Good day bloggers

There is increasing media speculation about the amount of outsourcing of public sector services that will occur over the next few years as a means of delivering cuts to public expenditure. That’s not all that’s increasing mind you, as Serco (a giant amongst outsourced providers) has recently announced a 21.6% surge in profits, adding up to a very tasty £101.4m.

Serco’s Chief Executive, Chris Hyman, has gone on record to say he expects to make inroads into new public service areas not previously delivered by Serco including: education, welfare to work and prison services. Mr Hyman highlighted that only 15% of the available public service market has been outsourced - and resembling great white sharks in a feeding frenzy it seems a number of private sector providers are anticipating sinking their jaws into the other 85%.

Now I’m sure all of this is good news for the private sector and may help kick start their business…but clearly the private sector depends on profit-making for survival (see Michael Porter’s writings, Competitive Advantage and Value Chain)and that means making a profit from public services. That’s fine if those services can be provided at a considerably reduced rate than currently provided with no depreciation in service quality.

Cabinet Office Minister, Francis Maude,says he expects private sector service providers to curb their profit margins - but I’m not sure how in practice he’s actually going to regulate such profit-making. Serco is currently acting as an adviser to the Cabinet Office’s Efficiency and Reform Group to help identify where savings can be achieve in public sector services.

Whilst I’ve no doubt outsourcing will on occasions be the best business solution for the provision of public sector services, there is a danger of one trick pony thinking. Business options analysis is, in my opinion, key to taking sound, evidence-based judgements…and outsourcing isn’t always the best option, what with building in those profit margins.

I don’t think we should reject shared services, total place and good old business process re-engineering from those options just yet…do you?

Dean

Hello bloggers

The showing of the Channel 4 series ‘Undercover Boss’ on Thursday 22 July 2010 was impeccably timed by their TV scheduling team, as it followed neatly after recent Government announcements on public spending cuts and featured the London Borough of Tower Hamlets in East London.

The one-hour programme followed Tower Hamlets Chief Executive, Kevan Collins, as he got back to the floor and had to identify ways to reduce expenditure.

At this early point of viewing I braced myself for another media bashing of the so-called ‘useless’ Public Sector…however I was pleasantly surprised by the unbiased reporting from Channel 4 producers with Kevan Collins, Tower Hamlets and Local Government all coming across very positively. 

Kevan Collins, in my view, presents as a great leader, prepared to listen, and very much in touch with his employees (who are all hard working and dedicated) - even more importantly he genuinely cares about the people of his borough.

The challenges facing Kevan Collins and his staff at Tower Hamlets were vividly portrayed through cameos of work to support older people, homelessness, pest control and market trading - not to mention the daunting strategic fiscal and service delivery issues.

It was not a surprise, but a shame, that I read in the Daily Mirror the following day their reporters pouring cynicism on the production - suggesting the staff were not randomly selected but were all part of a stitch up to make Tower Hamlets ‘look good’.

Mind you, such was the accuracy of the Mirror’s reporting I noticed they had mis-spelt Kevan Collins’ name - I strongly suspect that wasn’t the only thing they were wrong about.

Dean

Hello Bloggers

Did you know the North-South divide phenomenon originates as early as the mid 1800’s…no…1 didn’t either?

It comes from gathering statistical evidence about socio-economic trends in the UK including, at it’s inception, variable rates in marriage (1841-1870) and the concentration of domestic servants in Victorian England.

Broadly the ‘Divide’ is an invisible diagonal line traversing the UK that typifies differences in the UK population including: the generally affluent South compared with the relatively deprived North, higher cost of living in the South compared with the North, and greater unemployment in the North compared with the South; amongst other things.

These observations can often be generalised and do not necessarily foster a spirit of national unity or inclusivity. Recent fiscal predictions concerning public sector retrenchment may widen the chasm, painting a deeper diagonal stripe across our green and pleasant land…a slash across the face of our nation.

Ironically named accountants UHY Hacker Young, project the reduction of public sector finance will be disproportionally loaded against our Northern cities and communities. For example, the predictions include Middlesbrough seeing reductions in public spend of 43%, Liverpool stands at 39% and Newcastle 38%. Compare this with London at 22%, Swindon 20% and Milton Keynes 19%.

Our Northern Communities also have a far higher proportion of the working populous employed in public service - often as much as 70%. Latest gross domestic product (GDP) outcomes offer encouragement with a healthy 1.1% increase in the last quarter, however we have yet to feel the full force of the cut backs in public spending, as well as the increase in the rate of VAT to 20%. Without sufficient and sustained economic growth (see previous blogs - The Beveridge Curve, It’s all about Equilibrium and NIESR headwinds), I have serious concern about the societal impact in our Northern Communities.

In these challenging times I believe we should all be pulling together and breaking down a latter-day Hadrian’s Wall…don’t you?

Dean

Hello blog viewers,

I return this week to the stuttering state of the UK economic recovery, and although GDP for the last quarter showed a better than expected 1.1% increase in UK productivity, I remain worried about the possible dent to consumer confidence with the VAT increase to 20% due next year.

I’ve banged on before in these blogs about the need to kick-start growth in the UK economy as there is much focus on cutting the public sector. Clearly cuts in public spending are already occurring and more are inevitable, but such cuts could place growth in jeopardy – especially as long-unemployment is rising and - in my view - will accelerate with approximate public sector job loss to be at least 600,000 by 2015 according to Office for Budget Responsibility figures.

Recent estimates from the National Institute of Economic and Social Research (NIESR) indicate that chill winds are still cooling our recovery. To illustrate this point a NIESR economic forecaster warns of, “…headwinds, as fiscal consolidation both in the UK and the eurozone restrict growth. There is clearly a risk that this rate of growth will not be maintained through the rest of the year.”

NIESR also caution “Growth prospects in advanced economies could suffer if overly severe or poorly planned fiscal consolidation stifles weak domestic demand,”

In my view much could be done at a federal and local level to stimulate UK economic growth by ensuring new jobs are generated and workforce skills are improved (see Beveridge Curve blog and my comments in Louisa Peacock’s article in the Daily Telegraph Business Section, page 10, Thursday 22 July 2010). A local investment cycle (stimulating growth, leading to gainful employment, reducing benefit burden and re-investing taxable contributions back into the economy) would see those nasty headwinds dying down.

Are you blown away by this argument, or am I just talking hot air?

Dean

My old mum used to say to me “you have to be cruel to be kind” – usually when administering iodine to a bloodied knee, or convincing me that swallowing cod-liver oil (or some other semi-noxious substance) really was good for my health.

The analogy of my formative years can roughly translate to the contemporaneous age of impending austerity - the public sector is poised on the brink of swallowing, what appears to be, some rather nasty medicine.

But, on reflection, my mum had a point - and the medicine actually did me some good. In the traditions of a SWOT analysis – the challenge ahead provides enormous opportunity, as well as threat.

Sir William Beveridge (see previous blog post - the Beveridge Curve) founder of the welfare state (The Beveridge report 1942) realised that his socio-economic model whilst addressing many societal problems also created another set of issues…in particular the creation of a dependency culture in people.

Sutton’s Chief Executive, Paul Martin, comments on this societal concern in MJ Magazine (page 13, 13 May 2010) in an article titled ‘Why independence is key’. Paul advocates the transformation of service delivery for vulnerable adults to promote independence and to redefine the social contract between the individual, family and state – making a shift to a ‘liberating’ relationship, rather than a ‘dependency’ relationship. It’s well worth a read.

Shifting embedded behaviour is not to be under-estimated in terms of the scale of effort required, whether in society or within organisations. Equally, reducing the UK’s deficit is also a daunting task. But the situation, by necessity (see previous blog post – Necessity the Mother of Invention) does provide the momentum for real change and the cuts, if managed well, could produce better outcomes for our citizens. Without this ‘necessity’ it’s arguable that we’d all carry on in the same old way.

Pass me the cod-liver oil…

Dean

When I refer to a Greek Tragedy I’m not talking Aeschylus, Sophocles, and Euripides and the March Dionysia - for the classically educated amongst this readership.

No, rather I’m referring to the straitened state of the contemporary Greek economy. You may recall I blogged a few weeks ago concerning the austerity measures in Ireland (When Irish Eyes Aren’t Smiling) taken by Finance Minister Brian Lenihan – who is tragically suffering from terminal cancer but is making superhuman efforts to straighten Irish finances in what appears to be a final act of courage and leadership; putting country before self. In this blog I compare two different approaches taken to repair respective economic wreckage.

Ireland and Greece are joined by two other European countries (Portugal and Spain) making up a rather unkind acronym these ailing economies have become known as amongst economists and journalists in equal measure – ‘PIGS’ (Portugal, Ireland, Greece and Spain).

Greece’s 2009 deficit reached a massive 13.6% of gross domestic product (GDP). Just in case you’re beginning to feel smug the UK deficit for 2009 (according to the Office for National Statistics - ONS) was £159.2 billion, equivalent to 11.4% of GDP.

Comparing Ireland and Greece however, there is a marked difference of approach. Ireland has severely tightened its belt – especially through diminution of wages and pensions – reducing 6.1m public sector workers’ income by an average of 15%. However, all of this has been achieved in Dublin without the strikes or riots we’ve witnessed, via the media, in Athens. Greece, by comparison, has just secured a three-year, £95 billion bail-out from eurozone finance ministers. Whilst Greece has, in effect, secured loan money from Europe to address the problem it resembles paying off debt through a gigantic credit card.

Despite the cash injection the Greek Government is also taking unpopular employment measures - increasing the retirement age for women from 60 to 65 and scrapping bonus wages for Greek public sector workers. President of the Greek GSEE union, Yannis Panagopoulos, has declared, “It’s time to step up the social battle” – in a modern-day parody of a Greek Tragedy.

Whilst I have trepidation about UK finances it’s clear all three main political parties appear to concur public spending has to be reduced. With news breaking that we have a hung Parliament (the first time since 1974) it will be fascinating to see how the UK economic condition will be dealt with. Cut or spend to save the economy – what’s your favoured approach?

Dean

Just when you thought there was a chilling post-Budget menace from Chancellor Alistair Darling’s cross-examination by the press concerning the anticipated level of public sector cuts (under media scrutiny he likened the level of retrenchment to that witnessed in Margaret Thatcher’s era), here’s an even cooler blast from across the Irish Sea to chill you to the marrow…

The ‘Celtic Tiger’ - a few years ago - was renowned for an unmatched economic joie de vivre, but the world recession has put paid to that. Like mainland Britain it seems to bail out the national debt the only option is to make savage cutbacks in the Irish public sector.

However - in events unparalleled in mainland Britain - Irish Finance Minister, Brian Lenihan, has reduced 6.1 million Irish public sector workers’ pay on average by up to 15% per annum - this has been achieved either through direct pay cuts, or forcing the Irish public sector workers to make significantly higher contributions to pensions where the Irish Government has withdrawn funding. In all Mr Lenihan has announced cuts in public sector spending of up to 4 billion euros. For more about this read an article by Henry McDonald (in Dublin) and Larry Elliot in the Guardian, Friday 11 December 2009, or Neil Tweedie of the Daily Telegraph, 29 March 2010.

Public servants, such as teachers, have been badly hit by the cuts. For example, the 31,000-strong Irish National Teachers’ Organisation says the average primary teacher’s salary of 60,000 Euros will be reduced by a fifth following a 6.5% pay cut, combined with two other cuts in pay last March and April. Sheila Nunan, the organisation’s incoming general secretary, said morale among Irish teachers was “the worst ever”, due to the Budget.

In Ireland these events have been compared to the British Winter of Discontent of 1979, when the Prime Minister, James Callaghan, attempted to hold a pay freeze to combat inflation.

However, strikes in Britain now seem to be beginning to build a head of steam - such as British Airways, Network Rail, as well as other public services including courts, job centres plus and the like, led by the public and commercial services union. So, things aren’t exactly plain sailing here either. But what would their reaction and yours, be to taking a 15% lop in your pay? Could this be a stark reality for the UK after the General Election…? 

What are your thoughts on this?

Dean