All roads eventually lead to staff

Councils may be set on efficiency measures, but any savings will come from one main source: eliminating jobs

By David Walker

If you have to go on a diet, Steve Bundred said at a recent seminar, “the best time is when you have been extremely well fed”. Gastroenterologists might argue with the Audit Commission’s chief executive but in town and county halls his point is taken. The credibility of recent talk about savings is all the greater because municipal cushions are well-padded.

Recently, talk about the savings “to come” has been colourful. Councils are being compared with Ryanair and easyJet, on the one hand, and with John Lewis and the Co-op on the other. All are meant to deliver services at lower cost.

Yet it feels as if we were are still in the period of phoney war. Tony Travers of the London School of Economics notes that councils are responding not to what ministers say will happen to jobs or grants – both government and opposition remain studiedly imprecise – but are making their own deductions from analysis by the Institute of Fiscal Studies and similar bodies.

Bundred says that we start from an extraordinarily high base, thanks to ten years of well-funded services. That makes the search for efficiency savings less onerous, at least in the short run. Councils (so the thought runs) have “overstocked”. Steven Greenhalgh, the outspoken leader of Hammersmith and Fulham, will lead his Conservatives into the borough elections in the Spring with compelling tales of efficiency savings. But other Tory leaders in London observe that it’s easier to let air out of the balloon when much air has been pumped into it over successive spending settlements.

Take assets. The Audit Commission surveyed councils and found some are not 100 per cent sure of what they actually own; others lack comprehensive lists of their buildings, let alone properties in their area owned by primary care trusts, schools and other public bodies.

But all roads eventually lead to staff. Councils recruited heavily in the boom years from 2001 to 2006, although staffing has been broadly stable for the past three years. The number to focus on is the 2,271,500 staff employed by England’s 410 councils in the third quarter of 2009, 1.8 million of them on permanent contracts. That headline figure is up 10,000 above the second half of 2008 (a 0.3 per cent increase) and not far off the 2006 peak.

Lively debate over the different ways councils should respond to budget constraints should not therefore obscure a basic sum. Most council spending goes on staff. To cut spending implies cutting staff. A rough rule of thumb is £31,000 for every council employee. To save 15 per cent of council spending (£12 billion) points to 370,000 bodies.

Of course some bodies cost more than others. Since the MPs’ expenses scandal broke, councillors have been bracing themselves for public anger and media witch-hunting to switch to local government. But it seems that council executives, rather than elected members, will face the flak.

In his big “reform” speech in early December, the Prime Minister accused top council officers of losing touch with reality. It’s not just Gordon Brown. Sir Gus O’Donnell, the head of the civil service, also has complained that council salaries have got out of hand.

But salaries are still a side show to the main event. Steve Freer, the head of the Chartered Institute of Public Finance and Accountancy, has quietly been urging the financial fraternity to plan for an overall reduction in council spending of 20 per cent over three to five years from 2011. Is this Armageddon? Perhaps the answer depends on whether it’s your job that disappears. Many are going to have to.

Essex County Council’s budgeted spend is about £800 million. That excludes ring-fenced grants for education that push its turnover up to £2.2 billion. The Conservative-controlled authority – led by Lord Hanningfield - is in negotiation with IBM over an outsourcing contract that could be worth nearly £5 billion-plus over an eight-year term. The council wants tighter procurement and asset management, but the deal would extend from back office to front-line social care and environmental services.

But how many fewer staff would IBM employ? The underlying question is whether big savings inevitably depend on cutting the cost of the workforce. Freezing pay and cutting pension contributions would go a little way down that road, but big money comes from deleting posts - though there is the little matter of redundancy payments to be considered.

Councils around the country, though principally the Tory-led, are looking through magnifying glasses at their accounts. Mike Freer, the leader of Barnet, blazed a public relations trail by grabbing the “Easy council” label, although no one is sure what a no-frills council would not do (since most spending is in response to statutory requirements). But Mr Freer won his headlines by thinking aloud about supplementary payments for quicker-access planning and payments for some of the functions suburbia now takes for granted, such as bin emptying.

Among the great white hopes for savings is Total Place which, unusually, is an initiative that is backed by all the parties. Now being piloted, it brings together in a single pot all the spending that goes into a given area, so eliminating the duplication between different parts of the local public sector. In his “smarter government” announcement early this month, Liam Byrne promised to unpick the skein of funding lines.

Total Place is a long overdue attempt to rationalise the “local state” whether or not it allows councils to realise their ambition and take over responsibility for services now provided, as they say it, by “unaccountable” primary care trusts and the like.

But the savings will come, of course, from eliminating jobs. Paradoxically it may have greatest impact in areas where the “local state” is most significant. The Core Cities group of councils, mainly in the north of England, have evidence of how dependent some areas now are on public employment. Rationalising across health, higher education, the Department of Work and Pensions and councils could – in places such as Blackburn or Newcastle upon Tyne (and, in the south Hastings and Cornwall) – have grave consequences for labour markets where the volume of private sector employment remains puny.

There is no mistaking the buzz of excitement as councils contemplate joint working with health and other services. Bold experiments are taking place in, for example, Dorset and Lincolnshire as councils pool back office functions or, as in Waltham Forest, they share top posts with the NHS. But important as this collaboration is, it is a long way from the jobs rationalisation implied by the need to make substantial cuts in aggregate public and council spending.

The “official” council line has been more cautious. Margaret Eaton, the Bradford Tory councillor who chairs the Local Government Association, presents a picture of councils responding pragmatically but tough-mindedly to “a perfect storm of falling income and increased demand for services brought about by the recession”. Its mettle will be tested by its response to demands from unions representing clerical and manual staff for more than a token increase in pay in 2010.

The Local Government Association emphasis is on councils doing what is necessary to “protect the frontline”.

“Despite the tough economic outlook, town halls are ensuring that as much money as possible is spent on the frontline services that millions of people depend on,” says Eaton.

The trouble is the frontline is not standing still. Moira Gibb, the chief executive of Camden, was supported by the Government when she reported on the need to transform social work. But the cost of her ambitious plans to improve training and qualifications will be borne from councils’ general revenues. Her report arrived within days of the Communities Secretary John Denham announcing less ring-fencing and greater freedom and flexibility for councils in spending grants. Will councils choose to push money to social work even if its means disproportion cuts elsewhere?

Jonathan Baume, general secretary of the FDA, which represents senior civil servants, says that in the end the only way to save significant amounts is by saying you are not going to do something. In this spirit Kent County Council says it is reviewing children’s centres and Barnet adult social care. Aside from the impact of service reductions on the public, the point is employment: sooner or later, cutting the cost of councils means slicing their payrolls.

8 December 2009

David Walker. Managing director, communications and public reporting at the Audit Commission. These are his own views.,