PwC’s Andy Ford on cuts, savings and demand management

Andy Ford is head of local government consultancy for PwC. He is Cifpa qualified and worked in local government for six years before joining a predecessor organisation to PwC in 1997. He co-wrote The (local) State We’re In, a report on councils’ financial future which interviewed chief executives, leaders and the public.

Room 151: What would you say are the key financial findings of your research?

Andy Ford: Well although local authorities are facing these significant challenges in terms of reduced government support in fact what the survey found was that the vast majority of them, virtually all of the councils we surveyed, had been able to achieve their savings targets last year relatively easily.

I think that was a surprise and certainly was at odds with what people were saying at the beginning of the year when some people were forecasting a much more difficult position. It is an interesting finding and has been borne out by more recent analysis since we completed the survey.

The second point to make is that for 2012-13 we expect the same position to occur again, the vast majority of people surveyed said they anticipated hitting their financial savings targets for the year. So steady as it goes is the message.

When you look beyond that, that is when councils are beginning to say they will meet significant challenges in continuing to meet financial savings targets and maintain balanced budgets. So the medium term is going to get very very serious. That has been emphasised by recent news on the state of the economy that we are in for a longer period of austerity and cuts to public services.

Room 151: Has all the ‘easy’ work in cuts and savings been done?

AF: If you look at where councils have made their savings so far a lot of it has been around renegotiating third party supplies, about squeezing efficiencies from back office operations, so a lot of it has been about being more efficient, largely targeting areas that are relatively ‘easy’ to address.

That’s one of the key messages. It’s not sustainable in the longer term, you won’t be able to squeeze the sponge forever in the hope that you can get ever-further savings out of it. At some point councils will have to rely on rather more dramatic things to hit financial savings targets.

Now that is where you get into more interesting things like managing demand and reducing demand from individuals and members of the public for services and trying to get into prevention of spending money in the first place rather than spending money on attacking the symptoms of need.

Room 151: You talk about changing volume requirements in procurement, is that related?

AF: Yes, it is demand management. It’s about saying we anticipate buying fewer beds for care homes in future because we are going to find other ways of delivering the service, so cutting back on demand as well as cutting back on how much you pay people in terms of rates for the services provided.

Most of the pressure in procurement so far has been about rates, and squeezing margins from third party suppliers, rather than cutting back on service per se.

Room 151: Analysis in your report suggests that ‘procurement moves away from being rules based and risk focused and instead drives commercial and business outcomes’. What do you mean by that?

AF: The question is ‘what do we want to see achieved?’ as opposed to ‘what is the service we provide?’. So if we want to have clean streets is that about providing more street sweeping? Or is it about engaging the public in a campaign which stops litter being dropped in the first place? So the outcome is better cleaner streets but how do we go about it? Is it necessarily about doing more of the same or is prevention a better approach?

Room 151: You found that Leaders remain more confident than chief executives that the public will support them. Finance heads are presumably similar in their attitudes to their chief executives?

AF: One of the things we wanted to do with this survey was understand where there were differences between chief execs and leaders and there were a number of areas where one group was more confident than the other. One which was really interesting was public attitudes toward how councils communicated. In the report we have a stat that says 75% of leaders of councils thought that the council did a good job of informing the public. That drops to 50% for the chief executives and when you ask the public only 25% actually believe the council has done a good job.

Finance directors in my experience are with the chief executives. They are much more guarded and conservative and anxious about the future than some of the more, perhaps, bullish politicians are.

Room 151: There is a big number, 50% of chief executives, who are worried about finding solutions for funding shortfall in-between now and April 2015.

AF: Yes and that holds up anecdotally. A lot of people can see where they can achieve some of the savings in the medium term but at the moment with a large number of the areas they are scratching their heads thinking ‘what do we do?’. It is a very real issue and that is why I think some of the more progressive councils have said well we can’t just be ever-more efficient, we have to be more imaginative about what we are there to do and about how we work with partner organisations. I think there will be a lot more innovation around trying to secure outcomes than there has been in the past.

Room 151: There is a suggestion from you that large councils aren’t going to see much benefit from sharing services. Why is that?

AF: The business case for entering into shared services is there but it is hard to make shared services succeed and the payback in terms of the amount of money you save and the period to secure that payback can quite often be unattractive. It’s not the panacea, it is part of the solution but it’s not the whole solution and when you have a short timescale or limited capacity to effect change it is one of the more problematic areas to get money out of.

So perversely, although there is often money there to be had it is, in reality, very difficult to secure the savings in the time required.

Room 151: Why are district councils the ones you think could benefit from shared services?

AF: District to district services tend to be less complicated, you can look to harmonise things like environment services. When you’re looking at much more complex social care services involving much larger corporations – which are typically the county services – then it becomes much more problematic. You do see where shared services have progressed and it has been largely at district council level. Some have moved significantly into services integration.

Room 151: How are councils doing on asset management and rationalisation?

AF: There is going to be more focus on that than there has been in the past. People are beginning to ask more fundamental questions about what are we here for? How do we go about achieving the right outcomes? They’ll be looking more to co-locate and so release redundant assets that they can get rid of. If you look at the footprint of a group of councils you often find they are duplicating activity.

It’s also about making more efficient use of things like libraries which can be community hubs where you can arrange for lots of other services to be delivered.

Room 151: How capable are councils at this point of getting to the position that they need to be in for 2015 and making all the extra savings and cuts?

AF: The sector has proven over many years a remarkable ability to demonstrate its efficiency. If you go back to the Gershon agenda which must be 10 years old Peter Gershon suggested lots of efficiencies and local government have delivered against them. The fact that in the first two years of this period of austerity it will have met its financial targets says to me that the sector has proven a remarkable agility and adeptness at handling this.

It will be tested though and I can’t recall in my career a set of challenges like this. In those circumstances the idea that 100% of councils will be able to see their way through this is ambitious. I wouldn’t be surprised if a number get into difficulties over the next few years.

Room 151: How does the role of the finance director pertain to all of this, how is their role changing.

AF: They are having to do two things which you could say they have always done, but now they are having to do a lot more. The first is thinking very strategically for the long term about the finances of the council. It’s no longer about balancing the books for this year and then worrying about next year when you get there. It’s looking at four, five years hence and being able to give politicians and other council employees the kind of information that aids decision making.

The other thing is being more innovative and making suggestions on how the council can handle financial challenges, so whether that is around income generation, shared services, cutting costs, they have to be more innovative and imaginative in coming forward with analysis and ideas. The old budgeting techniques aren’t strong enough to cope with the challenges ahead.