prime Minister’s office should have more carefully proof read the copy?

For those of us who make our living in public finance,  however, this is not the first time we will have run across such confusion.

Take, for example, Secretary of State for Communities and Local Government Eric Pickles’ regular forays into the field of local government finance.   One of his common confusions is over the nature and role of Council reserves.  

He reportedly described a particular authority as having ‘£105 million in the bank’, meaning that it had reserves on its balance sheet of £105 million.   Now perhaps it takes a bit of expertise to know that these two things are not necessarily the same, but it is expertise that CLG does have if Pickles chooses to consult it.

Slightly more serious is Pickles serial confusion about the fact that it is sensible policy to keep reserves handy – in his terms ‘money in the bank’- when the cold winds of austerity and uncertainty are blowing.  Many thousands, perhaps millions, of householders have taken that view since the recession kicked in, which is why personal savings have grown over recent years despite the execrable rates of interest available.   

Even setting aside the need to manage risk, local authorities need to use their balances to manage downsizing on an unprecedented scale.  With budgets reducing by such large numbers you cannot necessary deliver savings  to balance off cuts in funding on a year by year basis.  Cuts may be applied one year while savings are delivered in another,and it is the reserves that provide the cushion.

But Pickles’ worst financial heterodoxy, that Council’s are ‘scaremongering’  when they talk about cuts while keeping hold of reserves, is about something that even a ten year old managing his pocket money can see through.  In order to keep spending on services – let say the amount is £1 million - you need to have the money this year, and then you need another £1m next year and another £1m the year after that, and so on. Spend your reserves now and you don’t have them to spend again.   Spending the reserves does no more than put off the inevitable, and does it in a way that leaves you seriously exposed if anything goes wrong.

But unless I appear to have a downer on politicians – heaven forbid – there is another group which not infrequently get the finances wrong and should know better.  The media.

Take the difference between funding and financing, which confuses journalists all the time.   A fairly clear example was the report that the government was thinking of allowing local authority pension funds to be used to ‘fund’ public infrastructure projects.  When talking about the Pension Fund the clue is in the title …. it funds pensions.   Of course, while it is sitting waiting to fund pensions, the cash is used to finance other investments for a return, some of which may include public infrastructure, who knows?   But just as reserves cannot be used twice, neither can the pension pot.

You may think this is just about a public finance professional getting grumpy about the misuse of terminology,  but confusion about finance is rife and the distinctions are important.  I don’t think politicians and the media are necessarily setting out to mislead people, but the slack use of terminology and the failure always to explain don’t help. And we also know that some of the World’s current economic ills are caused by spending money we didn’t have, so statements that suggest the use and reuse of the same money for different purposes is acceptable risk perpetuating an egregious error.   

Some politicians are better than others of course, and some journalists make it their business to be very precise and explain clearly the financial implications of stories.  Evan Davies of the BBC deserves honourable mention.   But when politicians and journalists make mistakes, experts in the public service, who are sometimes loathe to get involved in a political argument, do need to intervene more often and clarify.   More power to Andrew Dilnot’s elbow. 

If Osborne sticks to Plan A, Councils need a Plan B

George Osborne’s announcement in the Autumn Statement that Government spending cuts would continue at least until 2017/18 on the same trajectory as the Spending Review came as no surprise;  there were plenty of people who had been predicting an even longer freeze. 

The announcement brings the realisation that, even after budgets have been balanced for 2013/14  (and balancing the budget is not always the same as delivery) the budgets local authorities are setting right now probably take us less than half way through the squeeze.

From the start the problem has been one of increasing productivity.  It’s truism that if you want to continue to provide the same level of service with less resource, then resources need to be more productive.   The trick is to improve the efficiency of the process  - creating the services that people need – without affecting the efficiency of distribution- getting the services to the people who need them.

The first few years of austerity have brought cuts, of course, but probably to a lesser extent than we harbingers of doom would have predicted back in 2010.  To a surprising degree the job of downsizing in local authorities has been helped on its way so far by tackling the ‘local governmentitis’  of the Noughties, the extent of which was not clear until we started turning over stones looking for it. 

Everyone has their own favourite example but the manifestation of the disease that I am most pleased to see go is the mountain of 200 page glossy strategies-which-are-not-a-strategies, together with the armies of people who used to write them.    A favourite example is one I discovered on a park notice board in one of our major cities which said that if anyone wanted more information on the herbaceous borders they could apply to the Council for a copy of the ‘Floral Planting Strategy’.  

The result is that the majority of local authorities look pretty much the same now as they did in 2010, just a fair bit thinner.  For most local authorities, though, these opportunities have dried up and everyone who is left appears to be working very hard.  So now for the really hard bit.   

The issue that economists call allocation – which services is it necessary for us to provide- has a political aspect which is above Chubby Cat’s pay grade, but focusing on process and distribution there are two areas where there is still a lot of benefit to be gained.

One is making the core of the business work as efficiently and effectively as we can, and the second is redesigning services around better access channels.

A big part of the answer to the first is process reengineering- making sure that the essential workings of the organisation, which includes the administration of front-line services, works using processes which make best use of automation, avoid duplication and over-engineered controls, self-monitor quality to avoid rework and minimise hand-offs.

For example, most local authorities are still heavily departmentalised, and you understand the reason for that when you look at the scale and scope of what  local authorities do.  The trouble is that the size of the back-office team in a typical local government department can look reasonably small, until you multiply that number by the number of departments and realise that much of the time those people are liaising with others in similar jobs in other departments. 

It doesn’t come as a surprise that it is so difficult for local authorities to enter into shared service agreements with other authorities when some can barely manage to share processes across their own departments.

The other potential gain is in the customer interface, and again it requires systems and processed to be redesigned to accommodate better and well as cheaper access to services.  This has the advantage for politicians of being what many people actually want. Would anyone who has experienced internet, banking for example, now go back to queuing, or sending cheques through the post in preference?

There is enormous scope for efficiency in this sphere, and again departmentalism can be a blocker.  As a former colleague of mine points out, why does the parking department need you to prove that you live at your address when the Council Tax department is satisfied enough on that point to keep debiting your bank account every month?  My friend was particularly amazed that he needed to take a photocopy of his Council Tax bill to the parking people as proof of address.

Getting the core of the organisation right and remodelling the customer experience are two sides of the same coin. Both involve fundamental review and reform of the way services work. Many authorities are on this journey, but it isn’t easy.

As well as the skills and capacity to undertake work on this scale, a practised, independent eye is also required, which means that the choice of business support partners is vital.   We don’t need consultants who borrow your watch to tell you what time it is;  we need those who can help us take the watch apart and make it work better.

Local Government’s Plan A in response to Osborne’s A for Austerity has been to cut waste,  with more than a little success, and then too often to resort to the same old cheese-paring solutions used in the past.  To address ongoing austerity we need a new sense of realism and new skills. 

It was 50 years go today....

(Chubby Cat breaks new ground with this post to celebrate an important cultural anniversary.  I couldn’t let it pass)

Fifty years ago this month,  yet another new band hit the big time,  probably to burn brightly for a few months, a year or two if they were lucky, and then just become another golden oldie on the juke box.

The band were called the Beatles, and in January 1963 their second single, Please Please Me,  was released with some anticipation and fanfare, but with little hint that the world was watching the birth of a Twentieth Century cultural phenomenon.  For those who looked closely enough, though, there was enough there to suggest that maybe the Beatles were a bit different.

The Beatles first release had kicked around in the UK charts for a couple of months at the end of 1962, peaking just inside the Top 20.   A jaunty two-and-a-half chord number called ‘Love Me Do’,  it hadn’t exactly created a stir, but for a while it had refused to go away and it got the Beatles their first national recognition.  

Nevertheless, to have heard of the Beatles by the beginning of January 1963, you would probably have to have been a particularly keen follower of popular music or a music industry insider.  Despite this, the Beatles released Please Please Me with some optimism,  buoyed up perhaps by George Martin’s throw away remark at the end of the recording session the previous November; ‘Boys, you’ve just made your first Number 1’.   The fact is the Beatles always thought they were the best and that success was only a matter of time. 

The song itself was a step up in sophistication from Love Me Do, although there are lots of similarities musically and lyrically.  This is the point at which it might have looked as if the Beatles career would follow a formula;  the simple chord sequence, the catchy opening harmonica riff, the two part vocal harmony.  Even the lyric is again about a young man pleading with his lover. 

In Love Me Do it is a simple plea for affection (“Love, love me do. You know I love you. So please love me do”).   Listen to the lyrics carefully and you realise the song is about a boy on the prowl (“Someone to love. Somebody new”)  but otherwise it comes across as the kind of non-threatening  stuff that in 1962 you would be happy to have your teenage daughter listen to.

In Please Please Me,  the whole theme suddenly becomes more adult (“You know you never even try, girl. Please please me, like I please you”). According to Ian MacDonald,  Capitol records in the US wouldn’t release the record partly because they thought it was about fellatio- and you have to say that although the words aren’t explicit, they don’t provide  much room for ambiguity.

Please Please Me was also cleverly equipped with an ascending chord sequence that added extra drama to the insistent pleading (“Come on, come on, come on, come on”), something that Love Me Do never got round to.  There was also an exponential increase in the chord count.  Already in their second release, you could hear that the Beatles were on a musical journey. 

While we may now think of the Beatles early output as twee and unsophisticated, it never was the case.   The band had been professional musicians for a number of years (even George, who was still only a teenager in January 1963) and they had been exposed to everything that a life on the road, a growing band of adoring girl fans and three residencies in Hamburg’s red light district could offer.  That could hardly fail to come through in the songs, with the result that the band could appeal simultaneously both to teenagers and to a slightly older, more experienced audience and, crucially, to boys as well as to girls.

The Beatles ended 1962 by finishing up at the Star Club, Hamburg and then returning to Liverpool for more dates at the Cavern and a tour of small venues around Britain during January,- venues such as the Town Hall Ballroom, Whitchurch and the Assembly Hall, Mold,  with the nightly battle through one of the worst winters on record.  Please Please Me was their first single released in the US, where it made absolutely no impression at all.   As plans for world domination go, Brian Epstein’s was getting off to a slow start.

But something about the Beatles captured the imagination. There was nothing particularly ambitious about the songs- not at this stage - but they were clever and sounded fresh; nothing great about the band in terms of musicianship, but they were tight and far more energetic than a lot of  similar outfits;  nothing particularly prepossessing about the boys- the good looking one, the drummer,  had recently been dropped in favour of  a short bloke with a big nose- but they were charming and funny and the media liked them.   The package came together during the course of 1963 and by October the term ‘Beatlemania’ had been coined.

And it may be a cliche, but the rest, as they say, is history.