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.  

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. 

The public sector is built on moral foundations

With resources dwindling, the moral questions behind public spending and taxation have been thrown into sharp relief.   It must always be remembered that the post war consensus known of Butskellism, which has been a feature of most of Britain’s history over the last fifty or sixty years, was formed in an environment of relative prosperity.   As we move through a period of austerity the moral differences between left and right become more evident.

In the last couple of weeks, for example, we have heard the Public Accounts Committee talk about the morality of companies avoiding tax and, just last week, Chancellor George Osborne told Councils that putting up Council Tax is morally unacceptable.  The inference that all politicians who advocate the opposite position are therefore immoral represents a raising of the stakes in political rhetoric.  Will the next General Election campaign be about politicians trying to out-moralise each other?

This is an awkward one for public servants, who are supposed to be politically neutral.  Would George Osborne have me question my own morality before I advise politicians to put up taxes, or am I entitled to set the moral issues aside and think solely about the cash? 

With all that in mind perhaps public servants should be thinking more about the moral side to public provision and how we pay for it.  To help us, the psychologist Jonathan Haidt and his team believe they have discovered the foundations of human morality. Inherited from man’s earliest ancestors who lived for generation after generation in extended family groups,  these are the psychological traits that supported this way of life and are still the basis on which human cultures are built.

The six foundations, wickedly paraphrased for the sake of this blog, are;  care for others; a sense of fairness, a desire for liberty, group loyalty, respect for authority and a sense or purity or sanctity. 

Without going into too much detail (there is a great deal of good stuff on the internet for those who are interested),  genes that support these traits have survived in the gene pool because they help human beings work together and optimise survival rates.  Groups that didn’t look after each other, that turned in on themselves too easily and that weren’t competitive enough with their neighbours dies out.  Hence the moral foundations exist, Haidt believes, in every human population anywhere in the world.

Of course the moral foundations are only genetic tendencies, and like all other such tendencies, they are shaped and moulded by culture, religion, upbringing, experience and, last but not least, freedom of choice for the individual.  

This is important because, fairly evidently, there are moral dilemmas implicit in the moral foundations. Group loyalty and care for others, for example, works best when the people we are called upon to care for are inside the group.   A strong commitment to group loyalty also explains why we have a tendency to be antagonistic towards people different from ourselves, to a point that often descends into violence.   But going to war sooner or later kicks up the dilemma of when to stop trying to kill the other side and when to show mercy and compassion to the wounded and displaced.  Culture and religion attempt to solve these dilemmas and not surprisingly they are solved in different ways in different populations.

One of Haidt’s fascinating pieces of work around the moral foundations studied how people with different political views take different practical attitudes to the six moral foundations.  ‘Conservatives’  tend to have more respect for authority, greater group loyalty and a greater sense of what is pure than ‘liberals’,  for whom care for others and fairness tend to trump everything else.

But the implication of this is that the stuff of politics is not in the moral foundations of the human species, which are universal, but the way cultures and individuals interpret them.

It seems that pretty much everything the public sector spends money on, and hence for which we pay our taxes, appears to have a basis in one or more of the moral foundations.  Economists may justify public expenditure in terms of  such matters as market failure and the need for public goods, but these are not the kind of things people think about when they pay their taxes.   It is likely that the broad consensus we have over what things we are prepared to give up some of our earnings to pay for is based on some fundamental agreement amongst ourselves over what is morally right.

I am not yet sure what the implications for moral foundations theory might be for the public sector, but I am pretty sure that if the theory turns out to be true they are there to be found.  There has already been a piece of work designed to help charities use moral foundations to improve giving.

I will continue to permit myself a wry smile from the sidelines when I hear politicians talk about morality., but if this debate leads us all to give more consideration to moral questions then it won’t be a bad thing.

Merry Christmas to all my readers!