Steve Mason on dampening, rural economies and funding hits to the North

Steven Mason is corporate director of finance for Northumberland County Council. He has worked in local government for a decade having joined the old county council and then moved to the unitary. He was deputy finance director, finance director and chief executive in the health service in the North of England before that.

Room 151: Can you tell us about the plans that were reported for privatising council services?

Steven Mason: We’re not seeking to privatise services so much as going through a process of looking at all options with a member working group. At the minute we have a group consisting of councillors from all three main political parties and the independent group. They are basically trying to learn the lessons of what has been done elsewhere. They’ve had a couple of visits to other councils, some of whom have looked at outsourcing other services and some of whom have outsourced services and then brought them back in house.

Room 151: Do you have any idea of what figures you’re looking to save?

SM: We haven’t quantified what could be possible. We have re-done our financial plan looking at the next three years and our financial position overall is a lot more challenging because of the settlement that has just been announced by the government, particularly in respect to 2014/15.

We have a savings target in 2014/15 of between £30-35million, so we face quite a challenge, to be honest, in terms of addressing that. A lot of it is going to be more about internal review because obviously if we were looking to collaborate with other councils or other parts of the public or private sector it is likely to take longer in lead times than being able to identify savings.

Room 151: What sort of cut are you taking in this spending review period?

SM: If we’re looking at saving £83m over the next three years and our net budget, depending on how you calculate it, is about £300m, clearly that’s a significant proportion.

We are an authority that went through local government reorganisation in 2009 and so we have actually saved £102m since the new council was formed. Our target going forward then, is on top of the work that has already been done.

We’ve done a lot of internal efficiency reviews, we’ve looked at benchmarking information, we’ve restructured and had the benefit of bringing services together from different organisations and adopted best practice. All that means that there are very few easy options left.

Room 151: So you’re not looking to privatise services now?

SM: When we set up the member working group there was an idea about whether we formed a strategic partnership and there was initial work done around that but it was part of a broad remit to say that the financial challenges are so significant we need to consider all options. But some of the publicity around that wider review did initially focus on the potential for looking at services that might be part of a strategic partnership.

Room 151: Did you see anything that particularly appealed to you in your visits to other councils?

SM: It was more fact-finding really. South Tyneside have a strategic partnership with BT so members looked at that particularly in terms of how it was possible to create employment in the area. BT were awarded a contract and so they re-located some of their existing work into South Tyneside.

The group also went to East Riding and had an interesting debate over how they had approached timescales and the rationale over when things had run their course. They’d reached a decision that it would be better to bring things back in house. There are a lot of views depending on who you talk to and I think there are both good and bad examples. Our work was to look at what is possible.

Room 151: So what are you doing at the moment in terms of cost cutting?

SM: We have had this internal service review, managers have come in and talked through challenges and ideas. We’ve looked at cost-cutting initiatives across our group structure and had combinations of internal group targets.

From my deliberations with colleagues in other councils I think we are all looking at broadly similar areas and one of the things is do you look at the next three years and do it as a job lot or do you work your way through and do it on an annual basis? There are different pros and cons with the different ways organisations do it.

Room 151: You’re a SPARSE area. How does that affect finances?

SM: We did some work with SPARSE who were leading on this in terms of representation to the government and we did some work around the waste collection service on the grounds that it is a universal service: you either get your bin collected or you don’t. We looked at length of route and the additional costs associated with being a rural or super-rural area.

Now while the government amended the formula they effectively negated all of the potential benefit because of dampening. We don’t feel that the current funding formula adequately allows for the cost of service delivery in a rural area.

There was a bit of a fudge that the government have come up with, a one-off grant for next year, and we are getting £250,000 for next year. They have given out £8.5m nationally and confusingly have badged this for rural areas as an efficiency grant. It’s different to the efficiency grant being given to the seven councils who have had their reduction in spending power assessed as greater than 8.5%.

So for rural areas there is only £8.5m being given out nationally and we get this £250,000 for one year and to be honest it is meaningless at a macro level. It’s not going to make any difference to the overall position of the council. In terms of how they give it out they have some sort of inference that you can look at the efficiency of service delivery in rural areas but the underlying point is that the delivery of a number of services in rural areas is inherently more expensive.

Room 151: How is business rates retention going to work for you as a rural council?

SM: I think there are more downsides than anything in the business rates model for Northumberland. If you look at the area, the major employment is linked to the public sector: both ourselves and healthcare. With the budget challenges that we face the direct employment levels of the council are likely to fall. That will have a disproportionate impact on residents in Northumberland.

As for the private sector we have not got many large private sector employers. One of our biggest was Rio Tinto and that is closing. We’ll have a hit on business rates attached to that. The council here is always trying to regenerate the area and the government is saying that this business rates retention model will help to do that, but I think there is a danger that it will create a two-track approach where the more affluent areas become more affluent and the more deprived areas become more deprived.

There are a number of aspects about the strategy the government is following that seems to be applying differential targets to areas that I would argue potentially need more assistance. The North East, the North West and Yorkshire seem to be taking disproportionate hits in terms of grant funding compared with more affluent areas of the country.

I am surprised at how obvious it is when you look at the analysis. Even if you look at the funding formula the factor that relates to need has declined in relative terms, which must lead to a redistribution. Then in terms of Northumberland, even with all the challenges we face, under the model we are still losing about £6.5m in dampening. Some of that dampening is going to councils that are facing lower cuts than we are. From our point of view certain elements are nonsensical really.

At the minute what we are saying in terms of the budget report is that the council needs to take stock and put in place a new medium term financial plan which will cover the 2014-18 period. We do have elections in May so it is possible that the outcome of that may change some of the direction of the council. But with all councils the outlook is extremely challenging.