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Deficit reduction means less money for most government departments and, in turn, for the local services they fund. In four recent reports we have pointed to the consequences when central government departments decide on funding reductions without the understanding needed to ensure the sustainability of services and organisations. Looking across these reports we identify key […]


Local services: managing demand, money and quality

Posted on February 3, 2016 by

Local Authority fundingDeficit reduction means less money for most government departments and, in turn, for the local services they fund. In four recent reports we have pointed to the consequences when central government departments decide on funding reductions without the understanding needed to ensure the sustainability of services and organisations. Looking across these reports we identify key lessons for departments making funding decisions that impact locally.

So, what does this level of reduction do to the financial sustainability of individual organisations, of services or, indeed, of whole sectors? The NAO has reported on local government financial sustainability, police, further education and the NHS, in some sectors on several times. A common theme of our work is to point up the lack of understanding shown by the central government department which is doing the funding.

Local Authority fundingIn the case of local government, we said that the Department for Communities and Local Government (DCLG) had a limited understanding of the financial sustainability of local authorities and the extent to which they might be at risk of financial failure. The Department’s main indicator of the change to local authority income (revenue spending power) did not give it a measure of the scale of the financial challenge facing local authorities over time because not all funding streams were included. Nor had the department developed a way of showing the extent of funding reductions over more than one year at a time and the distributional effects of reductions were marked. Other department which fund local statutory services has not helped DCLG in SR13, which meant their decision were not fully informed about the impact of funding reductions on service levels.

On the reductions to police funding, the Home Office, we thought, had insufficient information to determine how much further it could reduce funding without degrading services, or when it may need to support individual forces. There was not enough information to identify signs of the sector being unable to deliver services, unclear links between financial reductions and service pressures, and limited data on police productivity. Not enough is known about demand on police services, either where it is coming from or how it might change and now that the police’s funding has been kept steady in the most recent spending review, knowing more about demand is critical to spending their resources well.

And in further education, the financial health of the sector has been declining since 2010-11 with an increasing number of colleges recording an operating deficit or rated as having ‘inadequate’ financial health. We found that the decline in the financial health of the sector had been quicker than indicated by colleges’ plans too and that BIS and the SFA needed to take a more strategic approach to the sector. In response, the government announced an 18-month programme of ‘area-based reviews’. The reviews will consider the pattern of supply and demand in every area of the country, and try to re-shape local further education provision accordingly.

Lastly, when we looked at the NHS, the deterioration in the financial position of trusts and foundation trusts had been severe and worse than expected. Acute trusts made fewer efficiencies in 2014-15 than in the previous and trusts have increasingly planned to make efficiencies that are unsustainable. The NHS new models of care aim to breakdown the boundaries between primary, hospital and community care, and integrate services around the needs of the patient but the redesigned models of healthcare are new and untested, and making savings through these will be challenging.

So, the key points we are making across these different examinations are:

  • Knowledge is key. Departments need to understand what the implications of their decisions to reduce funding are, including understanding the implication of how they are reducing funding.
  • Even under a devolved system, departments have a responsibility to understand when locally, services might be at risk of not being delivered.
  • And bringing these points together, government at all levels need to know the potential service effects, particularly on the most vulnerable and on future value for money.

Going forward, what is needed, given that there are further spending reductions until 2019-2020 and that the variability of impact is continuing?

Demand management in the future is critically important; the client base of public services needs to be reduced across many services and taking a multi sector approach too to offset the risk of simply shunting cost from one service to another. The Troubled Families programme is only the latest intervention to try and reduce the future call on services. Approaches which are proven to work are key and reshaping the provider landscape too will be necessary as looks to be happening in FE.

There is a need to switch from measuring the inputs to services (like for instance numbers of police constables or hospital beds) and outputs (numbers of people treated) to having outcomes for clients as the purpose of providing services. Setting outcomes is a complex business but the process of outcome based commissioning and working out measurability can and does identify waste, duplication and gaps in services.

Lastly, evidence-based service transformation with the service user at the centre should be the ultimate goal to ensure that those who depend on high quality public services can still rely on them. As we have said in our various reports, these new approaches are untested and using them to make spending reductions will be challenging, particularly across sector and institutional boundaries.

I welcome your comments and please don’t hesitate to contact me if you would like to discuss any local government issue.
Aileen Murphie

About the author: Aileen Murphie was appointed Director of DCLG & Local Government Value for Money at the NAO in July 2013. Since then Aileen has published reports to Parliament on the most important aspects of local government, including on the changing local economic growth landscape, Adult Social Care and the first NAO report to the local government sector under the Local Audit and Accountability Act 2014: Impact of funding Reductions on Local Government. She reported on the financial sustainability of local authorities during the first 5 years of austerity and her recent output Devolving responsibilities to cities in England: Wave 1 City Deals looks at the government’s first steps in devolving power and responsibility locally.

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2 responses to “Local services: managing demand, money and quality”

  1. Greg Mountain says:

    Aileen a masterpiece of understatement on the impact of Osborne’s economic illiteracy.
    I would like to know how we reconcile Demand Management with “free at point of delivery”. Will future studies identify where demand management works, particularly where equilibrium of supply and demand does not use price as a mechanism?
    Regards Greg

    • Aileen Murphie says:

      Thanks for your comment, Greg. As you may be aware, we have previously reported on The Impact of Funding Reductions on Local Authorities. Our future studies will continue to look at evidence regarding demand levels, including where actions to limit dependence on services (as for instance the emphasis in the Care Act on well-being and independence) have demonstrably resulted in lower demand. We would certainly want to pinpoint where demand is growing and what can be done about; as we did, for example, in our overview of Adult Social Care in England in 2014.
      Regards, Aileen

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